2017 (3) TMI 44 - HC - Income Tax

Penalty u/s 271D for violating provision of section 269SS - amount received by the wife in cash from the husband by bonafide believing that the said amount need not have routed to her vide a bank transaction - genuineness of the transaction - Held that - It appears from the order of the Commissioner of Income Tax (Appeals) that money was withdrawn by the husband from his accounts and was handed over by him to the assessee in cash. The genuineness of the amount involved is not in dispute. There is no loss to the Revenue. The assessee has further claimed that she was under a bonafide belief that she could have accepted the amount of Rs. 1, 50, 000/from her husband in cash and it was not obligatory for her to route the transaction only by an account payee cheque or an account payee bank draft. The explanation of the assessee was accepted by the Commissioner of Income Tax and the tribunal without considering the claim of the assessee that the the assessee was under the bonafide belief that the transaction need not have been routed only through the Bank vide cheque or a draft reversed the order of the Commissioner of Income Tax to uphold the order imposing the penalty. Penalty cannot be levied on the assessee under Section 271D of the Act if the transaction between the parties is bona fide and the assessee has not acted deliberately or in defiance. In the circumstances of the case merely in view of the technical mistake the penalty could not have been levied on the assessee under Section 271D of the Act. In view of the bona fide belief of the assessee that the amount could have been received by her from her husband in cash the penalty proceeding under Section 271D could not have been initiated against the assessee. - Decided in favour of assessee.

Summary

Issues:
Whether receiving an amount in cash from a spouse, believing it need not be routed through a bank transaction, can lead to penalty under Section 271D of the Income Tax Act when the transaction's genuineness is not in dispute.

Analysis:
The case involved the wife receiving Rs. 1,50,000 in cash from her husband, withdrawn from his bank account, leading to penalty proceedings under Section 271D of the Income Tax Act. The assessing officer imposed a penalty, which was later set aside by the Commissioner of Income Tax (Appeals) citing the genuineness of the transaction and the wife's bona fide belief that the cash transaction need not be routed through a bank account. The Revenue challenged this decision before the Income Tax Appellate Tribunal, which upheld the penalty. The wife then appealed this decision.

The appellant's counsel argued that since the transaction's genuineness was not in question, and the wife believed in good faith that the cash transaction was acceptable, penalty imposition was unwarranted. Citing legal precedents, the counsel emphasized that penalties should not be levied for technical breaches if there is no loss to the revenue and the party acted in good faith. The Revenue's counsel, on the other hand, supported the Tribunal's decision, stating that the transaction contravened Section 269SS, justifying the penalty under Section 271D.

The Commissioner of Income Tax and the Tribunal acknowledged the transaction's genuineness, absence of revenue loss, and the wife's belief that the cash transaction was permissible. However, the Tribunal still upheld the penalty, disregarding the wife's bona fide belief. The judgment highlighted legal precedents supporting the appellant's position that penalties should not be imposed for genuine transactions where parties act in good faith and without deliberate defiance of the law.

Ultimately, the High Court allowed the appeal, setting aside the Tribunal's order and emphasizing that penalties under Section 271D should not apply when transactions are genuine, revenue is not affected, and parties act in good faith. The Court stressed that technical mistakes should not lead to penalties, especially when parties believe in the legality of their actions.