Section 271D

Section 271D — the law in short

What the courts have decided on section 271D, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Jai Laxmi Rice Mills Supreme CourtHelps taxpayer
  The assessment in which the s.271E satisfaction was recorded has been set aside. Can the penalty stand?
  No. The Supreme Court held that once the original assessment order was set aside, the satisfaction recorded in it for initiating penalty under s.271E did not survive, and a penalty imposed on the basis of that order could not be sustained.
• ADIT (Investigation) v Kum. A.B. Shanthi Supreme CourtHelps department
  You took a cash loan and now face penalty equal to the whole amount. Is there any relief?
  Yes, through s.273B. The Court upheld s.269SS as valid precisely because s.273B mitigates the hardship: no penalty is imposable if you prove reasonable cause for the failure.
• Birmala Projects Pvt Ltd v Ashwani Ahluwalia High CourtCuts both waysValidity unconfirmed
  We paid Rs 1.5 crore in cash under an agreement. The other side says s.269ST makes the agreement void and our recovery suit is not maintainable. Is it?
  No. The Delhi High Court held that s.269ST merely regulates the mode of a transaction and imposes a fiscal penalty; it does not render the underlying agreement void or unenforceable, and the plea that the plaint was barred by law failed. The Court also recorded that the penalty under s.271DA falls on the recipient of the cash, not the payer, so on the pleaded facts the defendant, not the plaintiff, was the party exposed.
• Pr. Commissioner of Income Tax v Shree Madhi Surali Vibhag Nagarik Sahakari Dhiran Mandli Ltd High CourtHelps taxpayer
  Our credit society takes and repays members' money in cash across the counter like a bank. The officer has levied penalty under sections 271D and 271E on the whole turnover. Can it stand?
  No, on these facts. The Gujarat High Court upheld the deletion of penalties of Rs 28,66,93,898 under section 271D and Rs 27,12,01,825 under section 271E. Section 273B says no penalty is imposable if the person proves reasonable cause, and that gives the authority a discretion to be exercised justly on the record. The Commissioner (Appeals) and the Tribunal found on the facts that the society, whose members' accounts work like savings accounts repayable on demand, acted on a bona fide belief that sections 269SS and 269T did not apply, that the deposits were accepted as genuine with no addition made, and that its auditor had never reported a contravention. The Court found no legal infirmity and dismissed the Revenue's appeal, holding that no substantial question of law arose.
• A K M G Alloys Private Limited v CIT (Appeals) High CourtHelps taxpayerValidity unconfirmed
  My s.220(6) application against a penalty demand was rejected only because I filed no evidence of financial hardship. Is that a good enough reason?
  No. Financial stringency is only one of the three things the officer must examine; he must also consider whether a prima facie case on merits is made out and whether the balance of convenience is overwhelmingly in the applicant's favour. The Madras High Court disposed of the writ by permitting the assessee to invoke the review remedy in the Office Memorandum before the Principal Commissioner within two weeks, with four weeks' interim protection, and directed that the reviewing authority be guided by the decisions of that Court and of the Supreme Court.
• CIT v Worldwide Township Projects Ltd High CourtHelps taxpayer
  The liability was created by a journal entry and no money moved. Does 269SS still apply?
  No. Passing a journal entry does not involve the acceptance of any loan or deposit of money, so s.269SS is not engaged. The Court also held that limitation for a s.271D penalty runs under s.275(1)(c), not s.275(1)(a)(ii).
• CIT v Sunil Kumar Goel High CourtHelps taxpayerValidity unconfirmed
  I took and repaid small cash loans from my family's sister concern, all recorded in the books. Must penalty follow automatically under sections 271D and 271E?
  No. The Punjab and Haryana High Court held that section 273B opens with a non obstante clause and overrides sections 271D and 271E, so an assessee who proves reasonable cause escapes penalty even though section 269SS or 269T has been contravened. On these facts the Tribunal had found the cash loans were between family members and a sister concern, taken for business exigency, entered in cash books produced to the Revenue, with no tax avoidance or evasion and no prejudice to the Revenue. That is reasonable cause, and whether it exists is a finding of fact giving rise to no substantial question of law.
