MANISHA VIKRANT SHAH,PUNE vs. INCOME TAX OFFICER WARD 12(1) PUNE, PUNE

The facts in brief are that the assessee is a partner in the firm M/s. Vikrant Enterprises. She filed e-return for AY 2017-18 on 26.07.2017 declaring income of Rs.1,59,280/-. It was processed u/s 143(1) of the Act. The case was selected for scrutiny under CASS to verify the large cash deposits. Statutory notice u/s 143(2) of the Act was issued on 28.09.2018 which was duly served upon the assessee. In response thereto, the assessee submitted details called for. It was noticed therefrom that the assessee had accepted Rs.50,00,000/- in cash on sale of immovable property as per the sale agreement dated 30.08.2016 during the relevant previous year from the purchaser, Shri Mahesh Nagesh Hanjagi in violation of provisions of section 269SS attracting penalty u/s 271D of the Act for which the Ld. AO sent information to the Ld. Additional Commissioner of Income Tax, Range-12, Pune (“Addl. CIT”) vide letter dated 06.11.2019 for further necessary action. The assessment was completed on income returned on 14.11.2019 u/s 143(3) of the Act.

Penalty initiation show cause notice was issued by the Ld. Add. CIT on 13.08.2021. The response of the assessee dated 27.01.2022 is reproduced by the Addl. CIT in para 4 of the penalty order. It is observed therefrom that the assessee stated therein that a house property situated at Solapur was sold on 30.08.2016 for Rs.50,00,000/-. The cost of acquisition was stated to be Rs.53,00,000/-. The property was acquired on 16.02.2016. There was short term capital loss of Rs.3,00,000/-. Name of the purchaser, his PAN and his complete address was given. The three cheques drawn on Saraswat Bank bearing Cheque No. 514842 for Rs.20,00,000/-; Cheque No. 514843 for Rs.20,00,000/- and Cheque No. 514844 for Rs.7,00,000/- were received from the purchaser for the said transaction. All the three cheques were deposited on 31.08.2016 into Saraswat Bank Account. However, due to signature mismatch, all the cheques were bounced. After that purchaser dispensed cash of Rs.47,00,000/- from the bank and deposited the same into Saraswat Bank Account of the assessee on 03.09.2016. Purchase Agreement and Saraswat Bank Passbook were enclosed therewith.

The above contention of the assessee was not acceptable to the Ld. Addl. CIT who imposed the impugned penalty observing that the assessee has no valid reason or explanation and that the penalty is levied since cash receipt exceeded Rs.20,000/-.

Aggrieved, the assessee filed appeal before the Ld. CIT(A). It was contended that the penalty is time barred as the penalty notice u/s 274 r.w.s. 271D of the Act was issued by the Ld. Addl. CIT on 31.08.2021. The penalty order should have been passed either before end of the Financial Year (“FY”) 2019-20 (the assessment order was completed on 14.11.2019 in the course of which action for imposition of penalty was initiated) or within six months (i.e. 28.02.2022) from the end of the month in which action for imposition of penalty is initiated (initiation show cause notice issued by Ld. Addl. CIT is 13.08.2021). However, the penalty was levied by the Ld. Addl. CIT on 15.03.2022 which is barred by limitation as provided u/s 275(1)(c) of the Act. Reliance was placed mainly on the decision of Hon’ble Bombay High Court in the case of CIT Vs. Chhajer Packaging and Plastics (P.) Ltd. (2007) 165 Taxman 109 (Bombay). Alternatively, it was contended that the assessee’s case falls under the provisions of section 273B of the Act. The Ld. CIT(A) rejected both the contentions and confirmed the impugned penalty relying on the decision of Hon’ble Kerala High Court in the case of Grihalakshmi Vision Vs. Addl. CIT (2015) 63 taxmann.com 196 (Kerala) and observing in para 14 of the appellate order taking support from certain decisions as under : “14. During the year, 'the appellant accepted cash of Rs.47 Lakhs and Rs.3 Lakh into her bank account on selling her property via brother (POA holder) of the purchaser sitting in USA. The appellant states that all the three cheques given by purchaser of property in USA got bounced due to signatures mismatch and hence, his brother dispensed cash and made payment in cash. The Branch Manager of Canara Bank, Chati Galli, Solapur, on one hand, is not permitting clearance of cheques due to signatures difference following banking laws but at the same time, as per appellant, he is ill-advising appellant to violate provisions of Income Tax Act & Rules. A banker is fully aware of consequences of making such huge cash payments for dealing in property transactions, is in clear violation of law. It would have taken upto 4 days only for getting fresh cheques but the appellant did not opt so. The appellant is an aware citizen and earned income under the head business or profession as a partner in M/s Vikrant Enterprises and cannot take the plea of ignorance of law.”

Dissatisfied, the assessee is in appeal before the Tribunal and all the grounds relate thereto.

