ITAT Bangalore deletes penalty for cash transactions in property sale

The Hon'ble Income Tax Appellate Tribunal, Bangalore in Laxmilal Badolla vs. The NFAC, Delhi & The Income Tax Officer (ITA No.815/Bang/2024) dated June 24, 2024, held that the penalty imposed under section 271D of the Income Tax Act for receiving cash in a property sale transaction was not valid. The Tribunal found that the penalty proceedings were initiated after an unreasonable delay, there were no pending assessment proceedings, and the assessee had reasonable cause for accepting cash payments. The Tribunal also considered that this was the first year after the introduction of the amendment restricting cash transactions in property sales. Consequently, the penalty was deleted and the assessee's appeal was allowed.

Facts of the Case:

The assessee, Laxmilal Badolla, an individual, sold two properties during the assessment year 2016-17 and received an amount of Rs. 8,39,000/- in cash. He filed his return of income on August 7, 2017, which was processed under section 143(1) on September 8, 2017.

On July 6, 2021, nearly four years later, the assessee received a notice under section 271D of the Income Tax Act from the JCIT, Range-2(2), Bangalore, proposing to initiate penalty proceedings. During these proceedings, the assessee offered explanations before the National Faceless Assessment Centre (NFAC), contending that there was a reasonable cause for accepting the amount in cash.

However, the assessing authority did not find merit in the assessee's arguments and levied a penalty of Rs. 8,39,000/-, equivalent to the cash received. The assessee appealed to the CIT(A), arguing that the penalty proceedings were initiated after an unreasonable delay of about four years and that there were bona fide reasons for accepting cash payments from buyers who were unable to pay by account payee cheque or demand draft. The CIT(A) affirmed the levy of penalty.

Aggrieved by the CIT(A)'s order, the assessee filed an appeal before the ITAT, raising five grounds of appeal, with the main issue being the levy of penalty under section 271D of the Act.

Held:

The Hon'ble Income Tax Appellate Tribunal, Bangalore in ITA No.815/Bang/2024 held that:

The Tribunal observed that the penalty was not initiated by the revenue in reasonable time. The assessee filed the return of income on August 7, 2017, which was processed on September 8, 2017, but the penalty notice was issued on July 6, 2021, approximately four years later. The Tribunal cited the case of Sree Rajendra Suri Gurumandir Trust (ITA No.751/Bang/2023) to support the view that penalty proceedings should be initiated and completed within a reasonable time.

The Tribunal noted that there must be pendency of some proceedings before initiation of penalty proceedings under sections 271D/271E of the Act. Citing the case of Shri Umakant Sharma (ITA Nos.364 to 366/Ind/2022), the Tribunal held that the penalty levied without any assessment proceedings is not valid and liable to be quashed.

Considering that this was the first year immediately after the introduction of the amendment restricting cash transactions in property sales, and that the buyers provided confirmations about their inability to arrange demand drafts due to restricted banking hours, the Tribunal found the assessee's explanation to be bona fide. The Tribunal invoked section 273B, which excludes the operation of section 271D when there is reasonable cause.

The Tribunal also noted that other persons involved in the same transaction who received cash were not penalized by the department, citing the principle that the revenue cannot adopt tactics of pick and choose while assessing citizens, as it would violate Article 14 of the Constitution.

Based on these observations, the Tribunal deleted the penalty and allowed the assessee's appeal.

Relevant Sections:

1. Section 271D of the Income Tax Act, 1961

2. Section 273B of the Income Tax Act, 1961

Pari Materia / Cases referred:

1. In Sree Rajendra Suri Gurumandir Trust (ITA No.751/Bang/2023), the Tribunal held that penalty proceedings should be initiated and completed within a reasonable time. Even if a time is not prescribed under the law, the penalty cannot hang on the head of an assessee as a sword of Damocles indefinitely.

2. The case of Noble Pictures vs. JCIT (90 ITD 248) was cited to support the view that there should be a reasonable time within which penalty proceedings are to be initiated or completed.

3. In Indian Handloom Textiles vs. ITO (68 ITD 0560), the Calcutta High Court held that penalty proceedings under section 271B initiated 34 months after the completion of assessment were invalid.

4. The case of CIT vs. NHK Japan Corporation (305 ITR 132) was also mentioned to support the argument against delayed initiation of penalty proceedings.

5. In Shri Umakant Sharma (ITA Nos.364 to 366/Ind/2022), the Tribunal held that it is a prerequisite condition for the initiation of penalty under sections 271D/271E that assessment proceedings or proceedings arising from an assessment order are pending in the case of the assessee.

6. The case of Vijayaben G. Zalavadia vs. JCIT was cited to support the view that penalty levied without any assessment proceedings is not valid.

7. In Holland Tractors (ITA Number 182 of 2002), the Delhi High Court observed that tax statutes are convoluted and complex, and penalty should not be imposed if the contention of the assessee was plausible and bona fide, even when the interpretation placed by the Revenue is accepted.

8. The case of UOI vs. Kaumudini Narayan Dayal (249 ITR 219 SC) was cited to support the principle that the revenue cannot adopt tactics of pick and choose while assessing citizens, as it would violate Article 14 of the Constitution.