2020 (1) TMI 1048 - AT - Income Tax

Penalty u/s 271D - Cash loan taken from the Partner of the Partnership Firm - Violation of provisions of section 269SS - HELD THAT - Loan transaction between the firm and partner does come within the purview of section 269SS of the Act, as they cannot be treated as different entities. Secondly, it is submitted that due to business exigencies arising out of immediate payment to be made to a creditor, the assessee was compelled to avail the cash loan from one of the partners. Availing of cash loan from one of the partners was for making payment to creditors. The ledger account copies of two creditors placed in the paper book support assessee's claim. Judicial precedents cited before us have also laid down the ratio that cash loan received from partner would not attract the provisions of section 269SS and section 271D of the Act since a Firm and Partner are not to be considered as different entities. Assessee with a bona fide belief that the provisions of section 269SS are not applicable has availed the cash loan from the partner. Further, Section 273B which also covers section 271D makes it clear that if the failure to comply to the relevant provision is due to reasonable cause, no penalty should be imposed. We are of the considered opinion that the assessee has made out a case of reasonable cause for availing cash loan from the partner, therefore, the assessee would be protected by the provisions of section 273B of the Act. Thus, we do not find any justifiable reason to sustain the imposition of penalty under section 271D - Penalty imposed is hereby deleted - Decided in favour of assessee.

Summary

Issues:
Challenge to penalty imposed under section 271D of the Income Tax Act, 1961 for accepting cash loan from a partner in violation of section 269SS.

Analysis:

Issue 1: Violation of Section 269SS
The Assessing Officer found that the assessee, a partnership firm, accepted a cash loan of ?11 lakh from one of its partners, leading to a violation of section 269SS of the Act. The firm argued that as per the general law, a firm and a partner are not separate entities, and hence, the provisions of section 269SS should not apply to transactions between them. The firm also justified the cash loan by citing business exigencies and immediate payment needs. The ITAT observed that the cash loan was used to make payments to creditors, supported by ledger account copies. Citing judicial precedents, the ITAT agreed that a firm and a partner are not distinct entities for tax purposes. Considering the bona fide belief of the firm and the reasonable cause for availing the cash loan, the ITAT held that the penalty under section 271D was not justified.

Issue 2: Reasonable Cause for Cash Loan
The firm contended that there was a reasonable cause for availing the cash loan from a partner due to immediate payment requirements to a creditor. The ITAT examined the facts, including the business exigencies and the necessity of the cash loan, and found that the firm had a valid reason for the transaction. Referring to section 273B of the Act, which covers section 271D, the ITAT concluded that if non-compliance is due to a reasonable cause, no penalty should be imposed. Considering the circumstances and the legal precedents, the ITAT held that the firm had established a case of reasonable cause for availing the cash loan, warranting the deletion of the penalty under section 271D.

Conclusion
The ITAT allowed the appeal, ruling in favor of the assessee, and deleted the penalty imposed under section 271D of the Income Tax Act, 1961. The ITAT emphasized the firm's bona fide belief, the business exigencies justifying the cash loan, and the legal position that a firm and a partner are not separate taxable entities for such transactions. The decision was based on the provisions of section 273B and the overall facts and circumstances of the case, leading to the dismissal of the penalty.