2019 (1) TMI 847 - AT - Income Tax

Penalty u/s 271D - violation of the provisions of section 269SS in respect of cash loans received by the assessee - Held that - We find that the assessee specifically submitted before the AO during the course of penalty proceedings, which fact has also been captured in the penalty order, that its business was inoperative for the last 7 years and it had already borrowed loans from Shree Suvarna Sahakari Bank Ltd. and many private money lenders since last 10 years. To meet the financial requirements of repayment, for which the lenders were hard pressing, the assessee had to borrow money from unorganized finance sector in cash, which led to the imposition of the instant penalty. Further, the assessee had a bank liability of about ₹ 50 crore against mortgage of assets of about ₹ 5 crore only, which fact has not been falsified. The submissions made by the assessee in this regard have not been controverted by the AO or the ld. CIT(A) in any manner. When this fact is seen in the light of return filed by the assessee declaring loss of ₹ 4.35 lakhs, it clearly emerges that the loans were taken by the assessee in cash in violation of provisions of section 269SS to meet the financial liabilities. This in our considered opinion constitutes a reasonable cause warranting non-imposition of penalty u/s.271D of the Act in terms of section 273B of the Act. - Decided in favour of assessee.

Summary

Issues:
Confirmation of penalty under section 271D of the Income-tax Act, 1961 for violation of section 269SS.

Analysis:
The appeal arose from the order confirming the penalty under section 271D of the Income-tax Act, 1961, related to the Assessment Year 1999-2000. The Tribunal remitted the matter to the CIT(A) for disposal of the limitation issue and merits, which led to the dismissal of the appeal by the CIT(A) and subsequent appeal before the Tribunal by the assessee.

During the assessment proceedings, it was found that the assessee accepted cash loans from a group, leading to penalty proceedings under section 271D for violating section 269SS. The AO imposed a penalty based on the cash loans received. The CIT(A) enhanced the penalty amount after considering objections from the assessee. In the fresh proceedings, the penalty was upheld by the CIT(A).

The Tribunal noted that the assessee indeed received loans in cash, violating section 269SS, triggering penalty under section 271D. However, the Tribunal highlighted section 273B, which provides for no penalty if a reasonable cause is proven for the failure leading to the penalty. The assessee argued that due to financial difficulties and existing liabilities, loans were taken in cash from the unorganized finance sector, supported by the fact that the business was inoperative for several years.

The Tribunal found the assessee's reasons to be a reasonable cause justifying the violation of section 269SS. The financial situation, coupled with the mismatch between bank liabilities and asset value, supported the assessee's claim. As a result, the penalty of ?88,18,000 was ordered to be deleted.

Given the decision to delete the penalty based on merits, the Tribunal did not delve into the limitation issue raised by the assessee. Consequently, the appeal was allowed to the extent of deleting the penalty.

In conclusion, the Tribunal's decision focused on the violation of section 269SS leading to a penalty under section 271D, with a detailed analysis of the reasonable cause provided by the assessee to justify the violation and the subsequent deletion of the penalty based on the provisions of section 273B.