2022 (6) TMI 1237 - AT - Income Tax

Penalty u/s 271D - contravention of section 269SS as taking cash loans and reasons for accepting loan in cash were also not reasonable and sufficient to drop the proceedings - HELD THAT - The case of the assessee was that the loan in cash was taken from his HUF on account of extreme business exigency and necessity of honouring post dated cheques issued to the third parties. Further at that time, the assessee was not having sufficient balance in the bank, which would otherwise attract provisions of Negotiable Instrument Act and therefore, he was in compelling situation taken the loan in cash from his own HUF. Besides, to prove the genuineness of the transactions, the assessee has filed Income Tax Returns, confirmation; contra ledger accounts. That apart the AO has neither doubted the impugned transaction nor any addition made in this behalf even under section 68 of the Act. Only the reason for the Revenue was that the receipt of the loan was in cash, which was in violation of section 269SS of the Act. Thus, the Revenue authorities imposed penalty, as if the provision of section 271D is mandatory, without considering the reasonable cause explained by the assessee both during the penalty proceedings. We find that the explanation given by the assessee cannot be disregarded, more so, when it was a onetime affair to meet business exigency and urgent financial necessity. Further, the impugned transaction was from his individual capacity to his HUF capacity. A reasonable and justifiable explanation has been rendered by the assessee for the impugned transaction, and therefore, imposition of penalty under section 271D of the Act was not warranted. See TRIUMPH INTERNATIONAL FINANCE (I) LTD. 2012 (6) TMI 358 - BOMBAY HIGH COURT Thus we delete impugned penalty imposed under section 271D of the Act, and allow the ground of appeal of the assessee.

Summary

Issues Involved:
1. Imposition of penalty under section 271D for contravention of section 269SS of the Income Tax Act, 1961.
2. Reasonableness of the cause for accepting cash loans.
3. Genuineness of the transactions and business exigency.

Detailed Analysis:

Issue 1: Imposition of Penalty under Section 271D for Contravention of Section 269SS
The appeals concerned penalties imposed on the assessees for accepting cash loans exceeding Rs. 20,000, which contravenes section 269SS of the Income Tax Act, 1961. The penalties were confirmed by the Commissioner of Income-tax (Appeals)-12, Ahmedabad.

Issue 2: Reasonableness of the Cause for Accepting Cash Loans
The assessees argued that the cash loans were taken due to compelling circumstances such as the need to honor post-dated cheques to avoid criminal proceedings under the Negotiable Instrument Act. The transactions were recorded in the books of accounts, and the genuineness of the transactions was not disputed by the Assessing Officer (AO). The Tribunal noted that section 273B provides that no penalty shall be imposed if there is a "reasonable cause" for the failure to comply with section 269SS.

Issue 3: Genuineness of the Transactions and Business Exigency
The Tribunal found that the cash transactions were genuine and were undertaken due to urgent business needs. The transactions were between family members, and the funds were used to avoid legal issues related to insufficient funds for issued cheques. The Tribunal referenced several judgments where penalties were not imposed due to reasonable causes, such as business exigency and genuine transactions.

Tribunal's Conclusion:
The Tribunal concluded that the explanations provided by the assessees constituted reasonable cause under section 273B. The transactions were genuine, recorded in the books, and necessitated by urgent business needs. Therefore, the imposition of penalties under section 271D was not warranted. The appeals were allowed, and the penalties were deleted.

Order:
The Tribunal allowed the appeals filed by the assessees and deleted the penalties levied under section 271D. The order was pronounced in the Court on 24th June 2022 at Ahmedabad.