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TMI Blog2024 (6) TMI 813X X X X Extracts X X X X X X X X Extracts X X X X ..... nuary, 2022 and only on 18th /19th July, 2022, he had corrected the mistake and put the assessee on notice for penalty to be levied under a different section i.e. Sec. 271D of the Act, and within 13 days, he has levied penalty, which action of the JCIT cannot be countenanced, since initiation of notice itself is bad in law and it exposes the non-application of mind by the authority initiating penalty; and his impugned action was whimsical/arbitrary which violates Article-14 of the Constitution of India. Defective notice - as submitted by the Ld.AR, the impugned notice initiating penalty u/s. 271DA of the Act, could have created confusion in the assessee s mind and disabled him from defending/explaining his case effectively. Thus, it results in the denial of right to adequate opportunity and fair hearing envisaged u/s. 274 of the Act. According to us, in law, it is not permissible to presume that the assessee knows the charge, more so when proceedings are punitive. It is settled position of law that penal laws must be construed strictly, that is according to the language used in the statute. Sec. 274 of the Act clearly mandates that assessee must have reasonable opportunity of heari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the penalty would have been levied, it would have been only of Rs. 4.20 lakhs and not Rs. 1.14 Crs. However, as noted we have found that the penalty notice which was initiated against the assessee was invalid in the eyes of law and therefore, the penalty levied is vitiated; and consequently, penalty levied deserves to be deleted. Appeal filed by the assessee is allowed. - Shri Aby T. Varkey, Judicial Member And Shri S.R. Raghunatha, Accountant Member For the Appellant : Shri S. Sridhar, Advocate (Erode) For the Respondent : Shri D. Hema Bhupal, JCIT ORDER PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, Delhi, dated 31.10.2023 for the Assessment Year (hereinafter AY ) 2017-18 confirming the penalty levied u/s. 271D of the Income Tax Act, 1961 (hereinafter the Act ). The assessee has challenged the impugned action of the Ld.CIT(A)/Range Head/JCIT, inter alia , on many grounds i) Notice initiating penalty u/s. 271DA instead of notice u/s. 271D which was levied on the assessee. Since, the notice initiated for levy of penalty was invalid, penalty itself is bad in law. ii) On the facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stead of section 271D . The same typo error was informed to the assessee vide this office letter/DIN No: ITBA/PNL/F/271DA/2022- 23/1043934742(1) dated 19.07.2022 that wherever section 271DA is mentioned in the above notices/letters, the same to be read as section 271D . Further opportunities have been given by issuing notices/reminders dated 24/01/2022, 09/02/2022 19/07/2022. 4. Thus, the JCIT noted that assessee had filed his explanation along with certain documents to his show cause notice (SCN) and asserted that in the relevant year i.e. AY 2017-18, there was no cash payments/receipts in execution of sale agreement dated 07.10.2016 to four persons/buyers. And the transaction in question was explained by assessee that there was a earlier agreement for sale dated 06.01.2014 (AY 2014-15) between assessee and four persons (Shri R.Sakthivel and three others) regarding sale of a property situated in Dr.No.11/10-12, Rayappapuram East Street ( hereinafter referred to as the immovable property ), which agreement was registered as document No.115 of 2014 for a sum of Rs. 3 Crores, out of which, assessee acknowledged receipt of an advance of Rs. 2.5 Crs on 06.01.2014 as cash (i.e. in AY 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arefully considered the facts of the case as well as submissions filed by the appellant. I find no force in the arguments of the Appellant. The only plea taken by the Assessee is that a sum of Rs. 2.5 crore was received by him in cash and this payment of Rs. 1.18 crore is just an adjustment against the aforesaid sum. However, no evidence has been submitted in respect of this purported agreement, the forfeiture of this amount of 2.5 crore. Later, the Assessee himself denies this forfeiture. As stated by the AO, there are several contradictions in the explanations given. Accordingly, the penalty of Rs. 1,18,20,000/- levied by the AO u/s. 271D of the Act is hereby confirmed. The grounds of appeal No. 1 to 5 are thus, dismissed. 7. Aggrieved by the aforesaid action of the Ld.CIT(A)/NFACC, the assessee is before us. 8. We have heard both the parties and perused the material available on record. The Ld AR assailing the action of Range Head/JCIT levying penalty u/s. 271D of the Act submitted that AO while passing the assessment order dated 25.12.2019 only initiated penalty proceedings u/s. 270A of the Act, and not u/s 271D, therefore referring to the Hon ble Apex Court order in CIT vs Jai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO had initiated the penalty on 17.01.2022 which generated DIN wherein also Sec. 271DA of the Act, is clearly mentioned therein [DIN ITBA/PNL/F/ 271DA /2021- 22/1038795499(1)] and a careful reading of Para No.4 of impugned penalty order (supra) would itself reveal that the JCIT had in fact initiated penalty u/s. 271DA not u/s. 271D as stated by him at Para No.4, firstly because the DIN taken note by us (supra) gives away the fact that notice initiated for imposing penalty was u/s. 271DA [ and not u/s. 271D of the Act ]. And secondly, all other notices dated 24th January, 2023 09th