2020 (1) TMI 818 - AT - Income Tax

Penalty u/s 271E - violation of provisions of section 269T - Cash loan between relatives - AO noticed that the assessee has taken money from her husband - HELD THAT - In the instant case, there is no dispute between parties that the assessee has received loan from her husband and re-paid the loan to him. The assessee has placed reliance on the decision rendered by the Co-Ordinate Bench of this Tribunal in the case of Smt. Deepika vs. ACIT 2017 (10) TMI 1405 - ITAT BANGALORE wherein the Tribunal has held that the loan transactions between the close relatives would not attribute penalty u/s 271D In the case of M. Yeshodha 2013 (2) TMI 211 - MADRAS HIGH COURT has taken the view that the transaction of loan between father-in-law and daughter-in-law cannot be subject matter of penalty u/s 271D of the Act. In the instant case, the claim of the assessee is that these transactions are only gift transactions. However, the assessee appears to have failed to substantiate the same and hence the tax authorities have taken the view that the impugned transactions are loan transactions. The assessee was constrained to offer explanations relating to business exigencies only for the reason that the tax authorities have considered these transactions as loan transactions. CIT(A) has accepted the explanation of business exigency and accordingly deleted the penalty u/s 271D of the Act. Since the transactions have been entered between assessee and her husband, we are of the view that the decision rendered by Hon ble Madras High Court in the case of M Yeshodha(supra) may be conveniently applied here.- Decided in favour of assessee.

Summary

Issues Involved:
1. Violation of provisions of Section 269T of the IT Act, 1961.
2. Imposition of penalty under Section 271E of the IT Act, 1961.
3. Classification of transactions as gifts or loans.
4. Consideration of reasonable cause under Section 273B of the IT Act, 1961.

Issue-wise Detailed Analysis:

1. Violation of provisions of Section 269T of the IT Act, 1961:
The primary issue in this case revolves around the assessee's receipt and repayment of ?12.50 lakhs in cash from her husband, which the authorities deemed a violation of Section 269T. The assessee argued that these were gift transactions, not loans, and thus should not attract penalties under Section 271E. However, the tax authorities, including the JCIT and CIT(A), considered these transactions as loans, not gifts, leading to the imposition of penalties.

2. Imposition of penalty under Section 271E of the IT Act, 1961:
The JCIT levied a penalty of ?12.50 lakhs under Section 271E for the repayment of the amount in cash, asserting that the transactions were loans disguised as gifts. The CIT(A) upheld this penalty, stating that the assessee failed to show any reasonable cause for the cash transactions. The assessee contended that even if considered loans, the transactions between close relatives should constitute reasonable cause under Section 273B, thus negating the penalty.

3. Classification of transactions as gifts or loans:
The assessee claimed that the transactions were genuine gifts from her husband, credited to her capital account, and later repaid in cash. The tax authorities, however, classified these as loan transactions, arguing that the same amount being received and repaid indicated a loan rather than a gift. The tribunal examined precedents where transactions between close relatives were not considered loans or deposits, thus not attracting penalties under Sections 271D or 271E.

4. Consideration of reasonable cause under Section 273B of the IT Act, 1961:
The tribunal referred to multiple cases, including Smt. Deepika vs. ACIT, where it was held that loan transactions between close relatives did not attract penalties under Section 271D. It was argued that transactions between close relatives, such as husband and wife, should be considered reasonable cause under Section 273B, thus exempting them from penalties. The tribunal emphasized that family transactions, especially those without commercial intent, should not be penalized under these sections.

Conclusion:
The tribunal concluded that the penalty under Section 271E was not sustainable, setting aside the CIT(A)'s order and directing the AO to delete the penalty. The tribunal's decision was influenced by precedents and the principle that transactions between close relatives, especially those without commercial intent, should not be penalized under Sections 271D and 271E. The appeal filed by the assessee was allowed, and the penalty was deleted.