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2013 (12) TMI 1735 - AT - Income TaxPenalty u/s 271D and 271E - Assessee obtained unsecured loans in cash in excess of the amounts specified in section 269SS of the Act - Assesse argued for deletion of penalty broadly on the following grounds (1) It is a transaction between the sister concern or the directors.(2) It is the first year of operation hence assessee was not well aware of the statutory provisions. (3) Assessee has proved its bonafide by disclosing unsecured loans in the financial statement along with return of income. HELD THAT- The undisputed facts are that the unsecured loans are taken either from sister concern or directors who are closely related to the assesse secondly the AO has also not doubted the genuineness of the transaction as he has accepted the unsecured loan without making any addition in this regard. The High Court in 2010 (7) TMI 818 - MADRAS HIGH COURT also expressed similar view when the transaction is between sisters concern penalty under section 271E and 271D cannot be imposed. Appeals filed by the assessee are allowed.
Issues Involved:
1. Sustenance of penalty u/s 271D of the Income Tax Act, 1961. 2. Sustenance of penalty u/s 271E of the Income Tax Act, 1961. Summary: Issue 1: Sustenance of penalty u/s 271D of the Income Tax Act, 1961 The assessee, a private limited company engaged in manufacturing and trading tea products, filed appeals against the orders of the CIT(A) for the assessment years 2004-05 to 2008-09 concerning penalties u/s 271D and 271E. The AO noted that the assessee accepted cash loans exceeding Rs.20,000/- totaling Rs.12,86,000/- on 21 occasions, violating section 269SS. The assessee argued that the loans were temporary, interest-free, and taken from directors and sister concerns due to business urgency and ignorance of the law. The AO rejected these explanations, imposing penalties of Rs.12,86,000/- u/s 271D and Rs.30,000/- u/s 271E, stating the reasons did not constitute 'reasonable cause' u/s 273B. The CIT(A) upheld the penalties, noting the lack of business urgency and banking facilities, and dismissed the ignorance of law as a valid excuse. Issue 2: Sustenance of penalty u/s 271E of the Income Tax Act, 1961 The assessee reiterated before the first appellate authority that the loans were from sister concerns and directors to fund initial investments and working capital, and due to the startup nature, bank loans were not feasible. The CIT(A) was unconvinced, holding that the reasons provided did not justify violating section 269SS. The CIT(A) relied on the Kerala High Court's decision in S.C. Naregal, stating ignorance of law is not a valid excuse, and confirmed the penalties. Judgment: The Tribunal considered the submissions and noted that the unsecured loans were from sister concerns or directors, and the AO did not doubt the genuineness of the transactions. The Tribunal referred to judicial precedents, including the Gujarat High Court in Shree Ambica Flour Mills, which held that transactions between sister concerns are not covered by sections 269SS or 269T, and the P&H High Court in Sunil Kumar Goel, which stated that actions not resulting in tax avoidance are bonafide. The Tribunal also cited the Madras High Court in Deccan Designs and the ITAT Vishakhapatnam in Vinman Finance & Leasing Ltd, which recognized ignorance of law as a reasonable cause. Considering these precedents and the facts, the Tribunal concluded that the reasons provided by the assessee constituted 'reasonable cause' u/s 273B. Therefore, the penalties u/s 271D and 271E were deleted for the assessment year 2004-05. The Tribunal extended this decision to the penalties for assessment years 2005-06 to 2008-09, deleting the penalties imposed u/s 271D and 271E for those years as well. The appeals filed by the assessee were allowed. Order pronounced in the open court on 06/12/2013.
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