ITAT Cancels Section 271D Penalty on Rs 47.54 Lakh Cash Property Sale Over Invocation of Wrong Income Tax Section:

The Income Tax Appellate Tribunal (ITAT), Cuttack, has ruled in favour of a taxpayer who received Rs 47.54 lakh in cash from the sale of two properties but had already disclosed the transactions in his Income Tax Return (ITR) and paid the applicable capital gains tax. The tribunal cancelled the penalty imposed by the Income Tax Department, holding that the Assessing Officer (AO) had invoked the wrong provision of the Income Tax Act.

The present case pertains to an Odisha-based taxpayer who sold two properties for a combined consideration of approximately Rs 47.54 lakh. He received the entire sale consideration in cash but disclosed the transactions in his ITR and paid the capital gains tax due. The AO treated the entire cash receipts as a contravention of the provisions of Section 269SS of the Income Tax Act.

Consequently, a penalty was levied under Section 271D. Thereafter, the taxpayer, being aggrieved by the AO's decision, challenged the same before the first appellate authority, i.e., the Commissioner of Income Tax (Appeals) [CIT(A)]; however, the appeal was dismissed. Subsequently, the taxpayer approached the ITAT, Cuttack.

During the personal hearing before the tribunal, the taxpayer contended that the AO had applied the wrong section of the Income Tax Act. To support this claim, the taxpayer also referenced an earlier ITAT Cuttack decision in the case of Satyabrata Panda, where a similar penalty had been cancelled by the tribunal due to the invocation of the wrong income tax section.

After examining the matter, ITAT Cuttack held that Section 269SS was not applicable to the cash received as sale consideration after the completion of the property transactions. The tribunal observed that the AO should have considered Section 269ST instead. Since the penalty had been imposed under Section 271D for an alleged violation of Section 269SS, the tribunal cancelled the penalty.

However, this does not mean that receiving property sale proceeds in cash is completely free from tax consequences. Section 269ST and the corresponding penalty provision, Section 271DA, may apply to such transactions.