2009 (3) TMI 131 - HC - Income Tax

Cash Loan - Penalty u/s 271D and 271E Violation of section 269SS Held that - assessee had produced his cash books depicting loans taken by him unilaterally before the Revenue - no prejudice was caused to the Revenue - assessee did not attempt by the impugned act to avoid any tax liability - there is no dispute about the fact that the instant cash transactions of the respondent assessee were with the sister concern and that these transactions were between the family and due to business exigency - A family transaction between two independent assessees based on an act of casualness specially in a case where the disclosure thereof is contained in the compilation of accounts and which has no tax effect in our view establishes reasonable cause under section 273B of the Act. Since the respondent assessee had satisfactorily established reasonable cause u/s 273B of the Act he must be deemed to have established sufficient cause for not invoking the penal provisions (sections 271D and 271E of the Act) against him penalty set aside.

Summary

Issues Involved:
1. Validity of the order passed by the Income-tax Appellate Tribunal setting aside the penalty under sections 271D and 271E of the Income-tax Act, 1961.
2. Whether the respondent-assessee had a "reasonable cause" for the non-compliance with sections 269SS and 269T of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the order passed by the Income-tax Appellate Tribunal setting aside the penalty under sections 271D and 271E of the Income-tax Act, 1961:

The primary issue for consideration was the validity of the Income-tax Appellate Tribunal's (ITAT) order dated January 19, 2007, which set aside the penalties imposed on the respondent-assessee under sections 271D and 271E of the Income-tax Act, 1961. The penalties were initially imposed by the Deputy Commissioner of Income-tax for taking and repaying loans in cash, which was in violation of sections 269SS and 269T of the Act.

Section 269SS prohibits acceptance of loans or deposits in cash if the amount exceeds Rs. 20,000, while section 269T prohibits repayment of loans or deposits in cash if the amount exceeds Rs. 20,000. The penalties for violating these provisions are outlined in sections 271D and 271E, respectively, which mandate a penalty equal to the amount of the loan or deposit taken or repaid in cash.

The appellant-Revenue argued that the provisions of sections 271D and 271E are mandatory and do not vest any discretion with the Revenue to waive the penalties for violations of sections 269SS and 269T. However, the respondent-assessee contended that under section 273B of the Act, penalties under sections 271D and 271E should not be imposed if the assessee proves that there was a "reasonable cause" for the failure to comply with the provisions.

2. Whether the respondent-assessee had a "reasonable cause" for the non-compliance with sections 269SS and 269T of the Income-tax Act, 1961:

The ITAT accepted the respondent-assessee's explanation that the transactions were bona fide and not aimed at avoiding any tax liability. The ITAT concluded that the respondent-assessee's actions were technical and venial in nature and did not result in any prejudice to the Revenue, as there was no tax evasion involved. The ITAT relied on the judgment in CIT v. Saini Medical Store [2005] 277 ITR 420, which held that bona fides and genuineness of the transaction could constitute a "reasonable cause" for not invoking the penalty provisions.

The Revenue argued that the respondent-assessee had taken and repaid loans in cash on multiple occasions in conscious and deliberate disregard of the obligations under sections 269SS and 269T. They contended that the respondent-assessee had not established a bona fide belief or provided cogent evidence to justify the non-compliance.

The court, however, found that the ITAT's finding of "reasonable cause" was a finding of fact based on the appreciation of material on record. The court noted that the respondent-assessee had produced his cash books and there was no attempt to avoid any tax liability. Additionally, the transactions were between the respondent-assessee and his sister concern, involving family members and business exigency, which further supported the "reasonable cause" under section 273B of the Act.

Conclusion:

The court concluded that the ITAT was correct in recording that the respondent-assessee had shown "reasonable cause" for the non-compliance with sections 269SS and 269T. The court upheld the ITAT's decision to set aside the penalties under sections 271D and 271E, finding no merit in the appeals filed by the Revenue. Consequently, both appeals, I.T.A. Nos. 777 and 778 of 2008, were dismissed.