2015 (2) TMI 1347 - AT - Income Tax

Penalty u/s. 271D - contravention of provisions of section 269SS - HELD THAT - In the present case, in assessment year 2003-04 cash loans were obtained and in A.Y 2004-05 they were repaid. According to the plea raised before AO as well as Ld. CIT(A), the persons who have advanced these loans to the assessee are relatives of a salesman who reside in a village and were having no bank account. Such contention of the assessee has not been discarded or disproved. It is also not mentioned in the penalty order that the aforementioned amount taken by the assessee in violation of section 269SS and repayment thereof in violation of section 269T was not bonafide transaction and the same was made with a view to evade tax. If it is so, then according to the decision in the case of CIT vs. Triumph International Finance (I) Ltd. 2012 (6) TMI 358 - BOMBAY HIGH COURT no penalty is imposable either under section 271D or under section 271E as the explanation submitted by the assessee would be considered to be reasonable cause under section 273B. We hold that it is not a fit case where levy of penalty either under section 271D or under section 271E is justified. The same are deleted and the appeals filed by assessee are allowed.

Summary

Issues:
Penalty under section 271D of the Income Tax Act, 1961 for contravention of provisions of section 269SS.

Analysis:
The appellant, engaged in the business of manufacturing and trading fertilizers, obtained loans exceeding Rs. 20,000 from relatives of a salesman for business purposes. The loans were repaid in cash, as the parties were farmers without bank accounts. The Assessing Officer (AO) imposed penalties under sections 271D and 271E for the assessment years 2003-04 and 2004-05. The appellant argued that penalties should not be levied as the transactions were with agriculturists without bank accounts, and the loans were repaid with interest. The AO and the CIT(A) upheld the penalties.

The appellant cited legal precedents to support their case, including decisions from the Madras High Court, Rajasthan High Court, ITAT Chandigarh Bench, and Punjab & Haryana High Court. These cases emphasized that penalties should not be imposed for genuine transactions and when there is a reasonable cause for non-compliance with the provisions of the Act. Additionally, a Bombay High Court decision highlighted that penalties should not be imposed without evidence of tax evasion.

After considering the arguments, the Tribunal found that the loans were obtained and repaid in cash due to the absence of banking facilities for the parties involved. The Tribunal noted that there was no evidence to suggest that the transactions were not genuine or made to evade tax. Citing the Bombay High Court decision, the Tribunal concluded that no penalty should be imposed under sections 271D and 271E as the appellant's explanation constituted a reasonable cause under section 273B of the Act. Therefore, the penalties were deleted, and the appeals filed by the appellant were allowed.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the penalties under sections 271D and 271E were unjustified in this case. The penalties were deleted, and both appeals by the appellant were allowed.