Facts of the Case

The assessee, Rajni Kant Jha, sold an immovable property for a total consideration of Rs. 28.10 lakhs. Out of this amount, Rs. 23.10 lakhs was received in cash as advance in April 2015.

The Assessing Officer (AO) observed that acceptance of such cash was in violation of Section 269SS of the Income Tax Act, 1961, and accordingly initiated penalty proceedings under Section 271D, resulting in a penalty of Rs. 23.10 lakhs.

The National Faceless Appeal Centre (NFAC) confirmed the penalty imposed by the AO. The assessee then filed an appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench. 

Issues Involved

  1. Whether the penalty under Section 271D for violation of Section 269SS can be sustained where the assessee received cash advance prior to the amendment introduced by the Finance Act, 2015.
  2. Whether receiving cash advance against sale of immovable property before 01.06.2015 constitutes a violation warranting penalty.
  3. Whether the assessee had reasonable cause for accepting the cash amount. 

Petitioner’s Arguments

The assessee contended that:

  • The amount of Rs. 23.10 lakhs was received in April 2015 as advance against sale of property.
  • The relevant amendment to the provisions of Section 269SS was introduced by the Finance Act, 2015 with effect from 01.06.2015.
  • On the date of receiving the advance, the amended provisions were not yet in force, and therefore the assessee could not be held liable for violation.
  • The assessee further explained that he was in financial distress and required funds for livelihood, which compelled him to accept the advance in cash. 

Respondent’s Arguments

The Departmental Representative supported the orders of the lower authorities and submitted that:

  • The provisions of Section 269SS are mandatory.
  • The assessee should have complied with the statutory provisions, and the penalty under Section 271D was rightly imposed. 

Court Findings

The ITAT examined the facts and noted that:

  • The property was sold for Rs. 28.10 lakhs, and the assessee received Rs. 23.10 lakhs in cash in April 2015.
  • The balance consideration was received by cheque and the registered sale deed was executed on 01.04.2016.
  • In cases involving transfer of immovable property, the date of registered sale deed is treated as the date of transfer.
  • Therefore, the transaction effectively related to FY 2016-17 (AY 2017-18) and was outside the assessment year under consideration.
  • Further, since the advance was received before the amendment came into force on 01.06.2015, the assessee had reasonable and sufficient cause for accepting the amount in cash. 

Court Order

The ITAT held that:

  • This was not a fit case for levy of penalty under Section 271D.
  • The Assessing Officer was directed to delete the penalty of Rs. 23.10 lakhs.

Accordingly, the appeal of the assessee was allowed.

Important Clarification

The Tribunal clarified that:

  • Cash advance received before the effective date of amendment (01.06.2015) cannot automatically attract penalty under Section 271D.
  • If the assessee demonstrates reasonable cause, penalty may not be justified.
  • In property transactions, the date of execution of the registered sale deed is relevant for determining the year of transfer. 

Sections Involved

  • Section 269SS – Mode of accepting certain loans, deposits or specified sums
  • Section 271D – Penalty for failure to comply with Section 269SS
  • Finance Act, 2015 Amendment (w.e.f. 01.06.2015)

Link to download the order -  https://itat.gov.in/public/files/upload/1703236743-446%20del%202023.pdf

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