Section 271D Penalty Passed Beyond Limitation Quashed: ITAT Chennai

Subramanian Manoharan Vs ITO (ITAT Chennai)

Summary: ITAT Chennai held that a penalty order under section 271D passed beyond the limitation prescribed under section 275(1)(c) of the Income Tax Act, 1961, was barred by limitation and liable to be quashed. The assessee, Shri Subramanian Manoharan, had sold an immovable property and received ₹7 lakh in cash, comprising ₹3 lakh on 27.12.2015 and ₹4 lakh on 11.03.2016. The Assessment Unit treated the receipts as violating section 269SS and imposed a penalty of ₹7 lakh under section 271D by an order dated 11.03.2023. In appeal, the NFAC deleted the penalty corresponding to ₹4 lakh received at the time of the final sale transaction by following ITO v. Shri Dhinagharan (HUF), wherein it was held that “specified sum” under Explanation (iv) to section 269SS covers advance money relating to the transfer of immovable property but not final sale consideration received at the time of execution or registration. The penalty of ₹3 lakh relating to the earlier receipt was sustained. Before the Tribunal, the assessee contended that the entire penalty order was time-barred because the show-cause notice under section 274 read with section 271D was issued on 29.08.2022. The Tribunal observed that section 275(1)(c), being the residuary limitation provision, governed penalties under sections 271D and 271E, as also clarified by CBDT Circular No. 10/2016 dated 24.06.2016. Since no assessment or other substantive order had been passed in the course of which penalty proceedings were initiated, the first limb of section 275(1)(c) had no application. Under the second limb, the order had to be passed within six months from the end of August 2022, and the limitation therefore expired on 28.02.2023. As the penalty order was passed only on 11.03.2023, it was beyond the statutory period. ITAT accordingly quashed the penalty order, deleted the remaining penalty of ₹3 lakh and left the other grounds open. The assessee’s appeal was partly allowed.

Cash Received on Sale of Property

The Chennai Bench of the ITAT considered an appeal filed by the assessee, Shri Subramanian Manoharan, against the order of the NFAC concerning penalty imposed under section 271D for AY 2016-17.

The assessee, an individual, had filed his return of income on 31.01.2018 declaring total income of ₹3,94,720. During the relevant year, he sold an immovable property and received an aggregate amount of ₹7 lakh in cash. Of this, ₹3 lakh was received on 27.12.2015, while ₹4 lakh was received on 11.03.2016.

The tax authorities treated the cash receipts as being in violation of section 269SS. Accordingly, the Assessment Unit passed an order dated 11.03.2023 imposing penalty of ₹7 lakh under section 271D, equivalent to the amount allegedly received in contravention of section 269SS.

CIT(A) Grants Partial Relief of ₹4 Lakh

In appeal, the CIT(A) granted partial relief to the assessee. The penalty corresponding to the cash receipt of ₹4 lakh on 11.03.2016 was deleted by following the Chennai ITAT decision in ITO v. Shri Dhinagharan (HUF), ITA No. 3329/Chny/2019, order dated 29.12.2023.

In that decision, the Tribunal had examined the meaning of the expression “specified sum” appearing in Explanation (iv) to section 269SS. It was held that the expression covers advance money received in relation to the transfer of immovable property, but does not cover an amount received as part of the final sale consideration at the time of execution or registration of the sale transaction.

Since the amount of ₹4 lakh was received at the stage of the final sale transaction, the CIT(A) deleted the corresponding penalty. However, the penalty relating to the earlier cash receipt of ₹3 lakh was sustained.

The assessee carried the matter to the Tribunal and raised an important legal ground that the entire penalty order dated 11.03.2023 was barred by limitation under section 275(1)(c).

When Did the Limitation Clock Begin?

The assessee submitted that the show-cause notice initiating the penalty proceedings under section 274 read with section 271D was issued on 29.08.2022. Accordingly, applying the second limb of section 275(1)(c), the penalty order had to be passed within six months from the end of the month in which the action for imposition of penalty was initiated.

Since the proceedings were initiated in August 2022, the six-month period expired on 28.02.2023. However, the penalty order was passed only on 11.03.2023. It was therefore contended that the penalty order had travelled beyond the statutory deadline and was liable to be quashed.

The Departmental Representative was unable to controvert the dates or the computation of limitation presented by the assessee.

Section 275(1)(c) Governs Penalty Under Section 271D

The Tribunal examined the limitation provisions contained in section 275. Section 275(1)(a) applies where penalty proceedings are linked to an assessment, reassessment or other order which becomes the subject matter of an appeal. Section 275(1)(b) applies where the relevant order is the subject matter of revision under section 263 or section 264.

Section 275(1)(c) is a residuary provision governing penalty proceedings falling outside clauses (a) and (b). It prescribes two alternative periods of limitation. The penalty order must be passed before the expiry of:

The financial year in which the proceedings, during which penalty action was initiated, were completed; or six months from the end of the month in which the penalty action was initiated, whichever period expires later.

