2026 (4) TMI 116 - AT - Income Tax

Penalty limitation and genuine agricultural land sale receipts defeat Section 271D penalty where reasonable cause is shown.

Section 275(1)(c) was applied to hold that limitation for penalty under Section 271D runs from the month in which the Assessing Officer initiates penalty ... Penalty u/s 271D as barred by limitation u/s 275(1)(c) - receipt of cash consideration for sale of agricultural land attracted Section 269SS - Reasonable cause u/s 273B Initiation of penalty proceedings beyond period of limitation -HELD THAT: - The Tribunal held that, where the AO had, in the course of assessment proceedings, recorded satisfaction regarding violation of section 269SS and forwarded the matter for penalty action, the action for imposition of penalty stood initiated at that stage. For purposes of section 275(1)(c), limitation therefore had to be reckoned from the end of the month in which that reference was made. The later issuance of notice u/s 274 by the competent penalty authority could not postpone the commencement of limitation. On the facts, the reference was treated as having been made on completion of the assessment proceedings, and the penalty order passed thereafter was beyond the prescribed period. The Tribunal declined to accept the contrary departmental view founded on the CBDT circular and the Kerala High Court decision in Grihalakshmi Vision [2015 (8) TMI 1214 - KERALA HIGH COURT] holding that the later view treating the AO's reference as the triggering point governed the matter. [Paras 17, 18, 23] The penalty order was held to be time-barred and liable to be quashed for all the assessment years in appeal. Specified sum under section 269SS - Cash consideration for sale of agricultural land - Reasonable cause under section 273B - HELD THAT: - The Tribunal found that the land sold by the assessee had already been held in connected proceedings to be agricultural land and that the sale transaction itself was genuine and recorded in the registered documents. It held that penalty under section 271D is not automatic and must yield where the assessee establishes reasonable cause under section 273B. The assessee's explanation that cash was accepted under a bona fide belief that sale of agricultural land, being outside the tax net, would not attract section 269SS, was accepted as reasonable, particularly in the absence of any material showing mala fides or tax evasion. The Tribunal further held that the legislative object behind insertion of the expression specified sum was to curb black-money transactions in immovable property, especially advances and similar receipts, and that genuine sale consideration received at the time of registration of agricultural land could not be stretched into that expression so as to attract penalty. On that reasoning, the levy under section 271D was unsustainable on merits as well. [Paras 25, 26, 27, 28, 29] The penalty under section 271D was deleted on merits also, independently of the finding on limitation. Final Conclusion: The Tribunal allowed all three appeals. It held that the penalty orders under section 271D were barred by limitation under section 275(1)(c) and, in any event, the penalty was not sustainable on merits in respect of cash received on genuine sale of agricultural land, the assessee having established reasonable cause. Issues: (i) Whether the penalty order under Section 271D was barred by limitation under Section 275(1)(c). (ii) Whether receipt of cash consideration for sale of agricultural land attracted Section 269SS and justified penalty under Section 271D, or whether the assessee was protected by Section 273B.Issue (i): Whether the penalty order under Section 271D was barred by limitation under Section 275(1)(c).Analysis: The assessment proceedings had recorded the alleged violation and the reference for penalty was treated as having been made on completion of the assessment on 30.03.2023. The Court applied Section 275(1)(c) and held that, for penalty under Section 271D, limitation runs from the month in which action for penalty is initiated by the Assessing Officer's reference, not from the later show-cause notice issued by the Joint Commissioner. On that basis, the penalty order dated 29.06.2024 was beyond six months from the end of the relevant month.Conclusion: The penalty order was time-barred and unsustainable in favour of the assessee.Issue (ii): Whether receipt of cash consideration for sale of agricultural land attracted Section 269SS and justified penalty under Section 271D, or whether the assessee was protected by Section 273B.Analysis: The transaction was a genuine sale of agricultural land, the consideration was reflected in the registered sale deeds and in the books, and there was no material of unaccounted money or tax evasion. The Court construed the expression 'specified sum' in Section 269SS in the context of the legislative object of curbing cash advances in immovable property transactions, and held that completed sale consideration for agricultural land did not warrant application of Section 269SS on these facts. It further held that the assessee had shown reasonable cause and bona fide belief within Section 273B.Conclusion: The levy of penalty under Section 271D was not justified and was deleted in favour of the assessee.Final Conclusion: The penalties were quashed and deleted for all the assessment years, and the assessee's appeals succeeded in full.Ratio Decidendi: For penalty under Section 271D, limitation under Section 275(1)(c) begins from the Assessing Officer's reference initiating action, and a bona fide, genuine cash receipt towards sale consideration of agricultural land may fall outside penal consequences where reasonable cause under Section 273B is established.