No section 271D penalty for Cash receipt if reasonable cause exist

Laxmilal Badolla Vs NFAC (ITAT Bangalore)

In the case of Laxmilal Badolla vs. NFAC (ITAT Bangalore), the issue revolved around the imposition of penalty under Section 271D of the Income Tax Act, 1961, concerning cash receipts during the assessment year 2016-17. Here’s a detailed summary of the judgment delivered by the ITAT Bangalore:

Background: Laxmilal Badolla, an individual, had sold two properties during the relevant year and received a total of Rs. 8,39,000/- in cash from the buyers. The Income Tax Department initiated penalty proceedings under Section 271D against him, citing that acceptance of cash exceeded the permissible limits under the law. The penalty notice was issued approximately four years after the filing of his income tax return, which the appellant argued was an unreasonable delay.

Proceedings:

1. The appellant contested the penalty before the NFAC (National Faceless Assessment Centre) and subsequently the CIT(A) (Commissioner of Income Tax – Appeals). He argued that there were valid reasons for accepting cash payments, primarily because the buyers were unable to provide payment via cheque or demand draft due to banking constraints and timing issues.
2. Despite the appellant’s explanations, both the NFAC and the CIT(A) upheld the penalty, leading the appellant to file an appeal before the ITAT Bangalore.

Arguments Before ITAT:

1. The appellant’s counsel raised several key arguments:
   • The penalty was initiated after an unreasonably long delay of four years, which was unjustified under legal precedents.
   • No prior assessment proceedings were pending against the appellant, which is a prerequisite for initiating penalty proceedings under Section 271D.
   • Other parties involved in the same property transactions who received cash were not penalized, highlighting arbitrary treatment by the tax authorities.
   • The amendment restricting cash transactions for immovable property came into effect recently, and the appellant believed he could accept cash payments in good faith.
2. The Department, represented by the ld. DR (learned Deputy Commissioner), defended the penalties imposed based on the original assessments and the findings of the lower authorities.

ITAT Judgment: After considering the arguments from both sides and reviewing relevant legal precedents, the ITAT Bangalore held that:

• The initiation of penalty proceedings after such a long delay of four years was not reasonable. It referred to various judicial decisions emphasizing the need for penalties to be initiated within a reasonable time frame.
• Since there were no pending assessment proceedings against the appellant when the penalty notice was issued, the penalty under Section 271D was deemed invalid.
• The appellant’s explanation that he accepted cash due to genuine constraints faced by the buyers was accepted as reasonable cause, especially given the newness of the legal provisions at the time.
• Citing Section 273B of the Income Tax Act, which provides relief from penalties if there is a reasonable cause, the ITAT concluded that the penalty under Section 271D should not apply in this case.
• Additionally, the ITAT highlighted that selective application of penalties to the appellant, while others involved in the same transactions were spared, was discriminatory and against the principles of equality under Article 14 of the Indian Constitution.

Conclusion: In light of these findings, the ITAT Bangalore allowed the appeal filed by Laxmilal Badolla, thereby deleting the penalty imposed under Section 271D.