2012 (2) TMI 650 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty u/s 271D and 271E of the Income-tax Act, 1961.
2. Validity of penalty proceedings initiated during assessment year 2007-08 for transactions related to assessment year 2005-06.
3. Consideration of reasonable cause for cash transactions.

Summary:

Issue 1: Levy of Penalty u/s 271D and 271E
The assessee was penalized for accepting and repaying a cash loan of Rs. 2 lakhs from Shri Babu Singh, violating sections 269SS and 269T of the Income-tax Act, 1961. The Assessing Officer (AO) imposed penalties of Rs. 2 lakhs each u/s 271D and 271E, rejecting the assessee's plea that the lender was an agriculturist without a bank account and that the transaction was covered by a surrendered amount during a survey.

Issue 2: Validity of Penalty Proceedings Initiated During Assessment Year 2007-08
The Tribunal examined whether penalty proceedings for assessment year 2005-06 could be initiated during the assessment proceedings for 2007-08. The AO initiated penalty proceedings based on documents found during a survey conducted on 10.01.2007. The Tribunal noted that no reassessment proceedings were initiated for 2005-06, and the penalty proceedings were initiated during the assessment for 2007-08. Citing the Hon'ble Punjab & Haryana High Court's decision in CIT v. Manohar Lal Thakral, the Tribunal held that penalty proceedings could not be initiated for a different assessment year when no proceedings were pending for that year.

Issue 3: Consideration of Reasonable Cause for Cash Transactions
The Tribunal considered the assessee's plea of reasonable cause, noting that the lender was an agriculturist without a bank account. The Tribunal emphasized that penalty imposition is discretionary and must consider relevant circumstances. Following the High Court's decision in CIT v. Manohar Lal Thakral, the Tribunal found no merit in the initiation of penalty proceedings u/s 271D and 271E for assessment year 2005-06 during the assessment for 2007-08.

Conclusion:
The Tribunal deleted the penalties levied u/s 271D and 271E, allowing the assessee's appeals. The judgment underscores the importance of initiating penalty proceedings within the correct assessment year and considering reasonable cause for cash transactions.