Case Law Details
Patel Prakashchandra Ambalal HUF Vs ACIT (ITAT Ahmedabad)
The Ahmedabad ITAT deleted massive penalty of ₹1.01 crore levied under Section 271D against an HUF engaged in finance and investment activities, holding that penalty for alleged cash loan/deposit transactions cannot survive in absence of clear finding regarding contravention of Section 269SS during assessment proceedings.
The assessee was engaged in advancing loans and recovering the same along with interest. During revenue audit, the department alleged that the assessee had accepted cash loans/deposits in violation of Section 269SS based on entries found in the cash book produced during scrutiny assessment. Relying upon audit objections, penalty proceedings under Section 271D were initiated and penalty equal to the alleged cash receipts was imposed.
Before the Tribunal, the assessee argued that no finding regarding violation of Section 269SS was recorded during the original assessment proceedings and that the penalty proceedings were triggered merely because of subsequent audit objection and change of opinion. It was further contended that the authorities ignored the balance-sheet disclosures, loan/deposit details and supporting evidences already furnished during assessment.
The ITAT accepted the contention and observed that the Assessing Officer had not recorded any specific finding during assessment that the assessee violated Section 269SS. The Tribunal relied upon the Supreme Court ruling in Joint CIT vs. Grandhi Sri Venkata Amarendra holding that penalty under Section 271D cannot be sustained where the assessment order itself contains no finding regarding such violation.
The Tribunal also referred to the Supreme Court decision in CIT vs. Sahara India Financial Corporation Ltd., where practical realities of cash dealings in areas lacking banking facilities were considered relevant while examining Section 269SS violations. Holding that mere second opinion arising from audit objections cannot automatically justify penalty, the ITAT deleted the entire penalty in full.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This is an appeal filed against the order dated 03-12-2025 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2017-18.
2. The grounds of appeal are as under:-
“1.1 The order passed u/s 250 on 03.12.2025 for A.Y. 2017-18 by NFAC CIT(A) Delhi [(for short” CIT(A)] confirming the penalty of RS. 1,01,05,620/- imposed u/s 271D of the Act by FAO for alleged contravention of the provisions of Sec 269SS of the Act is wholly illegal, unlawful and against the principles of natural justice.
1.2 The Ld. CIT(A) has grievously erred in law and or on facts in disposing the penalty appeal in spite of the quantum appeal pending disposal before CIT(A) which is gross violation of the provisions of sec 275 and rules of natural justice.
1.3 The Ld. CIT(A) has grievously erred in law and or on facts in not appreciating that the relevant documentary evidence relating to the recovery of receipts was already on his record in quantum proceedings so that the appellant believed that the same would amount to duplication and need not be uploaded such voluminous evidence and even otherwise the appellant was not given any opportunity in this regards.
2.1 The Ld. CIT(A) has grievously erred in law and or on facts in upholding that the cash recovery by the appellant amounted to contravention of the provisions of Sec 269SS of the Act and there by confirming the penalty of RS. 1,01,05,620/-imposed u/s 271D of the Act by FAO.
2.2 That in the facts and circumstances of the case as well as in law, the Ld. CIT(A) has grievously erred in upholding that the cash recovery by the appellant amounted to contravention of the provisions of Sec 269SS of the Act and there by confirming the penalty of RS. 1,01,05,620/- imposed u/s 271D of the Act by FAO.
2.3 That in the facts and circumstances of the case as well as in law, the Ld. CIT(A) has grievously failed to appreciate that there was sufficient cause for alleged acceptance of cash receipts in view of the bonafide belief entertained in this regards.
2.4 Without prejudice to above and in alternative the impugned penalty imposed u/s 271D was excessive and call for reduction.
It is therefore prayed that the penalty 1,01,05,620/- imposed by FAO and confirmed by CIT(A) should be deleted.”
