Section 269SS of Income Tax Act: As per Section 269SS of Income Tax Act, a person cannot accept loan or deposit or any other specified sum of Rs.20000 or more from another person, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or other specified manner. Here the term “specified sum” means any sum of money receivable in relation to transfer of an immovable property.
Provisions under Section 271D of Income Tax Act
Penalty under section 271D can be imposed in case of any failure of an assessee in complying to the provisions of Section 269SS of Income Tax Act 1961. The amount of penalty leviable is equal to the amount received by violating the provisions of Section 269SS. But an assessee may not be penalized in case he can establish that there was a “reasonable cause” and “no mala-fide intention” behind such a non-compliance of the provisions of section 269SS.
Scope of appeal against penalty u/s.271D:
In recent past it has been seen that the Income tax department is sending notices of penal proceedings u/s.271D and imposing huge amount of penalty on many of the assesses on the ground of receiving cash of Rs.20000 or more by violating section 269SS provisions. But assesses should not be panic in getting such penalty orders from the department.
As said above, if they have any reasonable cause behind such a non-compliance, they can definitely take help of appeal against such orders. In this article, I have prepared a comprehensive list of some possible grounds of appeal by referring some recent case laws in which judgements of various appellant authorities have been passed in favour of the assesses. So, let us now discuss those important grounds of appeal in the following paras.
Penalty order barred by limitation
As per clause (c) of Section 275 (1) of Income Tax Act (supported by CBDT circular.10/2016 dated.26-4-2016, penalty under section 271D is to be levied (i) within the end of financial year in which proceedings, during the course of which action for imposing penalty were initiated, gets completed, or (ii) within the end of six months from the end of the month in which penalty proceedings were initiated, whichever is later.
So, an assessee getting a demand notice of penalty u/s. 271D should first check whether the penal proceeding satisfies the time limitation prescribed u/s. 275 (1) or it is barred by limitation. If it is barred by limitation, then it can be a strong ground of appeal for a person preferring an appeal.
Proceeding initiated by officer other than JCIT
As per section 271D (2) of the Income Tax Act, no penal proceedings can be initiated by an officer other than Joint Commissioner of Income Tax (JCIT). In case the penal proceeding is initiated by an officer other than JCIT, this can be another strong ground of appeal for the aggrieved person getting such an erroneous demand notice.
Reasonable cause behind violation of section 269SS
Accepting cash under any exigencies is a reasonable cause under section 273B and no penalty u/s. 271D should be levied in such a case. If the same principle of law is not maintained and Penalty is imposed, even if assessee has received cash from another person, he can make it a ground of appeal before the any appellant authority.
A person not having a bank account on the transaction date can be a good instance for the assessee for getting cash received. But, in order to avail this exemption, the assessee needs to deposit the received cash in his bank account and should spend by withdrawing from there. The obligation of establishing the transaction transparent lies with the assessee who accepts the loan/advance/specified sum in cash. Once that is established, there is no issue in making it a reasonable cause behind accepting cash and claiming the exemption as prescribed u/s.273B.
a) The term ‘reasonable cause’ has not been defined under the Act, but they could receive the same interpretation which is given to the expression ‘sufficient cause’. Therefore, in the context of the penalty provisions, the words ‘reasonable cause’ would mean a cause which is beyond the control of assessee. The Assessing Officer imposes penalty under section 271D upon an assessee for having received cash of Rs.20000 0r more in violation of section 269SS.
If the assessee proves that there was no other option before him but to receive cash from the other party and there is no finding of assessing authority that transaction made by assessee in breach of provisions of section 269SS was not a genuine transaction, imposition of penalty merely on technical mistake committed by assessee because of a reason beyond his control, which had not resulted in any loss of revenue, is treated as harsh and cannot be sustained in law. – [Ref case law: Omec Engineers v. CIT (2007) 294 ITR 599: (2008) 217 CTR 144: 169 Taxman 158 (Jharkhand)]
b) In case the Assessing Officer has not made out any case that assessee had used black money and assessee had entered into genuine transaction for bona fide reasons, assessee can be able to establish that he had ‘reasonable cause’ for not complying with section 269SS. Therefore, it should not be a fit case for levy of penalty. [Ref case law: DCIT v. Akhilesh Kumar Yadav (2013) 56 SOT 2: (2012) 26 taxmann.com 264 (ITAT Agra)].
