The Income Tax Appellate Tribunal (ITAT), Chennai, has deleted a Rs 3 lakh penalty imposed on an individual who had received Rs 7 lakh in cash as part of a property sale, after finding that the tax department passed the penalty order beyond the statutory limitation period.
The case relates to Assessment Year 2016-17. The individual had received Rs 3 lakh in cash on December 27, 2015, and another Rs 4 lakh on March 11, 2016, against the sale of a property. The tax department treated the receipts as a violation of Section 269SS of the Income-tax Act, 1961, and imposed a penalty of Rs 7 lakh under Section 271D.
How the Rs 7 lakh penalty was reduced
The penalty order was passed on March 11, 2023. Before the ITAT, the taxpayer argued that the order was time-barred because the penalty proceedings had been initiated through a show-cause notice issued on August 29, 2022.
The first appellate authority had already deleted Rs 4 lakh of the penalty relating to the cash received on March 11, 2016, while sustaining the remaining Rs 3 lakh. It had relied on an earlier Chennai ITAT ruling concerning the interpretation of “specified sum” under Section 269SS.
The taxpayer then challenged the remaining Rs 3 lakh before the tribunal, arguing that the penalty order itself was passed after the limitation period had expired.
ITAT finds penalty order 11 days late
The tribunal examined Section 275(1)(c), which prescribes the time limit for imposing penalties in cases not covered by the other clauses of Section 275(1).
The provision allows the penalty order to be passed by the later of the end of the relevant financial year or six months from the end of the month in which penalty proceedings were initiated. The tribunal also noted that CBDT Circular No. 10/2016 had clarified that this limitation applies to penalties under Sections 271D and 271E.
In this case, there was no assessment or other order in the course of which the Section 271D proceedings had been initiated. Therefore, the tribunal held that the time limit of Section 275(1)(c) applied.
Since the show-cause notice was issued on August 29, 2022, the six-month period ended on February 28, 2023. However, the penalty order was passed only on March 11, 2023, 11 days after the deadline. The tribunal noted that the tax department’s own penalty order had recorded both the date of the notice and the limitation period.
“The impugned penalty order has admittedly been passed beyond the statutory period prescribed under section 275(1)(c) of the Act. In view of the above, we hold that the order imposing penalty under section 271D of the Act is barred by limitation and, consequently, is liable to be quashed. Accordingly, the penalty of Rs 3,00,000 sustained by the FAA is deleted. It is ordered accordingly,” ITAT said in order
As a result, the ITAT held the penalty order to be barred by limitation and quashed it. The remaining Rs 3 lakh penalty was consequently deleted. The tribunal left the other grounds raised by the taxpayer open and did not decide the underlying merits of the cash receipt.
What taxpayers should understand
The ruling highlights why taxpayers should check the limitation period before contesting a penalty on its merits.
“This order highlights why the time limit should be checked before getting into the merits of a penalty case. Here, the tribunal’s decision turned on the timing of the penalty order, rather than deciding whether the cash receipt itself was legally permissible,” an tax expert said.
“For taxpayers, the key takeaway is that a penalty cannot be imposed indefinitely. However, this should not be interpreted as approval of cash transactions in property deals. The facts, nature of the receipt and applicable provisions still need to be examined separately,” he said.
The ruling, therefore, does not mean that cash received against a property sale is automatically free from penalty. The ITAT specifically disposed of the case on the limitation issue, leaving the other grounds undecided.
