2011 (3) TMI 1347 - AT - Income Tax

Penalty - Provision of section 269SS - Cash loans - The DR submitted that the assessee held huge cash in hand at Rs. 8, 08, 760 and borrowing of the cash loans without any hesitation exceeding Rs. 20, 000 is gross violation of section 269SS of the Act - held that - The words in Explanation (iii) below section 269SS except saying that loan or deposit means loan or deposit of money. The terms loan or deposit are not mutually exclusive. There are number of common features between the two. A loan is repayable the moment it is incurred while it is not so with deposit. In a deposit unlike a loan there is no immediate obligation to repay. Normally a deposit is for a fixed tenure. The amount taken by the assessee in the present case is for a short period. It has to be considered as temporary advance and one has to see whether there was any stipulation as to the period or any stipulation for payment of interest. If it is a temporary advance such temporary advances are outside the purview of section 269SS of the Act. To sum up the Assessing Officer has to see whether the cash loan was borrowed by the assessee on account of shortage of cash balance in a particular place where the cash loan was taken. Further he has to see whether cash loan was taken for a short period without any stipulation regarding repayment period or interest. Even otherwise penalty under section 271D cannot be levied in any case if there is a reasonable cause for accepting the cash loans. Therefore if there is only technical lapse for which no penalty could be levied. With these observations we set aside the issue to the file of the Assessing Officer for fresh consideration.

Issues Involved:
1. Confirmation of penalty under Section 271D for violation of Section 269SS.
2. Reasonable cause for accepting cash loans.
3. Interpretation of "loan" and "deposit" under Section 269SS.
4. Applicability of judicial precedents on penalty computation under Section 271D.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271D for Violation of Section 269SS:
The primary issue in this appeal is the confirmation of a penalty amounting to Rs. 31,56,490 by the CIT(A) for the assessee's violation of Section 269SS of the Income-tax Act, 1961. The assessee, a partnership firm engaged in the transport business, accepted temporary loans totaling Rs. 39,28,236 in cash from 82 persons, which included employees and hamalis. The Assessing Officer (AO) considered Rs. 7,71,746 of these loans as unexplained and initiated penalty proceedings for accepting cash loans in contravention of Section 269SS.

2. Reasonable Cause for Accepting Cash Loans:
The assessee argued that due to severe financial crisis and the arrest of one of its partners, Sri R. Venkateswara Rao, who was also a director of a co-operative bank, it faced rumors of closure and pressure from creditors. Consequently, employees and hamalis provided petty cash loans to keep the firm operational. The assessee contended that these circumstances constituted a reasonable cause under Section 273B, which should exempt them from the penalty. The AO, however, rejected this explanation, stating that banking facilities were available, and other partners could have managed the business.

3. Interpretation of "Loan" and "Deposit" under Section 269SS:
The assessee contended that the amounts received from employees should not be considered as loans under Section 269SS. The Tribunal, however, clarified that the terms "loan" and "deposit" are not mutually exclusive and include any money received, regardless of the source. The Tribunal noted that these transactions did not fall within the mischief sought to be remedied by Section 269SS, as the amounts were genuine and did not represent unaccounted money.

4. Applicability of Judicial Precedents on Penalty Computation under Section 271D:
The assessee relied on the judgment of the Rajasthan High Court in the case of CIT v. Ajanta Dyeing & Printing Mills, which held that penalty under Section 271D should be computed only on the amount exceeding Rs. 20,000. The Tribunal, however, referred to the Supreme Court judgment in Asstt. Director of Inspection (Investigation) v. Kumari A.B. Shanthi, which clarified that penalty is leviable if the aggregate amount of cash loan or deposit is Rs. 20,000 or more. Consequently, the Tribunal did not apply the Rajasthan High Court's ratio to the present case.

Conclusion:
The Tribunal found merit in the assessee's argument regarding the existence of reasonable cause due to the financial crisis and the arrest of a partner. It emphasized that the objective of Section 269SS is to curb false entries and unaccounted money, which was not the case here. The Tribunal also noted that temporary advances from employees, without stipulation for repayment or interest, could be considered outside the purview of Section 269SS. Therefore, the Tribunal set aside the issue to the AO for fresh consideration, allowing the appeal for statistical purposes.

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