2010 (3) TMI 928 - AT - Income Tax

Summary

Issues Involved:
1. Violation of Section 269SS of the Income-tax Act, 1961.
2. Imposition of penalty u/s 271D read with sections 274 and 273B.
3. Reasonable cause for accepting cash deposits.
4. Genuineness of deposits and mode of acceptance.

Summary:

1. Violation of Section 269SS of the Income-tax Act, 1961:
The Assessing Officer (AO) observed that the assessee-company had accepted certain deposits in cash during the relevant assessment year, violating section 269SS of the Act. The AO issued show-cause notices to the assessee to explain why penalty u/s 271D should not be imposed.

2. Imposition of penalty u/s 271D read with sections 274 and 273B:
The AO levied a penalty of Rs. 54,48,648 u/s 271D, stating that the assessee had no reasonable cause for accepting cash deposits and had violated section 269SS. The AO rejected the assessee's explanation that the cash deposits were due to financial difficulties and urgent business needs, noting that no evidence was provided to substantiate these claims.

3. Reasonable cause for accepting cash deposits:
The Commissioner of Income-tax (Appeals) (CIT(A)) deleted the penalty, accepting the assessee's argument that the cash deposits were made due to urgent business needs and financial difficulties. The CIT(A) emphasized that the reasonable cause should be viewed from the perspective of a prudent businessman and noted that the borrowings were made in difficult financial situations.

4. Genuineness of deposits and mode of acceptance:
The CIT(A) found that the deposits were genuine and not intended to introduce unaccounted cash. The CIT(A) also noted that the transactions were primarily journal entries and not actual cash deposits. The Tribunal upheld the CIT(A)'s decision, citing previous judgments that supported the view that genuine transactions made under urgent business needs do not attract penalties u/s 271D.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming that the assessee had a reasonable cause for accepting cash deposits and that the transactions were genuine and primarily journal entries. The penalty imposed by the AO was deleted, and the CIT(A)'s order was upheld. The order was pronounced in the open court on March 12, 2010.