The Income Tax Appellate Tribunal (ITAT), Chennai, has deleted a ₹3 lakh penalty imposed on an individual who received ₹7 lakh in cash as part of a property sale, after finding that the tax department passed the penalty order beyond the statutory limitation period. The case relates to Assessment Year 2016-17, where the individual received ₹3 lakh in cash on December 27, 2015, and another ₹4 lakh on March 11, 2016, against the sale of a property. The tax department treated the receipts as a violation of Section 269SS of the Income-tax Act, 1961, and imposed a penalty of ₹7 lakh under Section 271D. The penalty order was passed on March 11, 2023, but the tribunal found it time-barred due to procedural delays.
The ITAT examined Section 275(1)(c), which prescribes the time limit for imposing penalties in cases not covered by other clauses of Section 275(1). The provision allows the penalty order to be passed by the later of the end of the relevant financial year or six months from the end of the month in which penalty proceedings were initiated. In this case, there was no assessment or other order in the course of which the Section 271D proceedings had been initiated. The show-cause notice was issued on August 29, 2022, and the six-month period ended on February 28, 2023. However, the penalty order was passed only on March 11, 2023, 11 days after the deadline. The tribunal noted that the tax department's own penalty order had recorded both the date of the notice and the limitation period, stating that the impugned penalty order was passed beyond the statutory period prescribed under section 275(1)(c) of the Act.
The tax department's own penalty order recorded both the date of the notice and the limitation period, which worked against them in the tribunal's decision. As reported by the ITAT, the penalty order itself admittedly was passed beyond the statutory period prescribed under section 275(1)(c) of the Act. The tribunal held that the order imposing penalty under section 271D of the Act is barred by limitation and consequently is liable to be quashed. The first appellate authority had already deleted ₹4 lakh of the penalty relating to the cash received on March 11, 2016, while sustaining the remaining ₹3 lakh. The taxpayer had challenged the remaining penalty before the tribunal, arguing that the penalty order itself was passed after the limitation period had expired.
The tribunal's decision was supported by CBDT Circular No. 10/2016, which had clarified that the limitation applies to penalties under Sections 271D and 271E. The first appellate authority had relied on an earlier Chennai ITAT ruling concerning the interpretation of 'specified sum' under Section 269SS. However, the ITAT specifically noted that the tax department's own penalty order had recorded both the date of the notice and the limitation period, which worked against them in the tribunal's decision. The ruling highlights why taxpayers should check the limitation period before contesting a penalty on its merits, as the tribunal's decision turned on the timing of the penalty order rather than deciding whether the cash receipt itself was legally permissible.
The ruling emphasizes that a penalty cannot be imposed indefinitely, but this should not be interpreted as approval of cash transactions in property deals. As noted by tax experts, the facts, nature of the receipt and applicable provisions still need to be examined separately. The ITAT specifically disposed of the case on the limitation issue, leaving the other grounds undecided, which means the ruling does not mean that cash received against a property sale is automatically free from penalty. The key takeaway for taxpayers is that they should check the limitation period before getting into the merits of a penalty case, as procedural delays can result in penalty orders being quashed even if the underlying facts are valid. The ruling also demonstrates that procedural lapses should not automatically disqualify legitimate tax claims, particularly when taxpayers subsequently furnish relevant documents and evidence.