• CIT v Idhayam Publications Ltd High CourtHelps taxpayer
  Money moves both ways between me and my company on a current account. Is that a loan under 269SS?
  No. Deposits into and withdrawals from a running current account between a director and the company are not a loan or advance, so ss.269SS and 269T do not reach them and penalty on that footing cannot stand.
• CIT v Noida Toll Bridge Co Ltd High CourtHelps taxpayerValidity unconfirmed
  My promoter paid a third party for me by account payee cheque and the amount was put through my books by journal entry. Is that a loan taken in cash?
  No. The Delhi High Court declined to entertain the Revenue's appeal and upheld the deletion of penalty of Rs 4.85 crore under section 271D. The Tribunal had found that the transaction was by account payee cheque, that no payment was made in cash by the assessee or on its behalf, that no loan was accepted in cash, and that the amount paid on the assessee's behalf by its promoter was passed through the books by a journal entry crediting the promoter's account. Those are findings of fact, and on them section 269SS was not attracted. The order gave rise to no question of law, much less a substantial question of law.
• Mohammed Shabbir Bhojani v ITO, Ward-9(1), Hyderabad ITATHelps taxpayerValidity unconfirmed
  I received the sale price of my land in cash across the table at the sub-registrar's office. Is that a 'specified sum' under s.269SS?
  The Hyderabad Bench held it is not. On its consistent view, cash received for the transfer of immovable property at the time of registration of the sale deed, where the receipt is recorded in the registered deed itself, does not fall within the mischief of s.269SS and does not attract s.271D. The Tribunal also set the penalty aside on the separate ground that no satisfaction had been recorded by the Assessing Officer in the assessment order.
• DCIT v Umiya Co-operative Credit Society Ltd ITATHelps taxpayerValidity unconfirmed
  Our credit society takes deposits and repays loans in cash to members. Can the department levy 271D and 271E on the whole amount?
  Not where the transactions are genuine dealings with members in the ordinary course. The Tribunal upheld the deletion of penalties under s.271D and s.271E on cash deposits and repayments of roughly Rs 28 crore and Rs 27 crore, treating a co-operative credit society's dealings with its own limited membership as attracting the reasonable cause protection in s.273B, particularly where no addition was made in the assessment and the genuineness of the transactions was not in dispute.
• DCIT v Jayapriya Company ITATHelps taxpayerValidity unconfirmed
  When does the s.275(1)(c) clock start for a s.271D penalty — the AO's satisfaction in the assessment order, or the Joint Commissioner's first notice?
  From the Assessing Officer's satisfaction. The Tribunal held that the imposition of a s.271D penalty is not a one-stroke process but a series of steps, that the recording of satisfaction by the Assessing Officer is a pre-requisite to the proceeding, and that the date of that satisfaction is the date on which action for imposition of penalty is initiated. Counting from an assessment order dated 30 December 2022, the two limbs of s.275(1)(c) expired on 31 March 2023 and 30 June 2023, the later being 30 June 2023, so the penalty order of 30 August 2023 was barred.
• MCM Developers v DCIT, Central Circle-1, Aurangabad ITATHelps taxpayerValidity unconfirmed
  The assessment order said s.269ST and s.271DA. The AO has now passed a s.154 order changing it to s.269SS and s.271D. Can he do that?
  No. The Tribunal held that mentioning s.269ST together with its own penalty section s.271DA is not a typographical error — it could only have been one if s.269ST had been typed alongside s.271D — so the original assessment order reflected a conscious application of mind. Substituting s.269SS and s.271D for them under s.154 was a change of opinion between two possible legal views, not the correction of a mistake apparent from the record, and the rectification order was quashed.
• Finesse International Design Pvt Ltd v Addl. CIT ITATHelps taxpayerValidity unconfirmed
  The Addl. CIT says we split one customer's bill into two so each stayed under Rs 2,00,000. Is that a s.269ST violation?
