2009 (7) TMI 870 - AT - Income Tax

Penalty u/s 271D - reasonable cause u/s 273B - Violation of section 269SS - Cash borrowings - Assessee-company is a builder and developer of lands. It is natural for it to look for purchase of lands which it can develop and make profits - assessee no doubt had a cash balance of above Rs. 12,00,000 in its books on 1st March, 2002, but apparently the market price of the lands was around Rs. 15 to Rs. 20 lakhs and therefore. the assessee, instead of using up the cash balance in its books and restricting the borrowing to a much lesser amount, resorted to borrowing the sum of Rs. 15 lakhs from N.K. Chemist in cash - Now there may be many ways in which a business deal can be put through and it is well-settled that essentially it is for the businessman to put a transaction through in the manner best suited to his interests - In these circumstances it appears to me that the assessee resorted to cash borrowing in violation of s. 269SS only because of the advantages which the ready cash back-up would give - Appeal is allowed

Issues Involved:
1. Violation of Section 269SS of the IT Act, 1961.
2. Applicability of Section 273B of the IT Act, 1961.
3. Levy of penalty under Section 271D of the IT Act, 1961.

Issue-wise Detailed Analysis:

1. Violation of Section 269SS of the IT Act, 1961:
The core issue was whether the assessee violated Section 269SS by accepting a cash loan of Rs. 15,00,000 from N.K. Chemist. Section 269SS mandates that any loan or deposit of Rs. 20,000 or more must be accepted through an account payee cheque or bank draft. The assessee accepted the loan in cash, which was confirmed by Shri Harshvadan Raanallal Chokhawala, the proprietor of N.K. Chemist, in response to a summons.

2. Applicability of Section 273B of the IT Act, 1961:
Section 273B provides that no penalty shall be imposed for any failure referred to in Section 271D if the assessee proves that there was a reasonable cause for such failure. The assessee argued that the cash loan was taken to finalize a land purchase deal urgently. The assessee contended that the loan was recorded in the books and repaid through a cheque, thus proving the bona fides of the transaction. The CIT(A) and the AO, however, did not find the explanation satisfactory, noting that the cash was not used immediately and remained in the balance sheet till the end of the financial year.

3. Levy of Penalty under Section 271D of the IT Act, 1961:
The AO levied a penalty of Rs. 15,00,000 under Section 271D for the contravention of Section 269SS. The CIT(A) upheld this penalty, stating that the assessee failed to prove any urgent need for the cash loan and that both parties had regular bank accounts. The CIT(A) also noted that the assessee did not provide sufficient evidence to justify the urgency of the cash requirement.

Separate Judgments Delivered:

Majority Opinion (Against Penalty):
The learned Judicial Member (JM) disagreed with the view that there was no reasonable cause. The JM emphasized that the assessee was in the business of land development, where transactions often require immediate cash availability. The JM found the explanation reasonable and supported by an affidavit from the landowner, Mukeshbhai Nanubhai Desai, confirming the negotiations. The JM concluded that the assessee had a reasonable cause under Section 273B, and thus, the penalty should not be levied.

Third Member's Decision:
The Vice President, acting as the Third Member, agreed with the JM. He noted that the assessee's explanation was plausible and supported by evidence. The Third Member highlighted that business decisions often require immediate cash availability, and the assessee's actions were in line with normal business practices. He concluded that the assessee had a reasonable cause for accepting the loan in cash and thus, no penalty should be imposed under Section 271D.

Final Decision:
Following the majority opinion, the Tribunal decided in favor of the assessee, and the penalty of Rs. 15,00,000 under Section 271D was canceled. The appeal of the assessee was allowed, concluding that there was a reasonable cause for the cash loan, and the penalty was not justified.

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