2011 (4) TMI 1327 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty u/s 271D for contravention of s. 269SS.
2. Validity of penalty order based on limitation period.
3. Bona fide belief and reasonable cause for transactions between individual and HUF.

Summary:

1. Levy of Penalty u/s 271D for Contravention of s. 269SS:
The primary issue in this appeal is the levy of penalty u/s 271D of the IT Act, 1961, for the assessment year 2003-04. The AO observed that the assessee accepted loans or deposits aggregating Rs. 28,34,000 in cash, contravening s. 269SS. The Addl. CIT imposed a penalty of Rs. 31,78,500, which was upheld by the CIT(A), who found no reasonable cause for the cash transactions.

2. Validity of Penalty Order Based on Limitation Period:
The assessee contended that the penalty order was barred by limitation, arguing it should have been passed before 31st March 2008 or 31st Aug 2008, whichever is later. However, the CIT(A) held that the penalty proceedings were validly initiated with the issuance of the penalty notice on 25th Feb 2008, and the order was passed within the prescribed time limit.

3. Bona Fide Belief and Reasonable Cause for Transactions Between Individual and HUF:
The assessee argued that the transactions were between his individual capacity and HUF, managed single-handedly, and were not aware that such transactions could attract penalty u/s 271D. The Tribunal noted that the transactions were genuine, accepted under s. 143(3), and there was no intention to camouflage unaccounted money. The Tribunal referenced several decisions, including the Hon'ble Jharkhand High Court in Omec Engineers v. CIT, which held that genuine transactions accepted under s. 143(3) should not attract penalty if the breach was technical.

Conclusion:
The Tribunal concluded that the assessee had a bona fide belief that the transactions between his individual capacity and HUF were not covered by s. 269SS. The transactions were genuine, and there was no intention to evade taxes. Therefore, the assessee had a reasonable cause for the failure to comply with s. 269SS, and the penalty u/s 271D was not justified. The Tribunal set aside the CIT(A)'s order and directed the Addl. CIT to delete the penalty.

Result:
The appeal of the assessee is allowed.