2012 (11) TMI 463 - HC - Income Tax

Imposition of Penalty u/s 271D,271E For violation of provisions of sec 269SS, Sec 269T Shri Suryakant R. Shah (S.R. Shah) was the spouse of a partner of the assessee firm and trustee of B.G. Education Trust which was running a school in the name of Ambe Vidyalaya. The collection centre for the fees of the hostel and the school was at a single place. Sometimes, the fees collected by the hostel were handed over to Shri S.R. Shah as the working hours of the bank might have been over. Since Shri S.R. Shah held the cash on behalf of the hostel for its safe custody, according to the assessee, the same did not imply that the hostel had given any loan to Shri S.R. Shah. Similarly, if some amount was received from Shri S.R. Shah, the same did not mean that hostel had accepted any loan from Shri S.R. Shah in cash. It was the case of the assessee that if some expenditure was incurred by the hostel or the school students and the amount was reimbursed to the hostel by the Managing Trustee of the school, that is, Shri S.R. Shah the same did not become a deposit or loan given or taken by way of cash. Held that - There was reasonable cause for the assessee to indulge into cash transactions in violation of Section 269SS of the Act. Shri S.R Shah acted as a custodian only, holding the money for a brief period, and that the same were deposited in the hostel s bank account at the earliest opportunity. The provisions of sections 269SS and 269T of the Act would not be applicable. Consequently, the question of contravention of such provisions attracting penalty under sections 271D and 271E of the Act would also not arise. - Decided in favour of appellant.

Summary

Issues:
Appeal against penalties under sections 271D and 271E of the Income Tax Act, 1961 based on contravention of sections 269SS and 269T - Assessment year 2004-2005.

Analysis:
1. The appellant challenged the order of the Commissioner (Appeals) cancelling penalties under sections 271D and 271E of the Act. The appellant questioned whether the Tribunal was correct in upholding the deletion of penalties without considering the lack of reasonable cause for engaging in cash transactions violating sections 269SS and 269T of the Act.

2. The Additional Commissioner of Income-tax observed that the assessee had accepted and repaid loans/deposits in cash, contravening sections 269SS and 269T. The assessee argued that the transactions were not loans or deposits but were related to hostel fees and reimbursements. The Additional Commissioner imposed penalties under sections 271D and 271E. The Commissioner (Appeals) later deleted the penalties, citing that the transactions did not fall under the definition of loans or deposits as per sections 269SS and 269T.

3. The Revenue appealed the Commissioner (Appeals) decision before the Tribunal, claiming that the penalties were justified based on the audit report indicating cash transactions. However, the Tribunal upheld the Commissioner (Appeals) decision, stating that the transactions did not meet the criteria of loans or deposits under sections 269SS and 269T.

4. The Tribunal and Commissioner (Appeals) concurred that the transactions were not loans or deposits as per the Act. They found no evidence to suggest the transactions were in violation of sections 269SS and 269T. The Tribunal noted the absence of conditions like repayment period or interest rates typical of loans or deposits. Therefore, the provisions of sections 269SS and 269T were deemed inapplicable, leading to the dismissal of the penalties under sections 271D and 271E.

5. The judgments emphasized that for penalties under sections 271D and 271E to apply, the transactions must qualify as loans or deposits under sections 269SS and 269T. Since the transactions in question did not meet this criterion, the penalties were not warranted. The Tribunal and Commissioner (Appeals) concluded that no substantial question of law arose, and the appeals challenging the penalties were dismissed for lack of merit.