2010 (8) TMI 1058 - AT - Income Tax

Summary

Issues Involved:
1. Sustaining the penalty imposed u/s 271D.
2. Violation of section 269SS by depositing cash in excess of Rs. 20,000.
3. Reasonable cause for depositing cash to clear debit balance.
4. Applicability of section 269SS to transactions between close relatives.
5. Initiation of penalty proceedings during assessment.
6. Genuineness of the transaction and its acceptance by the AO.

Summary:

1. Sustaining the penalty imposed u/s 271D:
The assessee contested the penalty of Rs. 1,18,000 imposed u/s 271D, arguing that the ld. CIT(A) erred in sustaining it. The appeal sought to set aside the CIT(A)'s order and delete the penalty.

2. Violation of section 269SS by depositing cash in excess of Rs. 20,000:
The assessee deposited Rs. 1,18,000 in cash into his bank account, which included loans from his son. The AO considered this a violation of section 269SS, as the loan was not taken through a bank draft or cheque.

3. Reasonable cause for depositing cash to clear debit balance:
The assessee argued that the cash deposit was made to clear a debit balance in the bank account to avoid cheque bouncing, as directed by the bank. The Tribunal found this explanation reasonable, noting that panic created by the bank's directive could constitute a reasonable cause.

4. Applicability of section 269SS to transactions between close relatives:
The assessee claimed that transactions between closely related persons, such as father and son, fall outside the scope of section 269SS. The Tribunal supported this view, referencing decisions where transactions between family members were considered reasonable cause under section 273B.

5. Initiation of penalty proceedings during assessment:
The assessee argued that penalty proceedings were not initiated during the assessment, making the penalty levy illegal. The Tribunal did not specifically address this point, focusing instead on the reasonable cause for the cash deposit.

6. Genuineness of the transaction and its acceptance by the AO:
The Tribunal noted that the AO accepted the genuineness of the transaction, as no addition was made under section 68. The Tribunal emphasized that once the genuineness is accepted, the explanation for the cash deposit should be considered satisfactory unless proven false.

Conclusion:
The Tribunal canceled the penalty, treating the explanation furnished by the assessee as constituting reasonable cause. The appeal filed by the assessee was allowed, and the penalty u/s 271D was set aside. The order was pronounced in open Court on 6.8.2010.