2025 (5) TMI 1655 - AT - Income Tax

Jurisdiction of Joint Commissioner of Income Tax initiating penalty proceddings u/s. 271D - contravention of provisions of sec.269SS - As argued assessee has not received any consideration for transfer of property but referred to the consideration in the sale deed only for the technical purpose in order to register the sale deed - HELD THAT - Admittedly there is no assessment proceedings in the present case. JCIT initiated penalty proceedings on the basis of information available with the Department which shows the assessee has received consideration for transfer of property which falls under the definition of specified sum as defined u/sec.269SS. JCIT initiated penalty proceedings on the basis of recommendation or information furnished by the AO on being satisfied that there is a violation of sec.269SS in accepting the sale consideration in cash for transfer of property which warrants levy of penalty u/sec.271D of the Act. The said action of the AO in forwarding the information to the JCIT constitutes satisfaction of the AO before initiation of penalty proceedings and therefore in our considered view there is a valid satisfaction from the AO for initiation of penalty proceedings. Unless there is a pending assessment proceedings penalty proceedings u/sec.271D cannot be initiated - Upon reading of sec.271D the only condition required for initiation of penalty proceedings is that if a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of section 269SS. As per said section the assessee shall be liable to pay by way of penalty a sum equal to the amount of the loan or deposit or specified sum so taken or accepted. But there is no reference to any pending proceedings required for initiation of penalty proceedings u/sec.271D of the Act. Therefore the arguments of Assessee in light of decision of Shri Umakant Sharma Jhabua 2023 (8) TMI 1094 - ITAT INDORE is devoid of merit and cannot be accepted. Receipt of the alleged sale consideration as cash - We find that upon verification of the recitals of relevant sale deed there is no dispute that the mode of payment of sale consideration is not referred to in the said document. Further it refers to only sale consideration which has already received by the vendors that is paid by the assessee the receipt of which sum has been acknowledged by the vendors. There is no reference to the mode of payment i.e whether the said consideration has been paid by way of cheque/DD or electronic mode or in cash. In fact the AO and CIT(A) never disputed the above fact. However they went on to levy penalty u/sec.271D on the ground that once there is no reference of mode of payment in the document it is presumed that the said consideration is received in cash. I The said findings of AO and CIT(A) are totally incorrect going by the evidence on record. Since the document does not specify the mode of payment whether it is in cash or other modes and further the assessee failed to offer any explanation during the penalty proceedings for the queries raised by the AO regarding the receipt of the alleged sale consideration as cash in our considered view the matter needs to be set-aside to the file of AO for further examination to ascertain whether the said sale consideration has been received in cash in contravention to provisions of sec.269SS. Thus we set-aside the order of CIT(A) and restore the issue back to the file of AO to reconsider the issue. Appeal of the Assessee is allowed for statistical purposes.

The core legal questions considered by the Tribunal in this appeal pertain to the imposition of penalty under section 271D of the Income Tax Act, 1961, for alleged violation of section 269SS. Specifically, the issues are:

1. Whether the order of the Appellate Commissioner confirming the penalty under section 271D is legally sustainable.

2. Whether the Joint Commissioner of Income Tax (JCIT) had jurisdiction to initiate penalty proceedings under section 271D without properly recording satisfaction or reasons for assuming jurisdiction.

3. Whether the penalty under section 271D can be levied in the absence of pending assessment proceedings.

4. Whether the assessee accepted sale consideration in cash in contravention of section 269SS, given that the sale deed did not specify the mode of payment.

Issue 1: Validity of the penalty order under section 271D for contravention of section 269SS

The relevant legal framework involves section 269SS, which prohibits acceptance of any loan or deposit or specified sum exceeding Rs. 20,000 otherwise than by an account payee cheque, bank draft, or electronic clearing system through a bank account. Section 271D prescribes a penalty equal to the amount so accepted in contravention.

Section 269SS was amended by the Finance Act, 2015, to include "specified sum" relating to transfer of immovable property. The penalty under section 271D is mandatory upon contravention.

In the present case, the sale deed evidences transfer of immovable property for Rs. 71,82,500, with the assessee's proportionate share being Rs. 23,94,166. The Assessing Officer (AO) found that this amount was accepted in cash, violating section 269SS, and initiated penalty proceedings.

The assessee contended that the sale consideration was mentioned in the deed only for technical purposes to facilitate registration and that no actual cash was received. The CIT(A) rejected this explanation, holding it as an afterthought and fraudulent, noting the absence of any explanation or evidence to prove receipt of consideration through permissible modes.

