Chennai ITAT Deletes ₹64.60 Lakh Penalty U/s 271D; Temporary Cash Support to Show Visa Funds Is Not a Loan

Natarajan Sayikumar Vs ITO (ITAT Chennai)

Chennai ITAT Deletes ₹64.60 Lakh Penalty U/s 271D; Temporary Cash Support to Show Visa Funds Is Not a Loan

Summary: The Chennai ITAT allowed the assessee’s appeal and deleted the penalty of ₹64,60,000 levied under Section 271D for alleged violation of Section 269SS. The assessee had deposited ₹64,60,000 in cash, explaining that the amounts were temporarily received from relatives and friends to demonstrate financial worth for obtaining a visa for his son’s higher education abroad and were returned shortly thereafter. During assessment proceedings under Sections 147, 142(1) and 143(2), the Assessing Officer examined the parties under Section 133(6), who confirmed providing and receiving back the cash, accepted the explanation as genuine, and made no addition in the assessment, but initiated penalty proceedings under Section 271D. The Tribunal noted that the assessment records, confirmations, bank statements, admission documents from New York University, and visa-related financial documentation supported the assessee’s explanation. It found that the amounts were received only to demonstrate creditworthiness and not as loans or advances. Holding that there was no loan or advance to attract Section 269SS, the Tribunal concluded that initiation of penalty proceedings under Section 271D was unwarranted, set aside the CIT(A)’s order, and deleted the penalty.

The Chennai ITAT deleted a penalty of ₹64.60 lakh levied u/s 271D, holding that temporary cash received from friends and relatives solely to demonstrate financial capability for the assessee’s son’s overseas education did not constitute a loan or deposit so as to attract the provisions of section 269SS. The assessee had deposited ₹64.60 lakh in his bank account, which was subsequently withdrawn within a day and returned to the respective parties after the purpose of obtaining a student visa was served. Although the Assessing Officer accepted the explanation as genuine during reassessment proceedings and made no addition on account of the cash deposits, he nevertheless initiated penalty proceedings for alleged violation of section 269SS.

The Tribunal noted that the AO had conducted independent verification by issuing notices u/s 133(6) to the persons who had provided the cash. All of them confirmed that the money had been temporarily handed over to the assessee and returned shortly thereafter. The assessment records also established that the cash was received only to demonstrate the assessee’s creditworthiness for securing a visa for his son’s admission to New York University Polytechnic School of Engineering, and not as a loan or advance. The admission documents and financial requirements placed on record corroborated the assessee’s explanation.

Holding that the transaction was merely temporary financial support and not a loan or deposit, the Tribunal concluded that the essential ingredients of section 269SS were absent. Since the very provision was inapplicable, the initiation of penalty proceedings u/s 271D was held to be without basis. Accordingly, the Tribunal set aside the order of the CIT(A), deleted the entire penalty of ₹64.60 lakh, and allowed the assessee’s appeal.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This appeal filed by the assessee is directed against the order dated 09.01.2026 passed by the Id. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [NFAC], Delhi for the assessment year 2015-16.

2. Brief facts of the case are that, the assessee is an individual, having no taxable income and no return of income for the assessment year 2015-16 was filed. The AO found that during the relevant year, the assessee deposited cash of Rs.64,60,000/- into his bank account and issued notice u/s. 148 of the Income-tax Act, 1961 (herein after “the Act”). In response to the said notice, the assessee explained that the cash was received from close relatives to demonstrate his financial worth and creditworthiness for securing visa for his son’s higher education purpose and immediately within a day after the purpose is served, he had withdrawn the said amount and returned to the respective parties. The AO, satisfied with the explanation of the assessee and accepted the transaction as genuine, but however, initiated penalty proceedings u/s. 271 D of the Act for violation of provisions of section 269SS, for accepting cash loan exceeding Rs.20,000/-. During the course of penalty proceedings, the AO called upon the assessee to show cause against the levy of penalty u/s. 271D of the Act. In response to show cause notice, the assessee submitted his replies on 18.03.2024 and 27.04.2024. Considering the said replies, the AO held that the assessee has failed to prove the reasonable cause for accepting the cash and levied penalty of Rs.64,60,000/- u/s. 271 D of the Act. Aggrieved, assessee preferred an appeal before the Id.CIT(A) relying on various judicial precedents and contended that no penalty is leviable where transactions are genuine. However, the Id.CIT(A) sustained the penalty. Aggrieved by the order of the Id.CIT(A), the assessee is before us.