Over valuation of consideration
In some cases, it is seen that actual consideration received against sale of an immovable property is less than the benchmark price of the property, whereas a higher value has been mentioned in the sale deed. In such cases, the assessing officer considers the sale value as per the sale deed and imposes penalty accordingly, if the landowner receives the consideration in cash. If the assessee has kept sufficient evidence against the actual sale value he receives from the property buyer, he can make it a ground of appeal before the appellant authority to reduce the penalty to the tune of actual consideration received.
Violation of natural justice
When there is no revenue loss to government (e.g., nil capital gain cases), it violates the principle of natural justice by imposing penalty just for a breach of law due to ignorance of assessee about a recent amendment in the Act. When a breach is merely a technical or venial breach, no penalty is leviable merely because it is lawful to do so, without exercising discretion before imposing the penalty. Penalty is not automatic under section 271D on mere violation of provisions of section 269SS.
If there is no evidence on record to show that infraction of the provisions was with knowledge or in defiance of the provisions and the kind of transaction further proves that there is nothing on record to indicate that the assessee had indulged in any tax evasion, penalty should not be levied only due to breach of law. Such cases can be brought to the knowledge of the appellant authority by making the same a ground of appeal. The very objective of section 271D is not imposing penalty, but to curb the generation of black money. Any ignorance of law can be a reasonable cause as held by Bombay high court in the case of CIT Vs. Shell international (2005) 278 ITR 630 (Bombay).
a)The nature of penalty and principle governing imposition of the same are well-settled by many of decisions of the Supreme Court and various High Courts also. The settled proposition of law, therefore, is that the provisions dealing with penalty must be strictly construed. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and penalty should not ordinarily be imposed unless the party either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest or acted in conscious disregard of his obligation. Penalty should not be imposed merely because it is lawful to do so.
Rather, penalty should be imposed for failure to perform a statutory obligation which is a matter of discretion of the authority to be exercised judiciously and on consideration of all the relevant circumstances. The authority competent to impose penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona-fide belief that the offender is not liable to act in the manner prescribed by the statute.
b) One of the cardinal principles of the English criminal law is expressed in the maxim actus nonfacit reum, nisi mens sit rea, that is, a person cannot be convicted and punished in a proceeding of a criminal nature, unless it can be shown that he had a guilty mind. A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws.
Permissible amount included in demand
When penalty is for accepting cash of Rs.20000 or above, that permissible amount should be reduced from the penalty. If this is not considered in the demand of penalty by the AO, this can be claimed by the assesses at the time of appeal.
Order passed without passing opportunity of hearing
Any penalty order if passed by the AO in violation of the Principal of natural justice without granting to the assessee a fair, proper and meaningful opportunity to be heard, by not providing the assessee with a proper Show Cause Notice (SCN) of hearing before passing the final order, this can be made a strong point as a ground of appeal at the time of filing an appeal before an appellant authority.
Conclusion: Section 269SS of Income Tax Act
Penalty u/s 271D should not be levied simply on the basis of mere contravention of the provisions of section 269SS of the Act. The legislature has provided sufficient safeguard for assesses by enacting the provisions of section 273B of the Act. It provides in clear terms, that a penalty should not be levied where an assessee is able to prove that there was reasonable cause for non-compliance of provisions specified in the section. Thus, penalty should not be levied only on mere contravention of the provisions. The A.O. must consider the facts & circumstances of each case as well as the object behind the penal provisions before levying a penalty.
Reliance may also be placed on the CBDT Circular No-19/2015 dated 27.11.2015 wherein it has been made clear that Section 269SS was brought in order to curb generation of black money by way of dealings by cash in immoveable property transactions. Thus, there are many grounds upon which an assessee can rely to escape from paying the penalty imposed by AO for a violation of section 269SS. Hence it is advisable to the assesses that, they should not be panic of getting a demand notice u/s.271D, but to properly study their own cases and find out the appropriate grounds fit for an appeal before the respective appellant authority.
For more details on penalty provisions under Income tax, follow the ICAI Link- https://wirc-icai.org/wirc-reference-manual/part3/penalties.html
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