ITAT Cuttack Overturns Penalty on Man After Tax Officer Misapplies Section in Property Sale Case

The Income Tax Appellate Tribunal (ITAT) in Cuttack has ruled in favor of a taxpayer penalized for accepting cash payments from property sales. The tribunal determined that Section 269SS of the Income Tax Act did not apply to the transactions in question. The taxpayer had declared the sales in his income tax return and paid the necessary capital gains tax.

Case Background

The case involved a taxpayer from Odisha who sold two properties for approximately Rs 47.54 lakh, receiving the entire amount in cash. He reported these transactions in his income tax return and settled the capital gains tax. However, the Assessing Officer (AO) in Berhampur later received information indicating that the taxpayer had accepted cash for the sales. Following an investigation, the AO imposed a penalty under Section 269SS, citing a violation of the Income Tax Act.

The taxpayer contested the penalty, which was initially rejected by the Commissioner of Income Tax (Appeals). He subsequently appealed to the ITAT, which delivered a favorable ruling on October 5, 2026.

Tribunal’s Findings

The taxpayer’s counsel argued that the AO had incorrectly applied the Income Tax Act to impose the penalty. He referenced a previous ITAT ruling in the case of Satyabrata Panda, where a similar penalty was canceled. The ITAT examined the facts and concluded that Section 269SS was not applicable to the transactions. Instead, the tribunal noted that the AO should have invoked Section 269ST.

The ITAT’s decision emphasized that the cash received was considered the sale consideration for the completed property transaction, not an advance. Consequently, the tribunal annulled the penalty imposed under Section 271D, clarifying that the correct provisions were Section 269ST and Section 271DA.

Pranshu G, a partner at Ashok Pranshu & Co, indicated that while the penalty was canceled, it did not exempt the taxpayer from other provisions of the Income Tax Act. He noted that the Income Tax Department could initiate new proceedings under the applicable provisions, subject to the limitation period outlined in Section 275.