[Opinion] Reading of Applicability of Provisions of Section 271D of the Income-tax Act by Tribunal Benches

S. Krishnan – [2024] 163 taxmann.com 498 (Article)

1. Introductory Remarks

The Government of India (the Legislature) has been taking lot of measures to curb black money and with this intention has been amending by way of substitution or insertion various provisions of the Income-tax Act(the Act). In fact, there is a separate Chapter (XXB) in the Act under the heading “Requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax” In spite of several measures undertaken by the Legislature sometimes the purpose of these amendments gets lost when the definition of the terms as per the Act is put to judicial scrutiny. Probably the intention of the Legislature is not brought out or explained in unambiguous language.

To come to the subject straight away the Chennai Bench of ITAT in the case of ITO v. R. Dhinagharan (HUF) [ITA No.3329 (Chny) of 2019-Assessment Year 2016-17- Date of order 29th December, 2023] has held that 271D penalty cannot be levied when cash is received at the time of registration of immovable property. The ITAT Hyderabad Bench in the case of Ramkumar Reddy Satty v. Asstt. CIT [in ITA NO.488 (Hyd.) of 2023-Assessment Year 2018-19-Date of order 19th March, 2024] following the decision of the Chennai Bench in the case of Shri. R. Dhinagharan (HUF) has echoed the same views and has held likewise.

The relevant sections which deal with accepting loans, deposits and other specified sums have been analyzed in the next paragraph.

2. Analysis of Relevant Sections

Section 269SS of the Act [ only the relevant portions are extracted] under the heading “Mode of taking or accepting certain loans, deposits and specified sum “reads as under-

No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, if, —

(a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or

(b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or

(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more:

Explanation. –For the purposes of this section, —

(iii) “loan or deposit” means loan or deposit of money;

(iv) “specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.

Section 271D of the Act reads under the heading “Penalty for failure to comply with the provisions of Section 269SS “as under-

3. Penalty for Failure to Comply With the Provisions of Section 269SS

1. If a person takes or accepts any loan or deposit in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified sum so taken or accepted.
2. Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.

Section 269SS of the Act was substituted (afresh) with effect from 1st June,2015 by Section 68 of the Finance Act,2015.

By clause 66 of the Finance Bill 2015 it was sought to substitute section 269SS of the Act relating to mode of taking or accepting certain loans and deposits by stating as under-

“The existing provision contained in section 269SS provides that no person shall take from any person any loan or deposit otherwise than by an account payee cheque or account payee bank draft or online transfer through a bank account, if the amount of such loan or deposit is twenty thousand rupees or more.

It is proposed to substitute the said section so as to provide that no person shall take from any person, any loan or deposit or specified sum, otherwise than by an account payee cheque or account payee bank draft or online transfer through a bank account, if the amount of such loan or deposit or specified sum is twenty thousand rupees or more.

It is also proposed to define “specified sum” as any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property whether or not the transfer materialises.

These amendments will take effect from 1st June, 2015.”

The purpose of amendment by way of substitution was explained in the Memorandum to the Finance Bill 2015 under the heading “Mode of taking or accepting certain loans, deposits and specified sums and mode of repayment of loans or deposits and specified advances” through clauses 66,67,69 and 70 of the Finance Bill 2015 in the following words-

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