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Issues involved: Challenge of levy of penalty u/s 271D of Rs. 5 lakhs.
Summary: The appeal was filed against the order of CIT(A) dated 19-7-2007, with the main issue being the challenge of the penalty imposed under section 271D of Rs. 5 lakhs. During the assessment proceedings, it was discovered that the assessee had violated the provisions of section 269SS of the IT Act by accepting a cash deposit of Rs. 5 lakhs. The assessee explained that the funds were urgently needed to honor issued cheques. The amount was withdrawn by one of the directors from his bank account and given to the company. The contention was that it was not a loan or deposit but an internal transaction. The Assessing Officer levied the penalty, which was upheld in the first appeal. In the second appeal, it was argued that the deposit was received from the director in unique circumstances to ensure that the company's cheques were honored. The genuineness of the transaction was not in doubt, and it was emphasized that the amount was crucial for the business. The Tribunal held that the assessee, being a finance company, had a legitimate reason for the transaction to avoid adverse consequences on its business interests. Citing relevant case laws, the Tribunal concluded that there was a reasonable cause for the transaction, and thus, the penalty under section 271D was deleted. Therefore, the assessee's appeal was allowed, and the penalty was removed.
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