Sri Raja Reddy Nalla Vs Add. CIT (ITAT Hyderabad)
Assessee had received cash in connection with sale of immovable property . As the amount was more than the specified limit of Rs. 20,000/- , penalty proceedings u/s. 271D were initiated for violating Sec 269SS and penalty order u/s. 271D was passed levying a penalty of Rs. 40,00,000/-. Assesse pleaded, inter alia, ignorance of law before the CIT (A) who confirmed the penalty.
On further appeal, assessee raised various grounds. Subsequently the assessee raised an additional ground that the AO has not recorded his satisfaction about initiation of penalty proceedings u/s 271D. Since the additional ground raised was purely a legal ground that goes to the root of the matter and no new facts are required to be investigated, in view of the decision in the case of NTPC Ltd 229 ITR 383( SC) and Jute Corporation of India Ltd reported in 187 ITR 688(SC), the additional ground raised was admitted for adjudication by the Tribunal.
Tribunal noted that assessment order nowhere shows that the AO has recorded his satisfaction for initiating penalty proceedings u/s 271D. Tribunal in Srinivasa Reddy Reddeppagari vs. Jt. CIT[ WP.44285 of 2022 dated 26.12.2022], it was argued before the Telangana High Court that non-recording of satisfaction is fatal. The decision of the Hon’ble Supreme Court in the case of CIT vs. Jayalakshmi Rice Mills Ambalacity, reported in (2015) 64 Taxmann.com 75 (S.C), was relied upon. High Court held that provisions of section 271D and 271E are pari materia to each other and the recording of satisfaction is a must.
Tribunal deleted the penalty. It may be noted that the penalty u/s 271D or 271E is imposable only by the Joint Commissioner, who may not be the AO and the decisions would help the assessee where the AO had not recorded the satisfaction in the assessment order.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The above two appeals filed by the respective assessees are directed against the separate orders dated 11.08.2022 of the learned CIT (A)-11, Hyderabad, relating to A.Y.2019-20. Since identical grounds have been raised in these two appeals, therefore, for the sake of convenience, these appeals were heard together and are being disposed of by this common order.
2. Facts of the case, in brief, are that the assessee is an individual and derives income from business or profession and income from other sources. A search & seizure operation u/s 132 of the I.T. Act, 1961 was conducted along with the group cases of M/s. Moksha Infracon Pvt Ltd and M/s. Kaveri Infra Projects (P) Ltd on 9.8.2018. The assessee filed his return of income on for the A.Y under consideration on 14.02.2020 admitting total income of Rs.1,46,37,210/- and agriculture income of Rs.12,05,000/-. Statutory notices u/s 143(2) & 142(1) of the I.T. Act were issued and served on the assessee to which the AR of the assessee appeared before the Assessing Officer from time to time and furnished the requisite details.
2.1 The Assessing Officer observed that during the course of search operation in the residence of the appellant, certain loose sheets were found and seized. As per the page no., 4 of Annexure A/NRR/01, cash of Rs. 2,00,00,000/- was noted to have been received by Sri J. Sampath Rao on 25-07-2018 on behalf of 5 sellers of an immovable property located at Bondugula Village. The assessee is one of the 5 sellers mentioned therein. A Sworn statement of Sri J. Sampath Rao was recorded during the course of search and he had stated to have received cash of Rs. on 2,00,00,000/- on behalf of 5 sellers including the assessee. Subsequently, the assessee agreed to have received cash of Rs. 40,00,000/- as his share with respect to sale of immovable property. As the cash received in connection with sale of immovable property was more than the specified limit of Rs. 20,000/- as per the Section 269SS of the IT Act, penalty proceedings u/s. 271D were initiated for violating the provisions of Section 269SS and penalty order u/s. 271D of the Act was passed on 07.06.2022 levying a penalty of Rs. 40,00,000/-.
3. In appeal, the learned CIT (A) confirmed the penalty levied by the Assessing Officer u/s 271D of the I.T. Act by observing as under:
“6. Decision:
In the instant case, penalty order u/s. 271D of the IT Act was passed on 07.0o.2022 levying a penalty of Rs, 40,00,000/- in connection with acceptance of consideration in cash on sale of immovable property.
