Penalty for alleged cash loan under 271D remitted pending verification of land ownership; waiver if ownership established

Penalty under Section 271D was contested where a cash receipt of Rs. 1 crore was explained as an advance for sale of a specified parcel of land; the tribunal found no contrary record rejecting that explanation but noted lack of inquiry into ownership and encumbrances. The matter is remitted to the assessing officer to verify whether the assessee owned the land and whether it was freely transferable; if ownership and freedom from encumbrance are established, the advance characterization will be accepted and no penalty shall be levied. The revenue appeal is allowed for statistical purposes only.

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Issues: Whether the penalty under Section 271D of the Income-tax Act, 1961 can be sustained for receipt of Rs. 1,00,00,000 where the assessee contends the amount was an advance for sale of land and not a loan in contravention of Section 269SS of the Income-tax Act, 1961.

Analysis: The Assessing Officer treated the amount as a cash loan and imposed penalty under Section 271D, finding the agreement to sell was an afterthought. The Commissioner (Appeals) accepted the assessee's contention that the amount was advance against sale of land based on the notarized agreement. The Tribunal observed that, apart from the notarized agreement, there was no contemporaneous independent documentary evidence on record prior to issuance of the show-cause notice to substantiate the claim. The Tribunal further noted that neither the Assessing Officer nor the Commissioner (Appeals) examined whether the assessee owned the land in question or whether it was free from encumbrances such that it could legitimately be the subject of a sale. The Tribunal directed that the issue be remitted to the Assessing Officer to verify ownership and status of the land as on the date of the alleged agreement, and held that if ownership is established, the assessee's claim of advance would be accepted and penalty under Section 271D would not be leviable.

Conclusion: The appeal is allowed for statistical purposes by setting aside the matter to the Assessing Officer to verify ownership and status of the land; if ownership is established, no penalty under Section 271D shall be levied, otherwise the Assessing Officer may proceed in accordance with law.

Ratio Decidendi: Where the characterisation of a receipt as an advance for sale versus a prohibited cash loan is in dispute, the assessing authority must verify ownership and the existence of supporting contemporaneous evidence; absent such verification the matter should be remitted for inquiry, and penalty under Section 271D cannot be sustained if ownership and the advance character are established.

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