2025 (2) TMI 532 - AT - Income Tax

Penalty levied u/s. 271D - violation of provisions of Sec.269SS - Cash paid to assessee towards purchase of the land parcel - Revenue s argument that there was no explicit language used in Section 269SS of the Act that it would apply only to buyer and seller of immoveable property - HELD THAT - The lower authorities failed to appreciate that the provision would apply in relation to transfer of immovable property and that is broad enough to encompass not only vanilla transaction of buy sell of immovable property but even extinguishment of rights in immovable property viz. where occupier or tenant is vacated therefrom or where there is a longterm lease in the nature of transfer between lessor and lessee etc. Hence there can be several situations of transfer of immovable property which can be envisaged apart from simple conveyance of immovable property between a buyer and seller. The provisions of Section 269SS would apply to recipient of monies in relation to transfer of immovable property viz. who actually receives the monies in his own independent right. We are therefore unable to countenance the Revenue s argument that even a broker who receives from a principal and immediately pays the monies to the other principal shall be regarded as recipient of monies in relation to transfer of immovable property. We also find that there is a reasonable cause as mandated u/s 273B of the Act as Section 269SS of the Act was amended by the Finance Act 2015 wherein the term specified sum was introduced to include amount received for transfer of immoveable property whereas the MoU pursuant to which the advances were paid in the present case admittedly was entered into on 03.07.2014 viz. prior to the introduction of the aforesaid amendment we agree with the Ld. AR that this amendment would not have come to the knowledge of the assessee who is a middle man having elementary education and no knowledge of tax laws. Assessee would have not been under a belief that there was any contravention of any provision of the Act. Further since the assessee was only the middleman and was never the recipient of the monies in real sense his conduct cannot be treated to be contumacious or malafide. We are of the considered opinion that penalty u/s 271D of the Act was not imposable on the assessee and therefore we direct the AO to delete the same. Appeals of the assessee stand allowed.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the penalty imposed under Section 271D of the Income Tax Act, 1961, for the alleged violation of Section 269SS, was justified in the context of the assessee acting as a middleman or agent.
Whether the assessee, as a broker or agent, could be considered the recipient of the 'specified sum' under Section 269SS.
Whether the penalty proceedings were barred by limitation.
Whether there was a 'reasonable cause' under Section 273B to exempt the assessee from the penalty.

ISSUE-WISE DETAILED ANALYSIS

1. Penalty under Section 271D for Violation of Section 269SS

Legal Framework and Precedents: Section 269SS prohibits accepting loans or deposits or specified sums in cash beyond a certain limit, and Section 271D imposes penalties for violations. The term 'specified sum' refers to any money receivable in relation to the transfer of immovable property.
Court's Interpretation and Reasoning: The court emphasized that the provisions of Section 269SS apply to the recipient of the specified sum in the context of a transfer of immovable property. The court noted that the assessee acted as an agent and not in his own right, thus not falling under the purview of 'specified sum' as defined.
Key Evidence and Findings: The Memorandum of Understanding (MoU) and the sworn statement of the assessee indicated that he acted as a middleman, receiving cash from the buyer to hand over to land brokers, rather than receiving it in his own capacity.
Application of Law to Facts: The court concluded that the assessee, being an agent, was not the recipient of the specified sum under Section 269SS, as he did not receive the money for himself but on behalf of his principal.
Treatment of Competing Arguments: The court rejected the Revenue's argument that the absence of explicit language in Section 269SS exempting brokers implied liability, emphasizing the agent's role and the purpose of the transaction.
Conclusions: The court held that the penalty under Section 271D was not applicable as the assessee was not the recipient of the specified sum in his own right.

2. Limitation and Reasonable Cause

Legal Framework and Precedents: Section 273B provides that no penalty shall be imposed for any failure referred to in the relevant penal provisions if there was a reasonable cause for such failure.
Court's Interpretation and Reasoning: The court noted that the amendment introducing 'specified sum' was made after the MoU was entered into, suggesting that the assessee, with limited knowledge of tax laws, may not have been aware of the contravention.
Key Evidence and Findings: The timing of the MoU and the introduction of the amendment were pivotal in establishing reasonable cause.
Application of Law to Facts: Given the timing of the amendment and the assessee's role, the court found reasonable cause for the failure to comply with Section 269SS.
Conclusions: The court found that the penalty was not imposable due to reasonable cause under Section 273B.

SIGNIFICANT HOLDINGS

Core Principles Established: The judgment established that an agent or broker acting on behalf of a principal in a real estate transaction is not liable for penalties under Section 271D for receiving cash advances, as they are not the recipient of the specified sum in their own right.
Final Determinations on Each Issue: The court directed the deletion of the penalties imposed under Section 271D for the assessment years in question, recognizing the assessee's role as an agent and the existence of reasonable cause.
Verbatim Quotes of Crucial Legal Reasoning: "In light of the discussions made in the foregoing, we are of the considered view that an agent in a transaction of transfer of immoveable property between a buyer and seller, cannot be held liable for penal consequence u/s 269SS of the Act for receiving, for and on behalf, and handing over the money to his Principal."

The appeals were allowed, and the penalties were set aside, recognizing the assessee's intermediary role and the reasonable cause for non-compliance with Section 269SS.

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