Chennai ITAT: No Section 271D Penalty Where Cash Forms Part of Fully Disclosed Registered Sale Consideration

Background of the Dispute

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) examined whether penalty under Section 271D can be imposed when an assessee receives a portion of the immovable property sale consideration in cash, and such amount is fully reflected in a duly registered sale deed.

In the case of Badmanaban Narayanan Vs ITO (ITAT Chennai), the Revenue alleged contravention of Section 269SS on the basis that the assessee had accepted ₹3,50,000 in cash as part of the total sale consideration of ₹13,50,000 for a property. The Assessing Officer (AO) treated this cash component as a violation of the cash acceptance limits, initiated penalty proceedings under Section 271D, and ultimately levied penalty equal to the cash amount received.

The Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre, Delhi, acting under Section 250, confirmed the penalty. The assessee carried the matter to the ITAT, Chennai.

Essential Facts Considered by the Tribunal

Nature of the Assessee and the Transaction

• The assessee is an individual engaged in agricultural activity and resides in a rural area near Kanchipuram.
• He sold an immovable property for a disclosed consideration of ₹13,50,000.
• The registered sale deed explicitly recorded the entire consideration, including the cash portion.
• Out of the total sale price, a sum of ₹3,50,000 was received in cash on different dates from the purchaser.
• A written confirmation from the purchaser, placed in the paper book, specified the details of the cash payments made in instalments.

Stand of the Assessing Officer and First Appellate Authority

1. AO’s Action

   • The AO obtained information about the sale transaction and, after examining the registered document, noticed the cash component of ₹3,50,000.
   • Treating the cash receipts as violation of Section 269SS, the AO initiated penalty proceedings under Section 271D.
   • The assessee’s explanation that he was an agriculturist, uneducated, and that the cash was used for agricultural inputs, was not accepted.
   • The AO levied a penalty of ₹3,50,000 under Section 271D.

2. Order of CIT(A)/NFAC under Section 250

   • The assessee’s appeal before the CIT(A)/NFAC did not succeed.
   • CIT(A) sustained the penalty on the reasoning that acceptance of cash in excess of the prescribed limit automatically attracted Section 269SS and consequent penalty under Section 271D.

Arguments Advanced Before the ITAT

Submissions of the Assessee’s Representative

The Authorised Representative (AR) for the assessee contended:

• The assessee, being an agriculturist and not well-versed in income-tax procedures, had bona fide accepted part of the sale consideration in cash.
• The entire transaction was genuine, and the total consideration of ₹13,50,000 was transparently disclosed in the registered deed of conveyance.
• The cash receipts were neither loans nor deposits; they were merely part of the agreed sale price.
• The cash component had a commercial explanation: it was used for purchasing agricultural produce and meeting agricultural requirements.
• There was no allegation of unaccounted money, suppression of consideration, or colourable device to conceal income.
• Penal provisions like Section 271D cannot be mechanically applied where the substance of the transaction is legitimate and fully documented.
• Heavy reliance was placed on the coordinate bench ruling in Srinivasan Ramya vs. ACIT [ITA No.3162/Chny/2025 dated 16.04.2026], wherein similar facts led to deletion of penalty levied under Section 271D.

Stand of the Departmental Representative