2025 (6) TMI 400 - AT - Income Tax

Penalty levied u/s 271D - violation of section 269SS - seized diary based on which the amount has been arrived by the search team - Sum which the Ld.AO has observed that assessee has received the said sum in cash against the transfer of immovable properties - CIT(A) deleted penalty levy. HELD THAT - CIT(A) has rightly observed that the penalty u/s. 271D could not have been levied merely on the diary found because the AO could not corroborate the same by bringing any material on record which proves that the amount mentioned in the diary is received during the year. But all set and done the assessee in the statement recorded u/s.132(4) has accepted that a sum of Rs. 1, 37, 73, 000/- has been received in cash towards provision of additional amenities in the project from the respective customers. So we need to examine what additional amenities have been provided by the assessee and whether the consideration received in lieu of such additional amenities is forming part of the sale consideration for transfer of immovable property. We observe that a sum accepted and stated by the assessee to have been received for providing additional amenities is with regard to the row houses constructed by the assessee under the project namely; Flora Phase-I . Learned counsel for the assessee has furnished the details of the transaction of sale of row houses in relation to 12 customers from whom the alleged sum has been received towards additional amenities and additional interior work. From perusal of the details and taking serial No.4 we find agreement to sale was for row houses and the same has been transferred to the assessee against the consideration received through banking channel. Now in the alleged diary certain amounts were mentioned for row house No.17. It clearly establishes that sale consideration for transfer of immovable property in the shape of row house has been received through banking channel and since the total amount has been received as agreed there remains no question to receive consideration in cash over and above the agreed sale consideration for transfer of immovable property in the form of row house in absence of any material found during the course of search. Same is the situation for all the row houses allotted to 12 customers the reference of which is available in the seized diary. Under these given facts it can be safely concluded that no specific sum as referred in section 269SS of the Act has been received in any mode otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system against transfer of immovable property. The specified sum in sec. 269SS of the Act is defined to include any sum of money receivable whether as advance or otherwise in relation to transfer of an immovable property whether or not the transfer takes place. Since the facts placed before us clearly demonstrates that the alleged sum of Rs. 1, 37, 73, 000/- is received over and above the agreed sale consideration of row house for additional work relating to interior and other finishing work as per the choice of the customer and the total consideration for transfer of the immovable property in the form of row houses has been received through banking channel there is no violation of sec. 269SS of the Act and therefore assessee cannot be visited by the penalty u/s. 271D of the Act. AO linked the alleged transaction with sec. 194-IA of the Act on the ground that the alleged sum has been received towards additional amenities - First we look into the purpose for which the additional amount is received. All the additional amenities/work is reimbursed to the assessee and the alleged sum appearing in the diary is for carrying-out such work. It is also noteworthy that in sec. 194-IA immovable property means any land (other than agricultural land) or any building or part of a building and in the definition of consideration for transfer of any immovable property mainly includes club membership fee car parking fee etc.which are incidental to transfer of immovable property. But the facts of the instant case are different because the assessee is selling row houses and there is no clause appearing in the agreements about any such separate facilities and whatever consideration is agreed at the time of entering into the agreement to sale the same has been received through banking channel and finally sale deeds have been registered. Therefore even the definition of consideration for transfer of immovable property referred in sec. 194-IA of the Act cannot be applied in the given set of facts and circumstances. Therefore under the given facts and circumstances we are of the considered view that as the assessee has not violated the provisions of sec. 269SS of the Act no penalty is leviable u/s. 271D of the Act. Appeal of the Revenue is dismissed.

Summary

The core legal questions considered in this judgment are:

1. Whether the assessee company violated the provisions of section 269SS of the Income Tax Act by accepting a specified sum exceeding Rs. 20,000/- in cash from customers in relation to the transfer of immovable property.

2. Whether the penalty under section 271D of the Act is leviable on the assessee for the alleged violation of section 269SS.

3. Whether the additional amounts received by the assessee for providing extra amenities to customers form part of the "consideration for transfer of immovable property" as defined under section 194-IA of the Act, thereby attracting the provisions of section 269SS.

4. The applicability and interpretation of the deeming provisions under section 269SS and the extent to which the penalty under section 271D can be imposed.

5. The evidentiary value and relevance of the seized diary and statements recorded during search proceedings under section 132 of the Act in establishing the violation of section 269SS.

Issue-wise detailed analysis:

Issue 1: Violation of Section 269SS by accepting cash payments exceeding Rs. 20,000/- in relation to transfer of immovable property

The legal framework under section 269SS prohibits acceptance of any loan, deposit, or specified sum exceeding Rs. 20,000/- otherwise than by an account payee cheque, bank draft, or electronic clearing system. The term "specified sum" includes any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.

The assessing officer (AO) initiated penalty proceedings under section 271D on the ground that the assessee accepted Rs. 1,37,73,000/- in cash from customers, which was in violation of section 269SS. The AO relied heavily on a seized diary found during search operations under section 132, which contained entries of amounts received from customers. The AO contended that these amounts were incidental charges connected to the sale of immovable property and hence covered under section 269SS.

The assessee contended that the amounts received were not part of the sale consideration for the row houses but were for additional amenities or modifications requested by certain customers post-agreement. These were optional, customer-specific, and independent of the main sale agreement. The amounts were reimbursed for extra work done by contractors on behalf of customers and not linked to the transfer of immovable property itself.

