Cash Received From Transfer of Property – No Penalty In Case of Reasonable Cause

Cash has always been an inevitable element of the Country’s economy. In a bid to curb black money as well as to limit the number and amount of cash transactions, the government has come out with provisions and related rules and prohibited some types of cash payments in the Finance Acts.  Cash transactions in property transfers are subject to strict regulations under Section 269SS of the Income Tax Act. This article explores the statutory provisions, a recent judicial pronouncement, and a detailed case analysis. Understand the importance of establishing a reasonable cause to avoid penalties.

2. Statutory Provisions: As per Section 269SS of the Income Tax Act, no person shall take or accept from any other person 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.

2.1 The term ‘Specified sum’ was added by the Finance Act, 2015 w.e.f 01.06.2015 by amending the provisions of section 269SS of the Act, which means any sum of money receivable, whether as advance or otherwise about the transfer of immovable property irrespective of whether or not the transfer has taken place.

2.2 If a person takes any 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 specified sum so taken – Sec 271D.

3. The provisions of section 271D are explicitly clear and there is no exception to it. However, the Income Tax Act comes with a rescuing provision in the form of section 273B of the Act which states that no penalty shall be imposed where the failure to comply with the provisions is due to some reasonable cause.

3.1 In a recent decision by ITAT Vishakhapatnam in the case of Vijapurapu Sudha Rao v. ITO, Ward -3(1), it is held that if a person receives cash from the sale of property and deposit such cash in the Bank and also pay Capital Gain Tax on such sale of property, the penalty under Section 271D will not be imposed on him.

4. Brief Fact of the Case: Mr. Vijaprapu, a senior citizen could not procure proper buyers for his property. He sold the property in distress for a consideration of Rs. 34,65,000/- out of which an advance amount of Rs. 5 lakh was received through cheque and the remaining amount by cash.

4.1 Mr. Vijaprapu deposited the cash into the bank account and also offered Capital gains tax on the sale of the property.

4.2 The Department received the information and the AO-NFAC (National Faceless Appeal Centre) Delhi, observed that since the assessee received Rs. 29,65,000/- in cash, which resulted in a violation of the provisions of section 269SS. He initiated the penalty proceedings U/s. 271D of the Act and served a notice U/s. 274 r.w.s 271D of the Act.

4.3 In response, Mr. Vijaprapu submitted his reply but AO-NFAC did not consider the submissions by holding that the assessee has failed to explain the reasonable cause for receipt of cash of Rs. 29,65,000/- in contravention of the provisions of section 269SS of the Act. Accordingly, the Ld. AO-NFAC imposed a penalty of Rs. 29,65,000/- and passed order U/s. 271D of the Act.

4.4 Aggrieved by the order of the AO-NFAC, the assessee filed an appeal before the CIT(A)-NFAC. On appeal, the Ld. CIT(A)-NFAC dismissed the appeal of the assessee and upheld the penalty levied by the Ld.AO-NFAC U/s. 271D of the Act.

4.5 Aggrieved by the order of the Ld. CIT(A)-NFAC, the assessee preferred appeal before ITAT (Income Tax Appellate Tribunal) Vishakhapatnam.

5. Judicial Pronouncement: ITAT Vishakhapatnam set aside the orders of the Ld. AO-NFAC and Ld. CIT(A)-NFAC and deleted the penalty. The salient points of the decision by ITAT Vishakhapatnam are brought out in the succeeding Paragraphs:

5.1 The objective of the amendment proposed in 269SS of the Act is to curb the generation of black money. In the instant case, the fact is that cash received by the assessee has been deposited by the assessee into the bank account, hence does not attract the provisions of section 269SS of the Act since there is no suppression of cash receipts by the assessee.

5.2 The assessee has also offered the Capital Gains to tax.

5.3 Further, the explanation given by the assessee for receipt of sale consideration of Rs. 29,65,000/- constitutes a “reasonable cause” as contemplated in section 273B of the Act and the assessee has accepted the cash under inevitably unavoidable circumstances and immediately on receipt of the cash, the assessee deposited the same in the bank account which contemplates the genuineness of the transaction and the assessee has paid the Capital Gain Tax thereon.

5.4 The penalty levied by the Ld. AO-NFAC U/s. 271D and confirmed by Ld. CIT(A)-NFAC is unsustainable in law and accordingly the orders of the Ld. AO-NFAC and Ld. CIT(A)-NFAC are set aside and thereby the ITAT Vishakhapatnam deleted the penalty.

6. Conclusion: It may be inferred that to escape the clutches of penal provisions of Section 271D of the Act, the assessee has to establish a reasonable cause. The burden then, shifts on the AO to establish that the cause shown is not a reasonable one by examining it and that it lacks bona fide. When a reasonable cause is put forth, the assessing officer is obligated to discard or disprove the said contention, and then only, the penalty could be levied.

Disclaimer: The article is for educational purposes only.

The author can be approached at caanitabhadra@gmail.com

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