2025 (5) TMI 1379 - AT - Income Tax

Penalty u/s 271D - violation of the provisions of section 269SS - as argued assessee was under bonafide belief that new inserted provisions of section 269SS which becomes operative from 01.06.2015 were not applicable to the immovable property held as stock in trade - HELD THAT - Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed the authority competent to impose the 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. Respectfully following the observation in the case of R. Dhinagharan (HUF) 2024 (1) TMI 61 - ITAT CHENNAI we are also of the opinion that when cash is being received in one lump sum against sale of immovable property before the Government Registration authority the sale deed being duly registered before him under his stamp and signature there appears to be no violation of section 269SS of the Act 61 on the part of the assessee for the year under appeal. As a result the penalty imposed u/s 271D of the Act 61 is hereby deleted.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the acceptance of cash amounting to Rs. 21,00,000/- by the assessee from buyers of developed plots of land, held as stock-in-trade, amounts to a violation of the provisions of section 269SS of the Income-tax Act, 1961 ("the Act")?

(b) Whether the penalty imposed under section 271D of the Act for such acceptance of cash is justified, considering the nature of the transaction and the applicability of section 269SS or section 269ST?

(c) Whether the provisions of section 269SS, as amended effective 01.06.2015, apply to cash receipts against sale of immovable property held as stock-in-trade, or only to advances received in relation to transfer of immovable property?

(d) Whether there exists a reasonable cause under section 273B of the Act for non-compliance with section 269SS, thus justifying waiver of penalty under section 271D?

(e) The applicability and interpretation of relevant judicial precedents and CBDT circulars in determining the above issues.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Applicability of section 269SS and justification of penalty under section 271D for acceptance of cash receipts on sale of immovable property held as stock-in-trade

Relevant legal framework and precedents: Section 269SS prohibits acceptance of any loan or deposit or any sum of money of Rs. 20,000 or more otherwise than by an account payee cheque or bank draft or electronic clearing system. Section 271D prescribes penalty equal to the amount of such sum accepted in contravention of section 269SS. The Finance Act 2015 amended section 269SS with effect from 01.06.2015 to include "specified sum" in relation to transfer of immovable property, defined as any sum of money receivable, whether as advance or otherwise, in relation to transfer of immovable property, whether or not the transfer takes place. Section 269ST was introduced effective 01.04.2017, specifically targeting cash receipts of Rs. 2,00,000 or more in respect of sale of immovable property, with penalty under section 271DA.

Judicial precedents such as the ITAT Chennai Bench decision in R. Dhinagharan (HUF) (ITA No. 3329/CHNY/2019 dated 29.12.2023) have interpreted these provisions to apply only to advances received in immovable property transactions and not to lump sum payments made at the time of registration of sale deed.

Court's interpretation and reasoning: The Tribunal noted that the assessee received Rs. 21,00,000 in cash in one lump sum from buyers of developed plots of land held as stock-in-trade, and that these transactions were duly recorded in audited books of accounts, disclosed in the return of income, and formed part of the gross turnover. There was no concealment or suppression of income, and no loss of government revenue was established. The Tribunal relied on the amendment history and the explanatory memorandum of the Finance Bill 2015, which clarified that the amendment to section 269SS was intended to curb black money generation by prohibiting acceptance of advances in cash in immovable property transactions, but did not apply to final payments made at the time of registration of sale deeds.

The Tribunal followed the reasoning in R. Dhinagharan (HUF), which held that the "specified sum" in section 269SS applies to advances and not to lump sum payments made at registration, and that the penalty provisions do not apply to such final payments. The Tribunal held that since the assessee's transactions were final payments made at the time of registration and not advances, section 269SS was not violated.

Key evidence and findings: The assessee's books of accounts and audited financial statements disclosed the cash receipts. The sale deeds were registered before the sub-registrar with cash payments made at that time. The AO did not doubt the genuineness of the transactions or the declared income. There was no evidence of black money or tax evasion.

Application of law to facts: The Tribunal applied the amended provisions of section 269SS and the explanatory memorandum, along with judicial precedents, to conclude that the acceptance of lump sum cash payments at the time of registration of sale deeds for immovable property held as stock-in-trade does not attract the prohibition under section 269SS. Therefore, penalty under section 271D was not sustainable.

Treatment of competing arguments: The Revenue argued that the immovable property sold was covered by explanation (iv) to section 269SS and that acceptance of cash exceeding Rs. 20,000 was a violation. The Tribunal rejected this argument, emphasizing the distinction between advances and final payments and the legislative intent to curb black money generation through advances, not final sale proceeds. The Tribunal also noted that the assessee's position was supported by the CBDT Circular No. 19 of 2015 and judicial precedents.

Conclusions: The Tribunal concluded that there was no violation of section 269SS in the facts of the case, and the penalty imposed under section 271D was not justified.

