Lakkaraju Ramprasad HUF Vs ACIT (ITAT Hyderabad)
₹40 Lakh Cash Receipt, ₹40 Lakh Penalty—But the Assessment Order Was Silent!
The background: Sale proceeds disclosed, penalty nevertheless imposed
The assessee HUF filed its return for AY 2016-17 on 21 July 2016, declaring total income of ₹38,54,010. The return was selected for scrutiny, and the assessment under section 143(3) was completed on 1 November 2018, accepting the income declared.
Subsequently, a show-cause notice dated 16 October 2019 was issued under section 274 read with section 271D, proposing penalty for contravention of section 269SS.
The Department’s case was that the assessee had received ₹40 lakh in cash towards sale consideration of a property. This receipt was treated as violating the prescribed mode of acceptance under section 269SS. A penalty equal to the cash receipt, namely ₹40 lakh, was imposed by order dated 2 December 2019.
The assessee’s explanation: Nothing was concealed
The assessee explained that the property sale consideration had been received partly in cash and partly by cheque. The entire consideration, including the cash component, had been disclosed in the return, and the relevant capital gains tax had been paid.
It therefore contended that the transaction was genuine and that the rigours of section 271D should not be applied merely because part of the disclosed consideration had been received in cash.
The Department rejected this explanation. Its position was that disclosure of the transaction did not remove the contravention of section 269SS. The CIT(A) agreed, holding that the cash consideration fell within the definition of “specified sum” and attracted penalty under section 271D.
Before the Tribunal, the focus shifted to a legal defect
The decisive argument before the Tribunal concerned absence of satisfaction in the assessment order.
The assessee pointed out that the assessment order dated 1 November 2018 contained no discussion regarding the alleged violation of section 269SS. Nor had the Assessing Officer recorded satisfaction concerning initiation of penalty proceedings under section 271D.
The assessee consequently argued that the penalty order was invalid from its inception. It relied principally on CIT v. Jai Laxmi Rice Mills, Ambala City, 379 ITR 521 (SC) and Grandhi Sri Venkata Amarendra v. JCIT, 301 Taxman 516 (Andhra Pradesh).
The challenge thus moved from the genuineness of the property transaction to the legal foundation of the penalty proceedings.
Revenue’s defence: The Joint Commissioner is the competent authority
The Department argued that the assessee’s objection was misplaced. Under section 271D, the authority competent to initiate and levy penalty was the Joint Commissioner, rather than the Assessing Officer.
According to the Revenue, recording satisfaction by the Assessing Officer in the assessment order was therefore irrelevant. It also contended that the authorities relied upon by the assessee did not apply to the present facts.
The Tribunal nevertheless rejected the Revenue’s position in light of the judicial precedents it considered applicable.
The Tribunal’s finding: The assessment order contained no satisfaction
The Tribunal recorded an undisputed fact: the scrutiny assessment order contained no discussion whatsoever of the alleged section 269SS violation or initiation of section 271D proceedings.
It applied Jai Laxmi Rice Mills, explaining that, where satisfaction for initiating the relevant penalty proceedings had not been recorded, the penalty order could not be sustained.
The Tribunal also relied on the Andhra Pradesh High Court decision in Grandhi Sri Venkata Amarendra. As summarised in the order, that decision disapproved penalty where the Assessing Officer had neither recorded a finding of contravention of section 269SS nor satisfaction that the transaction attracted penal consequences.
The supporting precedent and final relief
The Tribunal further referred to its coordinate Bench decision in Mohammed Shabbir Bhojani v. ITO, ITA No. 2317/Hyd/2025. That decision had followed the Telangana High Court ruling in Srinivasa Reddy Reddappagari, Kadapa v. JCIT and deleted the penalty.
Applying these authorities, the Tribunal held that the penalty in the present case could not be upheld because the requisite satisfaction had not been recorded. It set aside the CIT(A)’s order and deleted the entire ₹40 lakh penalty under section 271D.
The assessee’s appeal was allowed outright. The matter was not remanded for reconsideration.
