ITAT Rajkot Rules: Cash Transactions Within Family Do Not Attract Penalties Under Sections 271D and 271E — Manish Narendrabhai Gandhi Vs ACIT

Overview of the Case

The Income Tax Appellate Tribunal, Rajkot Bench, delivered a significant ruling in Manish Narendrabhai Gandhi Vs ACIT, allowing both appeals filed by the assessee and directing deletion of penalties aggregating to ₹14,78,000 that had been levied under Section 271D and Section 271E of the Income-tax Act, 1961. The core question before the Tribunal was whether cash transactions conducted exclusively among close family members and related entities could be classified as loans or deposits within the scope of Section 269SS and Section 269T, thereby triggering penal liability.

The Tribunal answered this question in the negative, placing reliance on the binding precedent set by the Hon'ble Gujarat High Court and observing that the familial nature of the transactions had never been disputed by the Revenue Authorities at any stage of the proceedings.

Background and Facts of the Case

ITA No. 596/Rjt/2026 — Penalty Under Section 271D

Penalty proceedings under Section 271D of the Income-tax Act, 1961 were initiated against the assessee on the ground that he had allegedly contravened the provisions of Section 269SS by accepting cash amounts in excess of ₹20,000 without routing such receipts through banking channels.

During the course of these proceedings, it emerged that the assessee had received aggregate cash amounts totalling ₹10,08,000 from the following parties:

A notice under Section 271D read with Section 274 of the Act was issued to the assessee, calling upon him to show cause as to why penalty should not be imposed. In response, the assessee clearly explained that:

• All the amounts had been received from close family members for business-related purposes.
• The parties involved were not strangers or arm's-length counterparts — they comprised the assessee's brother's HUF, the assessee's wife, his brother's wife, and the assessee's own HUF.
• Given the intimate familial nature of these transactions, they could not, in law or in substance, be characterised as loans or deposits falling within the ambit of Section 269SS.

Despite this explanation, the Additional Commissioner of Income-tax was not persuaded. A penalty of ₹10,08,000 — equivalent to the entire cash amount received — was imposed under Section 271D. The assessee appealed before the CIT(A), who upheld the penalty without extending any relief. Aggrieved, the assessee approached the ITAT.

ITA No. 597/Rjt/2026 — Penalty Under Section 271E

The second appeal before the Tribunal pertained to a penalty of ₹4,70,000 imposed under Section 271E of the Income-tax Act, 1961, on the allegation that the assessee had repaid cash amounts in violation of Section 269T. The cash repayments in question were made to the following parties: