Case Law Details
Bommarabettu Madhusudhana Acharya Vs ITO (ITAT Bangalore)
Penalty u/s 271D Deleted – Cash Received as Sale Consideration Not Loan/Deposit – Reasonable Cause & Bona Fide Transaction Covered u/s 273B – ITAT Bangalore
In ITA No.937/Bang/2025, AY 2016-17, the assessee received ₹13,56,500 in cash from buyers towards sale of flats, which was treated by the Department as violation of Sec.269SS, leading to penalty u/s 271D equal to the amount received. The assessee contended that the cash represented balance sale consideration and was accepted due to insistence from buyers, who were temple workers without active banking facilities.
The Tribunal noted that the genuineness of the transaction and sale of property were never disputed and that confirmation letters from buyers were furnished. Referring to judicial precedents and principles of Sec.273B (reasonable cause), ITAT observed that penalty u/s 271D is not automatic and must consider bona fide circumstances. The purpose of Sec.269SS is to curb unaccounted money, not to penalize genuine transactions.
Considering that the cash receipts were genuine, arose from property sales and were accepted under business compulsion, ITAT held that the assessee had demonstrated reasonable cause. Accordingly, the penalty of ₹13,56,500 was deleted, and the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This Appeal at the instance of the assessee is directed against the order of ld. CIT(A)/NFAC dated 12.03.2025 vide DIN and Order No: ITBA/NFAC/S/250/2024-25/1074386977 (1) passed u/s. 250 of the income Tax Act, 1961 (in short “the act”) for the AY 2016-17.
2. The assessee has raised the following Grounds of appeal: –
1. “On the facts and in the circumstances of the case, the penalty was confirmed which was levied under sec 271D of the Act is opposed to law and to the principles of natural justice and accordingly the same is liable to be cancelled.
2. The Ld. AO has grossly erred in not considering and/or appreciating the bona fide explanation offered by the Appellant by the online reply filed and thereby grossly erred in confirming the penalty under section 271D of the Act.
3. Without prejudice, the ld. CIT(A) confirming the penalty ought to have appreciated that the provisions of Sec.269SS of the Act were not acceptable to the case of the appellant and consequently the penalty under sec 271 D was not exigible.
4. The Ld. CIT(A) ought to have appreciated that the circumstances that prompted the Appellant to receive on sale of sites cash from buyers and ought to have refrained from levying the penalty
5. On the facts the Ld. CIT(A) ought to have accepted the income declared under the head capital gain and allowed the exemption claimed under Section 54EC of the Act as claimed by the appellant in full
6. The Ld. CIT(A)ought to have appreciated that the amount received was only the balance consideration at the time of registration and part of the sale consideration and it is neither a loan nor an advance
7. Thus, the Ld. CIT(A) erred in drawing conclusion only on surmise which was opposed to law and the impugned penalty as confirmed is liable to be deleted
8. Without prejudice, the penalty as levied is arbitrary and uncalled for considering the facts and circumstances of the case and therefore the same is required to be deleted in toto.
9. For these and such other grounds they may be urged at the time of hearing the appellant prays that the appeal be allowed.”
3. Brief facts of the case are that the assessee is engaged in the business of construction of residential building under the name and style of M/s. Vidya Builders and also running Private finance. The assessee filed his return of income on 28.3.2017 for the assessment year 2016-17 declaring total income of Rs.9,59,390/-. The said return was processed u/s 143(1) of the Act by accepting the returned income. Thereafter, the case was selected for scrutiny under CASS. Accordingly, notices u/s 143(2) as well as 142(1) of the Act were issued calling for the details. The assessee in response to above notices, filed all the details which were called for and accordingly, the AO completed the assessment proceedings u/s 143(3) of the Act on 19.12.2018 by accepting the returned income filed by the assessee.
