2016 (2) TMI 1244 - AT - Income Tax

Penalty u/s 271D - whether there is a reasonable cause for the alleged violation of section 269SS ? - HELD THAT - The object of introducing section 269SS is to ensure that a tax payer is not allowed to give false explanation for his unaccounted money or if he makes any false entry he shall have no escape by giving false explanation to the same. In the instant case it is clear that the cash transactions of the assessee were with his close friend Shri Gajender Singh who is an agriculturist. The Hon ble Supreme Court in the case of Asst. Director of Inspection (Investigation) Vs. Kum. A.B. Shanthi 2002 (5) TMI 4 - SUPREME COURT has clearly laid down that if there is a genuine and bonafide transactions and the tax payer could not get a loan or deposit by account payee cheque or demand draft for some bonafide reason the authority vested with the power to impose penalty has a discretionary power. No penalty u/s 271D of the Act can be validly levied in this case. Accordingly cancel the impugned penalty. - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271D of the Income-tax Act, 1961 for alleged contravention of section 269SS.

Analysis:

1. Background:
The appeal challenges the penalty of Rs. 3 lakhs imposed on the assessee under section 271D of the Income-tax Act, 1961 for accepting cash loans/deposits allegedly in contravention of section 269SS for the assessment year 2008-09.

2. Facts and Assessing Officer's View:
The assessee received cash deposits from a relative, which the Assessing Officer deemed as contravening section 269SS. The penalty proceedings were initiated, and the assessee claimed the amounts were for investment purposes, not loans. The Assessing Officer imposed the penalty despite the explanation.

3. CIT(A) Confirmation and Tribunal Appeal:
The CIT(A) upheld the penalty, leading the assessee to appeal before the Tribunal.

4. Enquiry and Statements:
The CIT(A) directed an inquiry into the matter, resulting in a statement from the relative confirming the cash transfer for investment purposes.

5. Legal Arguments and Interpretation:
The legal counsel argued that the transaction was not a loan but an investment, exempt from section 269SS. They contended that even if treated as a loan, penalties under section 271D should not apply due to genuine transactions and bonafide belief in compliance.

6. Legal Provisions and Precedents:
Section 269SS prohibits cash loans/deposits beyond a certain limit, with penalties under section 271D. The Supreme Court's stance on these provisions emphasizes curbing false explanations for unaccounted money. Section 273B allows discretion in levying penalties for genuine transactions with reasonable causes.

7. Tribunal Decision and Rationale:
The Tribunal found the cash transactions with the relative, an agriculturist, to be genuine and without tax implications. Citing precedents, the Tribunal concluded that no penalty under section 271D should be levied due to the genuine nature of the transactions and the bonafide belief in compliance.

8. Conclusion:
The Tribunal allowed the appeal, canceling the penalty imposed under section 271D for the alleged contravention of section 269SS, emphasizing the genuine and bonafide nature of the transactions.

The Tribunal's detailed analysis focused on the legal provisions, precedents, and the specific circumstances of the case to conclude that the penalty under section 271D was unwarranted due to the genuine nature of the transactions and the bonafide belief in compliance with the law.