The appellate authority (CIT(A)) examined the seized diary and found inconsistencies, including entries with future dates beyond the search date, and noted that the diary was maintained by a site supervisor, not management. The CIT(A) held that the AO failed to produce corroborative evidence proving that the amounts mentioned in the diary were actually received during the relevant year. Further, the statement of the director, recorded under pressure during search, was considered a settlement offer to avoid litigation rather than an admission of violation.

The Tribunal analyzed the sale agreements and sale deeds for the row houses, noting that the agreed sale consideration was received through banking channels and registered accordingly. The additional amounts for amenities were found to be separate from the sale consideration and were not incidental charges contemplated under section 269SS. The Tribunal concluded that no specified sum was received in cash in contravention of section 269SS.

Issue 2: Levy of penalty under section 271D for violation of section 269SS

Section 271D prescribes a penalty equal to the amount of loan, deposit, or specified sum accepted in contravention of section 269SS. The AO imposed a penalty of Rs. 1,37,73,000/- on the assessee.

The CIT(A) deleted the penalty, holding that the AO failed to establish violation of section 269SS with reliable evidence. The Tribunal upheld this view, emphasizing that penalty proceedings are distinct from assessment proceedings and require strict proof of violation. The Tribunal also noted that the assessee had complied with all notices and that the accounts were audited and accepted by the AO without rejection of books or invocation of section 144. The Tribunal found that the assessee had reasonable cause for accepting the amounts in cash, as these were reimbursements for additional amenities requested by customers and not part of the sale consideration.

Issue 3: Applicability of section 194-IA definition of "consideration for transfer of immovable property"

Section 194-IA requires deduction of tax at source on consideration for transfer of immovable property and defines "consideration" to include charges such as club membership fees, car parking fees, electricity or water facility fees, maintenance fees, and other incidental charges.

The AO relied on this definition to argue that the additional amounts received by the assessee were incidental to the sale and thus covered under section 269SS.

The Tribunal distinguished the facts, observing that the additional amenities in question were not akin to the incidental charges enumerated in section 194-IA but were customer-specific interior modifications and finishing work. These were optional and not part of the original sale agreement. The Tribunal further noted that the amendment to section 194-IA cited by the AO came into effect only from 01.09.2019, after the relevant financial year.

Therefore, the Tribunal held that the definition under section 194-IA was not applicable to the facts of the case and could not be used to extend the scope of section 269SS to the additional amenities charged.

Issue 4: Interpretation of the deeming provisions under section 269SS and the principle of strict construction

The assessee argued that section 269SS is a deeming provision attracting penal consequences and must be strictly construed. In case of any ambiguity, the benefit of doubt should be given to the assessee.

The Tribunal agreed with this principle and emphasized that the AO failed to prove the violation beyond doubt. The seized diary was inconsistent, and the statement recorded under duress was not sufficient to establish contravention. The Tribunal reiterated that the penalty under section 271D is discretionary and should not be imposed without clear evidence of violation.

Issue 5: Evidentiary value of the seized diary and statements recorded under section 132

The AO relied on the seized diary entries and the director's statement under section 132(4) to establish that the assessee received cash amounts in violation of section 269SS.

The CIT(A) and the Tribunal found that the diary was maintained by a site supervisor, not management, contained future dates beyond the search date, and did not conclusively prove receipt of cash in the relevant year. The director's statement was recorded after a prolonged search, when the director was suffering from a serious illness, and was made to avoid litigation rather than as an admission of guilt.

The Tribunal held that the AO failed to corroborate the diary entries with any material evidence and that the statement alone could not justify penalty imposition. The Tribunal also noted that the assessee had fully disclosed the amounts as income and paid tax thereon, and the accounts were audited and accepted by the AO.

Significant holdings:

"From the above analysis it is crystal clear that 269SS of the I.T. Act is not a deeming provision and it is relevant to mention here that amount received more than 20,000/- cash mode in relation to transfer of immovable property whether or not transfer taken place the same is covered under Specified Sum as mentioned in Section 269SS."

"The notings in the diary themselves suggest that the declaration was not based on any actual payments made, because the diary itself is inconsistent with the statement given by the director."

"Since the facts placed before us clearly demonstrate that the alleged sum of Rs. 1,37,73,000/- is received over and above the agreed sale consideration of row house for additional work relating to interior and other finishing work as per the choice of the customer and the total consideration for transfer of the immovable property in the form of row houses has been received through banking channel, there is no violation of sec. 269SS of the Act and, therefore, assessee cannot be visited by the penalty u/s. 271D of the Act."

"The definition of consideration for transfer of immovable property referred in sec. 194-IA of the Act cannot be applied in the given set of facts and circumstances."

"The AO has not been able to prove the violation of the provisions of section 269SS of the Act with corroborative evidence. Therefore, the penalty levied u/s 271D of Rs. 1,37,73,000/- is hereby deleted."

The Tribunal conclusively held that the assessee did not violate section 269SS as the amounts received in cash were for additional amenities independent of the sale consideration and that the entire sale consideration was received through banking channels and duly registered. Consequently, the penalty under section 271D was rightly deleted by the CIT(A). The AO's reliance on section 194-IA was misplaced as the additional charges did not fall within the definition of "consideration" under that section. The seized diary and statements recorded under duress lacked evidentiary value to establish contravention.