3.1 During the year under consideration, the AO noticed that there was a receipt of cash exceeding Rs.20,000/- against transfer of immovable property (sale of flats) to the extent of Rs.13,56,500/- in violation of the provisions of section 269SS of the Act and accordingly the penalty proceedings u/s 271D of the Act were initiated by the ld. Addl/JCIT Range-1, Manguluru and a show cause notice u/s 274 r.w.s. 271D of the Act was issued to the assessee. In response to the above show cause notice, the assessee responded and filed his written submission along with copy of letters received from the buyers from whom the cash is received against the sale of property. The main contention of the assessee is that the buyers have booked the property for purchase before the amendment of the provisions of section 269SS of the Act i.e. on or before 1.6.2015. The assessee contended that in spite of the repeated requests, the buyers had refused to make the payment otherwise than cash and intended to cancel the deal. The assessee submitted that had he pressurized to make the payment to the buyers through account payee cheque or draft, the buyer would have cancelled the deal which resulted in severe financial crisis to him in addition to loss of business and in view of the above, he was forced to accept the payment in cash.
3.2 The ld. AO however, after examining the reply along with its annexure filed by the assessee, held that the assessee has deliberately accepted the cash in violation of the provisions of section 269SS of the Act and hence the reply of the assessee was not found tenable. In the instant case, since the assessee has accepted specified sum of Rs.13,56,500/- from 4 different persons in cash, which is in contravention of the provisions of section 269SS of the Act and accordingly, held that failure on the part of the assessee attracts penalty u/s 271D of the Act and accordingly levied the penalty of Rs.13,56,500/- being sum equal to the amount of specified sum so accepted.
4. Aggrieved by the order of ld. AO passed u/s 271D of the Act dated 8.2.2022, the assessee has preferred an appeal before the ld. CIT(A)/NFAC.
5. The ld. CIT(A)/NFAC dismissed the appeal of the assessee by holding as follows:
1. The assessee has accepted the fact that he had accepted cash for the transaction.
2. Further, insistence from other party for cash payment cannot be a reasonable cause for failure to follow the rule.
3. The other parties not having bank accounts is also not a reasonable cause for failure.
4. It is only when there are no banking facility, where transaction took place; there can be consideration for any exception.
6. Aggrieved by the order of ld. CIT(A)/NFAC dated12/03/2025, the assessee is in appeal before this Tribunal. The assessee has also filed a paper book comprising 69 pages containing therein the copies of written submissions, confirmation letters from the buyers, copy of the acknowledgement having filed before the AO along with copy of sale deed as well as case laws relied upon by the assessee.
7. Before us, the ld. A.R. of the assessee vehemently submitted that the buyers were temple workers and they had either no bank balances or no active banking. The assessee had agreed to receive the payment in cash under compulsion since the buyer of the flats insisted for payment in cash and the assessee in the fear of cancellation of the deal accepted the same otherwise it would have resulted in loss of business along with severe financial crisis. Since this a reasonable & bonafide cause for accepting the cash in excess of Rs.20,000/- as prescribed u/s 269SS of the Act, the ld. A.R. of the assessee accordingly prayed to delete the penalty in the interest of justice.
8. The ld. D.R. on the other hand supported the order of the authorities below and submitted that there is a clear violation of section 269SS of the Act and therefore, the AO has rightly levied the penalty of Rs.13,56,500/-and prayed to dismiss the appeal of the assessee.
9. We have heard the rival submissions and perused the materials available on record. On going through the order of penalty, we take a note of the fact that the assessee has accepted specified sum of Rs.13,56,500/- from four different persons in cash, which is in contravention of the provisions of section 269SS of the Act i.e. accepting the aggregate amount more than Rs.20,000/- by the mode other than the allowed mode. On going through the submission made by the assessee before the authorities below, we find that the buyers were temple workers and they either had no bank balances to pay or did not have active banking. The assessee had agreed to receive the payment in cash under compulsion since the buyer of the flats insisted to receive payment in cash and the assessee in the fear of cancellation of the deal accepted the same otherwise it would have resulted in loss of business along with the severe financial crisis. Since this a reasonable & bonafide cause for accepting the cash in excess of Rs.20,000/- as prescribed u/s 269SS of the Act, the ld. A.R. of the assessee, accordingly, prayed to delete the penalty in the interest of justice.
9.1 We are of the considered opinion that there is no dispute on the amount of money received by the assessee in the impugned transaction on sale of property. We are also of the considered opinion that the buyers of the property had also filed their confirmation letters stating therein that they do not have any taxable income and they have held cash in hand to pay for the residential properties.
