2020 (5) TMI 300 - AT - Income Tax

Penalty u/s 27ID - cash loans exceeding ₹ 20,000 from agriculturists living in village areas - HELD THAT - 2nd proviso to section 269SS lays down that the provisions of this section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act Contention of the Ld. AR that since the creditor had given the loan from their agricultural income and the borrower was also engaged in agricultural activity, the provisions of section 269SS are not attracted, has not been verified by the Assessing Officer as well as by the CIT(A) from the perusal of the evidences. Thus, the revenue authorities failed to look into the evidences produced before them and did not verify the same in context of Section 269SS Remand back this issue to the file of the AO for proper adjudication - Appeal of the assessee is partly allowed for statistical purpose.

Issues Involved:
1. Legality and validity of the assessment order.
2. Sustaining penalty under Section 271D.
3. Applicability of Section 269SS to cash loans from agriculturists.
4. Reasonable cause for accepting cash loans.
5. Purpose and interpretation of Section 269SS as per CBDT Circular.
6. Nature of the transaction and its classification.
7. Technical nature of the default.
8. Misinterpretation of law by CIT(A).

Detailed Analysis:

1. Legality and Validity of the Assessment Order:
The appellant argued that the assessment order passed by CIT(A) was "bad in law, wrong on facts and against the Principal of natural justices hence is unsustainable." The appellant contested the validity of the assessment order, asserting that it did not adhere to the principles of natural justice.

2. Sustaining Penalty under Section 271D:
The appellant contended that CIT(A) erred in law and facts by sustaining a penalty of ?12,00,000 imposed under Section 271D without properly appreciating the facts and circumstances. The appellant argued that the transactions were genuine and involved agriculturists, and thus, the penalty was unjustified.

3. Applicability of Section 269SS to Cash Loans from Agriculturists:
The appellant claimed that no penalty should be imposed for cash loans exceeding ?20,000 from agriculturists living in remote village areas. The appellant emphasized that both the lender and the borrower were agriculturists and that the genuineness of the transactions was never doubted by the revenue authorities.

4. Reasonable Cause for Accepting Cash Loans:
The appellant argued that there was a reasonable cause for accepting cash loans, as the transactions were genuine, reflected in the accounts, and the identities of the lenders were well established. The appellant believed that the transactions would not attract the provisions of Section 269SS due to the agricultural background of the parties involved.

5. Purpose and Interpretation of Section 269SS as per CBDT Circular:
The appellant argued that CIT(A) did not properly appreciate the purpose, aims, and objects of Section 269SS, as clarified by CBDT Circular No. 387 dated 6th July 1984. The appellant highlighted that Section 269SS was introduced to curb the tendency of tax evaders to explain unaccounted money as loans or deposits, which was not the case here.

6. Nature of the Transaction and Its Classification:
The appellant argued that the transaction was neither a deposit nor a loan but a financial arrangement to meet urgent needs. The appellant emphasized that the cash was given by a close relative who received compulsory land compensation, and thus, the transaction should not attract penalties under Section 269SS.

7. Technical Nature of the Default:
The appellant argued that the default, if any, was technical and venial in nature, as the genuineness and availability of cash given by the farmer were not doubted. The appellant emphasized that the transaction was within the family and therefore should not attract penalties.

8. Misinterpretation of Law by CIT(A):
The appellant claimed that the assessment order by CIT(A) was a clear case of misunderstanding and wrong interpretation of the law. The appellant argued that the authorities failed to consider the reasonable cause and the genuine nature of the transactions.

Judgment:
The Tribunal noted that the provisions of Section 269SS would not apply if both the lender and borrower had agricultural income and neither had income chargeable to tax under the Act. The Tribunal found that the revenue authorities failed to verify the evidences produced by the appellant in context of Section 269SS. Therefore, the Tribunal remanded the matter back to the Assessing Officer for proper adjudication, directing them to verify the genuineness of the appellant's contentions and decide on the penalty under Section 271D accordingly. The appeal was partly allowed for statistical purposes, ensuring that the appellant is given an opportunity of hearing by following principles of natural justice.

Conclusion:
The Tribunal's decision to remand the case for further verification underscores the importance of thoroughly examining the facts and evidences in the context of Section 269SS and Section 271D. The judgment emphasizes the need for revenue authorities to consider the genuine nature of transactions and the reasonable cause provided by the appellant before imposing penalties.

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