Section 271D of the Income Tax Act
Income-tax Act, 2025: s.450
Section 271D of the Income-tax Act, 1961 corresponds to section 450 (Penalty for failure to comply with provisions of section 185) of the Income-tax Act, 2025.
Read section 450 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 271D is Navnitlal C. Javeri v. K.K. Sen (56 ITR 198), cited in 230 of the 1,725 judgments on BharatTax that turn on this section.
Leading authorities on Section 271D
The Supreme Court holds that circulars issued by the Central Board of Direct Taxes (CBDT) are binding on all officers and persons employed in the execution of the Income-tax Act. These circulars are binding even if they deviate from the provisions of the Act, particularly when issued to relieve hardships.
Section 195 of the Income Tax Act, which mandates tax withholding on payments to non-residents, applies only to sums that are otherwise chargeable to tax under the Act. Tax withholding provisions are not charging provisions.
Penalty proceedings for defaults under Sections 269SS and 269T are independent of assessment proceedings; therefore, the limitation period under Section 275(1)(c) for imposing such penalties is not contingent on the completion of appellate quantum proceedings.
Journal entries for accepting or repaying loans and deposits, without any actual cash transaction, do not violate the provisions of Section 269SS or Section 269T of the Income Tax Act. Consequently, such transactions do not attract penalties under Section 271D or Section 271E.
Transactions involving the receipt or repayment of loans or deposits solely through journal entries, without actual cash movement, contravene Sections 269SS and 269T. However, penalties under Sections 271D or 271E for such contraventions are not imposable if the assessee demonstrates a reasonable cause under Section 273B, particularly when no cash has passed between parties.
The assessing officer must record explicit satisfaction in the assessment order for initiating penalty proceedings under sections like 271D, 271E, 269SS, 269T, or 269ST; a mere recommendation or information to another authority is insufficient to validate the penalty.
The date of initiation of penalty proceedings for the purpose of Section 275(1)(c) is when the Assessing Officer records a satisfaction or recommends penalty, not the later date when the Joint/Additional Commissioner of Income Tax issues the penalty notice.
A genuine personal transaction or a non-returnable transfer between family members or related entities does not constitute a 'loan' or 'deposit' under Section 269SS, and therefore, no penalty can be levied under Section 271D.
The relevant date for determining the limitation period under Section 275(1)(c) for passing penalty orders under Sections 271D and 271E is the date of passing the assessment order.
