2025 (9) TMI 1651 - AT - Income Tax

Penalty under Section 271D deleted where receipts exempt under Section 10(26) and reasonable cause under Section 273B

ITAT (Guwahati) allowed the appeal and set aside the CIT(A) finding, directing the AO to delete the penalty under section 271D. The tribunal found the ... Penalty levied u/s.271D - contravention of section 269SS for receiving of specified sum in cash more than Rs. 20,000/- on account of sale of immovable property - assessee is a State Govt. Employee and resident of State of Meghalaya and belong to Scheduled Tribe community and the income earned by him from the activity carried out in State of Meghalaya as defined in section 25 of Article 366 of the Constitution of India is exempt from tax u/s.10(26) HELD THAT:- In the instant case, income of the assessee is also not chargeable to tax by virtue of section 10(26) - The alleged receipt is not from Agricultural income. Revenue has also not brought the fact that whether the person purchased the land also enjoys the benefit of exemption. It is also an admitted fact that provisions of section 269SS of the Act amended from 01.04.2015 prior to which only loans and advances were covered u/s.269SS. Considering all these aspects and majorly that the income of the assessee being exempt from tax had certainly made assessee understood that there are no tax implications on the transaction being carried out. For such circumstances, section 273B comes to the rescue of the assessee where the penalty is not to be imposed in certain cases where there was reasonable cause for the said failure. Section 273 provides that penalty in certain cases is not leviable if there is a ‘reasonable cause’. We note that various types of penalties referred to in section 273B of the Act also includes the penalty u/s.271D of the Act. The assessee has shown ‘reasonable cause’ as he belongs to Schedule Tribe community and the assessee is eligible to claim exemption of tax on the income earned by him u/s.10(26) of the Act. In the present case, the facts of the case are fit to be covered under the category of ‘reasonable cause’ referred to in section 273B of the Act. Therefore, finding of the CIT(A) is set aside and the AO is directed to delete the penalty levied u/s.271D of the Act. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271D can be levied for receipt of a 'specified sum' in cash in contravention of section 269SS where the recipient's income from the relevant transaction is exempt from tax under section 10(26). 2. Whether the second proviso to section 269SS (relief where both parties have agricultural income and neither has income chargeable to tax) or any other exception in section 269SS applies to a tax-exempt recipient whose exemption arises under section 10(26) rather than from agricultural income. 3. Whether proof of 'reasonable cause' under section 273B can preclude imposition of penalty under section 271D where cash receipts arise from sale of immovable property and the recipient honestly believed the transaction had no tax consequences by virtue of section 10(26). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Liability to penalty under section 271D for contravention of section 269SS despite recipient's income being exempt under section 10(26) Legal framework: Section 269SS prohibits accepting a 'specified sum' of Rs.20,000 or more otherwise than through prescribed banking channels in relation to transfer of immovable property; section 271D prescribes penalty where section 269SS is contravened; section 10(26) exempts certain incomes of persons resident of specified areas/tribes. Precedent treatment: No specific judicial precedent was relied upon or applied in the Court's reasoning. Interpretation and reasoning: The Court recognizes that section 10(26) exempts specified income from tax but does not in itself remove the applicability of other statutory obligations under the Income-tax Act unless such exemption is expressly provided. The prohibition in section 269SS is a standalone compliance provision regulating mode of receipt of specified sums; its applicability is not negated solely because the recipient's income is exempt under section 10(26). The Assessment Officer accordingly treated the cash receipts as falling within the ambit of section 269SS and initiated penalty under section 271D. Ratio vs. Obiter: Ratio - exemption from tax under section 10(26) does not ipso facto render other statutory obligations (such as the mode of receipt in section 269SS) inapplicable unless a specific exemption from those provisions exists. Conclusion: The general principle that tax-exemption does not automatically exempt a person from other mandatory provisions of the Income-tax Act is affirmed; however, this conclusion does not by itself determine