2002 (11) TMI 268 - AT - Income Tax

Summary

Issues:
Penalty under section 271D of the Income Tax Act for accepting a loan in cash in violation of section 269SS.

Analysis:
The appeal was directed against the order confirming the penalty under section 271D of the Income Tax Act for the assessment year 1996-97. The assessee had purchased a property with his father, where the father paid the entire consideration in cash. The Additional CIT imposed a penalty as the loan was accepted in contravention of section 269SS. The CIT(A) confirmed the penalty to the extent of the cash loan taken. The assessee argued that it was only a paper entry in the accounts, and there was a reasonable cause for the violation. The Departmental Representative contended that genuineness was irrelevant for the penalty under section 271D. The tribunal noted that the penalty was imposed for accepting a loan in cash in violation of section 269SS.

The tribunal considered the legislative intent behind sections 269SS and 269T, introduced to counter tax evasion through unaccounted cash transactions. Referring to previous decisions, the tribunal emphasized that penalties under section 271D should not apply to genuine transactions not related to tax evasion. The tribunal held that the loans in this case were not to explain unaccounted cash, thus not violating the provisions of section 269SS. It was also noted that the penalty was imposable where a person accepts deposits, but in this case, no amount came to the assessee as per the co-ownership agreement. The tribunal found that the assessee had a reasonable cause due to urgent need for money and a bona fide belief that the transaction did not violate the law.

The tribunal considered various precedents emphasizing that penalties should not be imposed for technical or venial breaches, and there must be deliberate defiance or contumacious conduct. It also highlighted that penalties should not be imposed merely because it is lawful to do so. The tribunal concluded that as there was a reasonable cause for the violation and no actual acceptance of loan or deposits by the assessee, the penalty under section 271D was not leviable. Therefore, the penalty sustained by the CIT(A) was cancelled, and the appeal filed by the assessee was allowed.