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2018 (10) TMI 1023 - AT - Income TaxPenalty u/s 271D - assessee had received the loans in cash in contravention to the provisions of section 269SS - Held that - In the instant case, the assessee had accepted the loans which were directly paid in the bank account on 28.02.2011 and the cheque issued to M/s Rallis India Ltd. was cleared on 04.03.2011 for an amount of ₹ 22,94,453/-. The AO/JCIT has not given any finding with regard to the availability of sufficient balances in the bank account to meet the cheques issued to Rallis India Ltd., during the intervening period from 28.02.2011 to 04.03.2011. The above observation establishes that the assessee had accepted the loans, otherwise than by account payee cheque to meet the dues payable to Rallis India Ltd. on 28.02.2011 due to business exigencies. Therefore, there is no reason to suspect the business exigency and pressing need of the assessee as explained by the assessee during the course of assessment proceedings. Therefore, we are of the considered opinion that the assessee had accepted the loan on 28.02.2011 due to business exigencies. The AO has neither doubted the genuineness of the transaction nor disputed the source of the creditors. Therefore, we hold that there is sufficient and reasonable case for accepting the loans of ₹ 10,00,000/- otherwise than by crossed cheque. Hence we hold that the assessee s case is covered u/s 273B for not imposing penalty u/s 271D of the Act. Accordingly, the order of the lower authorities is set aside and the appeal of the assessee is allowed. Levy of penalty u/s 271E - assessee had made the payment for medical treatment of his father in cash - eligibility of exemption u/s 40A(3)r.w. Rule 6D - reasonable cause to make the payment - Held that - The amounts were used for the purpose of meeting the medical emergency expenses. There is no reason to disbelieve the submission of the assessee when the person was hospitalized and undergoing the treatment. The contention of the AO that the amount should have been paid by way of cheque on the same day or by way of bank draft on the next day is farfetched and unacceptable. The medical emergency has to be attended keeping in view of the prevailing circumstances. The sources for meeting the medical expenses and post medical expenses have to considered on humane grounds and as per the requirements of the patients to save the lives. Therefore, we hold that there is sufficient and reasonable cause for repayment of the loan otherwise than by crossed cheque and the case is covered by exceptions provided u/s 273B of the Act for not levying penalty u/s 271E the act. - decided in favour of assessee
Issues Involved:
1. Penalty imposed under Section 271D of the Income Tax Act for accepting loans in cash. 2. Penalty imposed under Section 271E of the Income Tax Act for repaying loans in cash. Issue-wise Detailed Analysis: 1. Penalty under Section 271D of the Income Tax Act: - Background: The assessee received loans of ?5,00,000 each from two individuals in cash, which contravened Section 269SS of the Act. The Assessing Officer (AO) initiated penalty proceedings under Section 271D and issued a show cause notice. - Assessee's Defense: The assessee argued that the loans were directly deposited into the bank by the creditors due to urgent business needs and were taken from close relatives of the partner, believing this would not attract Section 269SS. The transactions were recorded in the books and were genuine. - AO's Decision: The AO rejected the defense, stating that genuineness and recording in books do not exempt from penalty. The AO also found no immediate business exigency as the cheque in question was cleared four days after the loan receipt, thus imposing a penalty of ?10 lakhs. - CIT(A) Decision: The CIT(A) upheld the AO's decision, agreeing with the observations made by the AO. - Tribunal's Analysis: The Tribunal examined the three propositions made by the assessee: - Relatives Argument: The Tribunal rejected the argument that loans from relatives of the partner exempted the assessee from penalty, as the loans were from individuals not directly related to the firm. - Genuineness and Recording: The Tribunal agreed with the lower authorities that genuineness and recording in books do not provide exemption from penalty under Section 271D. - Business Exigency: The Tribunal found merit in the assessee's claim of business exigency. It noted that the loans were deposited directly into the bank to honor a cheque issued to a creditor, which was cleared shortly after the loan receipt. The Tribunal held that there was a reasonable cause for accepting the loans in cash due to business exigencies, thus invoking Section 273B, which provides exceptions for reasonable cause. - Conclusion: The Tribunal set aside the lower authorities' orders and allowed the appeal, canceling the penalty under Section 271D. 2. Penalty under Section 271E of the Income Tax Act: - Background: The assessee repaid loans totaling ?3,46,282 in cash, which contravened Section 269T of the Act. The AO initiated penalty proceedings under Section 271E. - Assessee's Defense: The assessee argued that the repayments were made due to medical emergencies involving the father of one of the creditors, who was hospitalized. The payments were made on a Sunday and for urgent medical needs. - AO's Decision: The AO rejected the defense, stating that the payments could have been made by cheque or bank draft, and imposed a penalty of ?3,46,282. - CIT(A) Decision: The CIT(A) upheld the AO's decision, agreeing with the AO's observations. - Tribunal's Analysis: The Tribunal reviewed the circumstances and found that the repayments were indeed made during a medical emergency. It noted that one payment was made on a Sunday, which is exempt under Section 40A(3). The Tribunal emphasized the need to consider humane grounds and the urgency of medical situations. - Conclusion: The Tribunal held that there was sufficient and reasonable cause for repaying the loans in cash due to medical emergencies and invoked Section 273B to exempt the assessee from penalty. The Tribunal set aside the CIT(A)'s order and canceled the penalty under Section 271E. Final Judgment: The stay applications filed by the assessee were dismissed, and both appeals were allowed, canceling the penalties under Sections 271D and 271E of the Income Tax Act. The order was pronounced in the open court on 5th September 2018.
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