Introduction
Taking cash for a property sale can lead to a penalty equal to the full cash amount. That is how Section 271D works. But a recent order of the Income Tax Appellate Tribunal (ITAT), Hyderabad Bench, shows that the department must also follow the correct procedure before it levies such a penalty. In Lakkaraju Ramprasad HUF vs ACIT (ITA No. 2401/Hyd/2025), pronounced on 30 September 2026, the Tribunal deleted a penalty of Rs 40,00,000 because no satisfaction had been recorded in the assessment order.
What are Section 269SS and Section 271D?
Section 269SS (Now Section 185 of income tax act 2025) says that a person cannot take or accept a loan, deposit or specified sum of Rs 20,000 or more except by an account payee cheque, account payee bank draft or other prescribed electronic mode. The term “specified sum” includes any sum of money receivable for the transfer of an immovable property, whether or not the transfer takes place.
Section 271D is the penalty provision. If a person takes or accepts any loan, deposit or specified sum in breach of Section 269SS, the penalty is equal to the amount so taken or accepted. This is why the penalty in this case was as high as the cash received.
Facts of the case
The assessee was a Hindu Undivided Family (HUF) from Tirupati. For Assessment Year 2016-17, it filed its return on 21 July 2016 declaring total income of Rs 38,54,010. The case was picked up for scrutiny, and the assessment under Section 143(3) was completed on 1 November 2018 with the declared income accepted.
Later, a show-cause notice under Section 274 read with Section 271D was issued. The Assessing Officer (AO) alleged that the HUF had accepted Rs 40,00,000 in cash towards the sale of property, which breached Section 269SS. The AO levied a penalty of Rs 40,00,000 by an order.
What the assessee argued
Before the AO and the Commissioner of Income Tax (Appeals), the HUF said that the sale consideration was received partly in cash and partly by cheque. It also said that the entire consideration was declared in the return and capital gains tax was paid, so the transaction was genuine and the penalty should not apply. The CIT(A) did not accept this and upheld the penalty, saying there was a clear contravention of Section 269SS.
Before the Tribunal, the assessee’s counsel, raised a legal ground. He argued that the penalty order was void from the start because the AO had not recorded any satisfaction in the assessment order about a violation of Section 269SS before starting penalty proceedings. He relied on:
CIT vs Jai Laxmi Rice Mills, Ambala City (2015) 379 ITR 521 (SC)
Grandhi Sri Venkata Amarendra vs JCIT (2024) 301 Taxman 516 (Andhra Pradesh)
What the Revenue argued
The Senior Departmental Representative, argued that under Section 271D the competent authority to start and levy the penalty is the Joint Commissioner of Income Tax and not the AO. So, in his view, there was no need for the AO to record satisfaction in the assessment order. He also said the case laws cited by the assessee were not applicable.
What the Tribunal held
The Tribunal noted that there was no dispute on one point. The assessment order under Section 143(3) had no discussion at all about any violation of Section 269SS.
It then relied on the Supreme Court’s ruling in Jai Laxmi Rice Mills, which says that where satisfaction for initiating penalty proceedings has not been recorded, the penalty order has to be set aside. It also referred to the Andhra Pradesh High Court’s decision in Grandhi Sri Venkata Amarendra, where the High Court held that Section 271D penalty could not be levied when the AO had not recorded any finding of violation of Section 269SS or any satisfaction that the transaction attracted penal consequences.
The Tribunal also noted that a coordinate bench in Mohammed Shabbir Bhojani vs ITO (ITA No. 2317/Hyd/2025) had taken the same view. That bench had followed the Telangana High Court’s decision in Srinivasa Reddy Reddappagari vs JCIT (W.P. No. 44285 of 2025) and deleted the penalty.
Since the AO had not recorded satisfaction, the Tribunal held that the Section 271D penalty could not be upheld. It set aside the CIT(A)’s order, deleted the Rs 40,00,000 penalty and allowed the appeal.
Key takeaways for taxpayers
First, the penalty can be challenged on procedure. If the assessment order has no finding or satisfaction about a Section 269SS breach, the taxpayer may have a strong legal ground against a later Section 271D penalty.
Second, the Tribunal decided the case on this legal ground alone. It did not say that accepting cash on a property sale is allowed. The Section 269SS restriction remains in force.
Third, disclosing the full sale consideration and paying capital gains tax may not, by itself, protect against Section 271D. In this case, that argument did not succeed before the AO or the CIT(A).
Fourth, always check the timeline and the record. Look at the assessment order, the show-cause notice and the penalty order together to see whether satisfaction was recorded and by whom.
Fifth, the best protection is to avoid the breach. For property transactions, receive the consideration only through account payee cheque, bank draft or electronic banking channels.
Frequently asked questions
- Can cash be accepted for sale of property?
Section 269SS does not allow a sum of Rs 20,000 or more receivable for the transfer of immovable property to be accepted in cash. It must come through banking channels. - How much is the penalty under Section 271D?
The penalty equals the amount of the loan, deposit or specified sum taken or accepted in breach of Section 269SS.
- Does the AO have to record satisfaction before the penalty?
As per the Supreme Court in Jai Laxmi Rice Mills and the Tribunal’s reasoning in this order, absence of recorded satisfaction can make the penalty order unsustainable.
- Is there any relief if there was a genuine reason for the cash transaction?
Section 273B provides that no penalty is imposed if the person proves a reasonable cause for the failure. Whether a case qualifies depends on its facts.
Conclusion
The ITAT Hyderabad order is a reminder that penalty provisions must be applied through the correct procedure. A Section 271D penalty can be very heavy, so both the substantive breach and the process followed by the department deserve careful review. Taxpayers who receive such a notice should read the assessment order and the penalty order closely before deciding on their response.
