2025 (9) TMI 29 - AT - Income Tax

Penalty under s.271D deleted where revenue failed to prove cash acceptance under s.269SS and relied on general inferences without DVO

The Income Tax Officer, Ward 1, Hosur. Versus Narayanaswamy

The Income Tax Officer, Ward 1, Hosur. Versus Narayanaswamy - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the levy of penalty under section 271D of the Income Tax Act is justified where the Assessing Officer alleges receipt of cash in contravention of section 269SS based on an unregistered sale agreement that shows a higher consideration than the registered sale deed. 2. Whether the unregistered sale agreement impounded by the Department constitutes admissible and reliable evidence to prove receipt of specified sum in cash contrary to section 269SS. 3. Whether circumstantial material (difference between amounts in an unregistered agreement and a registered deed, alleged handwriting of cheque numbers, claimed common market-value practices, and partial cheque payments reflected in bank statements) suffices to establish contravention of section 269SS and to sustain penalty under section 271D in absence of direct evidence of cash receipt. 4. Whether the assessee's failure to appeal the assessment order operates as acceptance of the Assessing Officer's findings for the purposes of penalty proceedings under section 271D. 5. What evidentiary standard and proof the Revenue must produce to establish breach of section 269SS as a pre-condition for levy of penalty under section 271D. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of penalty under section 271D where alleged cash receipt is premised on an unregistered sale agreement showing higher consideration than registered deed Legal framework: Section 269SS prohibits acceptance of loan/deposits/any specified sum otherwise than by prescribed modes (non-cash), and breach is a pre-condition for initiating penalty under section 271D. The penalty under section 271D therefore presupposes that a specified sum was accepted in cash in contravention of section 269SS. Precedent treatment: The Court/Tribunal did not rely on or cite controlling precedents to broaden or narrow the statutory pre-condition; no precedent was followed, distinguished, or overruled on record. Interpretation and reasoning: The Tribunal examined the registered sale deed and the impounded unregistered agreement and concluded that the sale concluded as per the registered deed; there is no material evidence that any additional consideration apart from the amount in the registered deed was received in cash. The unregistered agreement was found to be inconsistent with the registered deed in particulars (different parties, different survey numbers), contained apparent fabrications (signature mismatch of purchaser), and included handwritten, unspecific entries for alleged payments. The Assessing Officer relied on an inference that the higher figure in the unregistered agreement represented cash consideration; the Tribunal rejected that inference as unsupported by direct evidence. Ratio vs. Obiter: Ratio - Penalty under section 271D cannot be sustained in absence of evidence that the specified sum was in fact received in cash in contravention of section 269SS; mere existence of an unregistered agreement showing a higher amount is insufficient. Obiter - Remarks on registration practices and generalizations about market-value under-valuation are treated as inadmissible circumstantial reliance absent concrete proof. Conclusion: Levy of penalty under section 271D in this case was not justified; the pre-condition (receipt in cash contrary to section 269SS) was not established. Issue 2 - Evidentiary value of the unregistered sale agreement impounded by the Department Legal framework: Evidence relied upon to prove breach of section 269SS must satisfy admissibility and probative value; documents must be shown to be genuine and to prove the fact of cash receipt. Precedent treatment: No precedents applied by the Tribunal; analysis is grounded on comparison of documentary evidence and standard evidentiary assessment. Interpretation and reasoning: On comparison, signatures in the unregistered agreement did not match signatures in the registered deed, passport, and PAN of the purchaser; the unregistered agreement omitted essential details present in the registered deed (complete vendor list, survey numbers). Handwritten cheque numbers and undated alleged cash entries further diminished reliability. The Tribunal therefore concluded the impounded unregistered agreement lacked evidentiary value and could not be relied upon to establish receipt of cash. Ratio vs. Obiter: Ratio - An impounded/unregistered document showing a higher consideration cannot be treated as reliable evidence of cash receipt where its authenticity and consistency with the registered deed are demonstrably doubtful. Obiter - None significant beyond application to the facts. Conclusion: The unregistered sale agreement has