2006 (4) TMI 236 - AT - Income Tax

Penalty levied u/s 271D - undisclosed income - contravention of provisions of section 269SS - HELD THAT - When section 271D is read with section 273B which begins with the non obstante clause Notwithstanding anything contained in the provisions of inter alia section 271D it is clear that in spite of the provisions of section 271D the enactment following namely no penalty shall be imposable on the person or the assessee as the case may be for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure will have its full operation. Under section 273B a judicial discretion is left with the assessing authority not to levy a penalty u/s 271D if the authority is satisfied that there was a reasonable cause for not complying with the provisions of section 269SS. We found that the undisclosed income as declared in the Block Return remained the assessed income. Revenue did not doubt the veracity of the creditors. Assessing Officer did accept the credits as genuine. Most of the creditors were agriculturists residing in remote villages and many of them were not having any bank account. Assessee-firm was not professionally managed. From this it can be concluded that breach flowed from a bona fide belief. Ex facie it is a venial breach. Cash appears to be accepted because of the business exigencies. As such there exists a reasonable cause in accepting cash loans from various parties. Assessee may therefore be exonerated from the rigour of penalty. We uphold the order of CIT(A). In the result appeal of the revenue stands dismissed.

Summary

Issues:
Deletion of penalty under section 271D of the Income-tax Act, 1961 for the block period from 1-4-1988 to 2-9-1998.

Analysis:
1. The appeal by the revenue challenged the deletion of a penalty amounting to Rs. 1,65,85,000/- imposed under section 271D of the Income-tax Act, 1961 for the block period from 1-4-1988 to 2-9-1998.
2. The assessee, a firm engaged in real estate business, had undisclosed income declared at Rs. 59,07,160/-. The Assessing Officer determined the total undisclosed income at Rs. 99,58,020/-, with certain additions and deductions.
3. The CIT(A) allowed relief on certain additions, and the ITAT further deleted an addition made towards the difference in the cost of construction, leaving the undisclosed income at Rs. 59,07,160/-.
4. The assessee claimed aggregate loans of Rs. 2,65,85,000/- for the block period, with a portion claimed to have been paid. The Assessing Officer accepted loans to the extent of Rs. 1,29,10,000/- as on the date of the search.
5. The Assessing Officer initiated penalty proceedings under section 271D due to the acceptance of loans in cash exceeding Rs. 20,000/-, despite accepting the transactions as genuine.
6. The assessee argued the loans' genuineness, citing business exigencies, lack of banking facilities for creditors, and partners' limited knowledge of tax laws as reasons for the cash transactions.
7. Citing legal precedents, the assessee requested leniency based on the principle that the law does not concern trivial mistakes and highlighted the provision of section 273B for reasonable cause exceptions.
8. The ITAT, considering the facts and circumstances, concluded that the breach was due to a bona fide belief, a venial breach, and business exigencies, thereby upholding the CIT(A)'s decision to delete the penalty.
9. Referring to legal principles emphasizing judicial discretion in imposing penalties, the ITAT found that the revenue did not doubt the creditors' veracity, and the breach stemmed from genuine reasons, warranting exoneration from the penalty.
10. Consequently, the ITAT dismissed the revenue's appeal, affirming the decision to delete the penalty under section 271D for the block period from 1-4-1988 to 2-9-1998.