2013 (8) TMI 404 - AT - Income Tax

Penalty u/s 271D - violation of section 269SS - Reasonable Cause u/s 273B - receipt of loan by cash exceeding ₹ 20,000/- Held that - no penalty shall be imposable on the assessee for receiving or accepting loan or deposit otherwise than by account payee cheque or by account payee demand draft, if there was genuine and bonafide transaction and the taxpayer could not get a loan or deposit by account payee cheque or account payee demand drat for some bonafide reason, the authority vested with the power to impose penalty has a discretionary power not to levy the penalty - assessee is not claiming that cash was received due to reasonable cause. The claim of the assessee is that receipt of money by way of cash itself is a reasonable cause - mere receipt of cash, itself cannot be a reasonable cause. The assessee is expected to demonstrate the reasonable cause for not receiving the loan by account payee cheque or demand draft - Decided in against the assessee.

Summary

Issues Involved:
1. Violation of Section 269SS by accepting cash loans exceeding Rs. 20,000.
2. Justification for levying penalty under Section 271D.
3. Applicability of Section 273B concerning reasonable cause for failure to comply with Section 269SS.
4. Consideration of genuine and bona fide transactions.
5. Applicability of the second proviso to Section 269SS for agriculturists.

Detailed Analysis:

1. Violation of Section 269SS by accepting cash loans exceeding Rs. 20,000:
The primary issue revolves around the assessee receiving a cash loan amounting to Rs. 29,47,500, which exceeds the limit of Rs. 20,000 specified under Section 269SS of the Income Tax Act. Section 269SS mandates that no person shall accept any loan or deposit exceeding Rs. 20,000 otherwise than by an account payee cheque or demand draft. The assessee's failure to comply with this provision led to the imposition of a penalty under Section 271D.

2. Justification for levying penalty under Section 271D:
The revenue argued that the assessee violated Section 269SS by accepting a cash loan exceeding Rs. 20,000, justifying the penalty under Section 271D. The assessee contended that the loan was accepted for urgent business needs and was genuine. However, the tribunal noted that the genuineness of the transaction alone does not constitute a reasonable cause for failure to comply with Section 269SS. The tribunal emphasized that the assessee must demonstrate a reasonable cause for not receiving the loan by an account payee cheque or demand draft.

3. Applicability of Section 273B concerning reasonable cause for failure to comply with Section 269SS:
Section 273B provides relief from penalty if the assessee proves that there was a reasonable cause for the failure. The tribunal referred to the Supreme Court's judgment in the case of Km A B Shanthi, which clarified that for invoking the discretion under Section 273B, the transaction must be genuine and bona fide, and there must be a reasonable cause for not receiving the loan by cheque or draft. The tribunal concluded that the assessee did not demonstrate any reasonable cause for receiving the loan in cash, thus failing to meet the conditions laid down in Section 273B.

4. Consideration of genuine and bona fide transactions:
The assessee argued that the transaction was genuine and bona fide, and hence, the penalty should not be levied. The tribunal acknowledged the genuineness of the transaction but reiterated that mere genuineness is not sufficient. The assessee must also show a reasonable cause for not adhering to the prescribed mode of transaction under Section 269SS. The tribunal found that the assessee did not provide any reasonable cause for receiving the loan in cash, thus justifying the penalty under Section 271D.

5. Applicability of the second proviso to Section 269SS for agriculturists:
The assessee claimed that both he and the lender were agriculturists, and therefore, the second proviso to Section 269SS should apply, which exempts agriculturists from the provisions of Section 269SS if neither has any income chargeable to tax. However, the tribunal noted that the assessee had taxable income, making the second proviso inapplicable. Consequently, the assessee could not claim exemption under this proviso.

Conclusion:
The tribunal concluded that the assessee failed to demonstrate any reasonable cause for receiving the loan in cash, as required under Section 273B. The genuineness of the transaction alone was not sufficient to invoke the discretion under Section 273B. Additionally, the second proviso to Section 269SS did not apply as the assessee had taxable income. Therefore, the tribunal set aside the order of the CIT(A) and restored the AO's order, thereby upholding the penalty under Section 271D. The appeal filed by the revenue was allowed.