Payment of imprest whether a transfer within the meaning of section 269ST – case remanded for determination
In a recent judgment, ITAT has set aside the penalty u/s 271D and remanded the case for determination of whether payment of imprest constitutes a transfer within the meaning of section 269ST
ABCAUS Case Law Citation:
5168 (2026) (06) abacus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the penalty u/s 271D of the Income Tax Act, 1961 (the Act).
The penalty proceedings under section 271DA of the Act was initiated in the case of the assessee based on information that the assessee had received an aggregate amount of more than Rs, two lakhs in cash from the partnership in which he was a partner.
As the amount had been received otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through bank account, the Assessment Unit held that it constituted an apparent violation of the provisions of section 269 ST of the Act.
Consequently, a show cause notice was issued to the assessee to explain why penalty under section 271DA should not be levied. In response, the assessee filed a representation through legal heir, in which it was submitted that the assessee was a partner of the firm which operated as a CNF agent and distributor for various multinational and Indian Pharmaceuticals Companies.
It was further submitted that as operations of these companies were handled by the managers of those companies, they required day to day cash for petty expenses such as diesel expenses, labour expenses, local conveyance, petty stationary, refreshment for visitors and staff, petty housekeeping material, packing material, telephone expenses, electric consumables, computer toner, inward freight etc,. This cash was given to the respective managers by the assessee which was received by him as imprest from the firm.
It was thus submitted that cash was given from head office to partners of firm as imprest to meet the cash requirements of managers for the purposes of business expenditures. Since, the cash had been received as imprest in his capacity as partner of the firm, the provisions of section 269 ST did not apply to him.
However, the AO did not accept this submission. He held that for the purposes of the Income Tax Act, the partnership firm was distinct from its partners and any person was prohibited from receiving an amount of Rs. 2 Lacs or more in cash from another, ‘person’. Therefore, he held that transaction fell within the ambit of the provision. Furthermore, the argument that their amount was received as, ‘imprest’ is an internal accounting arrangement between the partner and the firm. The characterization of the transaction in the books of accounts, does not alter the fact that there was a, ‘receipt of money’ by the assessee from the firm. Section 269 T applied to receipt of money, irrespective of the purpose or subsequent application of the funds and no exemption was provided for partner/firm transactions.
The AO further observed that for penalty under section 271DA to be waived, the assessee had to show that there was, ‘good and sufficient cause’ for the failure to make compliance with the provisions of law. He held that the reasons offered by the assessee did not constitute good and sufficient reason. The assessee could easily have withdrawn cash from bank or used other banking channels to fund the business expenses directly from the bank account instead of routing them as cash receipt through partner. In view of the above, the Assessment Unit levied penalty under section 271DA of the Act for cash received in contravention of section 269ST of the Act.
The CIT(A) in ex-parte proceedings upheld the view of the of the AO that such huge amount of expenses could have been incurred through banking channels and there was no need for cash to be handed to the partner for distribution.
Before the Tribunal, the assessee submitted inter alia submitted that neither the AO nor the CIT(A) had disputed the accounts of the firm which had demonstrated that the money was not paid to him in his individual capacity but as imprest on account of the firm, to be re-conciled against amounts later. Since, this did not constitute a transfer within the meaning of the Income Tax Act, there could be no levy of penalty under section 271DA for a transaction which essentially remain within the firm.
The Tribunal observed that the order of the CIT(A) had been passed ex parte without considering the legal arguments of the assessee regarding the payments being on account of imprest account.
The Tribunal opined that the CIT(A) ought to have considered whether payment of imprest constitutes a transfer within the meaning of section 269 ST. Also, that since the penalty is being levied upon a legal heir, for a contravention committed by a deceased assessee, the provisions of section 159 of the Income Tax Act are also required to be taken into account.
Therefore, the Tribunal restored the matter back to the file of the CIT(A) to consider these issues and thereafter to pass a fresh order in accordance with law.
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