Going into facts of the case, the appellant individual was covered under search and seizure operation u/s. 132 of the Act conducted in the group cases of M/s. Moksha Infracon Pvt. Ltd. and M/ s. Kaveri Infra Projects Pyt. Ltd on 09.08.2018. During the course of search operation, certain loose sheets were found and seized. As per the page no. 4 of Annexure A/NRR/01, cash of Rs. 2,00,00,000/- was noted to have received by Sri J. Sampath Rao on 25-07-2018 on behalf of the appellant and 4 other sellers of an immovable property located at Bondugula Village. A sworn statement of Sri J. Sampath Rao was recorded during the course of search and he had stated to have received cash of Rs. 2,00,00,000/- on behalf of 5 sellers including the appellant. Subsequently, the appellant agreed to have received cash of Rs. 40,00,000/- as his share with respect to sale of immovable property and admitted in his return of income filed for AY 2019-20. As the cash received connection with sale of immovable property was more than the specified limit of Rs.20,000/- as per the Section 269SS of the IT Act, penally proceedings u/s 271 D of the Act were initiated for violating the provisions of Section 2699SS and penalty order u/s, 271D of the Ac was passed on 07.06.2022 by the Addl. CIT levying a penalty of Rs. 40,00,000/-.
The appellant had agreed that he had received Rs. 40,00,000/-in cash as his share of advance towards sale of a land properly that was sold jointly by the appellant along with four others. The appellant had not disputed the receipt of cash of Rs. 40,00,000/- or the purpose for which such cash was received for.
Further, It is also to noted that the said cash of Rs. 40,00,000/- was added to the returned income of the appellant as undisclosed money in the assessment order passed u/s. 143(3) dated 21.04.2021 and taxed as per the provisions of Section 115BBE of the IT Act. The appellant had preferred an appeal against the assessment order before the undersigned and the appellate order was passed on 04.05.2022 allowing the appeal of the appellant. In the appellate order, it was held that the said amount of Rs. 40,00,000/- was not undisclosed money and it was in fact the consideration received in connection with the sale of immovable property by the appellant. Therefore nexus has been clearly established between the cash received and the sale of immovable property. Thus the appellant had received Rs. 40.00.000/- in cash as part o! consideration towards sale of immovable property.
Hence, in view of the above discussion, the provisions of Section 2693S are attracted straight forward in the case of the appellant and therefore liable to penalty u/s. 271D of the Act. The relevant extract of section 269SS and 271D are reproduced below:
“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 an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed?,
If________
(a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or
(b) on the date of taking or accepting such loan or deposit or specified sum, any loan (iv) or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid: or
(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more:
Explanation.-For the purposes of this section,
(iv) “specified sum” means any sum of money receivable, whether as advance 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.”
In view of the above, the appellant has clearly violated the provisions of Section 2698S by accepting cash of more than Rs. 20,000/- i.e. cash of Rs. 40,00,000/- as advance towards sale of immovable property. Therefore it is a clear cut case for levy of penalty u/s. 271D of the IT Act for violating the provisions of Section 269SS of the Act and there are no exceptions to the said Section and the levy of penalty is mandatory.
During the appellate proceedings, the appellant filed submissions, wherein the appellant claimed ignorance about the amended provisions of Section 269SS of the Income Tax Act, 1961 and in support of the claim, quoted various case laws for treating ignorance of the appellant as bonafide. It is a basic assumption that every person will be abide by the Law of the land and the principle is embodied in the well-known maxim” Ignorantia juris neminem excusat”, means ignorance of law is no excuse for breaking it’. This is one of the essential principles of jurisprudence. The rationale behind this principle is that if ignorance was an excuse, every person who is charged for any offence or involved in a crime would merely claim that he was unaware of the law in question in order to avoid liability, even though he was well aware of the consequences of breaking the 1aw. The law enforcement machinery shall come to a grinding halt if ignorance is accepted as a defense. Also it can also lead to mishandling of law on the part of law breakers and this can never be the intention of the legislature to enrich the law breakers by providing a shield of ignorance. Hon’ble Allahabad High Court in the case of Commissioner of Sales Tax, U.P. v. Modi Food Products Ltd., held that every individual is deemed to know the law of the land. The courts merely interpret the law and do not make law. Ignorance of law is not an excuse for not taking appropriate steps within limitation. Therefore the argument that the appellant did not know the true legal position is not one that can be accepted in law. Hence, in view of the same, explanation of the appellant is not accepted.
It will also not be out of place to mention that this transaction was unearthed during the Course of Search proceedings and this transaction of cash portion would have been most likely not disclosed but for the Search proceedings at the premises of the appellant. The appellant and the transferee as a likely practice, have indulged in the lesser amount of registering as per the SRO value as has been observed in large number of cases. The appellant and the transferee have indulged in the same practice and the sum of Rs. 21,76,000/- was paid in cheque as per the sale deed dated 11.10.2018 and the Rs. 40,00,000/- which was paid in cash does not find mention in the sale deed dated 11. 10.2018. This is a very clear case wherein the consideration has been received in two parts, accounted cheque and unaccounted cash and the same has not been even recorded even after the Search was conducted on 09.08.2018. It is a very clear case that the appellant being the transferor thought he would get away with this and therefore the appellant to plead ignorance is completely futile argument, the intent of the appellant to come clean was not even there post the Search proceedings. Therefore this whole Plea ls rejected as a self-serving manufactured imaginary contention devoid of merits and considered as an attempt to find an escape route to the guilt. The whole story of consulting the tax expert is an afterthought and is to bypass its own guilt and responsibility. In view of the above, the action of the Addl. CIT in levying the penalty is hereby confirmed. Accordingly ground no. 1 and 2 are dismissed”.
