2021 (5) TMI 176 - AT - Income Tax

Penalty invoking the provisions of section 271D - Managing Director of the assessee company had extended cash to the company - loan or deposits u/s 269SS - reasonable cause for having received cash loans from its Managing Director and granting relief to the assessee as per provision 273B - HELD THAT - From the facts of the case it appears that the assessee company has received cash from its Managing Director for meeting its day-to-day emergency expenses. In this situation the decision relied by the assessee will be relevant and the assessee Company shall be entitled to relief as per the provisions of section 273B - From the order of the Ld. CIT (A) it appears that the assessee was not able to explain the genuineness of the source of funds obtained from its Managing Director. In the interest of justice we hereby remit the matter back to the file of the Ld. AO to examine that no unexplained funds are introduced in the business of the assessee Company as loan from the Managing Director and if it found that the source of fund obtained from the Managing Director of the assessee Company is explained then delete the penalty levied invoking the provisions of section 271D of the Act. If found otherwise the Ld. AO shall pass appropriate order in accordance with law and merit. Appeal of the assessee is allowed for statistical purposes

Summary

Issues:
Penalty under section 271D for cash loans received from Managing Director.

Detailed Analysis:

Issue 1: Condonation of Delay in Filing Appeal
The appeal was filed with a delay of 435 days, citing reasons related to an employee who failed to bring the order to the notice of the company. The Tribunal, after reviewing the affidavit, found the delay justified due to the employee's actions. The delay was condoned, and the appeal was considered on merits.

Issue 2: Nature of Transaction with Managing Director
The assessee received cash loans from its Managing Director, justifying them as current account transactions, not loans. Citing a decision by the Madras High Court, the assessee argued that the transactions did not violate Section 269SS. However, the Revenue authorities imposed a penalty under section 271D, claiming unaccounted income was given as a cash loan. The CIT (A) upheld the penalty, emphasizing the lack of reasonable cause under section 273B.

Issue 3: Arguments and Decisions
The assessee argued that the cash received was for daily expenses and emergencies, not a loan. They referenced court decisions supporting their stance. The Revenue authorities defended the penalty. The Tribunal noted the genuine need for funds but remitted the matter back to the AO to verify the source of funds. If the source is explained, the penalty under section 271D should be deleted; otherwise, appropriate action should be taken.

Conclusion
The Tribunal allowed the appeal for statistical purposes, directing a reexamination by the AO to ensure no unexplained funds were introduced as a loan from the Managing Director. The decision highlighted the importance of substantiating the source of funds to avoid penalties under section 271D, emphasizing the need for genuine transactions and compliance with tax laws.