2017 (7) TMI 654 - AT - Income Tax

Levy of penalty u/s 271D - Held that - A.O. is right in invoking the provisions of section 271D of the Act. Considering the assessee has accepted the loans from close friends and relatives and also part of the amount has been accepted through banking channels by way of bearer cheques, we are of the view that the genuine transactions accepted from close friends and relatives through banking channel are not coming within the rigors of the provisions of section 271D of the Act. Therefore, we are of the view that out of the total credits of ₹ 53,55,925/-, a sum of ₹ 31,15,000/- has been accepted from close relatives through banking channels are not hit by the provisions of section 271D of the Act. Accordingly, we are of the view that the A.O. was erred in levying penalty u/s 271D of the Act, to the extent of ₹ 31,15,000/- loans accepted from close relatives through banking channel. Hence, we direct the A.O. to exclude a sum of ₹ 31,15,000/- out of the total credit of ₹ 53,55,925/- for the purpose of levy of penalty u/s 271D of the Act. Accordingly, out of total penalty of ₹ 53,55,925/- a sum of ₹ 31,15,000/- is deleted and balance of ₹ 22,40,925/- is confirmed. In so far as assessment years 2007-08 is concerned, the assessee has accepted cash loans of ₹ 10 lakhs from 2 persons. Though, the assessee claims to have accepted cash loans from the persons and repaid within the same financial year, the facts remain that the assessee has accepted the loans in cash in contravention of the provisions of section 269SS of the Act. The reasons given by the assessee that there is a business exigency in as much he needs to make the payment for purchase of landed properties, the reasons given by the assessee is not coming within the purview of reasonable cause as defined u/s 273B of the Act. Therefore, we are of the view that the A.O. was right in levying penalty of ₹ 10 lakhs u/s 271D of the Act, for contravention of the provisions of section 269SS of the Act. Accordingly, confirmed penalty levied by the A.O.

Issues Involved:
1. Validity of the penalty levied under Section 271D of the Income Tax Act for contravention of Section 269SS.
2. Justification of accepting loans in cash/bearer cheques due to business exigency.
3. Applicability of the reasonable cause under Section 273B to avoid penalty.
4. Treatment of genuine transactions with close relatives and friends.
5. Assessment of penalties for the assessment years 2006-07 and 2007-08.

Detailed Analysis:

1. Validity of the Penalty Levied under Section 271D for Contravention of Section 269SS:
The assessee, engaged in the business of purchase and sale of radios, filed returns for the assessment years 2006-07 and 2007-08. The assessments were completed under Section 143(3) and later re-opened under Section 147, resulting in a higher determined total income. During reassessment, it was observed that the assessee accepted unsecured loans in cash/bearer cheques, violating Section 269SS, which prohibits acceptance of loans or deposits of ?20,000 or more otherwise than by an account payee cheque or bank draft. Consequently, penalties under Section 271D were proposed and levied by the Assessing Officer (A.O.).

2. Justification of Accepting Loans in Cash/Bearer Cheques Due to Business Exigency:
The assessee argued that the loans were accepted in cash/bearer cheques due to urgent financial needs for making advance payments to M/s. Sita Rama Housing Pvt. Ltd. for acquiring property. It was contended that the urgency and pressure from the seller necessitated this mode of acceptance. However, the A.O. found the reasons unconvincing, noting that the creditors were located far from the transaction site, and thus, the urgency claimed was not justified.

3. Applicability of the Reasonable Cause under Section 273B to Avoid Penalty:
The assessee claimed that the transactions were genuine and explained the urgency for accepting loans in cash. Despite this, the A.O. and CIT(A) concluded that the reasons provided did not constitute a "reasonable cause" under Section 273B, which could exempt the assessee from penalties. The CIT(A) upheld the penalties for the amounts not explained satisfactorily by the assessee.

4. Treatment of Genuine Transactions with Close Relatives and Friends:
The assessee argued that the loans were from close relatives and friends, and thus, genuine. The A.O. accepted the genuineness of most loans except for ?5,47,800/- added as unexplained credits. The CIT(A) directed the deletion of penalties for this amount but upheld penalties for the remaining ?53,55,925/-, as the assessee failed to prove reasonable cause for accepting these loans in cash/bearer cheques.

5. Assessment of Penalties for the Assessment Years 2006-07 and 2007-08:
For the assessment year 2006-07, the Tribunal partially allowed the appeal, deleting penalties for ?31,15,000/- accepted through banking channels from close relatives, while confirming penalties for the balance ?22,40,925/-. For the assessment year 2007-08, the Tribunal confirmed the penalty of ?10,00,000/- for accepting cash loans from two persons, as the reasons provided did not meet the criteria for reasonable cause under Section 273B.

Conclusion:
The Tribunal concluded that while the assessee had some genuine transactions, the reasons provided for accepting loans in cash were not sufficient to constitute a reasonable cause under Section 273B. Thus, penalties under Section 271D were upheld for amounts not justified through banking channels or close relatives. The appeal for 2006-07 was partly allowed, and for 2007-08, the penalty was confirmed.

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