2019 (12) TMI 975 - AT - Income Tax

Penalty u/s.271D - contravention of provision of section 269SS - Accepting Loan / Deposits in cash - transactions with the close relatives - reasonable cause in accepting the loans within the meaning of section 273B - HELD THAT - Provision of section 269SS was brought under the statue to discourage the assessee to justify their unaccounted money. However in the case on hand there is no allegation that the assessee has introduced unaccounted money in his business. Thus keeping in view the object of the provision of section 269SS of the Act the cash transaction which is genuine cannot be brought under the net of tax under the provision of section 269SS of the Act. We also note that such transactions between the relatives and sister concern are not subject to the provisions of section 269SS of the Act in view of the order of Bangalore Bench of ITAT in the case of G.D. Subraya Sheregar vs. Income-tax Officer Ward 2 Udupi 2006 (4) TMI 356 - ITAT BANGALORE where the issue was decided in favor of the assessee. Genuineness of the cash transaction has not been doubted. Therefore the penalty levied u/s 271D of the Act is not sustainable. - Decided in favour of assessee.

Summary

Issues:
The only issue raised is the confirmation of penalty under section 271D of the Income Tax Act, 1961.

Analysis:

Issue 1: Confirmation of Penalty under Section 271D
The assessee received a cash loan of ?14,80,000 from close relatives for purchasing a residential property. The Assessing Officer (AO) initiated penalty proceedings under section 271D as the loan was in contravention of section 269SS. The AO held that the penalty was justified. The assessee argued before the Commissioner of Income Tax (Appeals) that the loans were genuine, recorded in the books, and primarily sourced from agricultural activities. The CIT (A) confirmed the penalty, stating that the loans were against the provisions of sections 269SS and 271D, intended to curb black money circulation. The CIT (A) dismissed the appeal, emphasizing the lack of reasonable cause and supporting evidence for accepting cash loans. However, the Appellate Tribunal found that the genuineness of the transactions was not doubted, and the loans were from close relatives. Referring to relevant case laws and Circular No.387, the Tribunal held that the penalty under section 271D was not sustainable as the cash transactions were genuine and within family members. Therefore, the Tribunal allowed the appeal, directing the AO to delete the penalty under section 271D.

This judgment highlights the importance of substantiating transactions, understanding the provisions of the Income Tax Act, and providing reasonable cause for actions to avoid penalties under the Act. The Tribunal's decision emphasizes the genuineness of transactions and the familial relationship between the parties involved, leading to the reversal of the penalty imposed by the lower authorities.