9.2 The purpose of introduction of section 269SS of the Act was discussed in the judgement of Hon’ble Allahabad High Court in the case of Dimple Yadav reported in 379 ITR 177 (All.), wherein the Court considered the recourse of section 271D of the Act and also the provisions of section 273B of the Act to hold as under:
“6. The short question that arises for consideration is, whether any penalty could be imposed under Section 271D of the Act?
7. The learned counsel for the department contended that the unsecured loan, which was more than Rs.20,000/- taken by the assessee from a political party should have been taken by a cheque or a demand draft through banking channels, which had not been done. The taking of the loan in cash, which was more than Rs.20,000/- was in gross violation of Section 269SS of the Act and, consequently, by operation of law, the penalty was rightly imposed, which had wrongly been deleted by the appellate authorities. The learned counsel contended that there was no urgency for the assessee to receive the entire amount in cash nor any dire need was shown for taking such huge amount in cash. In support of his submission, the learned counsel has placed reliance upon a decision of the Punjab and Haryana High Court, Charan Dass Ashok Kumar v. CIT [2014]365 ITR 367/[2015] 231 Taxman 513/[2014] 52 com 424 and Auto Piston MFG. Co. (P.) Ltd. v. CIT [2013] 355 ITR 414/218 Taxman 150 (Mag.)/38 taxmann.com 61 (Punj. & Har.) as well as the decision of the Madras High Court P. Baskarv. CIT [2012] 340 ITR 560/21 taxmann.com 78.
8. On the other hand, Sri Vijay Bahadur Singh, the learned Senior Counsel contended that the transaction of loan found place in the books of accounts of the assessee as well as by the lender, namely, the Samajwadi Party and that the assessing authority while completing the assessment order had found that the transaction of loan was genuine. The learned counsel submitted that in the absence of any finding that the transaction of loan was not genuine or it was a sham transaction to cover unaccounted money, no penalty could be imposed. In support of his submission, the learned Senior Counsel relied upon a decision of Gauhati High Court in CIT v. Bhagwati Prasad Bajoria (HUF)[2003]263 ITR 487/133 Taxman 426, Chamundi Granites (P.) Ltd. v. Dy. CIT/Asstt. Director of Inspection v. Kum. A.B. Shanthi [2002] 255 ITR 258/122 Taxman 574 (SC)and M. Janardhana Rao v. Jt. CIT [2005] 273 ITR 50/142 Taxman 722 (SC).
9. In order to appreciate the submission of the learned counsel for the parties, it would be appropriate to refer to a few provisions which will have a bearing to the issue involved in the present case, namely, Sections 269SS, 271D and Section 273B of the Act. For facility, the said provisions are extracted hereunder:
‘269SS. No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, if –
(a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such
(b) person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid;
or
the amount or the aggregate amount referred to in clause (a) together with
(c) the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more:
Provided that the provisions of this section shall not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by, –
(a) the Government;
(b) any banking company, post office savings bank or co-operative bank;
(c) any corporation established by a Central, State or Provincial Act;
(d) any Government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013); such other institution, association or body or class of institutions,
(e) associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:
Provided further that the provisions of this section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act.
Explanation. – For the purposes of this section, –
“banking company” means a company to which the provisions of the
(i) Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act;
(ii) “co-operative bank” shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);
(iii) “loan or deposit” means loan or deposit of money;
“specified sum” means any sum of money receivable, whether as advance
(iv) or otherwise, in relation to transfer of an immovable property whether or not the transfer takes place.
271D.(1) 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.
(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.
273B. Notwithstanding anything contained in the provisions of clause (b) 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 271H, section 271-I, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA, or section 272B or sub-section (1) or sub-section (1A) of section 272BB or clause (b) of subsection (1) of section or clause (b) or clause (c) of sub-section (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.’
