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 primary legal questions considered in this appeal pertain to the applicability of penalty under section 271D of the Income Tax Act for alleged violation of section 269SS, specifically:

1. Whether the assessee accepted a specified sum exceeding Rs. 20,000/- in cash, otherwise than by an account payee cheque, bank draft, or electronic clearing system, in contravention of section 269SS.

2. Whether the additional amount of Rs. 1,37,73,000/- received by the assessee from customers towards additional amenities in a real estate project constitutes a specified sum in relation to transfer of immovable property under section 269SS.

3. Whether the penalty under section 271D is leviable for such acceptance of cash, considering the nature of the additional amount received and the legal interpretation of section 269SS as a deeming provision.

4. The relevance and applicability of the definition of "consideration for transfer of any immovable property" under section 194-IA, particularly the inclusion of incidental charges such as club membership fees, car parking fees, maintenance fees, etc., and whether this definition extends to the additional amenities charged by the assessee.

5. Whether the evidence on record, including the seized diary and statements recorded during search under section 132, sufficiently corroborates the claim of cash receipt in violation of section 269SS.

Issue-wise Detailed Analysis

Issue 1: Applicability of Section 269SS and Penalty under Section 271D for Acceptance of Cash

The legal framework under section 269SS prohibits acceptance of any loan, deposit, or specified sum of Rs. 20,000/- or more otherwise than by an account payee cheque, bank draft, or electronic clearing system. Section 271D imposes a penalty equal to the amount accepted in contravention of section 269SS.

The Assessing Officer (AO) levied penalty on the basis that the assessee accepted Rs. 1,37,73,000/- in cash from customers, which was evidenced by a seized diary and the statement of the director recorded under section 132(4). The AO relied on the fact that the amount was received over and above the sale consideration of row houses and thus violated section 269SS.

The assessee contended that the amount was received for additional amenities requested by customers after the sale deed was executed, was optional, and not part of the sale consideration. The diary entries were inconsistent and did not specify the year, with some dates post-dating the search, undermining the claim that the amounts were received during the relevant year. Further, the amounts were accounted for in the books and taxed accordingly.

The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the assessee's submissions, holding that the AO failed to prove violation of section 269SS with corroborative evidence. The CIT(A) observed that the diary entries were inconsistent and did not establish actual receipt of the amounts during the relevant year. The AO's reliance on the diary alone was insufficient to sustain the penalty.

The Tribunal noted that the total sale consideration for the row houses was received through banking channels and the additional amounts for amenities were separate and reimbursed costs, not forming part of the sale consideration. The Tribunal agreed with the CIT(A) that no specified sum in relation to transfer of immovable property was received in cash in violation of section 269SS.

Issue 2: Nature of Additional Amount Received and Its Relation to Sale Consideration

The assessee's detailed submissions explained that the additional amounts were charged for customized interior work and amenities requested by only some customers, not all. These charges were optional, not envisaged in the original sale agreement, and were reimbursed costs for services rendered after the sale agreement was executed.

The AO argued that such incidental charges fall within the ambit of "consideration for transfer of immovable property" as defined under section 194-IA, which includes charges like club membership fees, car parking fees, maintenance fees, etc. The AO relied on an amendment effective from 01.09.2019 to support this interpretation.

The Tribunal examined the facts and found that the additional amounts were distinct from the sale consideration, which was fully received through banking channels and documented by registered sale deeds. The additional amenities were not part of the sale agreement or the consideration for transfer of the immovable property.

Further, the Tribunal noted that the amendment to section 194-IA relied upon by the AO was effective only from 01.09.2019, while the relevant financial year was 2018-19, rendering the amendment inapplicable retrospectively.

The Tribunal held that the additional amounts were reimbursement for optional services and did not constitute "consideration for transfer of immovable property" under section 194-IA or section 269SS.

Issue 3: Interpretation of Section 269SS as a Deeming Provision and Burden of Proof

The assessee argued that section 269SS is a deeming provision imposing penal consequences and must be strictly construed. In case of doubt, the benefit must be given to the assessee. The AO failed to establish that the cash was received in contravention of section 269SS beyond reasonable doubt.

The CIT(A) concurred, emphasizing that the AO did not bring on record any material corroborating the diary entries as actual payments received during the relevant year. The diary was maintained by a site supervisor, not management, and contained inconsistent and incomplete entries.

The Tribunal upheld this view, observing that the mere presence of diary entries without corroborative evidence cannot sustain the penalty. The director's statement was made under pressure to avoid litigation and was not an admission of violation of section 269SS.

Issue 4: Relevance of Section 194-IA and Definition of Consideration

The AO's reliance on the definition of "consideration for transfer of immovable property" under section 194-IA was scrutinized. The definition includes incidental charges such as club membership fees, car parking fees, maintenance fees, and similar charges.

The Tribunal found that the additional amenities charged by the assessee did not fall within these categories. The charges were for customized interior work, not for facilities or services typically incidental to immovable property transfer as contemplated by section 194-IA.

Moreover, the amendment to section 194-IA was effective only after the relevant assessment year and could not be applied retrospectively to impose penalty under section 271D for AY 2019-20.

Issue 5: Evidence and Findings on Cash Receipt

The evidence comprised the seized diary, statements recorded during search, and the assessee's books of accounts and returns filed. The diary was found in the possession of a site supervisor, entries were inconsistent, and some dates post-dated the search.

The director's statement disclosed the amount as additional income to avoid litigation, but the AO accepted the returned income in the assessment order without reservation. No other incriminating material or unaccounted assets were found.

The Tribunal observed that the total sale consideration was received through banking channels, and the additional amounts were separately accounted for and taxed. The AO did not dispute these facts.

Therefore, the Tribunal concluded that the AO failed to establish that the amount was received in cash in violation of section 269SS.

Significant Holdings

"The Ld.CIT(A) has rightly observed that the penalty u/s. 271D of the Act could not have been levied merely on the diary found because the Ld.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."

"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."

"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 as the additional amenities charged are not incidental charges such as club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature."

"The penalty levied u/s 271D of Rs. 1,37,73,000/- is hereby deleted."

Core principles established include the strict interpretation of deeming provisions like section 269SS, the necessity of corroborative evidence beyond seized documents to levy penalty under section 271D, and the distinction between sale consideration and optional additional charges in real estate transactions.

On the facts, the Tribunal dismissed the Revenue's appeal and upheld the deletion of penalty, concluding that the assessee did not violate section 269SS and was not liable to penalty under section 271D for the additional amounts received.