Author’s comments: Disclosure and penalty jurisdiction are separate questions
The practical value of this decision lies in examining the assessment order alongside the penalty notice and penalty order. A defence should address both the factual explanation for accepting cash and any legal defect in initiating the proceedings.
However, the ruling should be described accurately. The Tribunal did not delete the penalty merely because the transaction was genuine, disclosed or subjected to capital gains tax. Those were the assessee’s explanations before the lower authorities. The decisive basis was absence of recorded satisfaction, applying the cited precedents.
Equally, the order does not hold that cash property consideration generally falls outside section 269SS. The CIT(A) treated it as a specified sum, while the Tribunal granted relief on the preliminary legal issue.
The lesson is clear: proving a cash receipt and establishing a valid penalty proceeding are distinct requirements. Here, the missing satisfaction proved fatal to the ₹40 lakh penalty.
Cases Discussed
- CIT v. Jai Laxmi Rice Mills, Ambala City, (2015) 379 ITR 521 (SC) — relied upon for holding that where satisfaction for initiating penalty proceedings is not recorded, the penalty under section 271D cannot be sustained.
- Grandhi Sri Venkata Amarendra v. JCIT, (2024) 301 Taxman 516 (Andhra Pradesh High Court) — relied upon for holding that section 271D penalty could not be levied where the Assessing Officer neither recorded a finding of violation of section 269SS nor the requisite satisfaction regarding penal consequences.
- Mohammed Shabbir Bhojani v. ITO, ITA No. 2317/Hyd/2025 (ITAT Hyderabad) — coordinate Bench decision followed; penalty was deleted by following the Telangana High Court decision in Srinivasa Reddy Reddappagari.
- Srinivasa Reddy Reddappagari, Kadapa v. JCIT, W.P. No. 44285 of 2025 (Telangana High Court) — followed through the coordinate Bench decision in Mohammed Shabbir Bhojani for deletion of section 271D penalty.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The appeal filed by the assessee is against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 30.01.2026, for the Assessment Year 2016-17, arising out of the penalty order passed by the A.O. under Section 271D of the Income-tax Act, 1961 (“the Act”) dated 02.12.2019.
2. The brief facts of the case are that, the assessee filed its return of income for the A.Y. 2016-17 on 21.07.2016, declaring total income of Rs. 38,54,010/-. The case was selected for scrutiny and the assessment was completed under Section 143(3) of the Income-tax Act, 1961, dated 01.11.2018 and accepted the income declared by the assessee. Subsequently, a show-cause notice under Section 274 r.w.s. 271D of the Act, dated 16.10.2019, was issued and served on the assessee and called upon the assessee to file its objections, if any, for the proposed levy of penalty under Section 271D of the Act,, for contravention of the provisions of Section 269SS of the Act. The A.O. noted that the assessee had accepted a sum of Rs. 40,00,000/- in cash towards sale of property, in contravention of the provisions of Section 269SS of the Act, which attracted the provisions of Section 271D of the Act. In response, the assessee submitted that, it had received the sale consideration partly in cash and partly by cheque and that the entire sale consideration had been declared in the return of income filed for the assessment year under consideration and thus, submitted that, for genuine transactions involving receipt of sale consideration, penalty under Section 271D of the Act, could not be levied. The A.O., after considering the submissions of the assessee and also taking note of the provisions of Sections 269SS, levied a penalty of Rs. 40,00,000/- under Section 271D of the Act, for contravention of the provisions of Section 269SS of the Act.
3. Aggrieved by the penalty order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee submitted that, although there is a violation of the provisions of Section 269SS of the Act, but the assessee has reported entire sale consideration, including the cash portion and paid relevant capital gain and therefore, submitted that, the rigours of Section 271D of the Act, could not be applied to genuine transactions. The Ld. CIT(A), after considering the submissions of the assessee and also taking note of the provisions of Section 269SS of the Act, observed that, there was a clear contravention of the provisions of Section 269SS of the Act, in accepting sale consideration in cash for the transfer of property, which fell within the definition of “specified sum” and attracted penalty under Section 271D of the Act. Accordingly, the Ld. CIT(A) rejected the explanation of the assessee and upheld the penalty levied by the A.O.
4. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before the Tribunal.
5. The learned counsel for the assessee, Shri E. Chaitanya, C.A., submitted that, the order passed by the A.O. under Section 271D of the Act, is void ab initio, because the A.O. had not recorded any satisfaction in the assessment order before initiation of penalty proceedings under Section 271D of the Act, which is evident from the relevant assessment order passed by the A.O., where there is no iota of discussion on the alleged violation of the provisions of Section 269SS of the Act, for initiating penalty proceedings under Section 271D of the Act. In this regard, he relied upon the decision of the Hon’ble Supreme Court in the case of CIT Vs. Jai Laxmi Rice Mills, Ambala City reported in (2015) 379 ITR 521 (SC), and the decision of the Hon’ble High Court of Andhra Pradesh in the case of Grandhi Sri Venkata Amarendra Vs. JCIT reported in (2024) 301 Taxman 516 (Andhra Pradesh).
6. The learned Senior A.R. for the Revenue, Shri K. Prasad, on the other hand, submitted that, there is no merit in the legal ground taken by the assessee challenging the validity of the order passed by the A.O. under Section 271D of the Act, in the absence of satisfaction recorded in the assessment order, because as per the provisions of Section 271D of the Act, the competent authority for initiating and levying penalty is the Joint Commissioner of Income Tax but ,not the A.O. Therefore, there is no relevance of recording satisfaction by the A.O. in the assessment order before initiating penalty proceedings under Section 271D of the Act. Therefore,, he submitted that, there is no merit in the arguments advanced by the learned counsel for the assessee and that the case laws relied upon by the learned counsel for the assessee are not applicable to the facts of the present case and need to be rejected.
7. We have heard both the parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that, in the assessment order passed by the A.O. under Section 143(3) of the Act, dated 01.11.2018, there is no iota of any discussion on the alleged violation of the provisions of Section 269SS of the Act, for initiating penalty proceedings under Section 271D of the Act. It is a well-settled principle of law, as laid down by the Hon’ble Supreme Court in the case of CIT Vs. Jai Laxmi Rice Mills, Ambala City (supra), wherein the Hon’ble Supreme Court clearly held that, where there is no satisfaction recorded for initiating penalty proceedings, impugned penalty order passed under said section deserves to be set aside. The Hon’ble High Court of Andhra Pradesh, in the case of Grandhi Sri Venkata Amarendra Vs. JCIT (supra), held that, where the A.O., except for making an addition based on a letter of the assessee, did not record any finding that,, there had been a violation of the provisions of Section 269SS of the Act, by the assessee, nor was any satisfaction recorded to the effect that the alleged transaction of involving acceptance of loan would attract penal consequences, penalty under Section 271D of the Act could, not be levied upon the assessee. A similar view has been taken by the coordinate Bench of the Tribunal, Hyderabad, in the case of Mohammed Shabbir Bhojani Vs. ITO in ITA No. 2317/Hyd/2025, wherein the Tribunal, by following the decision of the Hon’ble High Court of Telangana in the case of Srinivasa Reddy Reddappagari, Kadapa Vs. JCIT in W.P. No. 44285 of 2025, deleted the penalty levied by the A.O.
8. In the present case, there is no dispute with regard to the fact that the A.O. has not recorded satisfaction as required under law, in light of the decision of the Hon’ble Supreme Court in the case of Jai Laxmi Rice Mills (supra). In view of the above, we are of the considered view that, the penalty order passed by the A.O. under Section 271D of the Act, cannot be upheld. The Ld. CIT(A), without appreciating the relevant facts, has simply sustained the penalty levied by the A.O. Thus, we set aside the order of the Ld. CIT(A) and delete penalty levied by the A.O. under Section 271D of the Act.
9. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the Open Court on 30th September, 2026.