February, 2022, (except the last notice issued on 19.07.2022) the JCIT had mentioned about imposition of penalty u/s. 271DA of the Act and also in the letter dated 24.01.2022, he referred to earlier notice issued on 17.01.2022 u/s. 271DA of the Act. And thirdly, if the JCIT had initiated notice u/s. 271D in the first place, there was no reason for him to state in notice on 19.07.2022 asking the assessee to read in other notices wherever it is stated as Sec. 271DA to be read as Sec. 271D of the Act. In the light of above, he asserted that notice dated 17.01.2022 was invalid and therefore, penalty levied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee knows the charge, more so when proceedings are punitive. It is settled position of law that penal laws must be construed strictly, that is according to the language used in the statute. Sec. 274 of the Act clearly mandates that assessee must have reasonable opportunity of hearing before the authority passes an order imposing penalty. In other words, notice cannot be treated as mere formality. It in fact requires strict compliance and therefore, all actions following the defective notice are vitiated and consequently penalty levied is unsustainable in law and for that we relies on ratio of the judgments (infra) though in the context of penalty levied u/s. 271(1)(c) of the Act including that of the Hon ble jurisdictional High Court: i) Mohd. Farhan A. Shaikh v. ACIT reported in (2021) 434 ITR 1 (Bom) (FB) ii) CIT v. Sam-son Pondichery [2017] 392 ITR 4 (Bom) TXA No. 1154 of 2014 dated January 5, 2017; iii) CIT (Pr.) v. Goa Coastal Resorts and Recreation P. Ltd. [2020] 16 ITR-OL 111 (Bom) Tax Appeal No.24 of 2019 dated November 11, 2019; iv) Pr. CIT v. New Era Sova Mine [2021] 433 ITR 249 (Bom) Tax Appeal Nos. 70 of 2019 dated June 18, 2019; and v) Pr. CIT v. Goa Dourado Prom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as taking advance of Rs. 4.20 lakhs on 6.10.2016; and that the balance consideration of Rs. 1.14 Crs. was shown as given on next day when the sale was executed/registered to four relatives of Shri R.Shaktivel who was party in the agreement of sale in AY 2014-15 as noted (supra). Moreover, it was pointed out by the Ld.AR that the entire sale consideration was reflected in the Sale Deed as noted by the JCIT. Thus, according to him, there is no dispute about the identity of four buyers, and the amount of sale consideration albeit in cash was also not in dispute. Therefore, according to the Ld.AR, Rs. 1.14 Crs. given as sale consideration while executing the sale, penalty ought not to have been levied; and for such a preposition relies on the decision of the Tribunal in the case of ITO v. R. Dhinagharan (HUF) [in ITA No.3329/Chny/2019 for AY 2016-17 order dated 29.12.2023], wherein, the Tribunal in similar case deleted the penalty imposed u/s. 271D of the Act, held as under: 7. The brief facts of the case are that the assessee is engaged in real estate business and develop plots for sale. The assessee during the course of business during Financial Year 2015-16 relevant to this A.Y 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understood in the correct perspective. lt is a well-known fact that money changes hands 'in property transactions and this fact cannot be denied. This money is outside the books and is not subject to income tax therefore the term BLACK MONEY' is applied to such kinds of transactions. In the appellant's context, the question that needs to be asked is whether, simply because the appellant has received the money in cash, does it make the transaction BLACK or unaccounted? I have gone through the Trading, Profit and Loss Account of the appellant for the year ended 31.03.2016. It is noted that the appellant has disclosed the entire amount of Rs. 3, 03, 46,301/- received on account of sale of plots in the Trading, Profit and Loss Account. 5.3 In the light of this fact it is clearly evident that the sale of plots for which money has been received in cash has been fully disclosed in the IT return of the appellant. Therefore, I am of the view that levy of penalty under section 269 SS is not correct. The imposition of penalty has been done in a mechanical manner without taking into consideration the legislative intent behind the amendment of the section 269SS of the IT Act. 5.4 Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drop the proceedings u/s. 271D of the Act. During the course of appellate proceedings, it is seen that the CIT(A) has adjudicated the issue, taking into consideration reasonable cause, which is not acceptable in the facts and law of the case under dispute. The CIT(A) has given rationale of his decision in favour of the assessee in para 5 of the order. The CIT(A) seems to have accepted the following arguments of the assessee: (i) Scope of Sec. 269SS was amended in order to curb the generation of black money by dealings made in cash in immovable property transactions. The learned CIT(A) accepted the submission of the assessee with a finding, 'since the appellant has fully disclosed the entire sale transactions in his profit and loss account, the issue of generation of unaccounted income does not arise. (ii) The imposition of penalty has been drawn in a mechanical manner without taking into consideration the legislative intent behind the amendment of the section. (iii) The CIT(A) has opined that the assessee could establish a reasonable cause for violation of Sec. 269SS. He has observed that the persons who have invested in lands are people of meagre means, living in small villag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable cause. (ii)The CIT(A) has also relied on the case of Hindustan Steel Limited Vs State of Orissa reported in 83 ITR 26 (1972). At the outset, it may be stated that the above citation is concerned with provisions of Orissa Sales Tax. Further, in the said ruling, the Hon'ble Supreme Court had noted the following: Under the Act penalty may be imposed for failure to register as a dealer: s.9(1) read with s.25(J)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out statutory obligation is the result of a quasi criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable for advance given at the time of entering into agreement for purchase of property and purchase/sale of property and not for actually registration done and sale consideration received at time of registration of sale deed for purchase/sale of property. The Ld. counsel for the assessee stated that this specific amendment was brought in w.e.f. 01.06.2015 for curbing the generation of black money. He explained that the specified transaction means, the advance paid or inter remittance payments made and any payments made at one go at the time of registration of sale deed. The Ld. counsel stated that further a provision was brought in by the legislature in the statute vide Finance Act, 2017 w.e.f 01.04.2017 by introducing the provision of section 269ST, wherein even the purchase of property if the amount is two lakhs or more will be covered and penalty will be levied of an equivalent to the amount u/s. 271DA of the Act, which was also simultaneously introduced by the Finance Act, 2017 w.e.f 01.04.2017. Hence, according to Ld. counsel, this provision of specified sum introduced w.e.f 01.06.2015 does not hit the assessee s transaction, because on facts the assessee has not entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt in case of contravention of such provisions. The Memorandum forming part of Finance Bill, 201.5 highlighting the intention of the amendment is captured below: B. MEASURES TO CURB BLACK MONEY Mode of taking or accepting certain loans, deposits and specified sums and mode of repayment of loans or deposits and specified advances. The existing provisions contained in section 269SS of the Income-tax Act provide that no person shall take from any person any loan or deposit otherwise than by an account payee cheque or account payee bank draft or online transfer through a bank account, if the amount of such loan or deposit is twenty thousand rupees or more. However, certain exceptions have been provided in the section. Similarly, the existing provisions contained in section 269T of the Income-tax Act provide that any loan or deposit shall not be repaid, otherwise than by an account payee cheque or account payee bank draft or online transfer through a bank account, by the persons specified in the section if the amount of loan or deposit is twenty thousand rupees or more. In order to curb generation of black money by way of dealings in cash in immovable property transactions it is propos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty whether or not the transfer materialises. These amendments will take effect from 1st June, 2015. 12.1 In the present case, the sale consideration was received in cash at the time of execution of multiple sale deeds from different persons for the sale of plots and accepted as genuine in the assessment order completed on 23.05.2018 and admittedly there was no advance received by the seller. The amended provisions of Section 269SS of the Act was applied by the A.O to the facts of the present case only to the sale consideration received as specified sum and on such presumption the JCIT levied penalty u/s 271D of the Act. The intention of the amendment is very clear right from the Budget speech of the Finance Minister that the said amendment is brought into the statute in Section 269SS of the Act would get attracted to sum received in cash as an advance in an immovable property transaction and not to the completed transaction namely cash received as a sale consideration at the time of execution of the registered sale deed. In fact, the statute brought in another amendment in Section 269ST of the Act from the assessment year 2017-18 with a view to cover all situations of cash transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r takes place. 54.5 Consequential amendments in section 271D and section 271E, to provide penalty for failure to comply with the amended provisions of section 269SS and 269T, respectively, have also been made. 54.6 Applicability: These amendments have taken effect from 1st day of June, 2015. From the above provisions, Memorandum explaining the intention of amendment by Finance Bill, 2015 including the definition of sum specified brought in the Explanation to Section 269SS of the Act, it is clear that the intention for brining this provision was to curb the generation of black money in real estate prohibiting acceptance or repayment of advance in cash of Rs. 20,000/- or more for any transaction in immovable property. This was explained by Hon ble Finance Minister while placing the Finance Bill, 2015 in her budget speech highlighting the intention of the amendment that the amendment in Explanation to Section 269SS i.e., sum specified means only applicable for advance receivable, whether as advance or otherwise means advance can be in any manner. Hence, this provision will not apply to the transaction that happens at the time of final payment at the time of registration of sale deed a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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