Section 271E — Penalty for Failure to Comply with the Provisions of Section 269T (Cash Repayment of Loans / Deposits)
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Live and heavily litigated. The repayment-side counterpart of section 271D: a penalty equal to the amount of any loan, deposit or "specified advance" repaid in contravention of section 269T (i.e., otherwise than by account-payee cheque/draft/electronic mode, where Rs. 20,000 or more). From 1 April 2025 imposed by the Assessing Officer. Subject to reasonable cause under section 273B.
Finance Act, 2026: No amendment by the Finance Act, 2026. (The shift of the imposing authority to the Assessing Officer from 1-4-2025 was effected by the Finance Act, 2025.)
Mechanism: Repayment of a loan/deposit/specified advance of Rs. 20,000 or more otherwise than by the prescribed banking/electronic mode → penalty equal to the amount repaid → unless reasonable cause is shown under section 273B.
Litigation profile: Litigated on the same lines as section 271D: reasonable cause for the cash mode (lender’s insistence, urgency, rural economy, close relatives), the journal-entry line, and the rule that genuineness is not by itself a defence.
Section 271E penalises cash repayment of loans/deposits/specified advances in violation of section 269T, with the penalty equal to the amount repaid. It shares the object, the quantum logic and the defences of section 271D; the two are frequently invoked together and decided on common reasoning.
Reasonable cause; lender’s insistence
A recurring and accepted reasonable cause is the creditor/finance company insisting on cash repayment: where a lender demands repayment in cash and the assessee complies bona fide, that constitutes reasonable cause within section 273B, and section 271E is not attracted. As with section 271D, genuineness alone is insufficient — reasonable cause for the cash mode must be shown.
Journal entries and dependence on the assessment
The Triumph International principle applies equally: repayment by bona fide journal entries, without actual cash movement, is not a contravention of section 269T. And under Jai Laxmi Rice Mills, if the assessment founding the satisfaction is set aside, the penalty cannot stand.
B. STATUTORY TEXT (verbatim)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025; Finance Act, 2026 changes are noted above.
Penalty for failure to comply with the provisions of section 269T.
271E. (1) If a person repays any loan or deposit or specified advance referred to in section 269T otherwise
than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum
equal to the amount of the loan or deposit or specified advance so repaid.
(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner:
Provided that any penalty under sub-section (1), on or after the 1st day of April, 2025, shall be
imposed by the Assessing Officer.
C. AUTHORITIES
The authorities mirror section 271D and are grouped by issue: validity and the reasonable-cause shield; lender’s insistence and recognised reasonable causes; journal entries; and the independent-of-assessment limitation regime.
1. Validity and the reasonable-cause shield
Asstt. Director of Inspection v. Kum. A.B. Shanthi (2002) 255 ITR 258 (SC)
Holding The cash-transaction restrictions (sections 269SS/269T) and their penalties are valid measures against tax evasion; section 273B saves genuine transactions where reasonable cause for the cash mode is shown.
Use Anchors validity and the reasonable-cause defence for section 271E.
2. Lender’s insistence and recognised reasonable causes
Principle — repayment in cash at the lender’s insistence
Proposition Where a finance company or creditor insists on cash repayment and the assessee complies bona fide, this is reasonable cause under section 273B and no section 271E penalty is leviable.
Use A frequently successful, fact-specific defence.
CIT v. Sunil Kumar Goel (2009) 315 ITR 163 (P&H)(HC)
Holding A bona fide family/closely-related-party transaction, born of casualness, establishes reasonable cause under section 273B; penalty under sections 271D/271E is not leviable.
Use The leading family-transaction reasonable-cause authority, applied to repayment.
Principle — genuineness alone is not a defence
Proposition As under section 271D, proving the genuineness of the loan/deposit and its repayment does not save the assessee; reasonable cause for using cash must be independently shown.
Use Re-frames the defence toward reasonable cause for the cash mode.
3. Journal entries
CIT v. Triumph International Finance (I) Ltd (2012) 345 ITR 270 (Bom)(HC)
Holding Repayment of a loan/deposit by bona fide journal entries does not contravene section 269T and, in any event, constitutes reasonable cause under section 273B; section 271E is not attracted.
Use Defeats the penalty where liabilities are settled by book entries without cash.
Principle — co-operative society dealings with members
Proposition Cash dealings of a co-operative society with its members, where genuine and explained, have been held to constitute reasonable cause under section 273B, deleting sections 271D/271E penalties (consistent Tribunal authority).
Use A recurring ITAT defence for co-operative credit societies.
4. Limitation — independent of the assessment
CIT v. Hissaria Bros (2007) 291 ITR 244 (Raj)(HC)
Holding Section 271D/271E penalty proceedings are independent of the assessment; limitation is governed by section 275(1)(c), reckoned from issue of the show-cause notice by the competent authority.
Use The leading authority on the limitation regime; defeats time-barred 271E orders.
CIT v. Jai Laxmi Rice Mills (2015) 379 ITR 521 (SC)
Holding Where the assessment founding the satisfaction is set aside, the section 271E penalty cannot survive.
Use Defeats the penalty where the foundational assessment/satisfaction falls.
Dillu Cine Enterprises (P) Ltd v. Addl. CIT (2002) 80 ITD 484 (Hyd)(ITAT)
Holding Penalty under sections 271D/271E must be initiated and completed within the limitation reckoned from the competent authority’s action; an order beyond it is barred.
Use Tribunal authority on the initiation/limitation computation.
Prepared for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced from the official Act; case-law holdings are the author’s summaries for professional use.
