Bengaluru ITAT Quashes Section 271D Penalties: Limitation Under Section 275(1)(c) Held to Be Mandatory and Jurisdictional
Background and Overview
In a significant ruling that reinforces the mandatory character of statutory limitation provisions in penalty proceedings, the Income Tax Appellate Tribunal, Bengaluru Bench, decided a consolidated set of appeals filed by the assessee for Assessment Years 2016-17, 2017-18, 2018-19, and 2020-21. The Tribunal quashed all penalty orders passed under Section 271D of the Income Tax Act, 1961, on the ground that they were passed beyond the limitation period prescribed under Section 275(1)(c) of the Act.
The case — Kodiambadi Subrahmanya Rai Vs ACIT (ITAT Bangalore) — arose from an unusual factual backdrop where penalty proceedings against the assessee were not triggered by any assessment of the assessee himself, but were instead initiated on the basis of statements recorded during scrutiny proceedings in the case of an entirely different person.
Key Principle: Where no assessment proceedings have been initiated against the assessee, the limitation for penalty under
Section 271Dis governed exclusively by the second limb ofSection 275(1)(c)— six months from the end of the month in which penalty proceedings commenced.
Factual Matrix
How the Penalty Proceedings Originated
During scrutiny assessment proceedings of one Shri Pranaam Rai for Assessment Year 2023-24, statements were recorded under Section 132(4) of the Income Tax Act, 1961. Shri Pranaam Rai, who was managing the business affairs on behalf of the assessee, disclosed in those statements that the assessee had received cash amounting to Rs. 52,56,000 as advance consideration for sale of immovable property from multiple customers during Financial Year 2015-16, relevant to Assessment Year 2016-17.
This cash receipt was alleged to be in violation of Section 269SS of the Act, which prohibits acceptance of loans, deposits, or specified sums otherwise than by account payee cheque or bank draft where the amount is Rs. 20,000 or more.
Issuance of Show Cause Notice
Based on the above revelation, the Assessing Officer issued a show cause notice dated 14.08.2024 under Section 274 read with Section 271D of the Income Tax Act, 1961. The notice specifically stated:
"During the course of scrutiny proceedings of Shri Pranaam Rai (PAN: BLOPR0430B) for Assessment Year 2023-24, it appears from the records and the statement of Shri Pranaam Rai who is managing the business on behalf of you, recorded u/s 132(4) vide dated 01.05.2023, 26.06.2023 and 27.06.2023 that you have failed to comply with the provisions of section 269SS of the Income Tax Act, 1961 by receiving/accepting cash amounting to Rs. 52,56,000/- in advance/sale against Vardaman Nagar and King City Projects (Real Estate) from the various parties/customers during Financial Year 2015-16 relevant to Assessment Year 2016-17."
Similar notices were issued on 14.08.2024 for Assessment Years 2017-18, 2018-19, and 2020-21 as well, all grounded in the same statements of Shri Pranaam Rai recorded during his scrutiny proceedings.
Penalty Orders Passed
After examining the assessee's submissions, the Assessing Officer passed penalty orders dated 19.03.2025 under Section 271D, imposing a penalty of Rs. 52,56,000 — equivalent to the cash amount received — for each of the assessment years under consideration.
Proceedings Before CIT(A)
Limitation Ground Raised
Before the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, the assessee raised an additional ground challenging the penalty orders on the basis of limitation under Section 275(1)(c). The assessee's contention was straightforward: since no assessment proceedings were pending or initiated against the assessee for the relevant assessment years, only the second limb of Section 275(1)(c) was applicable. Under that limb, the limitation expired six months from the end of August 2024, i.e., on 28.02.2025. Since the penalty orders were passed on 19.03.2025, they were barred by limitation.