Penalty under Section 271D deleted for accepting cash when buyers couldn't arrange demand drafts due to banking restrictions

ITAT Bangalore held that penalty under section 271D was not leviable against the assessee who accepted cash payments from buyers unable to arrange demand drafts due to restricted banking hours. The tribunal found the penalty was not initiated within reasonable time, as the return filed in August 2017 was processed in September 2017, but penalty notice was issued only in July 2021. The tribunal noted this was the first year after amendment introduction, buyers provided confirmations of inability to obtain demand drafts, and revenue selectively targeted the assessee while sparing others in the same transaction, violating Article 14. Penalty deleted in assessee's favor under section 273B.

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Issues involved:
- Penalty proceedings initiated after a significant lapse of time.
- Justification for accepting payments in cash.
- Application of section 273B in relation to penalty under section 271D.
- Allegation of selective treatment by the revenue department.

Detailed Analysis:
1. Penalty Initiated After Lapse of Time:
The case involved an appeal by the assessee against a penalty levied under section 271D of the Income Tax Act. The assessee argued that the penalty proceedings were initiated by the JCIT after a considerable delay of around 4 years, which was deemed unreasonable. The Bangalore Bench's judgment in the case of Sree Rajendra Suri Gurumandir Trust was cited, emphasizing the necessity for penalty proceedings to be initiated and completed within a reasonable time frame. Reference was also made to the decision of the Hon'ble Calcutta High Court in the case of Indian Handloom Textiles vs. ITO, highlighting the invalidity of penalty proceedings initiated after an extended period. The tribunal agreed with the assessee, noting that the penalty was not initiated in a reasonable time, ultimately leading to the deletion of the penalty.

2. Justification for Accepting Cash Payments:
The assessee contended that there were valid reasons for accepting payments in cash, particularly due to the buyers' inability to pay via account payee cheque or demand draft. The argument was supported by the fact that the amendment restricting the sale of immovable property via cash mode was introduced recently, and the assessee believed it was permissible to accept cash payments. The tribunal acknowledged the complexity of Income Tax Laws and the potential for mistakes, especially in the first year after an amendment. Confirmations from buyers regarding their inability to obtain demand drafts due to restricted banking hours further supported the assessee's position. Citing section 273B, the tribunal concluded that there was a reasonable cause for accepting cash payments, and no penalty was leviable under section 271D.

3. Application of Section 273B and Selective Treatment Allegation:
The tribunal referenced the decision of the Hon'ble Delhi High Court in the case of Holland Tractors, emphasizing that penalties should not be imposed if the assessee's contention was plausible and bona fide, even if there were differing interpretations of tax provisions. Additionally, the tribunal noted that other individuals involved in the transaction had also received cash payments but were not penalized by the revenue department. This selective treatment was deemed violative of Article 14 of the constitution. Citing the decision of the Hon'ble Apex Court in the case of UOI Vs Kaumudini Narayan Dayal, the tribunal held that revenue cannot adopt a pick-and-choose approach while assessing taxpayers. Consequently, the penalty was deleted, and the appeal of the assessee was allowed.

In conclusion, the tribunal's detailed analysis considered the timing of penalty initiation, the justification for accepting cash payments, the application of relevant sections, and the principle of non-selective treatment by the revenue department, ultimately leading to the deletion of the penalty imposed on the assessee.

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