Penalty cannot be levied if there is reasonable cause shown by the assessee: ITAT-Ahmedabad

By Hirak Shah, Advocate-Gujarat High Court

Penalty Under Section 271D cannot be levied if there is reasonable cause shown by the assessee for failure to comply with provisions of Section 269SS of the Income Tax Act, 1961

1. The Hon’ble Income Tax Appellate Tribunal, Ahmedabad recently allowed the appeal filed by the Assessee challenging the penalty levied under section 271D of the Income Tax Act, 1961 and held that penalty shall not be levied if there is reasonable cause shown by the assessee for failure to comply with provisions of Section 269SS of the Income Tax Act, 1961.

Background

2. The brief facts of the  case  is  that  the  assessee  is  an  individual and engaged in the business of  repairing  of  gold/silver  For the Assessment Year 2017-18, the assessee filed its Return of Income on 09.09.2018 declaring total income of Rs.8,00,000/-. The assessee’s case was selected for scrutiny assessment, since cash deposits were made during demonetization  period.  The  assessee was asked to furnish source of cash deposit along with documentary evidences and copy of the bank statements.  The assessee replied that the cash deposit is out of his sale proceeds of residential flats and his income from repairing of gold/silver ornaments. In support of the same,  the  assessee submitted copy of the  sale  deed,  cash  book  and  bank  statement.   The Assessing Officer issued a summons u/s. 133(6) of the  Act to the purchaser of the flat, received reply from the purchaser and was satisfied with the explanation offered by the purchaser that she being an agriculturist, purchased the flat from the assessee by cash transaction. Thus, the Assessing Officer completed the assessment accepting the returned income as the assessed income.

3. Thereafter the assessee was issued a notice u/s. 274 read with section 271D calling for explanation on the cash transaction in connection with violation of  section 269SS of  the Act. The assessee replied that during the year, he sold his immovable property for a sum of Rs.12,00,000/- to an individual. The purchaser being an agriculturist from a small village, she paid the sale consideration of Rs.12,00,000/- by cash, which is being duly and truly reflected in the Registered Sale Deed and also in the Return of Income filed by the assessee. Further the assessee was not aware of the violation of Section 269SS which will attract penalty u/s. 271D of the Act. The above explanation offered by the assessee was not accepted as satisfactory, therefore the Joint Commissioner levied a penalty u/s. 271D of Rs.12,00,000/-.

5. Aggrieved by the order passed by the Joint Commissioner, the assessee filed an appeal before Ld. NFAC (Delhi). The NFAC considered the submissions of the assessee and held that as per the explanation to Section 269SS, “specified sum” means any sum of money receivable in relation to transfer of an immovable property also. In this case, undisputedly, the assessee has received a sum of Rs.12,00,000/- in cash as sale consideration for transferring the immovable property which is clear violation of the provisions of section 269SS of the Act. The assessee had not demonstrated any “reasonable cause” for violation of the above provisions of law. Therefore Ld. NFAC confirmed the levy of penalty u/s. 271D of the Act of Rs.12,00,000/-.
6. Aggrieved against the order passed by Ld. NFAC, the assessee filed an appeal before the Ld. Tribunal raising elaborate grounds of appeal and stating that penalty shall not be imposed upon demonstration of “reasonable cause” by the assessee.

Relevant Legal Provisions

6. Provisions of Section 271D and Section 273B of the Income Tax Act, 1961 are as follows:

Section 271D: Penalty for failure to comply with the provisions of section 269SS

• “If a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified sum so taken or accepted.
• Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.”

273B: Penalty not to be imposed in certain cases:

“Notwithstanding anything contained in the provisions of clause (b) of sub- section (1) of section 271, section 271A, section 271AA, section 271B, section 271BA, section 271BB, section 271C, section 271CA, section 271D, section 271E, section 271F, section 271FA, section 271FAB, section 271FB, section 271G, section 271GA, section 271GB, section 271H, section 271-I, section 271J, clause or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section of section 272AA or section 272B or subsection (1) or sub-section (1A) of section 272BB or sub-section (1) of section 272BBB or clause (b) of sub-section (1) or clause (b) or clause (c) of subsection (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.”

Ruling

7. The Ld. Tribunal gave thoughtful consideration and perused the materials available on record. The Ld. Tribunal held that it was an undisputed fact that the assessee sold immovable property for consideration of Rs.12,00,000/- to an individual who is an agriculturist from a small village, wherein Banking facilities are not available. However, the cash sale consideration was very much reflected in the Registered Sale Deed which was executed on 29.04.2017 by the Purchaser. When the Purchaser was summoned u/s. 133(6) of the Act by the Ld. A.O., he was satisfied with the reply of the Purchaser and passed the assessment order accepting the Returned Income without making any additions.  Thus,  the grievance made out by the assessee is found to be genuine and reasonable cause. In the above circumstances the levy of penalty under Section 271D in our considered opinion is unwarranted.

Analysis and Comments

8. Provisions of Section 273B of the Income Tax Act, 1961 act as relaxing provisions whereby penalty cannot be imposed under various provisions of the Income Tax Law and thus the said provision can be very well utilized in order to provide a pass through arrangement for the assessee and prevent unnecessary financial burden.

9. However, it is pertinent to note that the said provision can only come to our help provided we demonstrate genuine and reasonable cause to the Departmental authorities for non-compliance or failure of the provisions of the Income Tax Law.

10. Thus, maintenance of adequate documentary evidence can be construed as of being of prime importance in order to avail benefits of provisions of Section 273B of the Income Tax Act, 1961.

(The views prescribed hereinabove are strictly based on the author’s own interpretation of the legal provisions and their implications and do not have any legal impact.)

(The author had appeared on behalf of the petitioner. He practices in the High Courts, Tribunals, various Appellate Forums)