whether penalty must be imposed (see Issue 3 on reasonable cause). Issue 2 - Applicability of specific exceptions in section 269SS where recipient's income is tax-exempt under section 10(26) Legal framework: Second proviso to section 269SS excludes the section's operation where both payer and payee have agricultural income and neither has income chargeable to tax. Other provisos exclude certain institutions and specified entities. Precedent treatment: No binding precedent was cited distinguishing application of the agricultural proviso from a broader exemption such as section 10(26). Interpretation and reasoning: The Court notes that the agricultural proviso has a specific scope - it applies where both parties have agricultural income and neither has income chargeable to tax. The facts did not establish that the payer (purchaser) enjoyed agricultural income or that both parties satisfied the proviso's conditions. Section 10(26) confers exemption in respect of certain incomes but is not synonymous with the agricultural-income proviso and therefore cannot be read into section 269SS as a free-standing exception. Ratio vs. Obiter: Ratio - the specific statutory exceptions in section 269SS cannot be expanded by implication to include other forms of tax exemption (such as section 10(26)) unless the statutory language supports such an extension. Conclusion: The second proviso to section 269SS was not applicable on the facts because there was no finding that both parties had agricultural income; section 10(26) did not provide the same statutory exclusion under section 269SS. Issue 3 - Availability of 'reasonable cause' under section 273B to negate penalty under section 271D where cash receipts arose from sale of immovable property and the assessee claimed exemption under section 10(26) Legal framework: Section 273B provides that no penalty shall be imposable for specified failures (including section 271D) if the person proves there was 'reasonable cause' for the failure. Precedent treatment: The Court did not rely on external case law; the analysis proceeded from statutory text and facts. Interpretation and reasoning: The Tribunal considered whether the facts constituted a 'reasonable cause' within section 273B. Key factual elements influencing the Tribunal's view were: (i) the assessee belonged to a Scheduled Tribe and claimed exemption under section 10(26); (ii) the income underlying the cash receipts was exempted in assessment proceedings; (iii) the assessee's conduct was described as arising from an honest belief that no tax consequences attached to the transaction by virtue of the exemption; and (iv) prior to amendment from 01.04.2015 the scope of section 269SS related more narrowly to loans/advances, indicating statutory change and potential uncertainty. The Tribunal held that these circumstances were sufficient to constitute 'reasonable cause' for failure to comply with section 269SS and therefore attracted section 273B relief from penalty under section 271D. Ratio vs. Obiter: Ratio - where a taxpayer establishes a bona fide and understandable belief that a transaction gives rise to no tax consequences due to a statutory exemption (here section 10(26)) and the facts demonstrate honest non-compliance rather than deliberate contravention, such circumstances can constitute 'reasonable cause' under section 273B to preclude imposition of penalty under section 271D. Conclusions: The Tribunal set aside the confirmed penalty under section 271D, directing deletion of the penalty on the ground that section 273B applied because the assessee had reasonable cause. The finding that the exemption and surrounding factual matrix constituted reasonable cause is dispositive of penalty liability in this case. Cross-references and final observations 1. Issues 1 and 2 are related: while tax exemption under section 10(26) does not by itself displace the applicability of section 269SS (Issue 1), the limited statutory exceptions in section 269SS (Issue 2) do not cover non-agricultural exemptions such as section 10(26). 2. Issue 3 provides the operative conclusion: notwithstanding the statutory applicability of section 269SS, the Tribunal found that the equitable statutory safeguard in section 273B - requiring proof of reasonable cause - was satisfied on the facts, and therefore penalty under section 271D was not leviable. 3. Ratio binding for similar factual matrices: where exemption under a provision like section 10(26) is honestly relied upon and results in an honest belief that no tax consequences arise, section 273B may apply to negate penalty under section 271D; however, the Tribunal's conclusion is fact-sensitive and tied to absence of deliberate contravention and absence of evidence that the payer also had chargeable income or agricultural income.