Penalty u/s 271D deleted due to ‘reasonable cause’ as assessee belonged to Schedule Tribe and income earned by him was exempt u/s 10(26) of the Act.
In a recent judgment, the ITAT Guwahati deleted penalty u/s 271D for violation of section 269SS observing that there was a ‘reasonable cause’ as assessee belonged to Schedule Tribe community and was eligible to claim exemption of tax on the income earned by him u/s 10(26) of the Act.
ABCAUS Case Law Citation:
4401 (2025) (02) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) / National Faceless Appeal Centre in confirming penalty u/s 271D of the Income Tax Act, 1961 (the Act) for the alleged contravention of section 269SS of the Act for receiving of specified sum in cash more than Rs.20,000/- on account of sale of immovable property.
The appellant assessee was a State Govt. Employee and resident of State of Meghalaya and belonged to Scheduled Tribe community and the income earned by him from the activity carried out in State of Meghalaya as defined in section 25 of Article 366 of the Constitution of India is exempt from tax u/s 10(26) of the Act.
During the year under consideration, assessee sold immovable property and received sale consideration in cash and the same was deposited in the bank account. For the relevant Assessment Year assessee furnished the return claiming exemption towards sale of property. u/s 10(26) of the Act.
The case selected for scrutiny through CASS on account of abnormal increase in cash deposit followed by validly serving of notices u/s.143(2) and 142(1) of the Act. Ld. AO after getting the information in lieu of notices u/s.133(6) of the Act issue to the banks where the assessee was maintaining bank accounts, noticed that a large sum had been deposited in cash in various bank accounts. On further investigation, it was revealed that the source of the alleged cash was the sale consideration received by the assessee from sale of immovable property.
However, since the assessee belonged to Khasi Scheduled Tribunal and was eligible for exemption u/s.10(26) of the Act, ld. AO made no addition on cash of cash deposits from sale of immovable property. However, ld. AO initiated the penalty proceedings u/s.271D of the Act for the contravention of section 269SS of the Act.
In the course of penalty proceedings, it was contended by the assessee that he belonged to Scheduled Tribe Community eligible for exemption u/s.10(26) of the Act and stated that since income if exempt from tax, section 271D is not applicable. However, the Assessing Officer (AO) levied the impugned penalty u/s 271D of the Act. The CIT(A) confirmed the penalty observing that ignorance of the law, cannot constitute “reasonable cause”.
Before the Tribunal, the assessee inter alia referred to the exceptions provided in section 269SS of the Act and stated that the said provisions were not applicable on the assessee because the income of the assessee was exempt from tax by virtue of section 10(26) of the Act and since the provisions of section 269SS are not applicable, there was no case for the AO to invoke section 271D of the Act.
The Tribunal observed that second proviso to section 269SS of the Act provides that 269SS shall not apply to any loan or deposit or specified sum where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted or both having agricultural income and neither of them has income chargeable to tax under this Act.
The Tribunal further observed that in the instant case, though not agricultural, income of the assessee was also not chargeable to tax by virtue of section 10(26) of the Act. Further, Revenue had not brought the fact that whether the person purchased the land also enjoyed the benefit of exemption. It was also an admitted fact that provisions of section 269SS of the Act amended from 01.04.2015 prior to which only loans and advances were covered u/s 269SS.
The Tribunal noted that considering all the aspects of the case and majorly that the income of the assessee being exempt from tax had certainly made assessee understood that there was no tax implications on the transaction being carried out.
The Tribunal opined that under such circumstances, section 273B comes to the rescue of the assessee where the penalty is not to be imposed in certain cases where there was reasonable cause for the said failure. Section 273 provides that penalty in certain cases is not leviable if there is a ‘reasonable cause’.
The Tribunal opined that the assessee had shown ‘reasonable cause’ as he belonged to Schedule Tribe community and was eligible to claim exemption of tax on the income earned by him u/s.10(26) of the Act.
The Tribunal held that considering the facts and circumstances of the case, the facts of the case were fit to be covered under the category of ‘reasonable cause’ referred to in section 273B of the Act.
Therefore, the Tribunal set aside the finding of the CIT(A) and the AO was directed to delete the penalty levied u/s.271D of the Act.
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