2012 (4) TMI 211 - AT - Income Tax

Penalty under section 271D and 271E - AO noticed that the assessee has accepted and repaid loan in cash violating section 269SS and 269T - assessee contented that penalty is not leviable when assessee was having reasonable cause as per section 273B - Held that - It was explained by the assessee before the Revenue authorities that the business of the assessee was such in nature where the expenses have to be incurred in cash immediately whereas the collection of hire charges received after sometime - we find that the expenditure and repayment of temporary loan in cash from the relatives and friends each amounting below Rs. 20,000/- was in accordance with commercial expediency of assessee s business as the nature of business of the assessee is such - as reasonable cause has been proved no penalty will be livable - appeal of assess allowed.

Summary

Issues:
Penalty under section 271D and 271E of the Income Tax Act for accepting and repaying loans in cash in violation of sections 269SS and 269T.

Analysis:
The appeals were filed against the order of CIT (A)-V, Baroda for the assessment year 2005-06 regarding the penalty imposed under sections 271D and 271E of the Income Tax Act. The penalty amounts were Rs. 2,36,850/- and Rs. 3,10,750/- respectively. The AO noted that the assessee accepted and repaid loans in cash, violating sections 269SS and 269T. The details of the loans accepted and repaid were presented during the assessment proceedings. The AO levied the penalties based on these violations.

Upon examining the statutory provisions and the scheme of the Act, it was found that Chapter XX-B outlines the requirements for the mode of acceptance and repayment to counteract tax evasion. Sections 269SS and 269T specifically address the acceptance of loans and deposits and the repayment thereof, emphasizing the use of account payee cheques or bank drafts. Failure to comply with these sections leads to penalties under sections 271D and 271E respectively.

The issue at hand was whether penalties under sections 271D and 271E were applicable when the assessee had a reasonable cause for their actions. Section 273B provides that no penalty shall be imposed if the assessee proves a reasonable cause for the failure to comply with the provisions. The term 'reasonable cause' was interpreted to mean a cause beyond the control of the assessee, preventing compliance without negligence or lack of bona fides. Commercial expediency and the objective of the sections were also considered in determining reasonable cause.

In this case, it was established that the assessee arranged funds in cash due to urgent business requirements, aligning with the commercial expediency of their business. The nature of the business, involving immediate cash expenses and delayed income collection, justified the need for cash loans from relatives and friends. The genuineness of the transactions was not in doubt, and the cash transactions were deemed reasonable under the circumstances. As a result, the penalties under sections 271D and 271E were canceled as the actions were taken with reasonable cause.

Ultimately, both appeals of the assessee were allowed, and the penalties under sections 271D and 271E were revoked based on the demonstration of reasonable cause for the cash transactions in accordance with the commercial expediency of the business.