Penalty u/s 271D not automatic. AO is required to find out that even if there was any failure, the same was without a reasonable cause.
In a recent judgment, the Bangalore ITAT has deleted penalty u/s 271D for violation of provisions of section 269SS observing that Levy of penalty under section 271D is not automatic. Before levying penalty, that concerned officer is required to find out that even if there was any failure referred to in the concerned provision, the same was without a reasonable cause.
ABCAUS Case Law Citation:
4399 (2025) (02) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A)/NFAC in confirming the penalty u/s 271D for violation of provisions of section 269SS of the Income Tax Act, 1961 (the Act).
The assessee was a salaried employee. He e-filed his return of income for the relevant assessment year which was selected for the limited scrutiny through CASS to verify “Cash deposited during the year”.
Accordingly, the notices u/s 143(2) as well as 142(1) of the Act were issued calling for the details. In response to notices, the assessee furnished copy of bank statement of Bank. On verification of bank statement, it was seen that there were several cash deposits during the year under appeal. The assessee duly explained that cash deposit from salary savings. Further, it was explained that the major part of cash deposits was out of the sale proceeds of immovable properties. The assessee also submitted the copies of sale deed as well as purchase deed.
The AO found assessee’s explanation for cash deposits are out of sale proceeds of immovable properties and the claim of the assessee is correct and accordingly completed the assessment.
Thereafter in accordance with the provisions of section 274 of the Act, a show cause notice u/s 271D of the Act was issued asking the assessee to explain why an order imposing a penalty u/s 271D of the Act should not be imposed for the contravention of the provision of section 269SS of the Act.
However, the assessee had not responded to the show cause notices sent. Accordingly, the AO held that it is a fit case for imposition of penalty u/s 271D of the Act as the assessee had chosen to remain silent to the various statutory/show cause notices without offering any explanation.
Aggrieved by the penalty order passed u/s 271D of the Act, the assessee preferred an appeal before the CIT(A)/NFAC who dismissed the appeal of the assessee by observing that the assessee had accepted the cash towards the consideration of sale of immovable property which was more than Rs. 20,000/-and was liable to penalty u/s 271D of the Act.
Before the Tribunal the assessee contended that the authorities below ought to have appreciated that there was reasonable and sufficient cause as the acceptance of cash payment was required at the time of registration for completion of the sales transaction as the buyer did not pay the A/c payee cheque or draft well before the date of the registration and therefore, the penalty should not be levied as per the provisions contained in section 273B of the Act. Further, the assessee submitted that the amount received was only towards the sale consideration at the time of registration of property, which had also been accepted by the AO during the course of assessment proceedings and therefore, this was not a case of any black money in loans/deposits/advances as well as property transactions.
The Tribunal observed that the purpose of introduction of section 269SS of the Act was discussed in the judgement of Hon’ble Allahabad High Court wherein the Court considered the recourse of section 271D of the Act and also the provisions of section 273B of the Act to hold that where reasonable cause had been shown by the assessee and the provisions of Section 273B of the Act was applicable, no penalty could be imposed since a reasonable cause was shown by the assessee.
The Tribunal observed that the basic premise of section 269SS of the Act remains the same i.e. to deter the use of unaccounted money and allow relief as per provisions of section 273B of the Act considering reasonable cause.
The Tribunal further observed that on a similar footing, the Hon’ble Gujarat High Court held that “genuineness of the transaction had not been disputed and there is reasonable cause”. The Hon’ble Supreme Court while considering hardship caused by section 269SS of the Act as appended to the provisions of section 273B of the Act and held that “section 273B of the Act was also incorporated which provides that notwithstanding anything contained in the provisions of section 271D of the Act, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions, if he proves that there was reasonable cause for such failure and if the assessee proves that there was reasonable cause for failure to take a loan and otherwise than by account payee cheque, or account payee demand draft, then the penalty may not be levied.
The Tribunal observed that as held by the Hon’ble Supreme Court, the test to be provided for reasonable cause u/s 273B of the Act for section 271D r.w.s. 269SS of the Act are (a) Reasonable cause to take a loan otherwise than by account payee cheque or draft and (b) Transaction is Bonafide.
The Tribunal further observed that Section 273B starts with a non obstante clause and provides that notwithstanding anything contained in several provisions enumerated therein including section 271D, no penalty shall be imposable on the person or the assessee, as the case may be, for failure referred to in the said provisions, if he proves that there was reasonable cause for the said failure.
The Tribunal observed that levy of penalty under section 271D is not automatic. Before levying penalty, that concerned officer is required to find out that even if there was any failure referred to in the concerned provision, the same was without a reasonable cause. The initial burden is on the assessee to show that there existed reasonable cause which was the reason for the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider whether the explanation offered by the assessee or the person, as the case may be, as regards the reason for failure, was on account of reasonable cause. ‘Reasonable cause’ as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as a probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which, assuming them to be true, would reasonably lead any ordinary prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do. The cause shown has to be considered and only if it is found to be frivolous without substance or foundation, the prescribed consequences will follow.
The Tribunal noted that in the instant case, sale of property and consequent receipt of sale consideration in cash were not disputed by the either side. The assessee after receiving the cash amounting to on the date of the registration of sale deed immediately deposited the cash into his bank Account. The contention of the assessee is that the buyer had not given the account payee cheque or demand draft well before the date of registration of the sale deed & he was compelled to accept the cash on the date of the registration of sale deed. Further he had no choice but to accept the cash on the date of the registration in order to complete the registration of sale deed. The assessee had also to acknowledge before the Registering Authority about the receipt of full & final amount against the sale consideration of immovable property.
The Tribunal opined that there was a reasonable cause for contravention to section 269SS of the Act in accepting cash otherwise than account payee cheque/account payee draft in the case of the assessee and further the genuineness of the transactions was also accepted by the AO.
Accordingly, the AO was directed to delete the penalty levied u/s 271D of the Act.
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