Penalty for cash transactions in property

Shri Jagdish Prashad Gupta

Vs 

Joint Commissioner of Income Tax, Range – 1(1), Muzaffarnagar

ITA No. 3822/Del/2024 | ITAT Delhi

Assessment Year: 2017-18

Order dated: 23 December 2025

CORE ISSUE:

Whether penalty under section 271D of the Income-tax Act, 1961 for alleged violation of section 269SS can be sustained in a case where cash exceeding Rs. 20,000/- was received towards sale consideration of immovable property, when the transaction is genuine, duly recorded, deposited in the bank, offered to tax, and where the Assessing Officer has accepted the transaction without drawing any adverse inference in the assessment proceedings.

FACTS:

The assessee, a senior citizen aged about 70 years, was assessed under section 143(3) vide order dated 26.11.2019. During assessment proceedings, the Assessing Officer noticed cash deposits aggregating to Rs. 10,58,000/- during the demonetisation period. The assessee explained that Rs. 9,80,000/- out of the said amount represented sale consideration received in cash on sale of a residential flat.

The assessee had originally purchased a one-room dwelling unit situated at Sector 63, Chandigarh through a General Power of Attorney on 10.05.2010 for Rs. 6,76,000/-, as transfer through registered sale deed was not permissible prior to allotment. Owing to financial exigencies, the assessee sold the flat for Rs. 9,80,000/-. The agreement to sell dated 05.11.2016 clearly recorded receipt of sale consideration in cash. The entire amount was deposited in the bank and the resultant capital gains were duly offered to tax.

The Assessing Officer, while completing assessment, did not dispute the source or genuineness of the transaction, nor was any addition made under section 68 or any other provision. However, the matter was referred for initiation of penalty proceedings, and penalty under section 271D amounting to Rs. 9,80,000/- was imposed and subsequently confirmed by the CIT(A), NFAC.

STATUTORY PROVISIONS

Section 269SS prohibits acceptance of loans, deposits or specified sums exceeding Rs. 20,000/- otherwise than by prescribed banking modes.

Section 271D provides for levy of penalty equal to the amount received in contravention of section 269SS.

Section 273B provides immunity from penalty where the assessee proves that there was reasonable cause for the failure.

FINDINGS OF THE ITAT

The Tribunal, after careful consideration of the record and rival submissions, held as under:

The cash receipt of Rs. 9,80,000/- was pursuant to an agreement to sell dated 05.11.2016 and was duly deposited in the bank. The Assessing Officer, in the assessment order dated 26.11.2019, did not doubt the genuineness, source, or veracity of the transaction, nor was any addition made in respect thereof.

The Tribunal held that once the Assessing Officer accepts the transaction as genuine in assessment proceedings, penalty proceedings cannot travel beyond the findings recorded therein, particularly when no addition is made on account of unexplained cash or credit.

RELIANCE PLACED AND OUTCOME OF JUDICIAL PRECEDENTS

The Tribunal placed reliance on the judgment of the Hon’ble Supreme Court in PCIT v. Shree Madhi Surali Vibhag Nagarik Sahakari Dhiran Mandali Ltd..

In that case, the Hon’ble Supreme Court dismissed the Special Leave Petition filed by the Revenue, thereby affirming the judgment of the Hon’ble Gujarat High Court and the order of the Tribunal. The Supreme Court upheld the principle that where:

• the Assessing Officer has accepted the deposits as genuine,
• no addition is made under section 68 or otherwise,
• and the breach of sections 269SS or 269T occurred under a bona fide belief,

penalty under sections 271D and 271E cannot be sustained. The Court approved the reasoning that if the veracity of the transaction had been doubtful, the Assessing Officer would have necessarily made an addition in the assessment order.

The Tribunal also relied upon the decision of the Visakhapatnam Bench in Smt. Vijapurapu Sudha Rao v. ITO, wherein penalty under section 271D was deleted on the ground that cash received on sale of immovable property, when deposited in bank and offered to tax, constituted reasonable cause under section 273B, and that penalty under section 271D is not automatic.

CONCLUSION AND DECISION

Applying the above judicial principles to the facts of the present case, the Tribunal held that:

• the transaction was genuine and bona fide,
• the source of cash was fully explained,
• the Assessing Officer had accepted the transaction in assessment proceedings without any adverse finding,
• and the assessee had demonstrated reasonable cause within the meaning of section 273B.

Accordingly, the penalty order dated 09.09.2021 passed under section 271D was held to be unsustainable in law and was set aside. The appeal of the assessee was allowed.

By,