The Ld. AR invited our attention to the assessment order wherein it was claimed by the assessee that she deposited the cash received on sale of immovable property in her bank accounts and offered it to tax. The Ld. AO accepted the transaction. During the penalty proceedings before the Ld. Addl. CIT, it was submitted that initially the sale proceeds were received by the assessee through cheques which were also deposited by her in bank account. But due to signature mismatch, the cheques got bounced. Thereafter, the purchaser gave cash from his bank account which the assessee deposited in her bank account. The Ld. AR therefore pleaded that acceptance of cash by the assessee is attributable to ‘reasonable cause’ and hence penalty is not leviable. Relying on the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Chhajer Packaging and Plastics (P.) Ltd. (supra), the Ld. AR submitted that the penalty has not been imposed within the prescribed period of limitation.

The Ld. DR supported the order of Ld. AO/Addl. CIT and submitted that the penalty is not time barred.

We have carefully considered the submissions of the parties and perused the records. Section 271D of the Act ordains that if a person takes or accepts any loan or deposit in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified sum so taken or accepted. The law also mandates that the said penalty shall be imposed by the Joint Commissioner of Income Tax. However, under the provisions of section 273B no penalty shall be impossible on the assessee u/s 271D if the assessee proves that there was reasonable cause therefor. A combined reading of the above provisions makes it clear that levy of penalty u/s 271D is not mandatory. It shall not be levied if the assessee proves the existence of reasonable cause. The plea of the assessee was that she is a lady who sold her immovable property to Mr. Mahesh Nagesh Hanjagi resident of USA i.e. non-resident. The transaction has been executed by his brother Pramod Nagesh Hanjangi resident of Solapur, an agriculturist by occupation and holder of power of attorney. Purchase Agreement and Bank Passbook were submitted during the penalty proceedings. Brother of the purchaser filed before the Ld. CIT(A) a sworn affidavit deposing therein purchase of property by his brother from the assessee for a consideration of Rs.50,00,000/- giving details of cheques (two cheques of Rs.20,00,000/- each and one cheque of Rs.7,00,000/-) drawn on Canara Bank, Chati Galli, Solapur and Rs.3,00,000/- cash paid on 30.08.2016. He further deposed that the said cheques were returned by Canara Bank uncleared which is evidenced by the Passobook produced during the penalty proceedings. It is stated that the assessee had already executed and registered the sale agreement and handed over peaceful possession of the property. The Canara Bank came to the rescue of the assessee and allowed the attorney holder to withdraw cash from the account of his brother. He did so and deposited the said cash into the bank account of the assessee in Saraswat Bank.

The Ld. AO/Addl. CIT both have given no credence to the above explanation of the assessee and brushed it aside for no cogent reason even though the assessee’s explanation is supported by the documentary evidence and sworn affidavit of the brother of the purchaser who holds power of attorney of the non-resident purchaser of the property. We are of the view that the assessee established the existence of reasonable cause for failure to comply with the provisions of section 269SS of the Act and therefore, the impugned penalty imposed u/s 271D is not sustainable.

Moreover, we find substance in the plea of assessee that the penalty is barred by limitation. The period of limitation has to be computed as per the provisions of section 275(1)(c) of the Act. The facts in this regard are not in dispute. The relevant assessment in the course of which action for imposition of penalty u/s 271D was initiated was completed on 14.11.2019 i.e. FY 2019-20. Therefore, as per the mandate of first half of Clause (c) the last date of FY 2019-20 that is 31.03.2020 is the outer limit for completion of penalty proceedings or as per the mandate of later half of Clause (c) six months from the last date of the month in which penalty proceedings were initiated by the Ld. Addl. CIT. The Ld. Addl. CIT issued initiation show cause notice on 13.08.2021. So 31.08.2021 will be the starting point of limitation of six months and consequently 28.02.2022 would be the last date of period of limitation in accordance with the second half of Clause (c) of section 275(1) of the Act. So in the case of assessee, the period of limitation was 31.03.2020 or 28.02.2022. 28.02.2022 being later in time was the available outer of limit for the Revenue to impose the penalty. However, the impugned penalty has been imposed by the Ld. Addl. CIT on 15.03.2022. By that date the period of limitation had already expired. Our view is duly supported by the decision of Hon’ble Bombay High Court in the case of CIT Vs. Chhajer Packaging and Plastics (P.) Ltd. (supra). Hence, on the ground of limitation also the impugned penalty is not maintainable.

Reliance placed by the Ld. CIT(A) on the decision of Hon’ble Kerala High Court in the case of Grihalakshmi Vision (supra) does not render any help to the Revenue. In that case the Hon’ble Kerala High Court held that penalty proceedings u/s 271D of the Act are initiated not by the Ld. AO but only with the issuance of notice by the Joint/Addl. CIT. Looked from this angle also the impugned penalty as discussed above earlier is barred by limitation.

For the reasons set out above and on the facts and in the circumstances of the case, we hold that the impugned penalty does not rest on sound legal footing. We, therefore, order the deletion thereof.

In the result, the appeal of the assessee is allowed.