Penalty under Section 271D deleted where Section 273B reasonable cause found for accepting cash on property sale

ITAT, Bangalore (AT) allowed the appeal and deleted penalty under section 271D. The assessee sold two immovable properties on 22.03.2017, receiving Rs. 5,16,000 in cash for each property (total Rs. 10,32,000), of which Rs. 10,00,000 was deposited to bank on 24.03.2017. The AO accepted genuineness of the transactions. The Tribunal found a reasonable cause under section 273B-buyer had not provided account-payee cheque/DD before registration and the assessee was compelled to accept cash to complete registration-and directed deletion of the penalty.

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ISSUES PRESENTED AND CONSIDERED

1. Whether penalty under section 271D of the Income Tax Act can be levied where cash consideration exceeding Rs.20,000/- was accepted on sale of immovable property, notwithstanding the assessment officer's prior acceptance of the genuineness of the transaction in assessment proceedings.

2. Whether proviso relief under section 273B (reasonable cause and bona fides) is available to avoid penalty under section 271D for contravention of section 269SS where cash was accepted at the time of registration because account-payee cheque/draft was not available earlier.

3. Whether the fact that the assessee deposited the cash in bank immediately after receipt and the transaction was reflected in documentary evidence (sale deed, bank statements) affects the applicability of section 269SS/271D and the availability of relief under section 273B.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Levy of penalty under section 271D for acceptance of cash > Rs.20,000 on sale of immovable property

Legal framework: Section 269SS prohibits taking/accepting any loan, deposit or "specified sum" otherwise than by account-payee cheque/draft or ECS where the amount or aggregate is Rs.20,000 or more; section 271D prescribes penalty equal to amount so taken if section 269SS is contravened.

Precedent Treatment: Courts have recognized the objective of section 269SS to curb unaccounted cash transactions and section 271D to penalize contraventions. However, jurisprudence (including Supreme Court in Chamundi Granites and various High Courts) recognizes mitigation via section 273B where reasonable cause exists.

Interpretation and reasoning: The Tribunal notes that the assessment proceedings accepted the assessee's explanation that cash receipts were genuine sale proceeds; the transactions were evidenced by sale deeds and bank entries; cash was deposited into bank immediately after receipt. The statutory scheme treats "specified sum" as including any sum receivable in relation to transfer of immovable property, but the mere existence of a statutory prohibition does not render penalty automatic where statutory relief under section 273B is established.

Ratio vs. Obiter: Ratio - contravention of section 269SS attracts penalty under section 271D prima facie, but such penalty is not automatic and can be avoided if the assessee proves reasonable cause/bona fides under section 273B. (This follows and applies existing authoritative ratio.)

Conclusion: The Tribunal concludes that, although the assessee accepted cash in excess of Rs.20,000 at registration (a contravention of section 269SS), levy of penalty under section 271D is not ipso facto justified without consideration of section 273B relief.

Issue 2: Applicability of section 273B - reasonable cause and bona fide transaction where cash was accepted at registration since cheque/draft was not available earlier

Legal framework: Section 273B (non obstante clause) provides that no penalty shall be imposable under section 271D if the person proves that there was reasonable cause for the failure; courts have interpreted "reasonable cause" as an honest belief founded on reasonable grounds and requiring proof that the transaction was bona fide and the failure was for reasonable cause.

Precedent Treatment: The Tribunal relies on established authorities (including Chamundi Granites, Bhagwati Prasad Bajoria, and other High Court decisions) which articulate two-pronged test for section 273B: (a) reasonable cause for taking/accepting otherwise than by account-payee cheque/draft; and (b) transaction is bona fide/genuine. Prior decisions applied these tests to loan and deposit transactions and extended mitigating relief where genuineness and bona fides were established.

Interpretation and reasoning: The Tribunal applies the two-pronged test: (a) Reasonable cause - the assessee demonstrated that the buyer did not provide account-payee cheque/draft prior to registration and therefore cash acceptance at registration was necessary to complete the sale and register the deed; (b) Bona fides - the genuineness of the sale and receipt was accepted by the AO during assessment; documentary evidence (sale deed, purchase deed, bank statement) corroborates the transaction; immediate deposit of cash into bank reinforces bona fides. The Tribunal emphasises that section 273B's non obstante clause gives overriding effect and the initial burden lies on the assessee to prove reasonable cause; once shown, penalty may be withheld in exercise of discretion.

Ratio vs. Obiter: Ratio - where the assessee proves both reasonable cause for not obtaining account-payee cheque/draft and the bona fide nature of the transaction, section 273B operates to preclude penalty under section 271D. Observational/illustrative reasoning - acceptance at registration to complete the sale and requirement to acknowledge receipt before the Registering Authority are relevant factual considerations supporting reasonable cause.

Conclusion: The Tribunal finds both requirements satisfied on the facts: there was a reasonable cause (buyer's failure to provide cheque/draft in time, necessity to complete registration) and the transactions were bona fide (accepted by AO; evidenced). Accordingly, relief under section 273B is available and penalty under section 271D must be deleted.

Issue 3: Effect of deposition of cash into bank and AO's acceptance during assessment on penalty proceedings

Legal framework: Evidence of genuineness and routing of cash through bank account are relevant to determine bona fides under section 273B; assessment officer's acceptance of explanation in assessment proceedings is a material factor though not conclusive for penalty proceedings.

Precedent Treatment: Authorities have held that where transactions are reflected in books, corroborated and accepted by assessing officer, it weighs strongly in favour of bona fides (Bhagwati Prasad Bajoria; Supreme Court and High Court pronouncements cited by the Tribunal).

Interpretation and reasoning: The Tribunal treats AO's acceptance of the transaction's genuineness in assessment as corroborative - it demonstrates absence of sham or unaccounted money. Immediate deposit of cash into bank and documentary sale deeds further corroborate the bona fide nature. These factors collectively satisfy the evidentiary burden on the assessee under section 273B.

Ratio vs. Obiter: Ratio - corroborated documentary evidence and acceptance in assessment proceedings materially support the assessee's proof of bona fides, influencing exercise of discretion under section 273B to deny penalty under section 271D. Obiter - procedural aspects (timing of deposit two days after receipt) are factual indicators rather than determinative legal rules.

Conclusion: The Tribunal places weight on immediate deposit into bank and AO's acceptance; these facts support deletion of penalty under section 271D by application of section 273B.

Cross-reference and Final Disposition

Cross-reference: Issues 1-3 are interrelated - prima facie contravention under section 269SS gives rise to penalty under section 271D (Issue 1), but the non obstante relief in section 273B (Issues 2-3) can operate to negate penalty where the two-pronged test of reasonable cause and bona fides is satisfied. Precedents interpreting these provisions were followed and applied.

Final conclusion: On the facts (genuine sale, documentary evidence, AO's acceptance, buyer's inability to provide cheque/draft prior to registration, immediate bank deposit), the assessee proved reasonable cause and bona fides under section 273B; accordingly, penalty under section 271D amounting to the cash accepted is deleted and the appeal is allowed on merits.

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