Refund of advance amount on cancellation of agreement for purchase of property does not partake the character of loan or deposit or any specified sum as provided u/s 269SS – ITAT
In a recent judgment, ITAT Hyderabad deleted penalty u/s 271D holding that refund of advance amount on cancellation of agreement for purchase of property does not partake the character of loan or deposit or any specified sum as provided u/s 269SS of the Income Tax Act, 1961 (the Act)
ABCAUS Case Law Citation:
4469 (2025) (03) abcaus.in ITAT
In the instant case, the Revenue had challenged the order passed by the CIT(A) in deleting penalty u/s 271D of the Income Tax Act, 1961 (the Act) levied on account of receiving back cash amount advanced earlier.
Before the Tribunal the assessee submitted that amount of cash in question, was received by the assessee by way of refund of advance amount on cancellation of agreement. Therefore, this amount was received as the advance earlier given by the assessee and therefore, does not partake the character of loan or deposit or any specified sum received by the assessee as provided under section 269SS of the Act.
It was submitted that though the amount was received in cash but this was only an advance earlier given by the assessee being received back on cancellation of the agreement. Referring to the provisions of section 269SS of the Act it was submitted that the said provision is attracted only in respect of the transactions in the nature of any loan or deposit or specified sum received by the assessee other than by an account payee cheque or draft or use of electronic clearing system. Hence, it was submitted that once the transaction does not fall in the ambit of provisions of section 269SS, then the question of levy of penalty u/s 271D does not arise.
The Tribunal observed that the Assessing Officer in the penalty order had given description of background facts and the proceedings leading to initiation of penalty u/s 271D of the Act. It was stated by the AO that the assessee had received an amount by way of cash towards advance amount got on cancellation of agreements.
The Tribunal observed that there was no dispute regarding the fact that this amount was received by the assessee as a refund of advances given by the assessee under the agreement which were subsequently cancelled.
The Tribunal further observed that the provisions of section 269SS of the Act provides mode of taking or accepting certain loans or deposits and specified sums only by way of account payee cheque or account payee bank draft or use of electronic mode.
The Tribunal observed that in view of the provisions of Section 269SS, the section is attracted in respect of the transactions of acceptance of loan or deposits or any specified sum of Rs.20,000/- or more. Since in the case in hand, the assessee received this amount as refund of advance paid by the assessee for purchase of some property and therefore, the same does not fall in the category of loan of deposit as provided u/s 269SS of the Act.
As regards the term ‘specified sum’, the Tribunal noted that the same is defined in clause (iv) of Explanation to section 269SS of the Act which means any sum of money receivable whether as an advance or otherwise in relation towards transfer of an immovable property whether or not the transfer takes place. Therefore, the specified sum must be receivable either as an advance or otherwise for transfer of an immovable property. Whereas, in the case in hand, the amount was not received against the transfer of immovable property but it was received by the assessee as a refund of advance earlier paid for purchase of property. Thus, this transaction even does not fall in the term “specified sum”.
The Tribunal further noted that to check such transactions of receipt other than by an account payee cheque, account payee draft or use of electronic clearing system, the provision has been made by way of insertion of section 269ST vide Finance Act, 2027 w.e.f. 1/4/2017.
The Tribunal opined that the provisions of section 269SS of the Act were not applicable on the transaction in case of the assessee when the same was not in the nature of loan or deposit or any specified sum received by the assessee. Once this transaction does not fall in the ambit of provisions of section 269SS, then the question of levy of penalty u/s 271D does not arise. Accordingly, the Tribunal held that the penalty levied by the Assessing Officer u/s 271D of the Act was not sustainable on this ground itself.
Accordingly, reason to interfere with the order of the learned CIT (A) deleting the penalty levied u/s 271D of the Act
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