2013 (6) TMI 309 - HC - Income Tax

Penalty u/s 271D - contravention of section 269SS - leniency provided in the 2nd proviso to Section 269SS - agriculturists - held that - A perusal to second proviso to Section 269SS of the Act shows that where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable under the Act, then the provisions of Section 269SS of the Act are not applicable. As a corollary it would follow that where Section 269SS of the Act is not applicable, the penalty under Section 271D of the Act could not be levied. The loans which were considered by the lower authorities, in the light of provisions of section 269SS read with section 271D of the Act, were prior to the date of becoming a partner of the assessee-firm. - Both the lender and borrower are agriculturists and did not have any income chargeable to tax - no penalty - decided in favor of assessee.

Summary

Issues:
Delay in refiling the appeal condoned; Substantial questions of law under Section 260A of the Income Tax Act, 1961; Interpretation of Section 269SS and Section 271D of the Act; Applicability of penalty under Section 271D; Second proviso to Section 269SS; Justification for deleting penalty under Section 271D.

Delay in refiling the appeal condoned:
The judgment begins by condoning the delay in refiling the appeal. This procedural issue is addressed at the outset to ensure the appeal can proceed despite the delay.

Substantial questions of law under Section 260A of the Income Tax Act, 1961:
The revenue raised substantial questions of law related to the deletion of a penalty under Section 271D. The questions revolved around the interpretation of the 2nd proviso to Section 269SS, specifically concerning the leniency provided for agriculturists availing loans in agricultural and rural circumstances. The Tribunal's decision to delete the penalty was challenged in the appeal.

Interpretation of Section 269SS and Section 271D of the Act:
Section 269SS prohibits taking loans in cash exceeding a certain limit, mandating payments through account payee cheques or bank drafts. Section 271D imposes penalties for contraventions of Section 269SS. The crux of the issue was whether the assessee violated Section 269SS by accepting loans in cash and thus incurring liability under Section 271D.

Applicability of penalty under Section 271D:
The revenue contended that the assessee accepted loans in cash exceeding the prescribed limit, violating Section 269SS and attracting penalty under Section 271D. The argument focused on the alleged non-compliance with the payment method specified in the Act.

Second proviso to Section 269SS:
The judgment delves into the second proviso to Section 269SS, exempting loans or deposits between individuals with agricultural income and no taxable income. This exemption is crucial in determining the applicability of penalties under Section 271D for violations of Section 269SS.

Justification for deleting penalty under Section 271D:
The Tribunal's decision to delete the penalty was based on findings that the lender and borrower were agriculturists with no taxable income, meeting the criteria of the second proviso to Section 269SS. The Tribunal's analysis highlighted the timeline of the loans taken before the assessee became a partner and the agricultural status of the parties involved. The Court upheld the Tribunal's decision, emphasizing the absence of any error warranting interference.

In conclusion, the judgment dismissed the appeal, finding no substantial question of law for consideration. The detailed analysis covered the procedural, substantive, and interpretative aspects of the case, focusing on the application of relevant provisions of the Income Tax Act and the specific circumstances of the transactions in question.