The Tribunal also referred to CBDT Circular No. 10/2016 dated 24.06.2016, which expressly clarified that the limitation stipulated under section 275(1)(c) applies to penalties imposed under sections 271D and 271E.

Therefore, there was no dispute that the validity of the penalty order in the present case had to be tested against section 275(1)(c).

First Limb of Section 275(1)(c) Had No Application

The Tribunal noticed that no assessment order or other substantive order had been passed in the course of which proceedings under section 271D were initiated. Consequently, the first limb of section 275(1)(c), linked to completion of such underlying proceedings, had no application.

The case was therefore governed exclusively by the second limb, namely, six months from the end of the month in which action for imposition of penalty was initiated.

The show-cause notice issued by the Joint Commissioner of Income-tax, Range-1, Tirupur, was dated 29.08.2022. The issuance of this notice was specifically recorded in the penalty order itself. Thus, at the very latest, the action for imposing penalty stood initiated on that date.

The period of six months calculated from the end of August 2022 expired on 28.02.2023. Significantly, the authority passing the penalty order had itself acknowledged this limitation date in the penalty order. Nevertheless, the order imposing penalty was passed only on 11.03.2023.

Penalty Quashed as Time-Barred

The Tribunal held that the penalty order had admittedly been passed beyond the limitation prescribed under section 275(1)(c). A penalty imposed after expiry of the statutory period was without legal authority and could not be sustained.

Accordingly, the penalty of ₹3 lakh sustained by the CIT(A) was deleted. Since the penalty order itself was quashed on the legal ground of limitation, the Tribunal considered it unnecessary to adjudicate the assessee’s remaining grounds on merits and left them open.

The assessee’s appeal was consequently partly allowed.

Key Findings of ITAT Chennai

1. Penalties under sections 271D and 271E are governed by the limitation prescribed under section 275(1)(c).

2. CBDT Circular No. 10/2016 dated 24.06.2016 expressly clarifies the applicability of section 275(1)(c) to such penalties.

3. No assessment order or other substantive order had been passed in the course of which the proceedings under section 271D were initiated.

4. Consequently, the first limb of section 275(1)(c) had no application.

5. The action for imposing penalty stood initiated, at the latest, when the show-cause notice was issued on 29.08.2022.

6. Six months from the end of August 2022 expired on 28.02.2023.

7. The penalty order dated 11.03.2023 was passed beyond the statutory limitation period.

8. The entire penalty order was therefore barred by limitation and liable to be quashed.

9. The remaining penalty of ₹3 lakh sustained by the CIT(A) was deleted.

10. The assessee’s other grounds were left open because the penalty order itself had been quashed on the legal ground of limitation.

Cases Discussed

1. ITO v. Shri Dhinagharan (HUF), ITA No. 3329/Chny/2019; order dated 29.12.2023.

Relevance: The Chennai ITAT held that the expression “specified sum” in Explanation (iv) to section 269SS covers advance money received in relation to the transfer of immovable property, but not an amount received as final sale consideration at the time of execution or registration of the sale transaction. The CIT(A) followed this decision to delete the penalty relating to ₹4 lakh received on 11.03.2016.

2. Shri B. Anand Babu v. DCIT, ITA Nos. 2085 to 2087/Chny/2025; order dated 22.12.2025.

Relevance: Relied upon by the assessee for the proposition that a penalty order under section 271D passed beyond the limitation prescribed under section 275(1)(c) is liable to be quashed.

Author’s Comments

The decision reminds the Revenue that limitation is not an administrative formality capable of being overlooked. Once the action for penalty under section 271D was initiated through the notice dated 29.08.2022, the statutory clock began to run. An authority cannot acknowledge 28.02.2023 as the deadline and still validly pass the order on 11.03.2023. Whatever may be the merits of the alleged cash violation, a penalty order passed after limitation is a legal non-starter. In tax proceedings, the Department may have a case, but it must also keep the calendar.

Full Text of the Order of ITAT Chennai

This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 29.09.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The NFAC’s order arises out of the order of the assessment unit imposing penalty u/s.271D of the Act amounting to Rs.7,00,000/-. The relevant Assessment Year is 2016-17.

2. Brief facts of the case are as follows: The assessee is as individual. For the assessment year 2016-17, return of income was filed on 31.01.2018 declaring total income of Rs.3,94,720/-. The assessee during the relevant assessment year had sold a property and received Rs.7,00,000/- in cash (Rs.3 lakhs on 27.12.2015 and Rs.4 lakhs on 11.03.2016) thereby violating the provisions of section 269SS of the Act. The assessment unit vide order dated 11.03.2023 imposed penalty of Rs.7,00,000/- u/s.271D of the Act for violation of provisions of section 269SS of the Act.

