2019 (5) TMI 848 - AT - Income Tax

Levy of penalty u/s 271D - Accepting cash loans - not aware of the provisions of section 269SS ad 269T - reasonable cause for accepting loans in cash u/s 237B - HELD THAT - Assessee has stated before the CIT (A) that the loans were taken in cash on account of his sister s marriage and that the loans were repaid through banking channels by way of RTGS and therefore, the genuineness of the loan and the identity of the creditor has been established. Penalty u/s 271D is subject to the provisions of section 273B. Therefore, penalty u/s 271D is not automatic and when the assessee provides a reasonable explanation, the penalty is not leviable. The assessee s contention that the loans were taken for the marriage of his sister has not been found to be incorrect and also the fact that the loans have been repaid by cheques is not controverted. Further, we also find that the notice u/s 271D was issued after nearly four years and therefore, it is to be seen if it was within a reasonable period . See MS LOKAIAH VERSUS ADDITIONAL COMMISSIONER OF INCOME TAX 2016 (8) TMI 810 - ITAT HYDERABAD We are satisfied that there existed reasonable cause for the assessee accepting the loans in cash and particularly since the loans have been repaid by way of RTGS. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of the penalty levied under Section 271D of the Income Tax Act.
2. Justification of cash loans taken by the assessee.
3. Timeliness and jurisdiction of penalty proceedings initiation.
4. Applicability of Section 273B in mitigating penalties under Section 271D.

Detailed Analysis:

1. Legitimacy of the Penalty Levied under Section 271D:
The primary issue in the appeal was the confirmation of the penalty of ?8.00 lakhs levied under Section 271D of the Income Tax Act by the CIT (A). The assessee, a salaried employee, had accepted cash loans of ?2.00 lakhs and ?6.00 lakhs from two individuals. The Assessing Officer (AO) initiated penalty proceedings under Section 271D for accepting these loans in cash, which is against the provisions of Section 269SS. Despite the assessee's claim of unawareness of these provisions and repayment of the loans via banking channels, the AO imposed a penalty of 100% of the cash loan amounting to ?8.00 lakhs. The CIT (A) upheld this penalty, leading to the assessee's appeal.

2. Justification of Cash Loans Taken by the Assessee:
The assessee argued that the loans were taken in cash due to the exigencies of his sister’s marriage and were repaid through banking channels, establishing the genuineness of the transactions. The Tribunal noted that the penalty under Section 271D is subject to Section 273B, which provides relief if the assessee shows reasonable cause for the failure. The Tribunal found that the loans were indeed taken for the marriage and repaid by cheques, confirming the genuineness of the transactions and the identity of the creditors.

3. Timeliness and Jurisdiction of Penalty Proceedings Initiation:
The assessee contended that the penalty notice issued on 9.2.2017, nearly four years after the assessment order dated 29.03.2014, was beyond a reasonable period and thus void. The Tribunal referred to a similar case (M.S. Lakaiah) and concluded that the penalty proceedings initiated for the violation of Section 269SS were within the limitation period. The Tribunal emphasized that the assessment and penalty proceedings are independent, and the revenue cannot take a contrary stand if the explanation for cash deposits was accepted during the assessment.

4. Applicability of Section 273B in Mitigating Penalties under Section 271D:
The Tribunal highlighted that Section 273B mitigates undue hardship by allowing discretion not to levy penalties if there is a reasonable cause for the failure to comply with Section 269SS. Citing the judgment in Dimple Yadav's case, the Tribunal noted that genuine and bona fide transactions, even if in cash, should not attract penalties if reasonable cause is shown. The Tribunal found that the loans taken by the assessee were genuine, for a bona fide reason (sister’s marriage), and repaid through banking channels, satisfying the conditions of Section 273B.

Conclusion:
The Tribunal concluded that the assessee had shown reasonable cause for accepting the loans in cash, particularly since they were repaid through RTGS. Consequently, the penalty levied under Section 271D was deleted, and the assessee’s appeal was allowed. The order was pronounced in the open court on 10th May 2019.