2016 (9) TMI 546 - AT - Income Tax

Penalties levied u/s 271D and 271E - violation of the provisions of sec. 269SS and 269T - Held that - The various case laws have held that the loan/deposit received by way of cash to meet the urgent business requirements can be considered to be a reasonable cause and in that kind of situation the penalty u/s 271D cannot be levied. However, it is the responsibility of the assessee to prove that there was urgent business requirement on the day when the loan/deposit was received by way of cash. The assessee may prove the same on the basis of books of accounts and other documents. Accordingly, we are of the view that this issue relating to penalty levied u/s 271D of the Act may be set aside to the file of the Addl. CIT for fresh examination. In respect of the loan/deposit repaid in cash, the explanation with regard to urgent business requirements shall not apply. However, since the issue relating to penalty levied u/s 271D has been set aside to the file of Addl, CIT, we are of the view that, in the interest of natural justice, the assessee should be provided with one more opportunity to show the reasonable cause in making payment of loan/deposit by way of cash.In view of the foregoing discussions, we set aside both the orders passed by Ld CIT(A) and restore the issue to the file of the Addl CIT with the direction to examine the same afresh by duly considering the explanations and information that may be furnished by the assessee. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
Penalties under sections 271D and 271E for accepting and repaying deposits in cash, Satisfaction for initiating penalty proceedings, Nature of transactions - Share Application Money or Loan, Fresh submissions by the assessee, Urgent business requirements as a reasonable cause for cash transactions, Setting aside penalty orders for fresh examination.

Penalties under sections 271D and 271E:
The assessee's appeals were against penalties imposed under sections 271D and 271E for accepting and repaying deposits in cash, violating provisions of sec. 269SS and 269T. The penalties were confirmed by the Ld CIT(A) based on cash transactions with a director. The assessee argued the amounts were Share Application money, not loans, but tax authorities disagreed, leading to penalties totaling ?2,52,000 and ?2,12,000 under sections 271D and 271E, respectively.

Satisfaction for initiating penalty proceedings:
The assessee contended that penalties were invalid as the assessing officer did not record satisfaction before initiating penalty proceedings under sections 271D and 271E. Citing a Kolkata ITAT decision supported by a Supreme Court ruling, the assessee argued that penalties should not continue if the original assessment order was set aside. However, the Tribunal found the original assessment valid, and penalties were based on facts noted during the assessment proceedings.

Nature of transactions - Share Application Money or Loan:
The dispute arose over whether the transactions were Share Application money or loans. The assessee claimed the amounts were for urgent business needs, but tax authorities viewed them as loans due to the tax auditor's report. The Tribunal noted that cash transactions for emergencies could be a reasonable cause, requiring the assessee to prove the urgent business requirements with proper documentation.

Fresh submissions by the assessee:
The assessee made fresh submissions before the Tribunal, arguing that the amounts were wrongly classified as loans by the tax auditor. The Ld D.R opposed these submissions, questioning their validity. The Tribunal considered the arguments but emphasized the need for substantiating claims with evidence.

Urgent business requirements as a reasonable cause for cash transactions:
The Tribunal acknowledged the possibility of cash transactions for urgent business needs, which could justify receiving and repaying deposits in cash. However, the burden of proof rested on the assessee to establish the urgent business requirements with supporting documentation. The Tribunal directed a fresh examination by the Addl. CIT to consider these explanations.

Setting aside penalty orders for fresh examination:
After thorough consideration, the Tribunal set aside the penalty orders passed by the Ld CIT(A) and restored the issue to the Addl CIT for a fresh examination. The Tribunal emphasized the importance of considering all explanations and information provided by the assessee to determine the nature of the transactions accurately.

This detailed analysis of the legal judgment provides insights into the issues raised, arguments presented, and the Tribunal's decision to set aside the penalty orders for a fresh examination, ensuring a fair assessment based on the explanations and evidence provided by the assessee.