2006 (12) TMI 126 - HC - Income Tax

Penalty imposed u/s 271D for giving loan in cash exceeding the prescribed limit violation of section 269SS - transactions were found genuine there was business exigency forcing the assessee to take cash loan creditors were found genuine persons there was no revenue loss to the exchequer test of business exigency satisfied for the above reasons deletion of penalty by tribunal is justified

Summary

Issues:
1. Whether penalty under section 271D is leviable for repeated violations of section 269SS when there is no revenue loss to the exchequer?
2. Whether taking a cash loan to deposit into the bank account for honoring cheques constitutes a reasonable cause for violating section 269SS of the Income-tax Act?

Analysis:

Issue 1:
The appeal was filed against the order of the Income-tax Appellate Tribunal regarding the imposition of penalty under section 271D for violations of section 269SS. The assessee had taken cash borrowings exceeding Rs. 20,000 for urgent business needs, which attracted section 269SS. The Assessing Officer imposed a penalty, which was partially upheld by the Commissioner of Income-tax (Appeals). However, the Appellate Tribunal found the transactions genuine, with no revenue loss to the exchequer, and canceled the penalty. The Tribunal emphasized that the purpose of section 269SS is to prevent tax evasion, and in this case, the loans were genuine, creditors were genuine, and transactions were not doubted by authorities. The Tribunal held that the penalty was unjustified, considering the business exigency and factual position.

Issue 2:
The Revenue contended that since there were 36 transactions violating section 269SS, penalty under section 271D was justified. However, the assessee argued that if transactions are genuine and bona fide, penalty should not be imposed. Referring to relevant case law, it was argued that when transactions are satisfactorily explained and reflect in the assessment of creditors, there is no tax evasion. The Commissioner of Income-tax (Appeals) and the Tribunal found that the cash loans were taken due to business exigencies, creditors were genuine, and there was no revenue loss. They concluded that the assessee had shown reasonable cause for the transactions, and the penalty was unwarranted. The courts held that such findings on factual matters do not raise substantial legal questions, and interference was not justified.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision to cancel the penalty under section 271D. The court emphasized that when transactions are genuine, reflect in accounts, and are made due to business exigencies, penalties should not be imposed, as there is no tax evasion or revenue loss.