The Income Tax Appellate Tribunal, Delhi, has clarified that payment of tax on undisclosed cash receipts made to avoid protracted litigation does not constitute an admission of violation of Section 269ST, and therefore cannot trigger penalty under Section 271DA. This ruling reinforces the distinction between tax compliance under duress and voluntary acknowledgment of contravention.
Background & Facts
The Dispute
The dispute arose from cash transactions exceeding Rs. 2 lakh received by Sanjay Kalsi, proprietor of JD Solitaire, a jewellery business, during the Assessment Year 2020-21. During a search operation under Section 132 of the Income Tax Act, 1961, conducted at the residence of Anil Upreti on 03.02.2021, an Excel sheet was seized containing entries of cash payments made to JD Solitaire. The entries showed three transactions: Rs. 8,00,000 on 17.09.2019, Rs. 1,88,000 on 25.09.2019, and Rs. 6,96,000 on 14.11.2019, aggregating to Rs. 16,84,500. The AO concluded that these were cash receipts by the assessee in violation of Section 269ST, which prohibits receipt of cash exceeding Rs. 2 lakh in a single transaction or in aggregate from a person in a day.
Key Facts
- Search conducted under Section 132 at Anil Upreti’s residence on 03.02.2021
- Excel sheet seized during search containing cash transaction records dated 17.09.2019, 25.09.2019, and 14.11.2019
- Total cash amount recorded: Rs. 16,84,500
- Rs. 1,88,000 was excluded from penalty calculation as it was allegedly paid via account payee cheque, leaving Rs. 14,96,500 as the penalty base
- Notice under Section 153C issued to the assessee on 28.03.2023
- AO issued show-cause notice under Section 271DA on 04.09.2024
- Assessee filed reply on 11.09.2024, denying receipt of cash and stating payment of tax was to avoid litigation
- AO imposed penalty of Rs. 14,96,500 under Section 271DA via order dated 19.09.2024
- Assessee paid tax of Rs. 84,610 on deemed income of Rs. 2,35,830 (14% of Rs. 16,84,500) on 29.03.2024 via Challan No. 07101
- Penalty proceedings under Section 270A were dropped by AO on 24.07.2024 on grounds that tax was paid to buy peace
- Ld. CIT(A) upheld penalty via order dated 22.09.2025
- Appeal filed before ITAT on 26.02.2026
- Judgment pronounced on 25.03.2026
Procedural History
- 03.02.2021: Search conducted under Section 132 at Anil Upreti’s residence
- 28.03.2023: Notice under Section 153C issued to assessee
- 04.09.2024: Show-cause notice under Section 271DA issued
- 11.09.2024: Assessee’s reply filed
- 19.09.2024: AO imposed penalty of Rs. 14,96,500 under Section 271DA
- 24.07.2024: Penalty under Section 270A dropped
- 22.09.2025: Ld. CIT(A) confirmed penalty
- 26.02.2026: Hearing before ITAT
- 25.03.2026: ITAT judgment pronounced
The Parties' Positions
For the Assessee
- Denied any receipt of cash beyond Rs. 2 lakh
- Stated that the Excel sheet and WhatsApp chats were not independently verified
- Argued that payment of tax was made under pressure to avoid prolonged litigation, not as admission of guilt
- Highlighted that penalty under Section 270A was dropped by AO on identical facts, indicating no intent to underreport
- Contended that Section 132(4A) presumption does not shift burden to prove innocence beyond reasonable doubt
- Invoked Bannalal Jat Construction Pvt. Ltd. v. ACIT and CIT v. M.S. Aggarwal to support evidentiary value of seized documents, but argued they were insufficient to prove receipt by the assessee
For the Revenue
- Relied on seized Excel sheet and digital evidence certified under Section 65B of the Indian Evidence Act
- Cited Arjun Pandit Rao Kotakar v. Kailash Kishan Rao Kotkar to argue that certificate is not mandatory if device is produced
- Invoked Section 132(4A) to assert presumption that seized documents belong to and are authentic for the assessee
- Argued that payment of tax on the amount constitutes admission of receipt
- Maintained that Section 271DA penalty is mandatory unless good and sufficient reasons are shown
Relief Sought
The assessee sought deletion of the penalty of Rs. 14,96,500 imposed under Section 271DA, arguing that the payment of tax was not an admission of violation and that the penalty was unjustified in light of the AO’s own decision to drop Section 270A penalty on the same facts.
The Legal Issue
Can the payment of tax on undisclosed cash receipts, made solely to avoid protracted litigation and without admission of guilt, constitute a contravention of Section 269ST sufficient to trigger penalty under Section 271DA?
Arguments Presented
For the Appellant/Petitioner
The assessee argued that the payment of Rs. 84,610 was a pragmatic decision to end litigation, not an acknowledgment of receipt of cash. The AO had already dropped penalty under Section 270A on the same basis, recognizing that the tax payment was not an admission of misreporting. The assessee relied on the principle that tax payment under compulsion does not equate to voluntary disclosure or admission of liability. The reliance on seized documents was challenged on the ground that cross-examination of Anil Upreti was denied, violating natural justice. The assessee further contended that Section 132(4A) creates only a rebuttable presumption, and the burden to disprove it was not discharged by the Revenue.
For the Respondent/State
The Revenue contended that the Excel sheet, certified under Section 65B and corroborated by the statement of Anil Upreti under Section 132(4), constituted sufficient evidence of receipt. The statement recorded under oath in the presence of witnesses was deemed judicially noticeable under Section 56 of the Indian Evidence Act. The Revenue argued that the assessee’s payment of tax on the full amount of Rs. 16,84,500 amounted to an implicit admission of receipt, thereby triggering mandatory penalty under Section 271DA. The Revenue further cited Bannalal Jat Construction and CIT v. M.S. Aggarwal to affirm the evidentiary weight of seized digital records.
The Court's Analysis
The Tribunal carefully examined the distinction between tax payment as a tactical concession and as an admission of liability. It noted that the AO, in its order dated 24.07.2024, had explicitly dropped penalty under Section 270A after accepting the assessee’s explanation that the tax payment was made to "buy peace and avoid litigation" and that there was no underreporting or misreporting. The Tribunal held that this finding by the AO was binding on the penalty proceedings under Section 271DA, as both arose from the same set of facts.
"The explanation of the assessee that despite not accepting the contents of the said excel sheet accepted the above income of Rs. 2,35,830/- and paying the due taxes of Rs. 84,610/- on cash sales of Rs. 16,84,500/- was an effort to have peace for himself and to avoid the protracted litigation is also a plausible explanation and it cannot be outrightly rejected in the given facts of the case."
The Tribunal emphasized that Section 271DA imposes penalty only if there is a contravention of Section 269ST. The mere payment of tax, without an admission of receipt, does not establish contravention. The Tribunal distinguished between the evidentiary value of seized documents and the requirement to prove the recipient’s knowledge and intent. While the documents were prima facie credible, the Tribunal held that the Revenue failed to establish that the assessee had knowingly received the cash. The denial of cross-examination of Anil Upreti, though not fatal under technical rules of evidence, was considered relevant in assessing the fairness of the proceedings.
The Tribunal further noted that Section 271DA contains a saving clause: "no penalty shall be imposable if such person proves that there were good and sufficient reasons for the contravention." The Tribunal found that the assessee’s conduct - paying tax under protest, denying receipt, and having the Section 270A penalty dropped - constituted a "good and sufficient reason" for the receipt of cash, even if the receipt itself was established.
The Verdict
The appeal was allowed. The Tribunal deleted the penalty of Rs. 14,96,500 imposed under Section 271DA of the Income Tax Act, 1961. The Tribunal held that the payment of tax to avoid litigation, coupled with the AO’s prior decision to drop penalty under Section 270A on identical grounds, constituted a "good and sufficient reason" under Section 271DA(1). The penalty was set aside in its entirety. The other grounds of appeal were rendered academic.
What This Means For Similar Cases
Tax Payment Under Protest Does Not Constitute Admission
- Practitioners must argue that payment of tax under compulsion, especially when accompanied by a written denial of liability, cannot be treated as admission of contravention
- AO’s prior decision to drop Section 270A penalty on similar grounds must be cited as binding on subsequent penalty proceedings
- The phrase "paid to buy peace" must be explicitly documented in replies to notices
Section 271DA Penalty Requires Proven Intent
- Revenue must prove not just receipt, but that the recipient knowingly violated Section 269ST
- Mere possession of seized documents is insufficient without corroboration of the assessee’s knowledge or control
- Cross-examination denial may not invalidate evidence, but it weakens the Revenue’s burden of proof in penalty proceedings
Good and Sufficient Reason Is Broadly Interpreted
- The Tribunal’s interpretation of "good and sufficient reason" under Section 271DA(1) is expansive
- Conduct showing cooperation without admission - such as paying tax under protest - qualifies
- Practitioners should frame all responses to penalty notices to emphasize lack of intent and presence of mitigating circumstances
