The Income Tax Appellate Tribunal (ITAT), Cuttack, has recently ruled in favour of an individual who received a tax notice over selling properties for cash even though he had paid capital gains tax.
The case involved Mr Purushottam from Kabisurya Nagar, Ganjam (Odisha). According to the submission to the ITAT, Purushottam sold two of his properties for a total of about Rs 47.54 lakh, but he took the entire amount in cash for unknown reasons. In his income tax return (ITR), Purushottam declared the property sales and also paid the due capital gains tax on these sales.
The Centralised Processing Centre (CPC) of the income tax department at Bengaluru processed Purushottam’s ITR and accepted his calculation of capital gains tax. However, the Income Tax Assessing Officer (AO) from Berhampur, Odisha, got to know from his sources that Purushottam took this Rs 47.54 lakh in cash. So, the AO decided to investigate the matter.
The AO’s investigation found Purushottam guilty of accepting cash for his property sales. So, the AO invoked the provisions of Section 269SS (read with Sections 271D and 273D) and treated the sale consideration received by Purushottam in cash as liable for violation of the provisions of Section 269SS. Consequently, the AO imposed a penalty on Purushottam.
Purushottam, with the help from Chartered Accountant S.K. Sarangi, filed an appeal before the Commissioner of Income Tax (Appeals), or CIT(A), but lost it. So, he filed an appeal with the Income Tax Appellate Tribunal (ITAT), Cuttack.
On October 5, 2026, Purushottam won the case in the ITAT Cuttack.
Why did Purushottam win the case?
Pranshu G, Partner at Ashok Pranshu & Co, said to ET Wealth Online: Purushottam won because the ITAT Cuttack treated the cash as consideration received on completion of the property sale, rather than an advance covered by Section 269SS. ITAT Cuttack therefore cancelled the Section 271D penalty, holding that Section 269ST and its corresponding penalty, Section 271DA, were the relevant provisions. These were penalty proceedings, not prosecution.
Pranshu says that the Income Tax Department can again start proceedings against Purushottam, this time with the correct Section, but doing do would need to factor in the complicance with Section 275 limitation period also.
Courts have differed on whether prior satisfaction during assessment is essential. Pranshu says that changing provisions cannot revive an expired limitation period. However, the ITAT Cuttack order does not disclose enough procedural dates to conclude that fresh proceedings are definitely time-barred.
What should property sellers do if taking cash?
Pranshu says that if you are selling a property and got the payments in cash then at once disclose the full sale consideration, correctly compute capital gains and pay the applicable tax and interest. Also check if you are still elgible to file a revise or updated income tax return for that year.
Pranshu says that you must also preserve the sale agreement, receipts, buyer details and evidence explaining why cash was accepted.
Even though disclosure and payment of tax do not erase a breach of the cash-receipt restrictions, but this accurate reporting avoids compounding the already existing problem i.e. taking cash for selling a property.
Pranshu says: "Any genuine justification should be documented for consideration under the applicable penalty relief provision. This ITAT Cuttack ruling should not be treated as permission to accept cash."
ITAT Cuttack Discussion
George Mathan, judicial member and Gopalan Gurusamy, accountant member of ITAT Cuttack heard this case passed the order on October 5, 2026.
CA S.K.Sarangi representing Purushottam argued before ITAT Cuttack that the AO has incorrectly applied the wrong Section for levying this charge for accepting cash for property sales.
CA S.K.Sarangi also placed reliance on the decision of the coordinate bench of ITAT Cuttack in the case of Satyabrata Panda passed, order dated March 16, 2026 wherein under similar circumstances also the penalty has been cancelled.
ITAT Cuttack said that when the facts of the case are clearly seen it shows that the provisions of Section 269SS does not apply in respect of the transactions on which the AO has attempted to levy penalty under Section 271D.
ITAT Cuttack also emphasised on their own tribunal’s co-ordinate bench’s decision in the case of Satyabrata Panda and said that in the case of Arati Saraf also similar thing happened i.e AO invoked the wrong income tax provision to levy penalty.
ITAT Cuttack ruled that the AO should have invoked Section 269ST but instead applied Section 269SS and thus the present penalty levied under Section 271D is cancelled.
Thus even though ITAT Cuttack cancelled the Section 271D penalty the ITAT did not declare the cash receipt exempt from all other provisions of the Income-tax Act.
