2010 (7) TMI 818 - HC - Income Tax

Penalty under sections 271D and 271E - loan transactions made in cash by the assessee with its sister concerns - Held that - As convinced that there were enough reasons offered by the assessee to justify the cash transactions which is made with its sister concern. The factual findings rendered by the CIT(A) to the effect that such transactions were made by the assessee with a view to save its existence and mainly incurred for the purpose of disbursement of salary to the employees cannot be disturbed in the absence of any contra material evidence placed before this court - See CIT v. Kundrathur and Chit Co. 2006 (1) TMI 79 - MADRAS HIGH COURT - in favour of assessee.

Summary

Issues:
- Whether penalty under sections 271D and 271E is warranted for loan transactions made in cash by the assessee with its sister concerns?

Analysis:
1. The assessing authority imposed penalties under sections 271D and 271E of the Income-tax Act on the assessee for accepting amounts in cash exceeding Rs. 20,000 from its sister concerns, totaling Rs. 52,80,000 and Rs. 44,60,000. The Commissioner of Income-tax (Appeals) deleted the penalties after finding that the transactions were genuine, meant for wage distribution and to save the sick company from closure. The authority held that the money was withdrawn from the current account on OD facility of the sister concern, justifying the transactions.

2. The Tribunal, in the appeal by the Revenue, upheld the decision of the Commissioner of Income-tax (Appeals), stating that the transactions were in the nature of loans or deposits between sister concerns, undertaken due to business exigency. Relying on previous court decisions, the Tribunal declined to interfere with the order of the Commissioner of Income-tax (Appeals), further validating the genuineness of the transactions and the reasons provided by the assessee.

3. The High Court, after reviewing the orders and arguments, agreed with the findings of the lower authorities. It noted that the transactions were justified by the need to save the company and for salary disbursement. The Court emphasized that there were reasonable causes and exigencies for the cash transactions, leading to the conclusion that penalties under sections 271D and 271E were unwarranted. The Court found no merit in the appeal, rejecting it and upholding the decisions of the Commissioner of Income-tax (Appeals) and the Tribunal.

In conclusion, the High Court upheld the decision to delete the penalties imposed under sections 271D and 271E, emphasizing the genuine nature of the transactions, the business exigencies, and the reasons provided by the assessee to justify the cash transactions with its sister concerns.