4. Aggrieved with such order of the learned CIT (A) the assessee is in appeal before the Tribunal by raising the following grounds:
“1. The Commissioner of Income tax – Appeals -11, Hyderabad [ herein after denoted as Hon CIT -A] erred in confirming the penalty order of Additional Commissioner of Income Tax, Central Circle -1, Aayakar Bhavan Hyderabad [herein after termed as Ld. Add. CIT] of levy of penalty under section under section 271D of Income tax Act, 1961/ for short – the Act].
2. The Hon.CIT-A had erred in summarily rejecting the judicial views submitted by the appellant.
3. The Hon. CIT -A had erred in opining that that the appellant had not disclosed the cash portion of the consideration. The learned CIT-A failed to appreciate the fact that the appellant had already disclosed Rs.40.00 lakhs with the Department – which disclosure date was much before the date of registration of property.
4. The Ld.CIT-A had erred in forming an opinion that the tax payer ought to have full and complete knowledge of all provisions tax laws, which is contrary to the popular judicial views. The leaned CIT-A failed to appreciate basic practical premise that income tax law is a highly dynamic and ever-changing law and that there is high probability for knowing a provision fully well by an average tax payer till a transaction or two covered by a section are undertaken.
5. For the grounds pleaded above or for such other additional grounds that may be pleaded at the time hearing the appellant prays for the deletion of the said penalty amount levied under section 271D or to grant such other relied as the Hon’ble Bench may deem fit and proper under the facts and circumstances of the case. “
5. The assessee has also raised an additional ground which reads as under:
“1. The levy of penalty u/s 271D of the I.T. Act, 1961 at Rs.40,00,000 is wholly unsustainable based on the facts and in law as the Assessing Officer has not recorded his satisfaction about initiation of penalty proceedings u/s 271D of the said Act.”
6. The learned Counsel for the assessee submitted that the additional ground raised by the assessee is purely a legal ground and goes to the root of the matter. Further all material facts are already available on record and no new facts are required to be investigated. Therefore, in view of the decision of the Hon’ble Supreme Court in the case of NTPC Ltd reported in 229 ITR 383 and Jute Corporation of India Ltd reported in 187 ITR 688, he submitted that the additional ground raised by the assessee should be admitted for adjudication.
7. The learned DR, on the other hand, strongly opposed the admission of the additional ground and submitted that the assessee at this juncture should not be allowed to raise the additional ground. Alternatively, he submitted that he may be granted time to go through the same and obtain a report from the Assessing Officer.
8. After hearing both the sides and considering the fact that the additional ground raised by the assessee is purely legal in nature and all material facts are already available on record and no new facts are required to be investigated, the additional ground raised by the assessee is admitted for adjudication.
9. The learned Counsel for the assessee argued both on merit as well as on the additional ground which is legal in nature and filed the following written submissions:
appellant and other four co-owners have broadly permitted Sri J Sampath Rao to identify and negotiate a prospective vendee. The identification of a vendee , the crystalizing of the deal and the receipt of advance – all the three aspects have happened in such a quick succession that the appellant could not keep pace with these developments. The appellant was left with no time or opportunity to carry the matter of land sale deal to his tax consultant and to ascertain the income tax related nuances involved in a property sale. The receipt of Rs.2,00,00,000 and its distribution (of a proportionate share) to appellant , seizer of a portion of the said cash advance in a search action conducted under section 132 of Income tax Act, 1961] for short – the Act] on 08-08-2018 – all happened in a lightning speed and, as already submitted, the things did not leave room to discuss with the tax consultant to understand the income tax ramifications of sale of an immovable property.
It humbly submitted that the appellant, in the immediate past (at least from April , 2015 onwards ) did not sell any immovable property ( except the sale in the year 2017-18 of a small property whose sale consideration was Rs.6,10,000). The appellant further submits that since, in the past, immovable properties were rarely sold by him, he had hardly got an opportunity to learn about some changes that had taken place in some of the sections of Income Tax that deal with the real estate transactions. However, it may be mentioned here that though the amount was received in cash, the same was duly disclosed in his income tax return and offered to tax under the head capital gains. The assessee is existing taxpayer on the rolls of the Department and details of the income assessed for past 10 assessment years is as follows:
