ITAT deletes Penalty u/s 271D for Cash Receipt from Ancestral Land Sale, Citing Bona Fide Belief [Read Order]

The Bangalore Bench of Income Tax Appellate Tribunal ( ITAT ) deleted the penalty imposed under section 271D of Income Tax Act,1961, holding that the cash receipt from the sale of ancestral agricultural land was based on a bona fide belief and did not warrant a penalty

Rakesh Ganapathy, appellant-assessee, received an assessment order under section 143(3) of the Income Tax Act on April 30, 2019, accepting his return of income. However, more than three years later, the Joint Commissioner of Income Tax (JCIT) issued a notice under section 274 read with section 271D, asking why a penalty should not be imposed for violating section 269SS of the Act.

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In response, the assessee explained that the property sold was agricultural land, and the buyer was a blood relative. He argued that agricultural land sale proceeds were exempt under section 2(14) and not covered by section 269SS. The assessee also claimed ignorance of the law, believing that income from such sales was exempt.

The JCIT, however, rejected the explanation, citing the sale of ancestral immovable property, which fell under specified transactions of section 269SS. The JCIT also noted that there was no exemption for penalties in this case and that ignorance of the law was not a valid defense. As a result, a penalty of Rs. 14,64,000 was imposed. The assessee's appeal to the Commissioner of Income Tax(Appeals)[CIT(A)] was dismissed on similar grounds.

Aggrieved by the order of CIT(A) ,the assessee appealed before the tribunal.

Read More:ITAT deletes Penalty u/s  271D of Income Tax Act on Availability of Reasonable Cause to Prove Bonafide Act of Assessee

The two member bench comprising Keshav Dubey (Judicial Member) and Waseem Ahmed (Accountant Member) reviewed the assessment order dated April 30, 2019, and found that the Assessing Officer did not mention any violation of section 269SS of the Act. The order was brief and accepted the returned income without initiating penalty proceedings under section 271D. However, after more than three years, on June 30, 2022, the Joint Commissioner issued a notice under section 274 read with section 271D of the Act.

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The assessee had sold ancestral agricultural land in Kodagu district for ₹29,28,000 to blood relatives, receiving a share of ₹14,64,000 in cash. Believing that the sale of agricultural land to relatives was not covered under section 269SS and that the proceeds were exempt under section 2(14), the assessee did not anticipate any violation.

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The appellate tribunal noted that the sale and cash receipt were undisputed. Referring to a similar ITAT ruling in Smt. Pushpalatha v. ITO (2024), it held that the penalty under section 271D was not justified due to the assessee’s bona fide belief and lack of intent to violate the law. Accordingly, the penalty was deleted.

To Read the full text of the Order CLICK HERE

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