RAYALA RAJESWARA RAO,GUNTUR vs. INCOME TAX OFFICER, WARD-1(1), GUNTUR

PER DUVVURU RL REDDY, Judicial Member :

This appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [Ld.CIT(A)-NFAC] vide DIN & Order No. ITBA/NFAC/S/250/2022-23/1045215395(1), dated 6/9/2022 arising out of the order passed U/s. 271D of the Income Tax Act, 1961 [the Act], dated 16/3/2022 for the AY 2017-18.

34 days filing the appeal. The Ld. AR drew our attention to the

petition, along with an affidavit, filed by the assessee seeking

condonation of delay wherein the assessee explained the reasons

for belated filing of the appeal before the Tribunal. The relevant

portion of the affidavit is extracted herein below for reference:

“1 ……

filing the appeal before the Tribunal beyond the prescribed time

limit with a delay of 34 days, we find that due to ill health of the

assessee the assessee was prevented to file the appeal within the

stipulated time. In our considered opinion, the explanation given

by the assessee constitutes ‘reasonable and sufficient cause’ and

therefore we hereby condone the delay of 34 days in filing the

appeal and proceed to adjudicate the appeal on merits.

individual, is engaged the business activity by operating a Xerox

Shop and e-filed his return of income for the AY 2017-18 on

31/07/2017 declaring a total income of Rs. 3,55,510/-. The

return was processed U/s. 143(1) of the Act by the CPC,

Bangalore on 7/11/2017 and subsequently the case was selected

for limited scrutiny under CASS with the reasons “to examine the

issues of (i) Capital gain/loss on sale of property and (ii) Cash

deposits during the demonetization period”. Accordingly, notice

U/s. 143(2), dated 9/8/2018 was issued to the assessee and the

same was served on the assessee through email on 11/08/2018

and also manually served on the assessee on 17/8/2018.

Further, Notices U/s. 142(1) of the Act, dated 26/10/2018 and

31/1/2019 were issued and served on the assessee wherein the

assessee was called for certain information. In response, the

assessee filed his reply and furnished the information called for

viz., computation of total income, copies of bank statements,

explanation notes, information / evidences with regard to the

sources for cash deposits made into the bank accounts, evidence

in respect of LTCG on sale of inherited immovable property etc.

On verification of the e-submission / information furnished by

4 the assessee, the Ld. AO observed that the assessee had made

cash deposits to the tune of Rs. 13,48,000/- in his bank account

on different dates during demonetization period for the FY 2016-

17 relevant to the AY 2017-18. On being asked about the source

of the cash deposits, the assessee explained before the Ld. AO

that the said deposits were made out of the sale proceedings of

immovable property (building) during the year which was sold at

a total consideration of Rs.41,98,000/- out of which Rs.

16,98,000/- was received in cash and the assessee’s share of the

sale consideration was Rs. 10,49,500/-, and the balance amount

pertains other family members, which was deposited in the bank

account of the assessee since the other family members

(daughters) are also staying with the assessee. The assessee also

explained before the Ld. AO that the immovable property sold was

an inherited property through intestate from his father. It was

also submitted that his share of Rs. 10,49,500/- being 1/4th of

the total sale consideration was admitted in his return of income

and paid tax on capital gains at Rs. 1,43,459/-. The Ld. AO is in

concord with the assessee’s explanation and completed the

assessment U/s. 143(3) of the Act and assessed the total income

at Rs.3,55,510/- vide the assessment order dated 20/09/2019.

Thereafter, the Ld. JCIT, Range-1, Guntur issued a penalty show

5 cause notice U/s. 274 r.w.s 271D of the Act, dated 18/2/2020

was issued to the assessee as the assessee has accepted an

amount of Rs. 16,98,000/- in cash violating the provisions of

section 269SS of the Act. Subsequently, the case was handled

under the Faceless Penalty Scheme and a show cause notice

dated 10/06/2021 was issued to the assessee wherein the

assessee was asked to explain as to why an order imposing

penalty U/s. 271D of the Act should not be passed since the

assessee had not complied with the provisions of section 269SS

of the Act. In response the assessee gave a detailed reply

explaining the reasons for accepting the payment of Rs.

