2020 (2) TMI 1093 - AT - Income Tax

Penalty u/s 271E - contravention of provisions of S. 269T - HELD THAT - Provision of 269T and 269SS has been enacted in order to prevent the increase in black money and to stop tax evasion. The intention of the legislature was not to cover the bonafide and genuine transaction wherein the AO himself was satisfied and no tax evasion/use of the black money was involved. Also observe that a genuine transaction made in an emergency, does not attract penalty u/s 271E. It has been held that the amount paid by the assessee in cash to meet with his urgent need of money, was a reasonable cause in terms of Sec 273B. The funds were needed for an urgent requirement made at the hospital at Ahmedabad towards the treatment of mother. The assessee therefore, paid the amount through different family members, who are close relative of the partners of the firm Shri Sampatraj Lunawat and Shri Mahendra Lunawat to meet with urgent need of medical treatment expenditure in emergency and hence does not attract penalty. No justification for the penalty so imposed U/s 271E - Decided in favour of assessee.

Summary

Issues:
Imposition of penalty under section 271E of the Income Tax Act, 1961 for repayment of loans exceeding a specified amount to cash creditors.

Analysis:
The appeal was filed against the penalty imposed under section 271E of the Income Tax Act, 1961 for repayment of loans exceeding a specified amount to cash creditors. The assessee firm derived income from various sources, including Purchase & Sale of Cotton Bales, Cotton Cloth, and Commission. The assessment completed under section 143(3) of the Act revealed alleged repayments exceeding the specified amount to cash creditors, contravening section 269T of the Act. The matter was referred to the JCIT, who imposed the penalty despite the explanation provided by the assessee regarding urgent payments made to close relatives for medical treatment.

The CIT(A) upheld the penalty, leading to the appeal before the ITAT. The assessee argued that the repayments were not loans but emergency funds arranged from close family members for medical treatment. The ITAT considered the nature of transactions, emphasizing that the funds were used for urgent medical needs of close relatives and not as loans or deposits. Citing precedents, the ITAT highlighted that payments to close relatives do not constitute loans or deposits, as there is no "Transfer" between closely related persons as required by the law.

Moreover, since no additions were made under other provisions in the assessment order, indicating the transactions were genuine, and the intention of the legislature behind sections 269T and 269SS was to prevent black money and tax evasion, genuine transactions made in emergencies do not attract penalties. The ITAT also noted that payments for urgent medical needs qualify as reasonable causes under the Act, further supported by a similar decision by a Coordinate Bench.

Based on the facts and legal considerations, the ITAT found no justification for the penalty imposed under section 271E and directed the AO to delete the penalty. Consequently, the appeal of the assessee was allowed, emphasizing the genuine nature of the transactions and the emergency need for funds for medical treatment.

In conclusion, the ITAT's decision focused on the genuine nature of the transactions, the emergency need for funds, and the absence of elements constituting loans or deposits, leading to the deletion of the penalty imposed under section 271E of the Income Tax Act, 1961.