ITAT Hyderabad Deletes Section 271DA Penalty: Seized Tally Data Alone Insufficient to Prove Section 269ST Violation
Case Overview
Case Name: Shreemukh Realtors Vs DCIT/ACIT (ITAT Hyderabad)
Assessment Years: 2020-21 to 2023-24
Core Issue: Whether penalty levied under Section 271DA of the Income Tax Act, 1961, based solely on electronic Tally data seized during a search operation, is legally sustainable in the absence of independent corroborative evidence establishing a clear violation of Section 269ST
Key Ruling: The ITAT Hyderabad held that Revenue must conclusively establish contravention of
Section 269STthrough cogent, verifiable evidence. Unverified seized Tally entries, unsupported by sale documents or independent purchaser inquiries, cannot form the sole basis for levying a 100% penalty underSection 271DA. Where the assessee had voluntarily disclosed additional income and discharged the resulting tax liability, imposition of such penalty was held disproportionate and contrary to legislative intent.
Background and Search Proceedings
A search and seizure operation was conducted under Section 132 of the Income Tax Act, 1961, on 17.08.2022, covering multiple business and residential premises of the Vasavi Group, including offices of partners and associated entities. During the search, the Investigation Wing seized an extensive array of incriminating material — both physical and electronic — comprising loose sheets, original MOUs, vouchers, and Tally accounting data stored on hard disks and pen drives. These electronic devices were inventorised as Annexure A/VG/MS/51 and Annexure A/VG/CORP/ED/3, and were supported by certificates issued under Section 65B of the Indian Evidence Act, 1872.
On examination of the seized material, Revenue formed the view that the Vasavi Group entities — including the assessee firm Shreemukh Realtors — had received cash payments from customers in connection with the sale of flats, villas, and commercial units across various projects, which had not been recorded in their regular books of account.
Statements Recorded Under Section 132(4)
Statements were recorded from several key persons associated with the Group, including:
- Shri Y. Vijay Kumar, Managing Partner, who confirmed that Tally entries in the seized data reflected actual group transactions
- Shri K.P. Durga Prasad, CFO, who explained the cash collection procedure and parallel Tally book maintenance
- Shri G. Ramdev Reddy, GM (Admin), who corroborated the CFO's statement
- Shri Masani Srinivas, Accounts Manager, who was involved in recording parallel cash entries
- Shri Abhishek Chanda, a main partner, who also confirmed cash transactions
Based on these statements and the seized data, Revenue concluded that the Tally entries represented actual undisclosed transactions of the Group.
Assessment Proceedings and Penalty Initiation
Assessment Under Section 143(3) r.w.s. 147
Following the search, assessments were completed under Section 143(3) read with Section 147 of the Act. The Assessing Officer observed that the seized Tally data disclosed customer receipts — categorised as "on-money receipts directly from customers" and "on-money receipts routed through partners under partner's contribution" — which had not been captured in the regular books of account.
The Assessing Officer further noted that the assessee group had, during post-search investigations, admitted additional income of Rs. 400 crores for the entire group to address discrepancies identified in the seized material. The AO, after observing that both the regular books and the secondary Tally books were defective and unreliable, invoked Section 145(3) to reject the books of account and estimated profit at 16% on total gross receipts as quantified from the seized Tally data.
Proposal for Penalty and Notice Under Section 274 r.w.s. 271DA
The AO forwarded a proposal dated 09.08.2024 to the Additional Commissioner of Income Tax, Central Range-3, Hyderabad, recommending initiation of penalty proceedings under Section 271DA. A show-cause notice under Section 274 read with Section 271DA was duly issued on 22.08.2024, followed by a final show-cause notice dated 14.02.2025.
Penalty Order by Additional CIT
Revenue's Findings
The Additional Commissioner of Income Tax, Central Range-3, Hyderabad, after examining the seized Tally data and considering the assessee's submissions, held that the accounting data — maintained date-wise and transaction-wise — clearly demonstrated that the assessee had received cash in violation of Section 269ST of the Act.