2012 (7) TMI 488 - AT - Income Tax

Penalty u/s 271D - reasonable cause for contravention of the provision of Section 269SS - CIT(A) deleted the penalty - Held that - The identity of the person, genuineness of the transaction and capacity of the person with whom the cheques were discounted is proved beyond doubt and also accepted that the party was discounting cheques of the assessee - the documents filed by the assessee that the amount of cash received through cheque discounting were either fully spent on the same day or within 2-3 days, therefore, the cash was taken by discounting cheques to meet the urgent business needs of the assessee - deletion of penalty is warranted - in favour of assessee.

Summary

Issues:
Penalty under Section 271D of the Income Tax Act for contravention of Section 269SS.

The Revenue appealed against the order of the ld. CIT(A)-V, Baroda, challenging the deletion of a penalty of Rs.11,75,000 imposed under Section 271D of the Income Tax Act. The case involved the assessee receiving loans exceeding Rs.20,000 in cash from Shri Ambica Finance, contravening Section 269SS. The AO held that the assessee failed to establish a reasonable cause for the contravention and imposed the penalty. The assessee contended that the transactions were cheque discounting, necessary for business operations, and provided evidence supporting the genuineness of the transactions. The ld. CIT(A) deleted the penalty, considering the transactions genuine and essential for the business. The Revenue challenged this decision before the ITAT.

During the appeal, the Revenue argued that the AO's decision to impose the penalty was justified, but the assessee did not appear for the hearing. The ITAT examined the case and noted that the ld. CIT(A) found the transactions with Shri Ambica Finance genuine and necessary for the business, as accepted during the quantum appeal. The ITAT observed that the cash received through cheque discounting was promptly utilized for business needs. Citing the precedent of CIT v. Saini Medical Store, the ITAT upheld the ld. CIT(A)'s decision, stating that if there was a reasonable cause for the violation of Section 269SS, penalty under Section 271D was not applicable. Consequently, the ITAT dismissed the Revenue's appeal, affirming the deletion of the penalty.

In conclusion, the ITAT upheld the decision of the ld. CIT(A) to delete the penalty imposed under Section 271D, emphasizing the genuine nature of the transactions and the urgent business needs that necessitated the cash received through cheque discounting. The ITAT's judgment highlighted the importance of establishing a reasonable cause for any violation of tax provisions, as supported by relevant case law.