Tax Penalty Expired? Your ₹3L Fine May Be Void

If the Income Tax Department issues a penalty under Section 271D after 6 months from the end of the financial year, that penalty is legally void. A Chennai tribunal just cancelled a ₹3 lakh fine on exactly this ground. Know your rights.

Here's what happened: ITAT Chennai cancelled a ₹3 lakh Section 271D penalty because the tax officer issued the final order after the 6-month limit set under Section 275(1)(c) had already expired.. Section 271D penalises taxpayers who accept cash loans, deposits, or transfers above ₹20,000 from any single person in a year, with the penalty equal to 100% of the amount received.. The tribunal ruled that the limitation period under Section 275(1)(c) is mandatory, not directory — meaning crossing it automatically voids the penalty, regardless of the underlying violation..

What you should do: Check any pending penalty notice: compare the date of the Joint Commissioner's sanction order with the date of the final penalty order — if the gap is over 6 months, file an appeal citing Section 275(1)(c).. Avoid accepting cash loans or deposits above ₹20,000 from friends, relatives, or business associates — use bank transfers (NEFT/RTGS/UPI) to stay fully compliant with Section 269SS.. If you are a small business owner, audit your cash receipt records for the last 3 years and consult a chartered accountant if any single cash transaction exceeded ₹20,000..

Pro tip: Section 275(1)(c)'s 6-month clock starts from the date the Joint Commissioner grants sanction — not from the date of the original assessment or notice. Many taxpayers (and even some officers) count from the wrong date.