Issue (c): Applicability of section 269SS vs. section 269ST to cash sales of stock-in-trade immovable property

Relevant legal framework and precedents: Section 269SS applies to loans, deposits, or specified sums in relation to transfer of immovable property, primarily advances. Section 269ST, introduced from 01.04.2017, specifically prohibits receipt of cash exceeding Rs. 2,00,000 in respect of sale of immovable property. The Tribunal considered this legislative timeline and the nature of transactions involved.

Court's interpretation and reasoning: The Tribunal noted that section 269ST was introduced later and applies to cash receipts exceeding Rs. 2,00,000 in immovable property transactions, but the transactions in the instant case pertained to the assessment year 2017-18, and the cash receipt was made in lump sum at registration, not as advance. The Tribunal accepted the assessee's argument that section 269SS, as amended, does not apply to lump sum payments at registration, and section 269ST was not applicable as it was introduced later and has a different scope.

Conclusions: The Tribunal held that section 269SS does not apply to lump sum payments at registration of sale deeds of immovable property held as stock-in-trade, and section 269ST was not applicable in the instant facts.

Issue (d): Existence of reasonable cause under section 273B for non-compliance with section 269SS and waiver of penalty

Relevant legal framework and precedents: Section 273B of the Act provides for waiver of penalty if the assessee proves reasonable cause for non-compliance. The Apex Court in Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC) held that penalty for failure to carry out statutory obligations is quasi-criminal and should not be imposed unless there is deliberate defiance or dishonest conduct. Other decisions cited include CIT vs. Sahara India Mutual Benefit Co. Ltd., Sonia Verma vs. ITO, Mohanjeet Singh v. JCIT, and others, which emphasize bona fide belief and genuine transactions as grounds for reasonable cause.

Court's interpretation and reasoning: The Tribunal observed that the assessee acted under a bona fide belief that section 269SS did not apply to lump sum cash payments at registration of sale deeds of immovable property held as stock-in-trade. The cash receipts were recorded in books and disclosed in returns, with no concealment or evasion. There was no dishonest or contumacious conduct. The Tribunal relied on the principle that penalty should not be imposed for technical or venial breaches resulting from bona fide belief, as established in judicial precedents.

Conclusions: Even if there was a breach, the Tribunal found reasonable cause within the meaning of section 273B, justifying waiver of penalty under section 271D.

Issue (e): Interpretation of judicial precedents and CBDT circulars

Relevant legal framework and precedents: The Tribunal considered various judicial precedents and CBDT Circular No. 19 of 2015 dated 27/11/2015, which clarified the legislative intent behind amendments to section 269SS and the scope of "specified sum." The cited cases reinforced the principles of bona fide belief, reasonable cause, and the limited scope of section 269SS to advances and not final payments.

Court's interpretation and reasoning: The Tribunal relied on these precedents and circulars to support the assessee's contentions and to interpret the provisions in a manner consistent with legislative intent and judicial pronouncements.

Conclusions: The Tribunal's decision aligns with the established legal principles and precedents, reinforcing the distinction between advances and final payments in immovable property transactions for the purpose of section 269SS and related penalty provisions.

3. SIGNIFICANT HOLDINGS

"In order to curb generation of black money by way of dealings in cash in immovable property transactions, section 269SS of the Income-tax Act has been amended to provide that no person shall accept from any person any loan or deposit or any sum of money, whether as advance or otherwise, in relation to transfer of an immovable property (specified sum) otherwise than by an account payee cheque or account payee bank draft or by electronic clearing system through a bank account, if the amount of such loan or deposit or such specified sum is twenty thousand rupees or more."

"Hence, this provision will not apply to the transaction that happens at the time of final payment at the time of registration of sale deed and payment is made before sub-registrar at the time of registration of property. In the present case before us, it is an admitted fact that all sale deeds were registered and cash payment was made at one go before the sub- registrar at the time of registration of sale deeds of plots. Hence, in our view, there is no violation of provisions of section 269SS of the Act in the present case in the given facts and circumstances of the case and hence, penalty is not exigible in this case."

"Penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or guilty of conduct, contumacious or dishonest, or acted in conscious disregard to its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the 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."

Core principles established include:

(i) The amended section 269SS applies to advances or specified sums receivable in relation to immovable property transactions, not to lump sum payments made at the time of registration of sale deeds.

(ii) Penalty under section 271D cannot be imposed for acceptance of cash in lump sum at registration where there is no concealment, suppression, or loss of revenue.

(iii) Reasonable cause under section 273B exists where the assessee acts under bona fide belief and there is no deliberate defiance or dishonest conduct.

Final determinations:

The Tribunal allowed the appeal, deleted the penalty imposed under section 271D, and held that there was no violation of section 269SS in the facts of the case. The cash receipt at the time of registration of sale deeds for immovable property held as stock-in-trade was held to be outside the ambit of section 269SS, and reasonable cause existed for non-compliance, justifying waiver of penalty.