10. The object of introducing Section 269SS of the Act was to ensure that a tax payer was not allowed to give false explanation for his unaccounted money or if the tax payer made some false entries, he would not escape by giving false explanation for the same. It was found that during the search and seizure, unaccounted money was found and the tax payer usually gave an explanation that he had borrowed or received deposits from his relatives or friends and, consequently, it became easy for the so called lender to manipulate his record to suit the plea of the tax payer. In order to curb this menace, Section 269SS of the Act was introduced to do away with the menace of making false entries in the account books and later give an explanation for the same. Section 269SS of the Act consequently, required that no person shall take or accept any loan or deposit, if it exceeds more than Rs. 20,000/-in cash.
11. Section 271D of the Act provided that a person who takes or accepts any loan or deposit in contravention of the provision of Section 269SS of the Act, he would be liable to pay by way of penalty a sum equal to the amount of the loan or deposit so taken or accepted.
12. Section 271D of the Act caused undue hardship to the tax payers where they took a loan or deposit in cash exceeding Rs. 20,000/- even where there was a genuine or bona fide transaction. The legislature accordingly, introduced Section 273B of the Act, which provided that if there was a genuine and bona fide transaction and the tax payer could not get a loan or deposit by an account payee cheque or demand transaction for some bona fide reason, the authority vested with the power to impose penalty had a discretion not to levy the penalty.
13. In Chamundi Granites (P.) Ltd. (supra) the Supreme Court considered the provision of Section 271D and 273B of the Act and held:—
“It is important to note that another provision, namely section 273B was also incorporated which provides that notwithstanding anything contained in the provisions of section 271D, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision is he proves that there was reasonable cause for such failure and if the assessee proves that there was reasonable cause for failure to take a loan otherwise than by account-payee cheque or account-payee demand draft, then the penalty may not be levied. Therefore, undue hardship is very much mitigated by the inclusion of section 273B in the Act. If there was a genuine and bona fide transaction and if for any reason the taxpayer could not get a loan or deposit by account-payee cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty has got discretionary power.”
14. In Bhagwati Prasad Bajoria’s (HUF) (supra) the Gauhati High Court held:
“….. The transaction of loan has found place in the books of account of the assessee as well as the lender of the loan. None of the authorities have reached the conclusion that the transaction of the loan was not genuine and it was a sham transaction to cover up the unaccounted money. It appears to us that the assessee felt need of money and thus he approached the money-lender for advancement of the money, the transaction is reflected in the promissory notes executed by the assessee in favour of the lender. When there is an immediate need of money the person cannot get such money from the nationalised bank to satisfy the immediate requirement…… “
15. In the instant case, we find that the Tribunal has given a categorical finding that the assessee had established a reasonable cause for failure to comply with the provision of Section 269SS of the Act. The Tribunal further found that the loan given by the Samajwadi Party was a genuine loan, which was reflected in the books of accounts on account of the Samajwadi Party as well as in the books of account of the assessee and that the cash given by the party was deposited in the bank of the assessee and, thereafter, used for the purpose of converting the nazul land into free hold. The Tribunal found that the genuineness of the transaction was also not disputed by the Assessing Officer.
16. In the light of the aforesaid, we find that even though the assessee had taken a loan in cash, nonetheless, the loan transaction was a genuine transaction and was routed through the bank account of the assessee which clearly shows the bona fides of the assessee. The cash given by the lender was not unaccounted money but was duly reflected in their books of account. The Assessing Officer also accepted the explanation and found the transaction to be genuine. The contention of the learned counsel for the appellant that since there was no urgency, the assessee could have taken the loan through cheque and should have processed the matter through regular banking channels is immaterial, inasmuch as the genuineness of the transaction has not been disputed by the Assessing Officer. Further, we find that the cash was deposited in the bank account of the assessee and the money was thereafter, routed through the banking channel for payment to the government for converting the land into free hold property.
17. In the light of the aforesaid, we are of the view that reasonable cause had been shown by the assessee and the provisions of Section 273B of the Act was applicable. The appellate authorities were justified in holding that no penalty could be imposed since a reasonable cause was shown by the assessee.”