CHAPTER XXI — PENALTIES IMPOSABLE
Section 271E — Penalty for Failure to Comply with the Provisions of Section 269T (Cash Repayment of Loans / Deposits)
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Live and heavily litigated. The repayment-side counterpart of section 271D: a penalty equal to the amount of any loan, deposit or "specified advance" repaid in contravention of section 269T (i.e., otherwise than by account-payee cheque/draft/electronic mode, where Rs. 20,000 or more). From 1 April 2025 imposed by the Assessing Officer. Subject to reasonable cause under section 273B.
Finance Act, 2026: No amendment by the Finance Act, 2026. (The shift of the imposing authority to the Assessing Officer from 1-4-2025 was effected by the Finance Act, 2025.)
Mechanism: Repayment of a loan/deposit/specified advance of Rs. 20,000 or more otherwise than by the prescribed banking/electronic mode → penalty equal to the amount repaid → unless reasonable cause is shown under section 273B.
Litigation profile: Litigated on the same lines as section 271D: reasonable cause for the cash mode (lender’s insistence, urgency, rural economy, close relatives), the journal-entry line, and the rule that genuineness is not by itself a defence.
A. COMMENTARY
The repayment mirror of section 271D
Section 271E penalises cash repayment of loans/deposits/specified advances in violation of section 269T, with the penalty equal to the amount repaid. It shares the object, the quantum logic and the defences of section 271D; the two are frequently invoked together and decided on common reasoning.
Reasonable cause; lender’s insistence
A recurring and accepted reasonable cause is the creditor/finance company insisting on cash repayment: where a lender demands repayment in cash and the assessee complies bona fide, that constitutes reasonable cause within section 273B, and section 271E is not attracted. As with section 271D, genuineness alone is insufficient — reasonable cause for the cash mode must be shown.
Journal entries and dependence on the assessment
The Triumph International principle applies equally: repayment by bona fide journal entries, without actual cash movement, is not a contravention of section 269T. And under Jai Laxmi Rice Mills, if the assessment founding the satisfaction is set aside, the penalty cannot stand.
B. STATUTORY TEXT (verbatim)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025; Finance Act, 2026 changes are noted above.
Penalty for failure to comply with the provisions of section 269T.
271E. (1) If a person repays any loan or deposit or specified advance referred to in section 269T otherwise
than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum
equal to the amount of the loan or deposit or specified advance so repaid.
(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner:
Provided that any penalty under sub-section (1), on or after the 1st day of April, 2025, shall be
imposed by the Assessing Officer.
C. AUTHORITIES
The authorities mirror section 271D and are grouped by issue: validity and the reasonable-cause shield; lender’s insistence and recognised reasonable causes; journal entries; and the independent-of-assessment limitation regime.
1. Validity and the reasonable-cause shield
Asstt. Director of Inspection v. Kum. A.B. Shanthi (2002) 255 ITR 258 (SC)
Holding The cash-transaction restrictions (sections 269SS/269T) and their penalties are valid measures against tax evasion; section 273B saves genuine transactions where reasonable cause for the cash mode is shown.
Use Anchors validity and the reasonable-cause defence for section 271E.
2. Lender’s insistence and recognised reasonable causes
Principle — repayment in cash at the lender’s insistence
Proposition Where a finance company or creditor insists on cash repayment and the assessee complies bona fide, this is reasonable cause under section 273B and no section 271E penalty is leviable.
Use A frequently successful, fact-specific defence.
CIT v. Sunil Kumar Goel (2009) 315 ITR 163 (P&H)(HC)
Holding A bona fide family/closely-related-party transaction, born of casualness, establishes reasonable cause under section 273B; penalty under sections 271D/271E is not leviable.
Use The leading family-transaction reasonable-cause authority, applied to repayment.
Principle — genuineness alone is not a defence
Proposition As under section 271D, proving the genuineness of the loan/deposit and its repayment does not save the assessee; reasonable cause for using cash must be independently shown.
Use Re-frames the defence toward reasonable cause for the cash mode.
3. Journal entries
CIT v. Triumph International Finance (I) Ltd (2012) 345 ITR 270 (Bom)(HC)
Holding Repayment of a loan/deposit by bona fide journal entries does not contravene section 269T and, in any event, constitutes reasonable cause under section 273B; section 271E is not attracted.
Use Defeats the penalty where liabilities are settled by book entries without cash.
Principle — co-operative society dealings with members
Proposition Cash dealings of a co-operative society with its members, where genuine and explained, have been held to constitute reasonable cause under section 273B, deleting sections 271D/271E penalties (consistent Tribunal authority).
Use A recurring ITAT defence for co-operative credit societies.
4. Limitation — independent of the assessment
CIT v. Hissaria Bros (2007) 291 ITR 244 (Raj)(HC)
Holding Section 271D/271E penalty proceedings are independent of the assessment; limitation is governed by section 275(1)(c), reckoned from issue of the show-cause notice by the competent authority.
Use The leading authority on the limitation regime; defeats time-barred 271E orders.
CIT v. Jai Laxmi Rice Mills (2015) 379 ITR 521 (SC)
Holding Where the assessment founding the satisfaction is set aside, the section 271E penalty cannot survive.
Use Defeats the penalty where the foundational assessment/satisfaction falls.
Dillu Cine Enterprises (P) Ltd v. Addl. CIT (2002) 80 ITD 484 (Hyd)(ITAT)
Holding Penalty under sections 271D/271E must be initiated and completed within the limitation reckoned from the competent authority’s action; an order beyond it is barred.
Use Tribunal authority on the initiation/limitation computation.
Prepared for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced from the official Act; case-law holdings are the author’s summaries for professional use.