Introduction
In a recent ruling titled Smt. Pushpalatha v. Income Tax Department[i], the Income Tax Appellate ITAT, Bangalore (‘ITAT’), addressed a pivotal issue regarding the applicability of s. 269SS of the Income Tax Act, 1961 (‘IT Act’) to a transaction involving cash as the sale consideration of an immovable property. The ITAT examined two key questions. Firstly, was there a ‘reasonable cause’ under s. 273B of the IT Act for the Assessee’s failure to comply with s. 269SS, and secondly, whether the imposition of penalty under s. 271D of the IT Act was justified. This case underscores the delicate balance between ensuring compliance with statutory provisions and recognizing the practical realities faced by taxpayers in property transactions, contributing to the evolving jurisprudence on penalty provisions under Indian tax law.
Brief Facts
Ms. Pushpalatha (‘Assessee’) sold a property in June 2016 for a consideration of Rs. 90 lakhs, of which approximately Rs. 49 lakhs were received in cash. In her income tax return, she declared a total income of approximately Rs. 4 lakhs and disclosed the capital gains arising from the sale while claiming exemption under s. 54 of the IT Act for the investment made from the aforementioned sale of property.
The assessment was selected for scrutiny, and a show cause notice (‘SCN’) was issued under s. 143(2) of the IT Act. Subsequently, an assessment order was passed under s.143(3), accepting the income as declared by the Assessee.
During the assessment proceedings, the assessing officer (‘AO’) observed that the Assessee had received Rs. 49.10 lakhs in cash as part of the property sale. The AO noted that this transaction violated the provisions of s. 269SS of the IT Act prohibits accepting cash in transactions involving the sale of immovable property. Accordingly, the Assessee was issued a SCN under s. 274 read with s. 271D of the IT Act.
AO rejected the Assessee’s explanation in response to the SCN, stating that no reasonable cause was provided, and imposed a penalty of Rs. 49.10 lakhs under s. 271D of the IT Act for the violation.
The assessee appealed against the penalty; however, the Commissioner of Appeals ('CIT(A)') upheld the AO’s decision. Aggrieved by the order passed by the CIT(A), the Assessee filed the present appeal before the ITAT.
Held
The ITAT ruled in favour of the Assessee, allowing the appeal and holding that the penalty under s. 271D of the IT Act was unwarranted and ought to be deleted. The ITAT found no intent on the part of the Assessee to generate unaccounted cash or black money, as she had recorded the entire cash receipt in the registered sale deed and disclosed it in her income tax return. Additionally, the Assessee had claimed an exemption under s. 54 of the IT Act for constructing a residential house, which was accepted by the AO during the assessment. Thus, this supports the conclusion that no unaccounted money was involved in the aforementioned transaction.
While justifying the Assessee’s case, the ITAT further observed that since there was no agreement to sell, the Assessee had no legal right to enforce the sale. Payments were made through demand drafts and cheques, with cash being paid only on the day the sale deed was executed. The Assessee refusing to accept the cash would have led to the collapse of the property sale, and thus, the Assessee's failure to comply with s. 269SS, as provided under s. 273B was justifiable as a ‘reasonable cause’.
The ITAT further clarified that the term ‘otherwise’ under s. 269SS of the IT Act should not be interpreted to include ‘sale consideration’. It should be read in accordance with the principle of Ejusdem Generis, meaning it applies only to situations similar to ‘money receivable as advance.’
Moreover, the AO should have initiated penalty proceedings under s. 269ST of the IT Act, which limits cash transactions of Rs. 2 lakhs or more instead of s. 269SS, which is intended for regulating cash advances. The ITAT also highlighted that the amendments to s. 269SS, introduced by the Finance Act, 2015, applied specifically to cash received as an advance, not to sale consideration. In this case, the sale consideration was received in cash when executing the sale deed, not as an advance. The amendment to s. 269SS was designed to prevent cash advances in property transactions while s. 269ST, introduced in the 2017-18 assessment year, was intended to cover all cash transactions exceeding Rs. 2 lakhs beyond those governed by s. 269SS.
Our Analysis
In this case, the ITAT correctly determined that s. 269SS, which regulates loans, deposits, and advances, was not the appropriate provision to apply to a transaction involving sale consideration. The AO's decision to invoke s. 269SS resulted in an unjustified penalty under s. 271D, which the ITAT rightly dismissed.
S. 269ST, on the other hand, was specifically introduced to regulate and limit large cash transactions exceeding Rs. 2 lakhs, with the intent to prevent money laundering and tax evasion, given the nature of the transaction in question, s. 269ST would have been the more suitable provision, as it directly addresses cash dealings of the scale observed in this case. The applicability is more relevant here because it covers cash transactions beyond loans and advances, which s. 269SS does not.
Furthermore, the ITAT appropriately applied the doctrine of Ejusdem Generis to restrict the interpretation of ‘otherwise’ in s. 269SS, limiting its scope to transactions similar to loans and advances. Earlier, the Supreme Court reinforced this principle in Kamlesh Kumar Sharma v. Yogesh Kumar Gupta[ii], emphasizing that the term ‘otherwise’ must be interpreted narrowly to avoid extending its application beyond the intended scope. This interpretation prevents the unjust expansion of s. 269SS to encompass sale transactions, aligning with legislative intent.
End Notes
[i] [2024] 165 taxmann.com 767 (Bangalore - Trib.).
[ii] [(1998) 3 SCC 45].
Authored by Shreya Manchanda, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.
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