3. The assessee, Shri Patel Prakashchandra Ambalal, is an individual assessed as Hindu Undivided Family (HUF) engaged in the business of finance and investment under the proprietary concern. The assessee claims to be in the business of advancing loans to members and recovering the same along with interest. For the assessment year 2017-18, the assessee filed a return of income on 30.08.2017 declaring a total income of Rs. 6,93,520/-. The case was selected for complete scrutiny under Computer Assisted Scrutiny Selection (CASS). The assessment proceedings were completed u/s 143(3) of the Income Tax Act, 1961 on 31.12.2019 determining the total income at Rs. 2,12,96,043/- as against the returned income of Rs. 6,93,520/- resulting in additions aggregating to Rs. 2,06,02,523/- under the following heads:
Addition u/s 37 of the IT Act, 1961: Rs. 1,87,02,523/-
Addition u/s 68 of the IT Act, 1961: Rs. 19,00,000/-
Subsequently, during the course of Revenue Audit, the Audit Party detected serious violations of section 269SS of the Income Tax Act, 1961. On perusal of the Cash Book submitted by the assessee during assessment proceedings, it was noticed that the assessee had received loans or deposits or other sums in cash which were in contravention of section 269SS of the Act. The contravention of section 269SS attracts penalty under section 271D of the Income Tax Act, 1961, which provides that 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. The penalty under section 271D is mandatory in nature and is attracted automatically upon establishment of contravention of section 269SS. Accordingly, a notice under section 274 read with section 271D of the Income Tax Act, 1961 was issued on 31.05.2022 by the Joint/Additional Commissioner of Income Tax, Range-1(1), Vadodara, calling upon the assessee to show cause as to why penalty should not be imposed for failure to comply with the provisions of section 269SS of the Income Tax Act, 1961. Not being satisfied with the explanation, another show cause notice for penalty under section 271D of the Income Tax Act, 1961 was issued on 19.10.2022, and the assessee was requested to submit documents and evidences on or before 27.10.2022. The assessee requested adjournment for further time, which was granted in the interest of natural justice, and the assessee was requested to submit documents and evidences on or before 09.11.2022. After considering the submissions of the assessee and examining the material on record, the Assessing Officer concluded that the explanation of the assessee was not plausible and that there was malafide intention on the part of the assessee to fail to comply with the provisions of section 269SS of the Income Tax Act, 1961. Accordingly, penalty of Rs. 1,01,05,620/- was imposed under section 271D of the Income Tax Act, 1961 vide order dated 08.02.2023.
4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
5. The ld. A.R. submitted that the assessee did not contravene any provisions of section 269SS and in fact there was no notice u/s. 271D or initiation u/s. 271D before the Assessing Officer during the assessment proceedings. The ld. A.R. submitted that the claim of short deposit by the assessee and as per section 275 only six months of end of financial year are available for including section 271D but in the present case, the Assessing Officer has not initiated penalty within the limited period. In fact, the Assessing Officer has not initiated 271D. The ld. A.R further submitted the balance sheet/deposits claim and loan has not at all been taken into account by the Assessing Officer ignoring the evidences and has imposed the penalty which is not justifiable.
6. The ld. D.R. relied upon the assessment order and the order of the CIT(A).
7. Heard both the parties and perused all the relevant material available on record. The assessee has given all the details about cash deposits during assessment proceedings and merely having a second opinion cannot invoke section 271D. In fact, the decision of the Hon’ble Supreme Court in case of CIT vs. Sahara India Financial Corporation Ltd. (2023) 153 com225 (SC) categorically mentions that no penalty u/s. 271D for dealing in cash deposit as assessee is non-banking financial company dealt with depositors are dealings to rural areas where adequate bank facilities were not available. The ld. A.R. also relied upon the decision of the Hon’ble Apex Court in case of Joint CIT vs. Grandhi Sri Venkata Amarendra (2026) 183 taxmann.com 545 categorically holds where Assessing Officer did not record any finding that there had been any violation of section 269SS by the assessee, the penalty could not be levied u/s. 271D. In the present case, the Assessing Officer has not given any finding related to violation of section 269SS of the Act. These decisions are applicable in assessee’s case as well. Thus, penalty imposed is not sustainable.
8. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 15-05-2026
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