2019 (6) TMI 444 - HC - Income Tax

Penalty u/s 271D - default u/s 269SS - cash loans from friends - AO doubted various sundry creditors claimed by the assessee - HELD THAT - The assessee finally made written submissions. In such written submissions also on facts the assessee stated that having exhausted the bank cash credit limits, the assessee was forced to accept cash loans from farmer friends to purchase raw material to execute time bound orders. This was the mere assertion made on the part of the assessee without any backing through material. The assesssee did not bring on record the financial position, the details of purchase orders required to be executed within time and most significantly did not co-relate the purchases made from such cash loans. This aspect has been highlighted by the Tribunal in the impugned judgment when the Tribunal recorded that the assessee has not given the dates on which he accepted the loans and the dates of purchase of raw material in the gray market and whether on such dates the funds were available with the assessee as per his account. Thus assessee relied all along on mere oral assertions of urgent requirement of funds without producing any material to establish such assertion. The Tribunal did not accept such bald assertion and has essentially came to the conclusion that the explanation offered by the assessee was not acceptable. We do not find any error in the view of the Tribunal. Tribunal might have cast certain aspersions on the transaction itself. However, some passing remarks in the order would not vitiate the very foundation of the order. The Tribunal found that the assessee had not giving reasonable explanation for failure to fulfill the requirement of Section 269SS of the Act due to which the penalty under section 271D of the Act had to follow. No question of law arises - Decided against assessee

Summary

Issues:
Penalty under Section 271D of the Income Tax Act, 1961 for breach of Section 269SS - Reasonable cause for failure to fulfill the requirements - Validity of explanation provided by the assessee - Judicial interpretation and application of penalty provisions.

Analysis:
The appeals arose from a common judgment of the Income Tax Appellate Tribunal concerning the penalty imposed under Section 271D of the Income Tax Act, 1961 for the assessment year 2008-09. The appellant, an individual and proprietor of an industrial manufacturing unit, challenged the penalty reinstated by the Tribunal. The appellant contended that the penalty was unjustified as there was a reasonable cause for the breach of Section 269SS of the Act, which led to the penalty under Section 271D. The appellant argued that urgent funds were needed beyond the bank credit limit for purchasing raw materials to fulfill orders, necessitating cash loans from friends.

For the assessment year in question, the Assessing Officer disallowed sundry creditors in the assessee's account due to lack of supporting evidence, adding the amount to the assessee's income. The CIT (Appeals) later allowed the loans, stating it was a case of breach of Section 269SS, leading to penalty proceedings under Section 271D. The Competent Authority imposed the penalty after the appellant failed to provide a satisfactory explanation. The appellant's subsequent submissions claimed the cash loans were used for purchasing materials from the gray market, as bank loans were insufficient for timely order fulfillment.

The Additional Commissioner of Income Tax rejected the appellant's explanation, observing the absence of earlier mention of the gray market purchases and delayed loan repayments. The Appellate Authority initially deleted the penalty, but the Tribunal reinstated it, unconvinced by the appellant's explanation. The Tribunal emphasized the lack of material evidence supporting the urgent fund requirement assertion, leading to the penalty reinstatement. The appellant's reliance on legal precedents emphasizing genuine transactions did not sway the Tribunal, which upheld the penalty under Section 271D.

The Court held that the appellant failed to establish a reasonable cause for breaching Section 269SS, as required by Section 273B to avoid the penalty under Section 271D. Despite opportunities to provide evidence, the appellant's assertions lacked material support, leading the Tribunal to reject the explanation. The Court upheld the Tribunal's decision, emphasizing the importance of substantiating claims with evidence to avoid penalties. The passing remarks by the Tribunal did not invalidate the penalty imposition, as the appellant's explanation was deemed insufficient. Consequently, the Income Tax Appeals were dismissed, affirming the penalty under Section 271D.