  On these facts the Tribunal deleted the s.271DA penalty, holding that where a customer bought several genuinely different items and separate invoices were raised for them, the breach was at most technical or venial and Hindustan Steel applied. But read the order for what it does not say: it never identifies which of the three limbs of s.269ST the Department invoked, and it does not deal with the 'in a day' limb, which aggregates everything received from one person in one day irrespective of how many bills were raised.
• Wahid Ali v JCIT ITATHelps taxpayerValidity unconfirmed
  I received sale consideration for my property in cash. Is that a 269SS breach attracting 271D?
  On this decision, no. Section 269SS prohibits receipt of a sum by way of loan or deposit; sale consideration on a completed transfer of immovable property is neither, and since s.271D is entirely derivative of a s.269SS contravention, the penalty had no statutory foundation.
• DCIT, CC-7(3), Mumbai v Macrotech Developers Ltd ITATHelps taxpayerValidity unconfirmed
  The group squares off inter-company balances by journal entry. The Department says every entry is a s.269SS or s.269T violation. What survives?
  The Tribunal dismissed the Revenue's appeals and confirmed the deletion of penalties under ss.271D and 271E. Its route was not that journal entries fall outside the sections — on the jurisdictional High Court's decision they are hit — but that the reasons for using them were commercial and therefore reasonable cause under s.273B. The reasons accepted were raising funds, assignment of receivables, squaring up transactions, operational efficiency and MIS, consolidation of family member debts, correction of errors, and loans taken in cash, and there was no finding that the transactions involved unaccounted money or were not genuine.
• Smt. Meera Devi Kumawat v JCIT, Range-4, Jaipur ITATHelps taxpayerValidity unconfirmed
  My client's husband gave her the money to buy a plot registered in her name, partly in cash. Is that a s.269SS violation?
  The Jaipur Bench deleted the s.271D penalty. It held that registering property in a wife's name is guided by family and societal factors and by the Government's own incentive of reduced stamp duty for female purchasers, that pooling family funds in that situation calls for a flexible approach to the reasonableness of the explanation, and that where the whole transaction is documented in the registered sale deed and the cash portion came from the husband's known sources, the assessee had shown reasonable cause and did not deserve to be penalised.
• Thane Zilla Madhyamik Shikshak Sangh Sahakari Parpedhi Maryadit v ACIT ITATHelps taxpayerValidity unconfirmed
  My society's chartered accountant told the penalty officer it was a co-operative bank. Can the department use that admission to deny section 80P?
  No. The Mumbai Bench held that no addition and no denial of a deduction can be made merely on the admission of a person, still less the assessee's authorised representative, without going into the actual charter documents, and that there is no estoppel against the statute. The society's chartered accountant had argued before the Commissioner (Appeals) in a section 271D penalty matter that it was a co-operative bank, and the penalty was deleted on that basis; he later filed an affidavit saying it had been a genuine misinterpretation. On the bye-laws and objects the society took deposits only from members and lent only to members, and it held no licence from the Reserve Bank of India, so it was a co-operative credit society and not a co-operative bank. Section 80P(4) did not shut it out and the deduction under section 80P(2)(a)(i) was allowed for each of the years in appeal.
• Dr. Sanjiv Keshav Karande v ITO, Ward-11(1), Pune ITATHelps departmentValidity unconfirmed
  The penalty under s.271D came more than six months after it was initiated. Is it automatically time-barred?
  No. Section 275(1)(c) gives the Department the later of two periods, and where the proceedings in the course of which the penalty was initiated were completed in a financial year that ends after the six-month period, the financial-year limb governs. Here the penalty was initiated in April 2016, six months would have run out at the end of October 2016, but the relevant financial year was 2016-17, so a penalty order passed on 29 November 2016 was in time. The Tribunal also dismissed the reasonable-cause plea on the facts.
• Sanmathi Ambanna v Jt CIT ITATHelps taxpayerValidity unconfirmed
  I took a cash loan from my father-in-law. Can they levy 271D on a genuine family transaction?
  No, on these facts. The Tribunal deleted the penalty, holding that near relatives are not 'other persons' within the mischief of s.269SS in a genuine family transaction, and that in any event unforeseen business circumstances requiring cash from a relative amounted to reasonable cause under s.273B.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.