Section 271E

Section 271E — the law in short

What the courts have decided on section 271E, 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.
• Sandeep Kaur Gill v Union of India High CourtHelps taxpayerNo later treatment found
  The financier insisted on cash. Can they penalise me under 271E for repaying the loan in cash?
  Not where reasonable cause is shown. Section 269T is mandatory, but bona fide belief coupled with the genuineness of the transaction is reasonable cause under s.273B, and once that is shown no penalty under s.271E is attracted.
• 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.
• PCIT v JKD Capital & Finlease Ltd High CourtHelps taxpayer
  The assessing officer directed penalty under section 271E in my assessment order, but the Additional Commissioner only issued the show cause notice years later. Is that penalty time barred?
  Yes. The Delhi High Court held that under section 275(1)(c) time runs from when the Assessing Officer initiated the action - here December 2007, in the assessment order - not from the Additional Commissioner's show cause notice issued five years later. The penalty order therefore had to be passed by 30 June 2008, the later of the two limits in the clause. An order of 20 March 2012 was out of time. The Court also held that penalty for breach of section 269T is independent of the quantum proceedings, so an appeal against the assessment does not extend time. Appeal dismissed.
• Grihalakshmi Vision v Addl CIT High CourtHelps departmentHigh Courts differ
  My assessment order says penalty under sections 271D and 271E is initiated. The Joint Commissioner issued his notice months later and passed the penalty order after that. Does time run from the assessment order or from his notice?
  From his notice, on this judgment. The Kerala High Court held that because a penalty under s.271D or s.271E may be imposed only by the Joint Commissioner, only the Joint Commissioner can initiate the proceedings; the assessing officer cannot. It follows that the sentence in the assessment order saying that proceedings under those sections are initiated is inconsequential, and that limitation under s.275(1)(c) is measured from the Joint Commissioner's notice. On the dates before the Court - assessment order 6 November 2007, notice by the Joint Commissioner 28 March 2008, penalty orders 29 July 2008 - the penalty orders were in time. The appeals were rejected and the questions answered in favour of the Revenue.
• CIT v Triumph International Finance (I) Ltd High CourtCuts both ways
  We settled a loan against an amount the same party owed us, by journal entry, and paid only the small balance by cheque — can penalty under section 271E be levied?
  It depends, and on this record no. The Bombay High Court held on 12 June 2012 that repaying a loan or deposit by journal entry does contravene section 269T: the section draws no line between bona fide and other transactions, and does not speak of an outflow of funds, it simply bars every mode except an account payee cheque or draft. But section 273B saves the assessee where reasonable cause is shown, and that expression is wider than sufficient cause and is construed liberally. Here the same party owed the assessee almost the identical sum for shares, the genuineness of both legs was never doubted, and the penalty of Rs.4,28,99,325 was rightly deleted.
• CIT v Sunil Kumar Goel High CourtHelps taxpayer
  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 Rugmini Ram Ragav Spinners P Ltd High CourtHelps taxpayer
  We refunded share application money in cash. Is that a repayment of a deposit under s.269T?
  No. The Madras High Court held that money received as advance towards allotment of shares, with no time frame for return and no interest, is neither a deposit nor a loan but share capital advance, and that ss.269SS and 269T apply only to deposits or loans — when it is neither, those sections have no application at all. Penalty under s.271E is not automatic and a bona fide belief that advances against allotment of shares are not loans or deposits is itself a reasonable cause under s.273B.
• Mohammed Shabbir Bhojani v ITO, Ward-9(1), Hyderabad ITATHelps taxpayerNo later treatment found
  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 taxpayerNo later treatment found
  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, Central Circle-02, Jaipur v Ashwani Gupta ITATHelps taxpayerNo later treatment found
  The Joint Commissioner passed a penalty order months after the assessment was completed. From what date does the six-month limitation in section 275 actually run — the reference to him, or his own show-cause notice?
  For a penalty that is not integrally linked to the assessment — here section 271D — limitation is governed by clause (c) of section 275(1) and runs from the completion of the proceedings in the course of which the action for penalty was initiated, or six months from the end of the month in which that action was taken, whichever expires later; not from the date the competent officer issues his own notice. On that footing a penalty order passed on 28 December 2024, where the reference went to the Addl./Jt. CIT on 18 June 2023 and the assessment was completed on 23 March 2024, was out of time on either computation, and the Revenue's appeals were dismissed.
• DCIT v Jayapriya Company ITATHelps taxpayerNo later treatment found
  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.
• DCIT, CC-7(3), Mumbai v Macrotech Developers Ltd ITATHelps taxpayer
  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.
• Statutory position — the block charge: sixty per cent under section 113, interest at one and a half per cent, and a flat fifty per cent penalty under section 158BFA(2) CBDT Circulars & InstructionsCuts both ways
  What will a block assessment actually cost my client, and is there any way to keep the penalty off?
  Tax at sixty per cent of the total undisclosed income of the block period under section 113, plus surcharge under the proviso; interest under section 158BFA(1) at one and a half per cent per month where the block return is late or not filed; and a penalty under section 158BFA(2) of a sum 'equal to fifty per cent of tax so leviable' on the undisclosed income determined by the Assessing Officer. The first proviso to section 158BFA(2) gives complete immunity from that penalty, and from penalty under sections 271AAD(1), 271D, 271DA and 271E for the block period, if four conditions are met — the return was furnished under section 158BC(1)(a), the tax on it was paid or the seized money offered for adjustment, evidence of payment accompanied the return, and no appeal is filed against the assessment of the income shown in the return.

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.