2016 (1) TMI 1497 - AT - Income Tax

Penalty proceedings u/s. 271D - violations of Section 269SS - cash loan received - HELD THAT - It is our considered view that provisions of Section 269SS of the Act are strict provisions making taxpayer liable for penalty for taking loan or deposit of ₹ 20,000/- or more in cash . There are provisions u/s 273B of the Act when the reasonable cause is shown , then the penalty is not exigible. The provisions were enacted to check the menace of tax evasion so that the taxpayer is not allowed to give a false explanation for his un-accounted money or if has introduced some false entries in his accounts, he shall not escape by giving false explanations. Thus, it is not only the loan transaction which should be genuine but the taxpayer should come forward with reasonable cause as provided u/s 273B of the Act to get out of clutches of Section 269SS of the Act read with Section 271D of the Act. Thus, both the above conditions are to be cumulatively satisfied by the taxpayer. As assessee firm is not able to show the reasonable cause as is referred to in Section 273B of the Act for taking the loan in cash from M/s Lakshmi Trading Company in violation of Section 269SS of the Act read with Section 271D of the Act, thus, in our considered view the penalty imposed by the authorities below need to be confirmed to that extent while the penalty remaining for reasons and manner of deletion as stated above in preceding para s is hereby deleted.

Issues Involved:
1. Penalty under Section 271D for violation of Section 269SS of the Income Tax Act.
2. Penalty under Section 271E for violation of Section 269T of the Income Tax Act.
3. Condonation of delay in filing appeals.

Issue-wise Detailed Analysis:

1. Penalty under Section 271D for violation of Section 269SS of the Income Tax Act:

The assessee firm received cash loans amounting to Rs. 48.6 Lakhs from M/s. Laxmi Trading Company, which was found to be in contravention of Section 269SS of the Income Tax Act. The firm argued that Rs. 7,03,368 out of the Rs. 10,00,000 received on 21-04-2004 was a repayment of an existing loan, and only Rs. 2,96,632 was a new cash loan. The firm contended that the transactions were genuine, undertaken due to urgent business necessity, and there was no intention to evade taxes. The assessee firm further argued that it was under a bona fide belief that accepting cash loans in such situations did not violate any legal provisions, and these were technical or venial breaches of the law.

The Assessing Officer (AO) rejected these arguments, stating that the firm was in the business of advancing loans and should have been aware of the legal provisions. The AO also noted that the firm had conducted transactions with 78 parties, mostly through cheques, and only with M/s. Laxmi Trading Company were transactions conducted in cash. The AO imposed a penalty of Rs. 48,60,000 under Section 271D for violating Section 269SS.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the penalty, stating that the assessee firm failed to show any business exigency or reasonable cause for accepting cash loans. The CIT(A) also dismissed the argument regarding the Rs. 7,03,368 repayment, as there was no evidence to support the claim.

Upon appeal, the Tribunal observed that the transactions with M/s. Laxmi Trading Company were indeed in the nature of loans and not business transactions. The Tribunal partially allowed the appeal, directing the AO to verify the existence of the Rs. 7,03,368 opening debit balance and, if confirmed, to delete the penalty for this amount. However, the Tribunal upheld the penalty for the remaining Rs. 41,56,632, as the firm failed to show reasonable cause for accepting cash loans in violation of Section 269SS.

2. Penalty under Section 271E for violation of Section 269T of the Income Tax Act:

The assessee firm repaid loans amounting to Rs. 5,00,000 in cash to M/s. Laxmi Trading Company, which was found to be in contravention of Section 269T of the Income Tax Act. The firm argued that the repayment was made due to urgent business necessity and to prevent cheque bouncing. The AO rejected this argument, noting that both the firm and M/s. Laxmi Trading Company had bank accounts in the same branch, and the transactions could have been conducted through cheques.

The CIT(A) upheld the penalty of Rs. 5,00,000 under Section 271E, stating that the firm, being in the business of advancing and repaying loans, should have been aware of the legal provisions. The CIT(A) also noted that the firm had complied with these provisions with 77 other parties and only violated them with M/s. Laxmi Trading Company.

Upon appeal, the Tribunal upheld the penalty, stating that the firm failed to show any reasonable cause for repaying the loan in cash. The Tribunal emphasized that the provisions of Section 269T are strict and aim to prevent tax evasion, and the firm did not provide any valid explanation for not using cheques or demand drafts for the repayment.

3. Condonation of delay in filing appeals:

The assessee firm filed applications for condonation of delay in filing the appeals, citing the resignation of their accountant and the retention of files as the reasons for the delay. The Tribunal considered the reasons and explanations provided by the firm and, in the interest of justice, condoned the delay and admitted the appeals for hearing on merits.

Conclusion:

The appeal regarding the penalty under Section 271D was partly allowed, with the Tribunal directing the AO to verify the opening debit balance of Rs. 7,03,368. The penalty for the remaining Rs. 41,56,632 was upheld. The appeal regarding the penalty under Section 271E was dismissed, and the penalty of Rs. 5,00,000 was confirmed. The delay in filing the appeals was condoned by the Tribunal.

← Previous Next →