Family Cash Transactions Cannot Attract Sections 271D & 271E Penalty: ITAT Rajkot

Manish Narendrabhai Gandhi Vs ACIT (ITAT Rajkot)

The Income Tax Appellate Tribunal (ITAT), Rajkot, allowed two appeals filed by the assessee and deleted penalties imposed under Sections 271D and 271E of the Income-tax Act, 1961, holding that cash transactions between close family members do not constitute loans or deposits within the meaning of Sections 269SS and 269T.

The first appeal related to a penalty of ₹10,08,000 imposed under Section 271D for alleged violation of Section 269SS. During penalty proceedings, it was found that the assessee had accepted cash receipts aggregating to ₹10,08,000 from the assessee’s brother’s HUF, wife, brother’s wife, and the assessee’s own HUF. The assessee explained that the amounts were received from close family members for business purposes and, therefore, the transactions did not partake the character of loans or deposits contemplated under Section 269SS. However, the Additional Commissioner of Income-tax rejected the explanation and levied a penalty equal to the cash received, which was confirmed by the CIT(A).

Before the Tribunal, the assessee reiterated that all the transactions were between close relatives and relied upon the Gujarat High Court’s decision in Dr. Rajaram L. Akhani vs. ITO, wherein it was held that transactions between close family members do not amount to loans or deposits for the purposes of Sections 269SS and 269T and, consequently, no penalty under Sections 271D and 271E is leviable.

The Tribunal observed that the relationship between the assessee and the parties was not disputed by the Revenue. Following the ratio laid down by the jurisdictional Gujarat High Court, it held that the cash receipts from close family members could not be regarded as loans or deposits under Section 269SS. Accordingly, it set aside the CIT(A)’s order and directed deletion of the penalty of ₹10,08,000 imposed under Section 271D.

The second appeal concerned a penalty of ₹4,70,000 imposed under Section 271E for alleged violation of Section 269T on cash repayments made to the assessee’s brother’s HUF and brother’s wife. The Tribunal held that these repayments were also made to close relatives and, therefore, the issue was fully covered by its findings in the first appeal and the Gujarat High Court’s judgment.

The Tribunal also noted that the assessment for Assessment Year 2015-16 had been completed under Section 143(3) by accepting the returned income of ₹2,70,000 without making any addition and without recording any adverse finding regarding the impugned transactions. Accordingly, it held that the penalties under Sections 271D and 271E were unsustainable and directed deletion of both penalties. Both appeals of the assessee were allowed.

FULL TEXT OF THE ORDER OF ITAT Rajkot

These two appeals filed by the assessee arise out of separate orders of the Learned CIT(A), both dated 23.02.2026, for Assessment Year 2015-16. ITA No. 596/Rjt/2026 relates to penalty imposed under section 271D of the Income-tax Act, 1961, whereas ITA No. 597/Rjt/2026 relates to penalty imposed under section 271E of the Act. Since the issues involved in both the appeals are interconnected, arise out of the same assessment year, and pertain to the same assessee, both appeals were heard together and are being disposed of by this consolidated order.

2. For the sake of convenience, we first take up ITA No. 596/Rjt/2026. The findings recorded therein shall apply mutatis mutandis to ITA No. 597/Rjt/2026.

ITA No. 596/Rjt/2026

3. The brief facts of the case are that penalty proceedings under section 271D of the Act were initiated against the assessee on the allegation that the assessee had violated the provisions of section 269SS by accepting cash amounts exceeding ₹20,000. During the course of penalty proceedings, it was found that the assessee had accepted aggregate cash receipts amounting to ₹10,08,000 from the following persons:

4. Accordingly, a notice under section 271D read with section 274 of the Act was issued calling upon the assessee to explain why penalty should not be levied. In response to the show-cause notice, the assessee submitted that all the amounts were received from close family members and relatives for business purposes and, therefore, the transactions did not partake the character of loans or deposits contemplated under section 269SS of the Act. However, the Additional Commissioner of Income-tax did not accept the explanation furnished by the assessee and imposed a penalty of ₹10,08,000 under section 271D of the Act, being equal to the amount received in cash. The learned CIT(A) confirmed the penalty.

5. Before us, the learned AR submitted that all the transactions were entered into amongst close relatives of the assessee. It was submitted that Sunil Narendrabhai Gandhi (HUF) belongs to the assessee’s brother, Maltiben Manishbhai Gandhi is the wife of the assessee, Illakshi Sunil Gandhi is the assessee’s brother’s wife, and Manisha N Gandhi (HUF) is the assessee’s own HUF. Therefore, the transactions were purely family transactions and could not be treated as loans or deposits within the meaning of section 269SS. The Ld. AR further relied upon the judgment of the Hon’ble Gujarat High Court in the case of Dr. Rajaram L. Akhani vs. ITO [(2017) 395 ITR 497 (Guj.)], wherein it was held that transactions between close family members do not amount to loans or deposits so as to attract the provisions of sections 269SS and 269T and consequently no penalty under sections 271D and 271E is leviable.

6. On the other hand, the Ld. DR relied upon the orders of the authorities below.

7. We have heard the rival submissions and perused the material available on record. We find that the entire amount of ₹10,08,000 was received from close family members and related entities. The relationship of the parties with the assessee has not been disputed by the Revenue Authorities. We further find that the issue is squarely covered by the judgment of the Hon’ble Gujarat High Court in the case of Dr. Rajaram L. Akhani vs. ITO (supra), wherein it was held that transactions between close family members cannot be regarded as loans or deposits for the purpose of sections 269SS and 269T of the Act. We, respectfully following the ratio laid down by the Hon’ble Jurisdictional High Court, we hold that the penalty imposed under section 271D of the Act is not sustainable. Accordingly, we set aside the order of the learned CIT(A) and direct the Assessing Officer to delete the penalty of ₹10,08,000.

8. The facts involved in ITA No. 597/Rjt/2026 are substantially identical except that the penalty has been imposed under section 271E of the Act for alleged violation of section 269T. In this case the assessee had repaid cash amounts aggregating to ₹4,70,000 as under:

9. Where, the Ld. Additional Commissioner of Income-tax imposed a penalty of ₹4,70,000 under section 271E of the Act, being equal to the amount repaid in cash. The learned CIT(A) sustained the said penalty.

10. We, after considering the rival submissions, we find that the repayments were also made to close relatives of the assessee. Therefore, the issue is fully covered by our findings recorded in ITA No. 596/Rjt/2026 and by the judgment of the Hon’ble Jurisdictional Gujarat High Court in Dr. Rajaram L. Akhani vs. ITO (supra). Accordingly, the penalty imposed under section 271E of the Act is also liable to be deleted. We further note that the assessment for Assessment Year 2015-16 was completed under section 143(3) of the Act vide order dated 22.12.2017 accepting the returned income of ₹2,70,000 without making any addition whatsoever. No adverse finding regarding the impugned transactions was recorded in the assessment order. Thus, on the facts of the present case, the penalties imposed under sections 271D and 271E cannot be sustained.

11. Accordingly, both the penalties of ₹10,08,000 and ₹4,70,000 imposed under sections 271D and 271E of the Act are directed to be deleted

In the result, both the appeals of the assessee are allowed.

Order is pronounced in the open Court on 12/06/2026.