2011 (2) TMI 1188 - HC - Income Tax

Cash loans - Penalty u/s 271D - Violation of section 269SS - Held that - As assessee used several persons, probably close relatives and friends, to take loan from Banks for his business purposes - When factual position of source of fund is accepted by the Department, necessarily, the conclusion of the Tribunal has to be upheld because there is no tax evasion involved or black money introduced in business in cash - Decided in favor of the assessee.

Summary

Issues:
Challenge to cancellation of penalty under Section 271D for violation of Section 269SS of the Income Tax Act.

Analysis:
The appeal was filed by the Revenue challenging the Tribunal's decision to cancel the penalty imposed on the respondent assessee under Section 271D for violating Section 269SS of the Income Tax Act. The assessee, who had previously worked in a circus company for 25 years, started a business making packing cases and borrowed substantial amounts in cash from various individuals in violation of the Act. The Assessing Officer imposed a penalty equal to the loan amount under Section 271D. The Tribunal, however, accepted the explanation provided by the assessee under Section 273B and canceled the penalty, leading to the Revenue's appeal. The Revenue argued that the explanation offered by the assessee based on ignorance of the law was not acceptable, while the assessee's counsel highlighted that the Assessing Officer had acknowledged the source of lenders as borrowings from banks in the penalty order itself.

Upon reviewing the facts and arguments presented, the court observed that the assessee had used individuals, likely close relatives and friends, to obtain loans from banks for business purposes. These creditors withdrew the borrowed money in cash from their bank accounts and provided it to the assessee. The court noted that the Department had accepted the factual source of funds, indicating no tax evasion or introduction of black money in cash into the business. The court found that when the Department acknowledged the source of lenders, the penalty imposition became a technical violation. Additionally, the court considered that the assessee, in the second year of business, had ceased the practice upon realizing the error. Consequently, the court upheld the Tribunal's decision, stating that the accepted explanation under Section 273B, based on uncontroversial facts, did not raise any substantial legal questions warranting the court's interference.

Therefore, the Income Tax Appeal was dismissed, affirming the cancellation of the penalty under Section 271D for the violation of Section 269SS of the Income Tax Act.