9.3 Though the judgement cited (supra) was given before the introduction of amendment, wherein property transaction in cash was included, but the basic premise of section 269SS of the Act remains the same i.e. to deter the use of unaccounted money and allow relief as per provisions of section 273B of the Act considering reasonable cause. On a similar footing, the Hon’ble Gujarat High Court in CIT Vs. Panchsheel Owners Associations (2017) 395 ITR 380 (Guj) (HC), held that “genuineness of the transaction had not been disputed and there is reasonable cause”. The Hon’ble Supreme Court in the case of Chamundi Granites (Pvt.) ltd. (2002) (122 taxman 574) (SC) while considering hardship caused by section 269SS of the Act as appended to the provisions of section 273B of the Act and held that “section 273B of the Act was also incorporated which provides that notwithstanding anything contained in the provisions of section 271D of the Act, 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 such failure and if the assessee proves that there was reasonable cause for failure to take a loan and otherwise than by account payee cheque, or account payee demand draft, then the penalty may not be levied”.
9.4 The test to be provided for reasonable cause u/s 273B of the Act by Hon’ble Supreme Court (255 ITR 258) for section 271D r.w.s. 269SS of the Act which are as under:
a) Reasonable cause to take a loan otherwise than by account payee cheque or draft and
b) Transaction is Bonafide.
9.5 If assessee does not fulfil both of these tests of reasonable cause, assessee fails to substantiate with evidences, Bonafide not of taking/accepting the sales consideration in cash and he was unable to procure the sales consideration by account payee cheque or account payee demand draft.
9.6 Section 273B starts with a non obstante clause and provides that notwithstanding anything contained in several provisions enumerated therein including section 271D, no penalty shall be imposable on the person or the assessee, as the case may be, for failure referred to in the said provisions, if he proves that there was reasonable cause for the said failure. A clause beginning with ‘notwithstanding anything’ is sometimes appended to a section in the beginning with a view to give the enacting part of the section in case of conflict, an over-riding effect over the provision or Act mentioned in the non obstante clause – Orient Paper & Industries Ltd. v. State of Orissa AIR 1991 SC 672. A non obstante clause may be used as a legislative device to modify the ambit of the provision or law mentioned in the non obstante clause, or to override it in specified circumstances – T.R. Thandur v. Union of India AlR 1996 SC 1643. The true effect of the non obstante clause is that in spite of the provision or the Act mentioned in the non obstante clause, the enactment following it will have its full operation or that the provisions embraced in the non obstante clause will not be an impediment for the operation of the enactment – Smt. Parayankandiyal Eravath Kanapravan Kalliani Amma v. K. Devi ÅIR 1996 SC 1963. Therefore, in order to bring in application of section 27 ID in the backdrop of section 273B, absence of reasonable cause, existence of which has to be established by the assessee, is the sine qua non.
9.7. Levy of penalty under section 271D is not automatic. Before levying penalty, that concerned officer is required to find out that even if there was any failure referred to in the provision concerned, the same was without a reasonable cause. The initial burden is on the assessee to show that there existed reasonable cause which was the reason for the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider whether the explanation offered by the assessee or the person, as the case may be, as regards the reason for failure, was on account of reasonable cause. ‘Reasonable cause’ as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as a probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which, assuming them to be true, would reasonably lead any ordinary prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do. The cause shown has to be considered and only if it is found to be frivolous, without substance or foundation, the prescribed consequences will follow.
9.8 In the instant case, the sale of property and consequent receipt of the sale consideration in cash are not disputed by the either side. The assessee has sold the immovable property and received the part payment of Rs.13,56,500/- in cash. The genuineness of the transaction is also accepted by the AO in the assessment proceedings. The buyer has also produced the confirmation letters confirming the payments. The main contention of the assessee is that the buyers are temple workers, and they do not have either bank balances or the banks are not operative and accordingly, they forced to receive cash for the above said sale of flats.
9.9 Keeping in view of facts and relevant case laws (supra) into consideration, in our considered opinion, there is a reasonable cause for contravention to section 269SS of the Act in accepting the cash otherwise than account payee cheque/account payee draft in the case of the assessee and further the genuineness of the transaction is also accepted by the AO. We find the claim of the assessee is Bonafide and within the meaning of provisions of section 273B of the Act and accordingly, we direct the AO to delete the penalty levied u/s 271D of the Act amounting to Rs.13,56,500/-.
10. In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 13th Feb, 2026
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