2023 (6) TMI 332 - AT - Income Tax

Penalty u/s 271D - contravention of provisions of Section 269SS - Cash transaction between the Company and its Director - a. cash utilized for purchase of stamps - b. cash deposited in the bank account of the compnay by the Director - challenging the categorization of transaction as loan or deposit when there is no element of any interest - HELD THAT - No reasonable cause or urgency is shown by the assessee for having accepted cash on different occasions from the Director. It could not be shown as to why the transactions could not be undertaken in compliance with the prescribed modes u/s 269SS. Further, the Private Limited company and Director are altogether different person under the provisions of Section 2(31), and there could not be two view on this. CIT-DR has rightly relied upon judicial precedents to support his contentions, which we have reproduced in preceding para s of this order, and the same are not repeated again. Thus, keeping in view our aforesaid discussions as above, we uphold the penalty levied by ld. JCIT and as upheld by ld.CIT(A). The appeal filed by the assessee stand dismissed.

Issues Involved:
1. Legality of the penalty order under Section 271D of the Income-tax Act, 1961 for contravention of Section 269SS.
2. Justification and correctness of the penalty imposed.
3. Examination of whether the transaction between the company and its director falls under the category of loan or deposit.
4. Consideration of urgency and business necessity as a defense against the penalty.
5. Evaluation of the assessee's claim of ignorance of the law.
6. Analysis of the satisfaction recorded by the Assessing Officer (AO) for initiating penalty proceedings.
7. Examination of the applicability of judicial precedents cited by the assessee.

Detailed Analysis:

1. Legality of the Penalty Order under Section 271D for Contravention of Section 269SS:
The assessee received cash amounts totaling Rs. 1,10,02,000 from its director on various dates, which was in contravention of Section 269SS of the Income-tax Act, 1961. Section 269SS mandates that loans or deposits exceeding Rs. 20,000 must be accepted only through an account payee cheque or bank draft. The Joint Commissioner of Income Tax (JCIT) imposed a penalty under Section 271D, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Justification and Correctness of the Penalty Imposed:
The assessee argued that the penalty was unjustified as the transaction was genuine and recorded in the books of accounts. However, the JCIT and CIT(A) rejected this argument, stating that the genuineness of the transaction does not exempt the assessee from the provisions of Section 269SS. The tribunal upheld the penalty, emphasizing that the statutory provisions are clear and unambiguous, and the assessee's failure to comply with them warranted the penalty.

3. Examination of Whether the Transaction Falls Under the Category of Loan or Deposit:
The assessee contended that the transaction between the company and its director did not fall under the category of loan or deposit. However, the tribunal held that the terms "loan" and "deposit" are not mutually exclusive and that the amount received in cash from the director clearly constituted a loan or deposit. The tribunal rejected the assessee's reliance on the Companies (Acceptance of Deposits) Rules, 1975, which exempts deposits from directors, stating that these rules operate in a different field and do not override the provisions of the Income-tax Act.

4. Consideration of Urgency and Business Necessity as a Defense:
The assessee claimed that the cash was accepted due to business exigency and urgent need for funds. The tribunal found this argument unconvincing, noting that the transactions occurred on four different occasions, and no valid reason was provided as to why the transactions could not be conducted through the prescribed modes. The tribunal emphasized that accepting cash in contravention of Section 269SS cannot be justified by claiming urgency in business transactions.

5. Evaluation of the Assessee's Claim of Ignorance of the Law:
The assessee argued that it was unaware of the provisions of Section 269SS. The tribunal rejected this argument, stating that ignorance of the law is no excuse, especially for a company assisted by professionals. The tribunal noted that the director, being an experienced businessman, should have been aware of the legal requirements.

6. Analysis of the Satisfaction Recorded by the AO:
The assessee contended that the AO did not record satisfaction for initiating penalty proceedings under Section 271D. The tribunal examined the assessment order and found that the AO had expressly dealt with the contravention of Section 269SS and recorded satisfaction for initiating penalty proceedings. Therefore, the tribunal rejected the assessee's contention.

7. Examination of the Applicability of Judicial Precedents Cited by the Assessee:
The assessee cited various judicial precedents to support its case. However, the tribunal distinguished these cases based on their facts and circumstances, noting that in the present case, no reasonable cause or urgency was shown for accepting cash in contravention of Section 269SS. The tribunal upheld the penalty, stating that the cited cases did not apply to the facts of the present case.

Conclusion:
The tribunal upheld the penalty of Rs. 1,10,02,000 imposed under Section 271D for contravention of Section 269SS, rejecting all the contentions raised by the assessee. The appeal filed by the assessee was dismissed.

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