2014 (11) TMI 1210 - HC - Income Tax

Penalty u/s 271D - contravention of the provisions of Section 269 SS - HELD THAT - The assessee is an educational institution. They had paid the entire amount to KHB to revive the cancelled allotment and they were in tremendous pressure to pay stamp duty and registration charges and in those circumstances they have raised cash loan, deposited the amount in the bank, obtained the demand draft and handed over the same to KHB immediately and they have also arranged for registration of sale deed in the name of the allottee. We are satisfied even the amount of ₹ 8.08. lakhs raised by the assessee is for the purpose of stamp duty and registration and as there was urgency, they could not have obtained said amount by way of cheque or demand draft or as otherwise the investment they have made in getting lapsed allotment revived would have been in jeopardize. The authorities were not justified in ignoring these admitted facts on record and merely because there is a gap of more than 15 days between the date of revival and date of registration, their understanding that the assessee would have arranged funds by way of Cheques/demand drafts is unacceptable. As on 14th allotment was revived, 15 th they were informed, 16 th was a Saturday, 17 th was a Sunday and 18th they had to make the payment, they have made the payment. Therefore the substantial questions of law are answered in favour of the assessee and against the revenue

Summary

Issues:
1. Imposition of penalty under Section 271D of the Income Tax Act for raising cash loans by an educational institution.
2. Justification for obtaining cash loans and the urgency involved in the transactions.
3. Adequacy of explanations provided by the assessee for raising cash loans.
4. Dispute over the levy of penalty under Section 271D when the genuineness of the transaction is not in question.

Issue 1: Imposition of Penalty under Section 271D
The High Court considered an appeal challenging the penalty imposed under Section 271D of the Income Tax Act on an educational institution for raising cash loans exceeding Rs. 20,000. The assessing authority initiated penal proceedings due to the contravention of Section 269SS of the Act. The authorities below imposed a penalty of Rs. 11.06 Lakhs, leading to the appeal.

Issue 2: Justification for Cash Loans and Urgency
The appellate authority found that a cash loan of Rs. 2.8 Lakhs received by the institution was reasonably explained due to an urgent payment commitment. However, the penalty was confirmed for the remaining amount as the institution had sufficient time to raise funds through cheques/DDs. The Tribunal upheld the penalty, emphasizing that the institution had 40 days to mobilize funds through legitimate means instead of resorting to cash loans.

Issue 3: Adequacy of Explanations
The appellate commissioner detailed the timeline of events related to the purchase of a CA site, highlighting the urgency faced by the institution to pay stamp duty and registration charges. The institution borrowed cash, deposited it in the bank, and obtained DDs to make the necessary payments promptly. The Court acknowledged the urgency and necessity of the cash loans for these specific payments, ultimately ruling in favor of the institution and setting aside the penalty.

Issue 4: Dispute Over Penalty Levy
The Court addressed the substantial questions of law raised, emphasizing the urgency and necessity of the cash loans for specific payments related to the revival of a cancelled allotment. The Court found that the authorities had overlooked the urgency and necessity of the transactions, leading to the unjust imposition of the penalty. The Court ruled in favor of the institution, allowing the appeal and setting aside the penalty imposed by the authorities.

In summary, the High Court of Karnataka considered the imposition of a penalty under Section 271D of the Income Tax Act on an educational institution for raising cash loans. The Court analyzed the justifications provided by the institution for obtaining cash loans and the urgency involved in specific transactions. The Court found that the explanations given for the cash loans were adequate, considering the urgent nature of the payments required. Ultimately, the Court ruled in favor of the institution, setting aside the penalty and emphasizing the necessity and urgency of the cash loans for specific payments related to the institution's operations.