2017 (10) TMI 1211 - AT - Income Tax

Penalty under section 271D - contravening provisions of section 269SS - proof of business exigency for taking cash loan - assessee-company has accepted a loan of ₹ 12 lakhs from Sri Chennupati Jaganmohan Rao, who is one of the Directors of the assessee-company - whether exceeding overdraft is definitely a compelling circumstances and reasonable cause for obtaining loan by cash? Held that - It is a fact that overdraft facility of the assessee-company with SBI is exceeded and therefore, cheque issued by the company was dishonoured and then only, the Director of the company withdrew the cash from his personal account with Canara Bank and deposited the money in assessee s account to complete with the day to day commitments as it is for the business expediency and also reasonable cause for the assessee to accept money in cash. We find that when the cheque issued by the assessee-company is dishonoured on the ground of exceeding the overdraft limits, it is a minimum necessity to carry out the activity of the assessee and therefore Sri Chennupati Jaganmohan Rao, who is one of the Directors of the company withdrew the cash from his personal account and deposited the same in the company s account. Therefore, under those facts and circumstances of the case, loan taken from Sri Chennupati Jaganmohan Rao for the purpose of honour the commitments is a reasonable cause - Decided in favour of assessee.

Summary

Issues:
Violation of section 269SS of the Income Tax Act - Penalty under section 271D imposed - Appeal against the penalty - Consideration of business exigency and reasonable cause for accepting cash loan.

Analysis:
The case involved an appeal by the revenue against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2012-13. The assessee, a company engaged in electronic security services, admitted NIL income in its return. During assessment, it was found that the company violated section 269SS of the Income Tax Act. The Additional Commissioner imposed a penalty under section 271D for contravening the provisions of section 269SS. The assessee explained that it accepted a loan due to exceeding the overdraft limit with a bank. However, the Additional Commissioner did not accept the explanation and levied the penalty, stating that the Director of the company was aware of its financial affairs and there was no business exigency for taking the cash loan.

On appeal before the Commissioner of Income Tax (Appeals), the assessee detailed the circumstances leading to accepting the cash loan, emphasizing the immediate need to meet commitments after a cheque was dishonored due to technical reasons. The Commissioner of Income Tax (Appeals) considered the business expediency and reasonable cause for accepting the cash loan, ultimately canceling the penalty imposed by the Additional Commissioner.

The Tribunal, after hearing both parties, noted that the company's cheque was dishonored due to exceeding the overdraft limit, leading to the Director withdrawing cash to honor business commitments. The Tribunal agreed with the Commissioner of Income Tax (Appeals) that the cash loan was taken for business expediency and reasonable cause, dismissing the revenue's appeal. The Tribunal found no fault in the decision of the Commissioner of Income Tax (Appeals) and upheld the cancellation of the penalty under section 271D.

Therefore, the Tribunal's judgment upheld the decision of the Commissioner of Income Tax (Appeals) to cancel the penalty imposed under section 271D, considering the business exigency and reasonable cause for accepting the cash loan in the given circumstances.