3. Aggrieved, assessee filed appeal before the First Appellate Authority (FAA). The FAA partly-allowed the appeal of the assessee. The FAA deleted a sum of Rs.4,00,000/- [cash received on 11.03.2016] by following the dictum laid in the order of the Chennai Bench of the Tribunal in the case of ITO vs. Shri Dhinagharan (HUF) in ITA No.3329/Chny/2019 (order dated 29.12.2023). The Tribunal in the above mentioned order had concluded expression “specified sum” defined in Explanation (IV) to section 269SS of the Act, covers only advance money received in relation to transfer of immovable property and not the amount received as part of final sale consideration at the time of execution / registration of sale transaction.

4. Aggrieved by the order of FAA in sustaining the addition of Rs.3,00,000/- imposed u/s.271D of the Act, assessee has filed the present appeal before the Tribunal. The assessee has filed a legal ground namely Ground No.6 stating that order passed u/s.271D is barred by limitation.

5. The Ld. AR, placing reliance on the decision of the Chennai Bench of the Tribunal in the case of Shri B. Anand Babu vs. DCIT in ITA Nos.2085 to 2087/Chny/2025, order dated 22.12.2025, contended that the penalty order passed by the Assessment Unit is barred by limitation in terms of section 275(1)(c) of the Act. The Ld. AR submitted that the show-cause notice initiating the penalty proceedings was issued on 29.08.2022 and, reckoning the limitation with reference to the second limb of section 275(1)(c) of the Act, the penalty ought to have been imposed within six months from the end of the month in which the action for imposition of penalty was initiated. Accordingly, the penalty order was required to be passed on or before 28.02.2023. However, in the instant case, the penalty order u/s. 271D of the Act was passed only on 11.03.2023. Therefore, the Ld. AR submitted that the penalty order being barred by limitation needs to be quashed.

6. The Ld.DR was unable to controvert the assertion of the Ld.AR.

7. We have heard rival submissions and perused the material on record. The time limit for imposition of penalty under section 271D of the Act is governed by the provisions of section 275 of the Act. Clause (a) of sub-section (1) of section 275 deals with the limitation for imposition of penalty in cases where the penalty proceedings are initiated in the course of assessment proceedings or in pursuance of an order of assessment or reassessment, or other order referred to therein, and such order is the subject matter of appeal. Clause (b) of sub-section (1) of section 275 deals with cases where the relevant assessment or other order is the subject matter of revision under section 263 or section 264 of the Act. Clause (c) of sub-section (1) of section 275 is residuary in nature and governs other cases namely penalty proceedings in other cases. The relevant provision, namely, section 275(1)(c) of the Act, reads as under:-

“275(1) No order imposing a penalty under this Chapter shall be passed-

(a) …………

(b) …………

(c) in any other case, no order imposing a penalty shall be passed after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.”

8. The CBDT, vide Circular No.10/2016 dated 24.06.2016, has also clarified that the time limits prescribed under section 275(1)(c) of the Act are applicable to the imposition of penalty under sections 271D and 271E of the Act. Therefore, there is no dispute that the limitation for passing the penalty order under section 271D of the Act is required to be reckoned in terms of section 275(1)(c) of the Act. Section 275(1)(c) of the Act prescribes two alternative periods of limitation, namely, (i) before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or ii) six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later. In the present case, admittedly, no assessment order or other order has been passed in the course of which the penalty proceedings under section 271D of the Act has been initiated. Consequently, the first limb of section 275(1)(c) has no application to the facts of the present case. As regards the second limb, the records demonstrate that the show-cause notice under section 274 r.w.s. 271D of the Act was issued by the office of the Joint Commissioner of Income-tax, Range-1, Tirupur, on 29.08.2022. The issuance of the said notice has been specifically recorded in paragraph 2 of the penalty order itself. Therefore, for the purpose of reckoning the limitation, the action for imposition of penalty stood initiated, at the latest, on 29.08.2022. Accordingly, reckoning six months from the end of the month in which the penalty proceedings were initiated, the limitation under section 275(1)(c) expired on 28.02.2023. Significantly, the Assessing Authority itself has acknowledged the aforesaid period of limitation in paragraph 3 of the penalty order. Despite the limitation having expired on 28.02.2023, the penalty order under section 271D of the Act was passed only on 11.03.2023. Thus, the impugned penalty order has admittedly been passed beyond the statutory period prescribed under section 275(1)(c) of the Act. In view of the above, we hold that the order imposing penalty under section 271D of the Act is barred by limitation and, consequently, is liable to be quashed. Accordingly, the penalty of Rs.3,00,000/- sustained by the FAA is deleted. It is ordered accordingly.

9. Since the penalty order has been quashed on the legal ground of limitation, the other grounds raised by the assessee are left open.

10. In the result, the appeal filed by the assessee is partly-allowed.

Order pronounced in the open court on 11th September, 2026 at Chennai.