no evidentiary value in proving receipt of cash for purposes of section 269SS/271D in the absence of authenticity and consistency with the registered deed. Issue 3 - Sufficiency of circumstantial evidence (difference in stated consideration; alleged market-value practice; partial cheque entries) to prove breach of section 269SS Legal framework: Circumstantial evidence may be admissible, but where statute requires a pre-condition (receipt in cash), Revenue must produce material evidence probative of that fact; mere suspicion or generalized practices are insufficient. Precedent treatment: No precedent relied upon; Tribunal applied evidentiary burden principles. Interpretation and reasoning: The Assessing Officer's inference that the higher amount in the unregistered agreement represented cash receipt rested on generalizations (common practice of registering at guideline value to evade tax/stamp duty) and an absence of direct corroborative material such as bank records showing cash receipts or third-party admissions. The Tribunal noted absence of a DVO valuation report to establish the claimed market value and absence of any direct documentary proof of cash received by the assessee equal to the difference. Cheque payments of Rs.5,11,000 appearing in bank statements were insufficient to prove the large alleged cash receipt. Thus circumstantial material on record did not meet the required standard to sustain penalty. Ratio vs. Obiter: Ratio - Circumstantial evidence must be concrete and probative of cash receipt; generalized inferences and isolated bank entries do not suffice to prove contravention of section 269SS for penalty under section 271D. Obiter - Reliance on common practice alone is inadequate absent supporting material evidence. Conclusion: Circumstantial material on record was insufficient to establish breach of section 269SS; therefore penalty under section 271D could not be upheld. Issue 4 - Effect of not appealing the assessment order on penalty proceedings Legal framework: Acceptance of an assessment finding by non-appeal can, in some contexts, be a factor; however, appealability/requirement to appeal depends on whether the assessment order is adverse to the assessee or contains additions. For penalty proceedings, independent proof of the underlying fact (receipt in cash) is required. Precedent treatment: No precedent applied by the Tribunal; approach based on facts and statutory scheme. Interpretation and reasoning: The Tribunal observed that no appeal against the assessment order was filed because there was no addition to returned income in the assessment under section 147 r.w.s. 144B; thus absence of appeal did not equate to acceptance of a finding that would relieve the Revenue of its obligation to prove cash receipt in penalty proceedings. The Tribunal rejected the Revenue's submission that non-appeal amounted to acceptance of Assessing Officer's inference. Ratio vs. Obiter: Ratio - Failure to appeal an assessment, where no addition is made, does not relieve the Revenue from producing evidence required to sustain penalty under section 271D. Obiter - None beyond application to this fact pattern. Conclusion: Non-appeal of the assessment order did not operate to establish the factual premise for penalty; Revenue still bore the evidentiary burden in penalty proceedings. Issue 5 - Evidentiary standard required of the Revenue to establish breach of section 269SS as pre-condition for penalty under section 271D Legal framework: Statutory penalty under section 271D is contingent upon proof of receipt of specified sum in a non-prescribed mode contrary to section 269SS; proof must be concrete (direct or cogent circumstantial evidence) showing actual receipt of cash. Precedent treatment: No specific judicial precedents were cited or applied; Tribunal invoked statutory requisites and standard evidentiary principles. Interpretation and reasoning: The Tribunal held that the Assessing Officer failed to produce material evidence demonstrating cash receipt. Reliance on generalized practices, an impugned and unauthenticated unregistered agreement, and incomplete bank evidence did not satisfy the necessary evidentiary threshold. The decision emphasizes that establishing contravention of section 269SS is a pre-requisite for invoking section 271D and that mere suspicion or uncorroborated documents are inadequate. Ratio vs. Obiter: Ratio - Revenue must lead cogent evidence proving that the specified sum was actually received in cash in a mode prohibited by section 269SS before a penalty under section 271D can be imposed. Obiter - DVO valuation or other corroborative valuation evidence may be necessary when market-value inferences are relied upon to support an allegation of concealed cash consideration. Conclusion: The evidentiary threshold for proving breach of section 269SS was not met; consequently penalty under section 271D could not be sustained and the cancellation of penalty by the appellate authority was upheld.