Section 273B

Section 273B — the law in short

What the courts have decided on section 273B, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Singapore Airlines Ltd v CIT Supreme CourtCuts both ways
  My agents keep the difference between the price they charge customers and the net price they pay me — do I have to deduct TDS on money that never passed through my hands?
  Yes. The Supreme Court held on 14 November 2022 that the supplementary commission retained by IATA travel agents — the excess of the actual fare charged to the passenger over the net fare payable to the airline — is "commission" under section 194H, and the airlines were bound to deduct tax at source on it. Section 194H is read with section 182 of the Contract Act: where the contract shows a principal-agent relationship, the definition is attracted. But because the agents had paid tax on those amounts, no recovery of the shortfall could be made from the airlines; only interest under section 201(1A) survives, and the section 271C penalties were quashed.
• 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.
• Hindustan Steel Ltd v State of Orissa Supreme CourtCuts both waysPartly overruled — read this first
  Must penalty be imposed just because the law permits it?
  No. Penalty is discretionary and is not to be imposed merely because it is lawful to do so — and not at all for a technical or venial breach, or where the default flowed from a bona fide belief.
• Sandeep Kaur Gill v Union of India High CourtHelps taxpayerValidity unconfirmed
  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.
• Chavakkad Service Co-operative Bank v ITO High CourtHelps taxpayerValidity unconfirmed
  Our audit report was late because the statutory auditor was late. Can the officer still levy the s.271B penalty?
  No, where the delay is genuinely the auditor's and the report reaches the officer before the assessment is completed. The Kerala High Court set aside penalties of Rs 1.5 lakh, holding that s.273B is peremptory: no penalty can be imposed under s.271B if the assessee proves reasonable cause, and a co-operative society has no control over the timetable of the statutory auditor appointed under the State co-operative law.
• 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.
• CIT v Triumph International Finance (I) Ltd High CourtCuts both waysValidity unconfirmed
  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 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.
• TSC Fashions Pvt Ltd v ITO ITATHelps departmentValidity unconfirmed
  My client missed the tax audit because the old auditor stopped cooperating. Is that a reasonable cause that kills the s.271B penalty?
  Not on assertion alone. The Tribunal confirmed the penalty because the assessee produced no correspondence, email, letter, complaint or affidavit against the earlier auditor, and showed no proactive steps of its own; a bald plea of auditor non-cooperation is a mere allegation and does not discharge the burden under s.273B.
• 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.
• Yuvraj Singh v ITO ITATHelps taxpayerValidity unconfirmed
  The officer treated my cash deposits as turnover, said I crossed the s.44AB limit and levied s.271B. The quantum was settled under Vivad se Vishwas. Does the penalty still stand?
  No. Where the assessee's declared turnover was below the s.44AB threshold and the officer crossed the threshold only by adding cash deposits to it, and the quantum dispute ended under the Vivad se Vishwas Scheme 2020 without any final judicial finding on the correctness of the turnover, the benefit of the doubt goes to the assessee and the s.271B penalty is reversed.
• Guntur District Co-operative Central Bank Ltd v DIT ITATCuts both ways
  We had no reportable transactions and filed no SFT. Can they still levy penalty under 271FA?
  No, not for a year in which there was nothing to report. Section 285BA casts the filing obligation on a person who has registered or recorded a specified financial transaction during the financial year, so where no such transaction exists the duty to furnish the statement never arises and s.271FA has nothing to bite on. The burden is on the department to show that reportable transactions were in fact recorded before it can allege a failure.
• 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.