The Tribunal noted that the sale deed acknowledged receipt of consideration but did not mention the mode of payment. The AO and CIT(A) presumed cash receipt due to absence of mention of cheque or electronic payment. The assessee failed to provide satisfactory evidence to rebut this presumption during penalty proceedings.

The Tribunal, however, found that the assumption of cash receipt merely from absence of mode of payment in the deed was incorrect. Since the deed was silent on the mode, and the assessee was not given opportunity to explain the mode of payment adequately, the matter required further examination.

Issue 2: Jurisdiction and satisfaction for initiation of penalty proceedings under section 271D

The assessee challenged the jurisdiction of the JCIT to initiate penalty proceedings without recording satisfaction or reasons, relying on the Supreme Court decision in CIT vs. Jai Laxmi Rice Mills, which held that satisfaction must be recorded before initiating penalty proceedings.

The Revenue contended that the AO had forwarded information to the JCIT after being satisfied of contravention, and that the JCIT's initiation of penalty proceedings was valid. It was also argued that section 271D does not require pending assessment proceedings for initiation of penalty proceedings.

The Tribunal observed that although there were no assessment proceedings pending, the AO's forwarding of information to the JCIT constituted satisfaction as required. The Tribunal distinguished the Jai Laxmi Rice Mills case on facts, noting that in that case, satisfaction was not recorded during subsequent proceedings, whereas here, the AO's action amounted to satisfaction.

The Tribunal held that the initiation of penalty proceedings by the JCIT was valid and in accordance with law.

Issue 3: Requirement of pending assessment proceedings for initiation of penalty under section 271D

The assessee argued, relying on an ITAT Indore Bench decision, that penalty proceedings under section 271D cannot be initiated in absence of pending assessment proceedings.

The Tribunal examined the plain language of section 271D and found no requirement for pending assessment proceedings to initiate penalty. The penalty is triggered by acceptance of loan, deposit, or specified sum in contravention of section 269SS, regardless of assessment status.

The Tribunal rejected the assessee's argument, holding that penalty proceedings can be initiated independently of assessment proceedings.

Issue 4: Whether the sale consideration was accepted in cash in contravention of section 269SS

The sale deed acknowledged receipt of the entire sale consideration but did not specify the mode of payment. The AO and CIT(A) inferred cash receipt from this silence. The assessee failed to provide evidence of payment through permissible modes during penalty proceedings.

The Tribunal noted that mere absence of mode of payment in the deed does not conclusively prove cash receipt. The assessee's failure to explain or produce evidence during penalty proceedings was noted, but the Tribunal emphasized that the presumption of cash receipt cannot be automatic.

Consequently, the Tribunal set aside the penalty order and remanded the matter to the AO for fresh examination. The AO was directed to verify the mode of payment after providing the assessee an opportunity of being heard and decide the issue in accordance with law.

Significant holdings and principles established:

1. "The said action of the Assessing Officer in forwarding the information to the JCIT constitutes satisfaction of the Assessing Officer before initiation of penalty proceedings and, therefore, in our considered view, there is a valid satisfaction from the Assessing Officer for initiation of penalty proceedings."

2. "Upon reading of sec.271D, the only condition required for initiation of penalty proceedings is that, if a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of section 269SS."

3. "The said findings of the Assessing Officer and the learned CIT(A) are totally incorrect going by the evidence on record. Since the document does not specify the mode of payment whether it is in cash or other modes and further, the assessee failed to offer any explanation during the penalty proceedings for the queries raised by the Assessing Officer regarding the receipt of the alleged sale consideration as cash, in our considered view, the matter needs to be set-aside to the file of Assessing Officer for further examination."

4. The Tribunal clarified that the absence of mention of mode of payment in the sale deed does not automatically imply cash payment, and the burden lies on the AO to establish contravention after proper inquiry.

5. The penalty under section 271D can be initiated even in the absence of pending assessment proceedings.

6. The satisfaction required for initiation of penalty proceedings can be constituted by the AO's forwarding of information to the JCIT, even if no formal assessment proceedings are pending.

In conclusion, the Tribunal allowed the appeal for statistical purposes by setting aside the penalty order and remanding the matter to the AO for fresh consideration on the question of mode of payment of sale consideration, after providing the assessee an opportunity of hearing. The Tribunal upheld the validity of jurisdiction and initiation of penalty proceedings under section 271D but emphasized the necessity of proper inquiry into the mode of payment before levying penalty.

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