Penalty Under Section 271D Is Unsustainable Without Specific

Penalty Under Section 271D Is Unsustainable Without Specific Revenue Proof of Section 269SS Contravention

Issue

Whether penalty under Section 271D can be sustained where the Revenue fails to establish that cash deposited by the assessee in its bank account constituted a loan, deposit, or specified sum accepted from another person in violation of Section 269SS.

Facts

Assessment Year: AY 2017-18.
Demonetization Cash Deposit: The assessee-company deposited cash aggregating to ₹72.89 lakhs in its bank account during the demonetization period.
Assessee’s Explanation: The assessee claimed that ₹52.34 lakhs represented recorded opening cash-in-hand from its audited balance sheet, cash book, physical cash at shops, and with its director.
Ex-Parte Assessment: The Assessing Officer (AO) completed the assessment under Section 144, treating ₹70.97 lakhs as unexplained cash deposits and taxing it under Section 68 read with Section 115BBE.
Initiation of Penalty: The AO referred the matter to the Joint Commissioner of Income Tax (JCIT) for penalty proceedings under Section 271D.
Penalty Imposition: The JCIT issued notices under Section 274 read with Section 271D and imposed a penalty equal to ₹72.89 lakhs, holding that the assessee failed to explain the source and accepted cash in contravention of Section 269SS.

Decision

Initial Onus on Revenue: The tribunal/court held that in penalty proceedings under Section 271D, the initial onus rests on the Revenue to record specific findings proving that the assessee accepted a loan, deposit, or specified sum in cash exceeding ₹20,000 from another person in violation of Section 269SS.
Shift of Onus & Reasonable Cause: Only after the Revenue satisfies the initial burden does the onus shift to the assessee to prove “reasonable cause” under Section 273B.
Lack of Evidence: The JCIT failed to point to any evidence establishing that the deposited cash was a loan or deposit accepted from any third party via cash mode.
Outcome: Depositing one’s own business cash/proceeds into a bank account does not attract Section 269SS; hence, the penalty imposed under Section 271D was held unsustainable and deleted in favour of the assessee.

Key Takeaways

Section 269SS Scope: Section 269SS applies exclusively to accepting loans, deposits, or specified advance amounts from another person. Depositing self-owned or business cash into bank accounts does not trigger Section 269SS.
Section 68 Addition vs. Section 271D Penalty: An addition made under Section 68 (unexplained cash deposit) during assessment does not automatically lead to a penalty under Section 271D unless the nature of the transaction is explicitly established as a loan or deposit taken from a third party.
Burden of Proof: The initial burden of proving statutory contravention under Section 271D lies strictly on the Revenue before demanding a reasonable cause explanation from the assessee under Section 273B.

IN THE ITAT MUMBAI BENCH ‘A’

Assistant Commissioner of Income-tax

AL Global Beverages (P.) Ltd.

Siddhartha Nautiyal, Judicial Member
and Vikram Singh Yadav, Accountant Member

IT Appeal No. 4126 (Mum) of 2026
[Assessment year 2017-18]

AUGUST 31, 2026

Vikram Singh Yadav, Accountant Member.- This is an appeal filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [‘Ld.CIT(A)’], dated 11.02.2026, pertaining to Assessment Year (AY) 2017-18.

2. None has appeared on behalf of the assessee nor any adjournment application has been filed on behalf of the assessee. Considering the matter under consideration, it was decided that no useful purpose would be served in adjourning the matter any further, and to decide the matter based on material available on record.

3. In this appeal, the Revenue has taken the following grounds of appeal:

“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty of Rs. 72,89,500/- imposed under Section 271D, without appreciating that the assessee failed to provide a cogent and verifiable explanation regarding the source and genuineness of the cash deposited during the demonetization period, thereby failing to satisfy the requirements of Section 273B of the Income-tax Act, 1961.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in accepting the assessee’s contention that the deposited cash was out of opening cash-in-hand’ (reported at Rs. 50,83,467/-) without directing a proper verification of the cash book and the availability of such liquidity, especially when the total deposit exceeded the purported opening balance.

3. The Ld. CIT(A) erred in holding that the Assessing Officer’s findings were based on surmises and conjectures, while ignoring the fact that the assessee failed to discharge its primary onus of proving that the cash transactions did not fall within the ambit of ‘specified sums’ or ‘deposits’ as contemplated under the provisions of Section 269SS.

4. The appellant craves leave to add, alter, amend, or withdraw any ground(s) of appeal either before or during the course of the hearing of the appeal.”

