ITAT deletes Section 271D penalty; cash sale consideration covered by Section 269SS protected by Section 273B reasonable cause

The ITAT Cochin allowed the assessee's appeal and deleted the penalty levied u/s 271D for alleged violation of s.269SS. It held that the impugned cash receipt, being part of the sale consideration for land, was a genuine transaction duly recorded in the books, with no intention to evade tax. The cash was accepted only under buyer's insistence at the time of registration, immediately deposited into the bank, and fully disclosed. These circumstances constituted "reasonable cause" under s.273B, rendering the penalty u/s 271D unsustainable.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether acceptance of cash component of sale consideration for immovable property amounted to violation of section 269SS warranting penalty under section 271D.

1.2 Whether, on the facts and circumstances, the assessee had established "reasonable cause" under section 273B so as to avoid levy of penalty under section 271D.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of section 269SS and levy of penalty under section 271D

Legal framework (as discussed)

2.1 The Court proceeded on the basis that acceptance of substantial cash (above the prescribed monetary limit) towards sale consideration could attract section 269SS and consequential penalty under section 271D, subject to the application of section 273B. Reliance was placed on the settled principle that penalties are not automatic and must be examined in light of the assessee's conduct and surrounding circumstances, including the ratio in Hindustan Steel Ltd. 83 ITR 26 (SC).

Interpretation and reasoning

2.2 The Court noted that the assessee had sold two plots of land; one sale was entirely through banking channels, while in the second sale, a portion was by bank transfer and the balance was brought in cash by the purchaser at the time of registration.

2.3 The transaction of sale, including the cash component, was fully disclosed in the return of income and properly recorded in the books. The entire sale consideration was invested in construction of a residential house and claimed under section 54, thus evidencing that the transaction was genuine and part of the regular tax computation.

2.4 There was no finding in the assessment order or the penalty order that the impugned cash receipt was not bona fide, or that it represented unaccounted money, or that it was accepted with the object of evading tax.

2.5 The Tribunal observed, following judicial precedents including Ajitnath Hitech Builders and Triumph International Finance (Bombay High Court), that where genuineness of the transaction, identity of payer, and source of funds are not in dispute and there is no indication of tax evasion, mere technical breach of the provision should not trigger penalty.

Conclusions

2.6 On the established facts of full disclosure, genuineness of transaction, proper accounting, and absence of any tax evasion motive, the Court held that the case did not present a fit situation for sustaining penalty under section 271D.

Issue 2: Existence of "reasonable cause" under section 273B for accepting cash

Legal framework (as discussed)

2.7 The Court applied section 273B, which provides that no penalty under section 271D shall be imposed if the assessee proves that there was reasonable cause for the failure to comply with section 269SS. The principle from Hindustan Steel Ltd. that penalty provisions are not meant to punish technical or venial breaches but serious, contumacious defaults with mala fide intent was invoked.

Interpretation and reasoning

2.8 The assessee's explanation was that the purchaser unexpectedly brought the balance sale consideration in cash on the date of registration, whereas part of the consideration had already been paid through banking channels. The registration was already fixed, both parties were present, and the assessee had no real bargaining power or practical option to refuse or postpone the transaction.

2.9 The Tribunal accepted that the assessee's acceptance of cash arose from commercial and practical compulsion at the time of registration, not from a premeditated design to circumvent section 269SS.

2.10 The assessee deposited the entire cash into his bank account on the very same day and did not retain or utilise it for unaccounted purposes. This immediate banking of the cash and its reflection in the return of income and investment in a residential house were treated as strong indicia of bona fide conduct.

2.11 The Tribunal considered that the identity of the payer, genuineness of the transaction, and the source of funds were never doubted by the revenue authorities. There was also no evidence or allegation of tax evasion or concealment.

2.12 Following the Bombay High Court decisions in Ajitnath Hitech Builders and Triumph International Finance, the Tribunal held that where the transaction is genuine and the assessee's conduct is bona fide and driven by practical compulsion, the circumstances constitute "reasonable cause" under section 273B.

Conclusions

2.13 The Court concluded that the assessee had successfully demonstrated reasonable cause for accepting cash in the given circumstances. Consequently, by virtue of section 273B, penalty under section 271D was not leviable and was deleted in full.

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