What if you sell properties but receive the payment in cash? Despite recording capital gains in your tax return, are you still likely to face penalties from the Income Tax Department?The Income Tax Appellate Tribunal (ITAT), Cuttack, has ruled in favour of a taxpayer who was penalised for accepting cash from the sale of properties, despite having declared the transactions in his income tax return and paid the applicable capital gains tax.
What the case is about:
The case concerned a man in Odisha who, according to the submissions before the tribunal, sold two properties for a combined consideration of around Rs 47.54 lakh. However, for this sale he received the entire amount in cash. The person in question disclosed the property transactions in his income tax return (ITR) and paid the capital gains tax due on the sales.The Income Tax Department’s Centralised Processing Centre (CPC) in Bengaluru processed his return and accepted his computation of capital gains tax.However, the Assessing Officer (AO) in Berhampur, Odisha, subsequently received information indicating that the man had collected the Rs 47.54 lakh sale proceeds in cash. The AO initiated an investigation, which established that the taxpayer had accepted cash payments for the property transactions.The AO then invoked Section 269SS, read with Sections 271D and 273D, and held that receiving the sale consideration in cash amounted to a violation of Section 269SS, according to an ET report. A penalty was consequently imposed on the man who challenged it before the Commissioner of Income Tax (Appeals), or CIT(A).However, the appeal was rejected. He then approached the ITAT in Cuttack, where he secured a favourable ruling on October 5, 2026.
Why did the taxpayer win the case?
The man’s counsel argued that the assessing officer had invoked the wrong section of the Income-tax Act to impose a penalty for accepting cash against the sale of property. He also cited a decision by a coordinate bench of ITAT Cuttack in the case of Satyabrata Panda, dated March 16, 2026, in which the penalty had been cancelled under similar circumstances.After examining the facts, ITAT Cuttack held that Section 269SS did not apply to the transactions for which the AO had sought to impose a penalty under Section 271D. The tribunal also referred to the decision in Satyabrata Panda and noted that a similar issue had arisen in the case of Arati Saraf, where the AO had relied on an incorrect provision of the Income-tax Act to levy a penalty.The tribunal concluded that the AO should have invoked Section 269ST rather than Section 269SS. Since the penalty had been imposed under Section 271D on the basis of the latter provision, ITAT Cuttack cancelled it.However, the cancellation of the Section 271D penalty does not mean that the tribunal declared the cash receipt exempt from all other provisions of the Income-tax Act.Pranshu G, Partner at Ashok Pranshu & Co, told ET that the taxpayer succeeded because the ITAT, Cuttack, considered the cash to be the sale consideration received upon completion of the property transaction, rather than an advance covered by Section 269SS.On this basis, the tribunal set aside the penalty imposed under Section 271D. It held that Section 269ST and the corresponding penalty provision, Section 271DA, were the relevant provisions in the circumstances of the case.Pranshu explained that the matter concerned penalty proceedings and did not involve prosecution. He also pointed out that the Income Tax Department could potentially initiate fresh proceedings against the man under the applicable provision. However, any such move would have to take into account the limitation period prescribed under Section 275.According to Pranshu, courts have differed on whether the requisite satisfaction must be recorded during assessment proceedings before a penalty can be initiated. He added that the Income Tax Department cannot use a change in the applicable statutory provision to revive proceedings for which the limitation period has already expired.Pranshu advises property sellers who have received payments in cash to disclose the entire sale consideration without delay, calculate their capital gains accurately and pay the applicable tax along with interest. They should also check whether they remain eligible to file a revised or updated income tax return for the relevant year.
