2024 (10) TMI 748 - AT - Income Tax

Levy of penalty u/s 271D - violation of provisions of section 269SS - assessee received physical gold rather than cash - HELD THAT - In the case of Sudhir Kumar Rawat 2022 (8) TMI 33 - ITAT JABALPUR ITAT held that penalty under Section 271D was levied upon assessee for alleged violation of Section 269SS for having received certain amount from his wife in cash but it was found that assessee had not received any amount in cash from his wife and instead he received sale consideration for a shop owned by his wife and ultimately returned said amount to his wife in cash, penalty as levied was unsustainable in law. In the case of Smt. Pushpalatha 2024 (10) TMI 238 - ITAT BANGALORE ITAT held that where assessee sold a property and received cash exceeding Rs. 20,000/- as part of sale consideration, since amendment effected by Finance Act, 2015, to Section 269SS, which had laid a restriction for receiving cash for transfer of immovable property would not have come to knowledge of assessee who was a woman having elementary education and no knowledge of tax laws, there was reasonable cause as mandated u/s 273B for failure to comply with Section 269SS and, therefore, penalty u/s 271D was not warranted and same was to be deleted. Accordingly, in view of the facts of the assessee s case and the judicial precedents on the said subject which have held that provisions of Section 271DD are not attracted in circumstances where the assessee has been able to demonstrate a reasonable cause for non-complying with the provisions of Section 269SS of the Act, no penalty can be levied u/s 271D we are of the considered view that Ld. CIT(A) erred in facts and in law in upholding the penalty under Section 271D on the assessee, looking into the instant facts. Appeal of assessee allowed.

Summary

Issues Involved:
1. Whether the imposition of penalty under Section 271D of the Income Tax Act for violation of Section 269SS was justified.
2. Interpretation of "money" in the context of Section 269SS and whether the acceptance of gold as a loan falls under this provision.
3. Whether there was a "reasonable cause" for the assessee's actions under Section 273B to avoid penalty.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271D:
The central issue in this case was the imposition of a penalty under Section 271D for the alleged violation of Section 269SS, which prohibits accepting loans or deposits exceeding Rs. 20,000 otherwise than by an account payee cheque or bank draft. The assessee accepted a gold loan valued at Rs. 1,30,63,574 from an individual, which was recorded as a journal entry in the books, classifying it as an unsecured loan. The JCIT and Ld. CIT(A) upheld the penalty, stating that the transaction violated Section 269SS as it was not conducted through the prescribed banking channels. The assessee argued that the transaction involved physical gold, not cash, thus not contravening Section 269SS.

2. Interpretation of "Money" in Section 269SS:
The assessee contended that the term "money" as used in Section 269SS refers to cash transactions, and since the loan involved gold, it did not fall within the ambit of this section. The Ld. CIT(A) rejected this argument, emphasizing that the acceptance of gold as a loan still contravened the provision, as Section 269SS aims to regulate the method of loan acceptance beyond mere cash transactions. The assessee relied on judicial precedents, arguing that gold does not constitute "money" under the legal definition, but this interpretation was not accepted by the lower authorities.

3. Reasonable Cause under Section 273B:
The assessee argued that there was a reasonable cause for accepting the gold loan due to the necessity of starting a new business in jewelry retail and wholesale. The assessee claimed that the gold was required as stock-in-trade and was duly accounted for in the books. The assessee also highlighted that the gold was returned to the lender after a stipulated period, indicating no intention to evade taxes. The Tribunal considered these arguments and found that the assessee demonstrated a reasonable cause for not complying with Section 269SS, as the transaction was transparent and duly recorded.

Conclusion:
The Tribunal concluded that the penalty under Section 271D was not warranted as the transaction did not involve unaccounted cash, and the assessee had provided a reasonable explanation for the mode of transaction. The Tribunal relied on judicial precedents supporting the view that journal entries and non-cash transactions, such as those involving gold, do not automatically attract penalties under Section 271D if a reasonable cause is demonstrated. Consequently, the appeal was allowed, and the penalty was set aside, emphasizing the importance of the assessee's intent and the nature of the transaction in determining compliance with Section 269SS.