Reasonable Cause Excludes Operation Of Sec 271D: Bangalore ITAT Deletes Penalty

Hence the ITAT deleted the penalty levied by AO u/s 271D on assessee for receiving excessive cash in contravention of taxation statute, upon sale of property.

Section 271D of the Income Tax Act lays down the penalty to be imposed on a taxpayer for accepting or taking any loans, deposits, or other specified amounts in contravention of Section 269SS, as per which all loans or deposits of over Rs.20,000 must be taken through banking channels.

Section 273B of the Income tax Act provides that no penalty shall be levied u/s 271F of the Act if the taxpayer proves that there was reasonable cause for the said failure. The words 'reasonable cause' would mean a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides, from doing the act of which he, called on to act reasonably, knows or ought to know.

The Bench of Chandra Poojari (Accountant Member) and Prakash Chandra Yadav (Judicial Member) observed that “there was reasonable cause and explanation of the assessee would be treated as bonafide, hence in this case, no penalty is leviable as section 273B. Section 273B categorically excludes the operations of section 271D”. (Para 10)

Facts of the case:

The assessee, an individual, had sold two properties for a consideration of Rs.8,39,000/- in cash. Consequent to filing of his return, the assessee received a notice u/s 271D. Though the assessee contended that there was a reasonable cause for accepting the sale consideration in cash, the AO levied penalty of the equivalent amount of cash received by the assessee.

Observations of the Tribunal:

The Bench found that the assessee has filed his return on Aug 07, 2017 and this return was processed by the Department after a month, whereas the penalty notice dated 6/7/2021 was issued by department after almost four years of the processing of return.

Since the Departmental Representative had failed to point out anything contrary to the facts of the case, the Bench opined that the penalty was not initiated by the Revenue in reasonable time.

The Bench explained the complexity in the Income Tax Laws every year due to the ongoing amendments, and therefore even a professional may commit many mistakes.

Having regard to the fact that assessee had started his business immediately after the introduction of amendment, the Bench observed that the persons from whom payments were to be made could not be able to arrange the Demand Drafts, due to closing of banking hours.

At the same time, the Bench noted that the assessee has also filed confirmations from the buyers who confirmed that they could not be able to get the Demand Draft due to restricted banking hours.

The Bench also observed that other persons have also received cash in very similar transactions, but were spared by the department without any plausible reasons.

Hence the ITAT deleted the penalty and allowed assessee's appeal.

Counsel for Appellant/ Assessee: Suman Lunkar

Counsel for Respondent/ Revenue: Neha Shaya

Case Title: Laxmilal Badolla vs. The NFAC

Case Number: ITA No.815/Bang/2024

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