ITAT Delhi Drops Sections 271D & 271E Penalties on Cash Dealings Linked to Failed Agricultural Land Purchase

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT Delhi) in Naresh Kumar Vs ITO has held that penalties under Section 271D and Section 271E are not leviable where the assessee demonstrates a “reasonable cause” under Section 273B for accepting and repaying amounts in cash, particularly in the context of genuine agricultural land transactions with farmers.

The Tribunal deleted penalties of ₹34,00,000 each imposed for alleged contraventions of Section 269SS and Section 269T, after finding that the assessee, an agriculturist, had duly established the bona fide nature of the cash transactions and the circumstances that led to a failed purchase of agricultural land.

Background of the Dispute

Reopening of Assessment and Initial Findings

  1. Information was generated on the Insight Portal indicating that Naresh Kumar, an agriculturist, had:

    • Deposited cash of ₹1,20,01,000, and
    • Earned interest (other than interest on securities) of ₹4,37,724
      during the financial year 2015-16, relevant to assessment year 2016-17, aggregating to ₹1,24,38,724.

  2. The assessee had not filed any return of income for this assessment year.

  3. Based on this information, the Assessing Officer (AO) initiated reassessment proceedings by issuing a notice under Section 148 on 29.03.2023`.

  4. The reassessment under Section 147 read with Section 144 was completed on 16.03.2024 on Nil income, i.e., no taxable income was ultimately assessed.

Alleged Violations of Section 269SS and Section 269T

During the reassessment proceedings, the AO noticed that:

  • The assessee had allegedly received cash “loans” of:

    • ₹15,00,000 from Shri Kuldeep
    • ₹10,00,000 from Shri Satyapal
    • ₹9,00,000 from Shri Jasbir

  • Correspondingly, the assessee had repaid these sums in cash to the same three persons.

The AO treated these cash receipts as acceptance of loans in violation of Section 269SS and the corresponding cash repayments as violation of Section 269T of the Income Tax Act 1961.

Penalty Proceedings and Orders of the AO

Penalty under Section 271D – Cash Acceptance

The AO initiated penalty proceedings under Section 271D read with Section 274 for the purported breach of Section 269SS. Key steps included:

  • Issue of show cause notices dated 16.03.2024 and 22.08.2024.
  • The assessee furnished written explanations in response.

Despite the explanations, the AO passed an order on 25.09.2024 imposing a penalty of ₹34,00,000 under Section 271D for the alleged cash acceptance from the three farmers.

Penalty under Section 271E – Cash Repayment

Similarly, the AO initiated penalty under Section 271E for supposed violation of Section 269T, based on the assessee having repaid the same amounts in cash:

  • Show cause notices were issued on 16.03.2024, 05.06.2024, and 22.08.2024.
  • The assessee again responded with written submissions.

Ultimately, by order dated 24.09.2024, the AO levied another penalty of ₹34,00,000 under Section 271E.

First Appeal before CIT(A) / NFAC

The assessee challenged both penalty orders before the CIT(A)/NFAC, Delhi under Section 250.