16,98,000/- towards sale of immovable property. The Ld. AO did

not consider the explanation given by the assessee and levied

penalty of Rs. 16,98,000/- invoking the provisions of section

271D of the Act. Aggrieved by the order of the Ld. AO, the

assessee carried the matter in appeal before the Ld. CIT (A)-

NFAC. On appeal, the Ld. CIT(A)-NFAC sustained the addition

made by the Ld. AO and dismissed the appeal of the assessee by

holding that the assessee has accepted Rs. 16,98,000/- in cash

as part of sale consideration on sale of immovable property which

is in contravention of the provisions of section 269SS of the Act.

6 5. Aggrieved by the order of the Ld. CIT(A)-NFAC, the assessee

is in appeal before us by raising the following grounds of appeal:

“1. The order of the Ld. CIT (A) is contrary to the facts and also the law applicable to the facts of the case.

the following Additional Grounds of Appeal:

“1. The penalty levied U/s. 271D of the Act vide order dated 16/03/2022 is barred by limitation.

while passing the assessment order U/s. 143(3) of the Act, the

Ld. AO has accepted the explanation given by the assessee with

regard to the sale of property and the related transactions and

accorded to the return of income filed by the assessee. Further,

the Ld. AR submitted that Ld.AO has not recorded his

satisfaction regarding the initiation of penalty proceedings while

7 passing the assessment order and therefore, the penalty order

passed by the Ld. AO U/s. 271D of the Act is unsustainable in

law. The Ld. AR relied on various case laws, but placed heavy

reliance on the ratio laid down in CIT Vs Jai Laxmi Rice Mills

[379 ITR 0521] (SC). The Ld.AR further submitted that the cash

receipts have been accounted and is evidenced by sale deeds with

respective buyers. Therefore, the Ld. AR pleaded that the penalty

levied by the Ld. AO and confirmed by the Ld. CIT (A)-NFAC may

be deleted.

Per contra, the Ld. DR heavily relied on the orders of the Ld.

Revenue Authorities and argued in support of the decision taken

by the Ld. AO and the Ld. CIT(A)-NFAC.

available on record and the orders of the authorities below. The

admitted facts are that the assessee has received a part of the

sale consideration in cash towards the sale of immovable

property from the buyers totaling to Rs. 16,98,000/-. On careful

perusal of the Assessment Order passed U/s. 143(3) of the Act

dated, 20/09/2019, we find that the Ld. AO has enquired about

the cash deposits made by the assessee amounting to Rs.

16,98,000/- and he convinced and accepted the explanation

8 given by the assessee. Further, it is pertinent to mention that the

Ld.AO has not recorded the satisfaction regarding the initiation

of penalty proceedings while passing the assessment order U/s.

143(3) of the Act which is a prerequisite for initiation of penalty

U/s. 271D of the Act. Under these circumstances, we are of the

considered opinion that issuing a notice U/s.274 r.w.s 271D of

the Act is nothing but an afterthought of the Ld. AO. The ratio

laid down in the case CIT Vs Jai Laxmi Rice Mills [379 ITR 0521]

(SC), relied on by the Ld.AR the Hon’ble Supreme Court has

observed as follows:

“As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under section 271(1)(c) of the Act. Thus, insofar as penalty under section 271E is concerned, it was without any satisfaction and therefore no such penalty could be levied.”

Hon’ble Supreme Court in the case of CIT Vs Jai Laxmi Rice Mills

(supra) we are of the considered view that the penalty order

passed U/s. 271D deserves to be quashed. Accordingly, the

Additional Ground No. 2 raised by the assessee is allowed. Since

the core issue raised by the assessee vide Ground No.2 of the

Additional Grounds of appeal is allowed in favour of the assessee,

9 the adjudication of the other regular grounds of appeal as well as the additional Ground of Appeal No.1 becomes academic and hence they are dismissed.

Pronounced in the open Court on 29th November, 2023.

Sd/- Sd/- (एस बालाकृ�णन) (दु�वू� आर.एल रे�डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सद�य/ACCOUNTANT MEMBER �या�यकसद�य/JUDICIAL MEMBER Dated :29/11/2023 OKK - SPS आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- 1. �नधा�रती/ The Assessee– Rayala Rajeswara Rao, Block-C, Flat No.313, Golden Homes, Opp. Jute Mill, Krishna Nagar, Guntur, Andhra Pradesh – 522006. राज�व/The 2. Revenue – Income Tax Officer, CR Buildings, Kannavarithota, Guntur, Andhra Pradesh – 522001. 3. The Principal Commissioner of Income Tax, 4.आयकर आयु�त (अपील)/ The Commissioner of Income Tax (Appeals), 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, Visakhapatnam 6.गाड� फ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam