2004 (6) TMI 317 - AT - Income Tax

Levy of penalty u/s 271D - Applicability of section 269SS - Borrowing of cash credits/unsecured loans by way of cash - Non-recording of cash credits/unsecured loans in the regular books of account -genuine transactions and reasonable cause - HELD THAT - In our opinion, even if genuine loans or deposits, the assessee has to explain why it has obtained in cash and if he is able to explain with a reasonable cause then there will be no penalty leviable u/s 271D of the Act. Where there is no reasonable cause then the penalty is clearly leviable as intended by the Parliament while introducing the section 269SS of the Act. Whether the transactions are genuine, short term accommodations, loans or deposits with or without interest, then only the requirement of reasonable cause arises and if there is reasonable cause the penalty u/s 271D of the Act for violation of section 269SS of the Act cannot be levied. But where there is no reasonable cause even for genuine transactions will attract penalty u/s 271D of the Act for violation of the provisions of section 269SS of the Act. In this case, the assessee himself has admitted these as loans and he was unable to bring on record any reasonable cause with regard to these loans. The assessee has not established the nexus between the business expediency and the borrowals in cash which is necessitated for the purpose of business. Even he has admitted that these transactions are not recorded in the books of account. For all these reasons, we are of the considered opinion that the assessee has contravened the provisions of section 269SS of the Act and therefore, penalty levied u/s 271D of the Act by the JCIT and confirmed by the CIT (Appeals) is justified. We uphold the orders of the authorities below. We take this opportunity to place on record our appreciation of the order of the JCIT which is well reasoned and well-written. In the result, the assessee's appeal is dismissed.

Summary

Issues Involved:
1. Confirmation of penalty u/s 271D for contravention of provisions of section 269SS.
2. Applicability of section 269SS to loans from agriculturists.
3. Genuineness of loans and its impact on penalty u/s 271D.
4. Reasonable cause for not complying with section 269SS.

Issue-wise Summary:

1. Confirmation of Penalty u/s 271D for Contravention of Provisions of Section 269SS:
The appeal by the assessee was against the order of the CIT (Appeals) confirming the penalty u/s 271D for contravention of section 269SS. The assessee had borrowed Rs. 13,35,000 in cash from 30 persons during the financial year 1993-94. The JCIT and CIT (Appeals) concluded that the assessee contravened section 269SS by accepting loans exceeding Rs. 20,000 in cash, imposing a penalty of Rs. 13,35,000 u/s 271D.

2. Applicability of Section 269SS to Loans from Agriculturists:
The assessee argued that the loans were from agriculturists not assessed to tax, invoking the second proviso to section 269SS. However, the Tribunal noted that the proviso applies only when both parties have agricultural income and no taxable income, which was not the case here as the assessee was a businessman with taxable income.

3. Genuineness of Loans and Its Impact on Penalty u/s 271D:
The assessee contended that the loans were genuine and thus section 269SS should not apply. The Tribunal, referencing the memorandum explaining the provisions in the Finance Bill, 1984, emphasized that section 269SS aims to curb unaccounted income brought into books as loans. The genuineness of transactions does not exempt them from section 269SS, and the penalty under section 271D is applicable unless a reasonable cause is shown.

4. Reasonable Cause for Not Complying with Section 269SS:
The assessee failed to provide any reasonable cause for accepting the loans in cash. The Tribunal stated that the term "reasonable cause" means a cause beyond the control of the assessee, which was not demonstrated here. The Tribunal upheld the penalty, noting the absence of any business expediency or urgency justifying the cash transactions.

Conclusion:
The Tribunal dismissed the appeal, confirming the penalty u/s 271D for contravention of section 269SS, as the assessee failed to establish any reasonable cause for accepting the loans in cash and the genuineness of the loans did not exempt them from the provisions of section 269SS.