4. Briefly, the facts of the case are that the assessment in this case was completed under Section 144 vide order dated 17.12.2019, wherein the Assessing Officer brought to tax a sum of Rs. 70,97,000/- under section 68 read with 115BBE of the Act, being the amount deposited during the course of demonetization period and sources thereof remaining unexplained and unsubstantiated by the assessee. Thereafter, a reference for initiation of penalty under section 271D was sent by the Assessing Officer to the office of Joint Commissioner of Income Tax, Range-14 for initiation of penalty under Section 271D of the Act. Thereafter, notice under section 274 read with 271D was issued on 23.09.2021 by JCIT followed by another notice dated 23.03.2022. However, there was no compliance on the part of the assessee to the notices so issued and thereafter the JCIT proceeded and passed the order under section 271D dated 30.03.2022. Referring to the provisions of Section 269SS and 271D, it was held by JCIT that where a person accepts any loan or deposit or any specified sum otherwise than by an account payee cheque or account payee bank draft of an amount more than Rs. 20,000, he is liable to pay penalty of the same amount taken or accepted. It was noted by the JCIT that during the course of assessment proceedings, the assessee was asked about the sources of cash deposit in the bank account, and the assessee has failed to explain the source of cash deposit of Rs. 72,89,500/- and in view of the said findings, it is clear that the assessee has accepted cash deposits of Rs. 72,89,500/- in contravention with the provisions of section 269SS and after examining the facts of the case and the provisions of law, he was satisfied that it is a fit case for imposition of penalty under section 271D of the Act, and accordingly, a sum equal to the cash deposits of Rs. 72,89,500/- was imposed on the assessee under section 271D of the Act.

5. Against the said order, the assessee carried the matter in appeal before the ld. CIT(A) and it was submitted that the assessee was having opening cash-in-hand of Rs. 52,33,974/- as per the audited balance sheet and copy of the return of income filed for A.Y. 2016-17 and the detailed breakup of the cash available and lying at various shops and with the Director was submitted to the Assessing Officer during the course of assessment proceedings. It was further submitted that the director, Shri Rahul Leekha, also appeared in response to summons under section 131 and explained that all the cash deposited during the demonetization period was out of cash in hand available in the books and copy of the cash account was also submitted. It was accordingly submitted that out of the total sum of Rs. 72,82,000/- deposited in the bank account, Rs. 52,33,974/- was from the opening cash in hand and the necessary explanation as well as documentation were duly submitted before the Assessing Officer and in spite of that, the Assessing Officer has proceeded and made the addition. It was further submitted that the penalty has been initiated for violation of Section 269SS of the Act and the Assessing Officer has held that the assessee has failed to explain the source of the cash deposits, whereas the assessee has given complete explanation of cash deposits during the course of assessment proceedings as well as in response to summons under section 131 of the Act.

6. The submissions so filed by the assessee were considered by the ld. CIT(A). The ld. CIT(A) referred to the provisions of Section 271D and 269SS of the Act and it was held that, a plain reading of the impugned penalty order dated 30.03.2022, it is not ascertained how the Assessing Officer arrived at the finding that the assessee has violated the provisions of Section 269SS of the Act in order to attract imposition of penalty under section 271D of the Act. The ld. CIT(A) held that the Assessing Officer has not made any specific reference to any evidence on the basis of which he arrived at the conclusion that the assessee has taken or accepted from any other person, 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, and if such sum is Rs. 20,000/- or more. It was held by the ld. CIT(A) that it is a trite law that no penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied and there cannot be any penalty on surmises, conjectures, and possibilities and provisions of Section 271D have to be construed strictly and unless it is conclusively found that there is a violation of provisions of Section 269SS of the Act, the penalty cannot be imposed and accordingly, the penalty so levied by the Assessing Officer was deleted.

7. Against the said order, the Revenue is in appeal before us. During the course of hearing, the ld. DR submitted that the ld. CIT(A) has erred in deleting the penalty of Rs. 72,89,500/- imposed under Section 271D without appreciating that the assessee failed to provide a cogent and verifiable explanation regarding the source and genuineness of the cash deposited during the demonetization period, thereby failing to satisfy the requirements of Section 273B of the Act. It was further submitted that the ld. CIT(A) was not justified in accepting the assessee’s contention that the deposited cash was out of opening cash in hand without directing a proper verification of the cash book and availability of such liquidity, especially when the total deposit exceeds the purported opening balance. It was further submitted that the ld. CIT(A) erred in holding that the Assessing Officer’s findings were based on surmises and conjectures while ignoring the fact that the assessee failed to discharge its primary onus of proving that the cash transaction did not fall within the ambit of specified sums or deposits as contemplated under the provisions of Section 269SS of the Act. It was accordingly submitted that the order so passed by the ld. CIT(A) be set aside and that of the Assessing Officer be sustained.

