2016 (12) TMI 619 - HC - Income Tax

Penalty under Section 271D - violation of the provisions of Section 269SS - Held that - CIT (Appeals) dealt with the cash balances in the assessee s account and came to the conclusion that the cash taken by him was from agriculturists and had been utilized for the purpose of the assessee s business. It is further found that all the persons who had kept their amounts were agriculturists; that such persons had the means to deposit the amounts; that the deposits were treated as genuine and that the assessment of the amounts were accepted and explained. The CIT (Appeals) and the Tribunal also accepted the reasons for the appellant s accepting the same. They found that there were no malafides in doing so. Thus, even without going into the issue on merits, we see no reason to interfere with the exercise of discretion not to levy penalty.The exercise of discretion cannot be said to be perverse or arbitrary. - Decided against revenue

Issues Involved:
Appeal against the order of the Tribunal confirming the deletion of penalty under Section 271D for violation of Section 269SS of the Income Tax Act, 1961 for the assessment year 2007-08.

Detailed Analysis:

1. Issue 1: Penalty under Section 271D
The appellant raised concerns regarding the penalty imposed under Section 271D, arguing that the ITAT erred in deleting the penalty by considering the amounts kept by agriculturists with commission agents as outside the purview of Section 269SS. The appellant contended that the loans/deposits accepted in cash were not linked to the sale proceeds of agricultural produce. However, the CIT (Appeals) and the Tribunal found that the cash balances in the assessee's account were from agriculturists and were utilized for the business purposes of the assessee. They determined that the deposits were genuine, accepted, and explained, with no malafides involved. The exercise of discretion not to levy the penalty was deemed reasonable and not arbitrary.

2. Issue 2: CBDT Circular and Applicability
The appellant further argued that the ITAT erred in relying on a CBDT circular stating that amounts received as sale proceeds through commission agents were not considered deposits. The appellant highlighted that in this case, loans/deposits were received in cash, as evident from the assessment order, making the circular inapplicable. However, the authorities found that the reasons for accepting the deposits were genuine, and the explanation provided was satisfactory. The decision not to impose a penalty was upheld based on the absence of malafides.

3. Issue 3: Precedent and Judicial Interpretation
The appellant also raised the issue of the ITAT not considering a judgment of the Hon'ble Punjab & Haryana High Court in a similar case. The appellant cited a case where the court upheld the penalty imposition under Section 271D when the respondent failed to establish a reasonable cause for accepting the loan/deposit. However, the authorities in the present case found that the circumstances were different, and the reasons provided for accepting the deposits were genuine and acceptable. The exercise of discretion by the CIT (Appeals) and the Tribunal in not levying the penalty was deemed appropriate and not arbitrary.

In conclusion, the High Court dismissed the appeal, stating that no substantial question of law was raised. The decision to delete the penalty under Section 271D was upheld based on the genuine nature of the deposits, the absence of malafides, and the satisfactory explanations provided by the assessee. The exercise of discretion by the authorities was considered reasonable and not arbitrary.

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