The Income Tax Appellate Tribunal (ITAT) in Cuttack has cancelled a penalty imposed on a property seller after determining that the tax authorities applied the wrong section of the Income Tax Act to his case. The taxpayer, identified as Mr. Choudhury, had been penalised by the Income Tax Department for accepting Rs 5.22 lakh in cash during the sale of a property located in Jharsuguda, Odisha, during the assessment year 2019-20.
The Income Tax Assessing Officer (AO) in Berhampur initiated proceedings after receiving information from the property registrar’s office in Jharsuguda. The registered sale deed explicitly recorded the cash component of the transaction. Income tax regulations generally prohibit the receipt of cash exceeding Rs 2 lakh in such property transactions. Following this, the AO issued a notice under Section 269SS and subsequently levied a penalty under Section 271DA.
Representing the taxpayer, Chartered Accountant Swarajya Sahu challenged the penalty before the ITAT Cuttack. He argued that the AO had incorrectly relied on Section 269SS to treat the cash consideration as a legal violation. Sahu contended that for this specific type of transaction, Section 269ST—which came into effect from the assessment year 2017-18—is the correct governing provision.
To support his argument, Sahu referenced a previous ruling by the same tribunal in the case of Arati Saraf (ITA No. 375/CTK/2023), dated May 13, 2024. In that matter, the ITAT Cuttack had observed that while Sections 269ST and 271DA were introduced specifically to handle cash transaction violations exceeding Rs 2 lakh, the tax authorities had failed to invoke these relevant provisions. The tribunal previously noted that the legislative intent behind these amendments was to curb black money in real estate by prohibiting the receipt of cash advances. Given the procedural misapplication by the AO in the current case, the tribunal ruled in favour of the taxpayer.
Key facts
- The property sale occurred in Jharsuguda, Odisha, during the 2019-20 assessment year.
- The taxpayer received Rs 5.22 lakh in cash as part of the total sale consideration.
- The Assessing Officer initially issued a notice under Section 269SS of the Income Tax Act.
- The ITAT Cuttack cited the precedent set in the case of Arati Saraf (ITA No. 375/CTK/2023).
- The penalty was cancelled because the tribunal found the tax authorities invoked the wrong legal section.
Why it matters
The ruling clarifies the importance of technical compliance and the correct application of specific tax provisions when penalising cash transactions in real estate. By relying on the Arati Saraf precedent, the ITAT affirmed that penalties cannot be upheld if the department invokes provisions that do not strictly apply to the nature of the violation.
Background
Legislative changes introduced via the Finance Bill, 2015, were designed to curb the generation of black money in real estate transactions by prohibiting the acceptance of specified advances in cash above a threshold of Rs 2 lakh.
Source: Times of India, Economic Times
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