8. We have heard the rival contentions and perused the material available on record. There cannot be any manner of dispute that the penalty provisions have to be strictly construed and no penalty can be imposed on the assessee unless the conditions stated therein are duly satisfied. Also, there cannot be any manner of dispute that unlike in the context of quantum proceedings, where the assessee is required to provide the requisite explanation (and substantiation through appropriate documentation) regarding the nature and source of cash deposits; in the context of penalty proceedings, it is for the Competent authority levying the penalty to record specific findings as to how the charge for levy of penalty is satisfied in the instance case. In other words, in the penalty proceedings u/s 271D in the instant case, the initial onus is on the Competent authority to specify as to how the conditions for levy of penalty are satisfied i.e, violations of provisions of section 269SS of the Act. Once the initial onus is satisfied, the onus shifts on the assessee and its explanation can be tested on the touchstone of reasonability in terms of section 273B of the Act. Therefore, the contention of the ld DR, that the assessee failed to discharge its primary onus of proving that the cash transactions did not fall within the ambit of “deposits” or “specified sums” as contemplated under the provisions of Section 269SS of the Act, cannot be accepted.

9. Now, coming to the provisions of section 269SS of the Act, the same read as follows:

“269SS. 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:

Provided that the provisions of this section shall not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by,—

(a) the Government;

(b) any banking company, post office savings bank or co-operative bank;

(d) any Government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013);

(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:

Provided further that the provisions of this section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act:

Provided also that the provisions of this section shall have effect, as if for the words “twenty thousand rupees”, the words “two lakh rupees” had been substituted in the case of any deposit or loan where —

(a) such deposit is accepted by a primary agricultural credit society or a primary co-operative agricultural and rural development bank from its member; or

(b) such loan is taken from a primary agricultural credit society or a primary cooperative agricultural and rural development bank by its member.

Explanation.—For the purposes of this section,—

(i) banking company” means a company to which the provisions of the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act;

(ii) “co-operative bank”, “primary agricultural credit society” and “primary cooperative agricultural and rural development bank” shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P;

(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. ”

10. It provides that no person shall take or accept from any other person (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), where the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum is twenty thousand or more. Therefore, there has to be a transaction or series of transactions between the assessee and any other person, such transaction shall be by way of “loan” or “deposit” or “any specified sum” and either individually or collectively, the amount of the transaction(s) so determined shall exceed Rs 20,000/. These conditions therefore need to be tested individually qua the assessee and each individual person(s) and on cumulative satisfaction thereof, the charge can be fastened on the assessee in terms of violation of provisions of section 269SS of the Act. Merely the fact that the total quantum of transactions exceeds Rs 20,000/- without satisfying the other conditions qua each individual person cannot meet the requirements of section 269SS of the Act.

11. In the instant case, certain cash deposits have been found deposited in the bank account of the assessee during the demonetization period to the tune of Rs 72,89,500/- and the assessee explained the nature and source thereof as largely (Rs 52,33,974/-) arising out of opening cash in hand as reflected in the audited financial statements, the cash book maintained by the assessee and details of physical cash kept at various shops and with the director of the assessee company. The explanation so furnished was not found acceptable to the Assessing officer and he brought the whole of cash deposits to tax as unexplained deposits (after giving credit for some amount) u/s 68 u/s 115BBE of the Act.

12. The said findings have thereafter been followed and summarily applied by the JCIT while levying the penalty u/s 271D of the Act holding that since the assessee has failed to explain the source of cash deposits, it has contravened the provisions of section 269SS of the Act.

13. The question that arises for consideration is to how the JCIT has reached the conclusion that the assessee has contravened the provisions of section 269SS without even discussing the satisfaction of the conditions so specified u/s 269SS as we have noted earlier. Mere deposit of cash in the bank account without bringing on record as to how the conditions of section 269SS are satisfied which talks about transaction or series of transaction with a particular individual or individuals and satisfying the test of transaction being in the nature of loan or deposit or other specified sum and threshold thereof cannot automatically lead to satisfaction of charge for violation of provisions of section 269SS of the Act.

14. Where the assessee claims that money belongs to it and arising out of cash-in-hand and the Revenue rejects the said explanation as not found acceptable and bring the amount to tax as unexplained money, at the same time, before levy of penalty, the Revenue has to bring on record as to whom the money belongs if it doesn’t belong to the assessee, the name and particulars of the individuals, whether the money so received by the assessee is by way of “loan” or “deposit” which by definition are repayable after notice or repayable after a period of time or “specified sum” which by definition 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. There is nothing on record or brought to our notice during the course of hearing in terms of any evidence pursuant to which the JCIT has reached the said conclusion. Therefore, we have no hesitation but to affirm the findings of the ld CIT(A) where he records that the JCIT has not made any specific reference to any evidence on the basis of which he arrived at the conclusion that the assessee has taken or accepted from any other person, 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, and if such sum is Rs. 20,000/- or more.

15. In the result, the appeal filed by the Revenue is dismissed.