2016 (12) TMI 445 - AT - Income Tax

Penalty u/s 271D - accepting cash loan in violation of section 269SS - Held that - It is noted from the record that the assessee had received the loans from his close relatives and family members not exceeding ₹ 20,000/- at one time. These loans were taken in the business interest as the assessee had started a new venture. These amounts were repaid in parts to the respective persons which can be seen from the bank statement of the assessee. The assessee was under bona fide belief that the loan amount of less than ₹ 20,000/- can be taken in cash and if it is exceeded more than 20,000/- then it will be taken either through cheque or Demand Draft. Thus the assessee had taken the loan less than ₹ 20,000/- from his close relatives and family members Further the assessee immediately deposited the amount in bank account for making payment to the party. The genuineness of these deposits was never doubted by the AO. Thus as the transactions being genuine and the assessee having offered reasonable explanation justifying these cash transactions, the impugned penalty u/s 271D is not leviable. See Smt. Kusum Dhamani vs. Addl. CIT 2015 (4) TMI 144 - ITAT JAIPUR - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the order passed under Section 271D of the Income Tax Act, 1961.
2. Sustaining the penalty of ?2,83,500/- under Section 271D of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Order Passed under Section 271D:
The assessee challenged the validity of the order passed by the JCIT, Range-1, Ajmer, under Section 271D of the Income Tax Act, 1961. The assessment for the year 2010-11 was completed under Section 143(3) on 18-03-2013. During the assessment, it was observed that the assessee accepted loans in cash totaling ?2,83,500/- from various persons, which was considered a contravention of Section 269SS of the Income Tax Act, 1961, thus attracting penalty under Section 271D. The JCIT, Range-2, Ajmer, imposed the penalty, stating that the assessee admitted to accepting loans in cash and argued ignorance of the law, which was not accepted as a valid excuse.

2. Sustaining the Penalty of ?2,83,500/-:
The CIT(A) confirmed the penalty imposed by the AO, rejecting the assessee's arguments that the loans were taken due to compelling business needs and were genuine. The CIT(A) emphasized that penalty under Section 271D is for the contravention of Section 269SS, not for unexplained credit under Section 68. The CIT(A) also dismissed the argument of ignorance of the law, citing that ignorance is no excuse for legal infractions.

During the hearing, the assessee contended that the deposits were less than ?20,000/- and were taken from close relatives and family members under the bona fide belief that such transactions were permissible. The assessee cited the decision of the Hon'ble Jurisdictional High Court in CIT vs. Raj Kumar Sharma, where the court accepted the bona fide belief of the assessee and found reasonable cause under Section 273B, thus deleting the penalty.

The tribunal noted that the assessee received loans from close relatives and family members, each not exceeding ?20,000/- at one time, totaling ?2,83,500/-. The loans were taken for business purposes and were repaid in parts, with the genuineness of the transactions not doubted by the AO. The tribunal referenced a similar case, Smt. Kusum Dhamani vs. Addl. CIT, where the ITAT deleted the penalty under Section 271D, considering the genuineness of the transactions and reasonable business exigencies.

Conclusion:
The tribunal, respecting the decision in the case of Smt. Kusum Dhamani and considering the similar facts and circumstances, directed the deletion of the penalty of ?2,83,500/- under Section 271D sustained by the CIT(A). The appeal of the assessee was allowed.

Result:
The appeal of the assessee was allowed, and the penalty under Section 271D was deleted. The order was pronounced in the open court on 7/11/2016.