3. The Id.AR, Mr. M. Karunakaran, Advocate, submits that the Id.CIT(A) erred in confirming the levy of penalty u/s. 271D of the Act of Rs. 64,60,000/- and the amounts received by assessee from the friends and relatives represent financial support and not loan or advance within the meaning of section 269SS of the Act to warrant levy of penalty u/s 271D of the Act. He argued that there was reasonable cause for the assessee to accept the financial support from the relatives and friends and no penalty u/s 271D could be levied within the meaning of section 273B of the Act, further submits that when the loans are considered as genuine and accepted by the AO without making any addition, the Assessment unit is not justified in levying penalty under section 271D of the Act. He further submits that keeping in view the object of the provision of section 269SS the cash transaction which was genuine could not be brought under the net of tax under the provision of section 269SS to levy penalty u/s 271D of the Act and provisions of section 269SS are not applicable to the assessee’s case. He argued vehemently that the authorities below are not justified in levying penalty u/s 271D of the Act and prayed that the penalty of Rs. 64,60,000 levied u/s 271D of the Act may be deleted.

4. The Id.DR, Ms. Anitha, Addl.CIT relied on the order of the Id.CIT(A).

5. Heard both the parties and perused material available on record. We note that the assessee filed return of income in response to the notice u/s. 148 of the Act. Said return was examined and accepted vide assessment order dated 11.01.2024 passed u/s. 147 r.w. 144 & 144B of the Act. We find the said assessment order at page no. 10 to 16 of the paper book filed by the assessee. On perusal of the same, we note that according to the AO, that the assessee is non-filer and based on information flagged in accordance with the risk management strategy formulated by CBDT with reference to cash deposits of Rs.64,60,000/-, the AO issued notice u/s. 148 of the Act on 02.04.2022. As discussed above, the assessee filed return of income and in response to the same, the AO issued notices u/s. 142(1) & 143(2) of the Act. The assessee filed details with reference to the deposit of cash in his bank account which are reproduced from page no. 4 to 6 of the assessment order. The AO examined said parties u/s. 133(6) of the Act, wherein all the parties confirmed that the cash was given to the assessee and immediately after few days cash was returned to them by the assessee. Further, we find that the assessee explained the reasons for cash deposits from his relatives and friends in order to send his son for further studies to abroad and to show his creditworthiness to get visa for his son’s education in abroad. As it appears from the assessment order that the AO found satisfied with the explanation offered by the assessee in respect of the cash deposits in his bank account and confirmations by the parties thereto that the said cash deposits made into assessee’s account only to show creditworthiness of the assessee to pursue his son’s education in abroad. On further examination of the assessment record, we find there was no allegation by the AO that the said amounts were taken by the assessee by way of loan or advances to his son’s education, but however, the AO recorded his satisfaction for initiating penalty proceedings u/s. 271 D of the Act for violation of section 269SS of the Act.

6. The Id.AR placed on record details of cash deposits and withdrawals, bank statement, admission documents from New York University from page nos. 1 to 9 of the paper book. On perusal of the admission document from page nos. 5 to 9 of the paper book, we note that the assessee’s son received admission requirements from NYU Polytechnic School of Engineering, NewYork on 09.07.2014 stating that the assessee’s son must submit the complete declaration of finances showing that he has adequate funding to support his education at NYU Polytechnic School of Engineering. Accordingly, the assessee’s son processed his application by enclosing application fee, completed application, copy of passport photopage, financial documentation and copy of NYU admission letter on 25.12.2014 which clearly support explanation offered by the assessee before the AO with reference to cash deposits obtained to show his creditworthiness which was confirmed by his relatives and friends, who offered deposits to assessee to show his creditworthiness. Therefore, having considered the facts and circumstances of the case, we find force in the arguments of Id.AR that there was no loan or advance to attract provisions u/s. 271D of the Act, as it was only cash deposits to show the creditworthiness of the assessee. Thus, initiation of penalty proceedings u/s. 271D of the Act for violation₌of provisions of section 269SS of the Act does not arise at all, consequently, penalty imposed u/s. 271D of the Act is deleted. Therefore, order of the Id.CIT(A) is not justified and set aside. Thus, grounds raised by the assessee are allowed.

7. In the result, appeal filed by the assessee is allowed.

Order pronounced on 08^th July, 2026 at Chennai.