Relief from Section 271D Penalty: ITAT Ahmedabad Upholds 'Reasonable Cause' in Joint Property Cash Transactions

The intersection of real estate transactions and cash dealings has always been a focal point for the tax authorities in India. To curb the circulation of unaccounted money, the Income Tax Act 1961 houses stringent provisions penalizing the acceptance of cash beyond specified limits. However, the law also recognizes that human circumstances are rarely black and white. When an assessee is compelled by unavoidable circumstances to accept a portion of a property's sale consideration in cash, the imposition of draconian penalties may not always be justified, provided there is a genuine, bona fide reason.

This nuanced approach was recently highlighted in a landmark ruling by the Income Tax Appellate Tribunal (ITAT), Ahmedabad. In the case of Nirav Mahendrabhai Tamboli Vs ITO (ITA No. 1761/Ahd/2026), the Tribunal underscored the importance of Section 273B of the Income Tax Act 1961, which grants relief from penalties if the assessee can demonstrate a "reasonable cause" for the default. Furthermore, the ruling heavily emphasized the judicial principle of consistency—dictating that co-owners of the same property, transacting under identical circumstances, cannot be subjected to disparate penal treatments by different Assessing Officers.

The Factual Matrix of the Dispute

The controversy stems from the sale of an ancestral property jointly owned by a large, fragmented family. The assessee, along with numerous relatives, executed a sale deed in favor of a real estate entity, M/s. Shiv Construction.

The On-Paper Transaction vs. The Actual Consideration

Initially, the documented sale consideration for the entire property was pegged at ₹27.90 crore. The assessee held a 1/48th share in this ancestral land. Based on the registered deed, the assessee’s proportionate share amounted to ₹58,12,500. Consequently, the assessee filed the original income tax return for Assessment Year (A.Y.) 2021-22, declaring a Long-Term Capital Gain (LTCG) of ₹11,13,515 and a total taxable income of ₹13,83,210.

However, the narrative took a sharp turn following a search and seizure operation conducted by the investigation wing on the Darshnam-Vihar group. The post-search scrutiny unearthed incriminating evidence indicating that the actual sale consideration of the property was significantly higher than what was recorded. The true value of the transaction was discovered to be ₹35.57 crore. The difference of ₹7.67 crore had been exchanged in cash outside the books.

Out of this cash component, the assessee’s specific share was quantified at ₹15,97,906.

Proactive Compliance via Updated Return

Upon realizing the exposure, the assessee took corrective action. Utilizing the mechanism provided under Section 139(8A) of the Income Tax Act 1961, the assessee filed an updated return. In this revised filing, the assessee voluntarily disclosed the previously unrecorded cash receipt, thereby revising the total taxable income upward to ₹29,81,120.