2014 (1) TMI 712 - HC - Income Tax

Penalty u/s 271D in respect of section 269SS - Held that - After 30th of June 1984 there is a mandate that no person shall accept or take loan or deposit from any person other than an account payee cheque or account payee bank draft if such loan or deposit exceeds Rs. 20, 000 - The burden is on the assessee to prove that there was reasonable cause for receiving cash from various persons - Setting up an industry/business is a long process and it is for the assessee to demonstrate with sufficient material that he required cash urgently to meet his requirements - It was open for him to prove that he had applied for loan and he was awaiting for loan - No such materials are available - In the absence of any proof to show that the transaction was a genuine transaction and that there was a reasonable cause for receiving the amount in cash the Tribunal was justified in rejecting the contentions of the appellant - The source of funds of the creditors was not from the Bank and introduction of black money cannot be ruled out - There is a clear finding by the assessing officer that no proof was furnished regarding earnings of agricultural income by the creditors Decided against assessee.

Summary

Issues:
1. Penalty imposed under Section 271D of the Income Tax Act for accepting loans exceeding specified limits.
2. Justification of penalty reversal by the Income Tax Appellate Tribunal.
3. Interpretation of Section 269SS and Section 271D regarding acceptance of loans or deposits exceeding Rs. 20,000 by cash.
4. Burden of proof on the assessee to establish reasonable cause for receiving cash instead of account payee cheques or demand drafts.

Issue 1: Penalty under Section 271D
The appellant filed an appeal against the penalty imposed under Section 271D for accepting loans exceeding limits specified under the Income Tax Act. The Commissioner of Income Tax (Appeals) initially found the penalty unjustified, but the Income Tax Appellate Tribunal reversed this decision and reinstated the penalty.

Issue 2: Tribunal's Justification for Penalty Reversal
The appellant contended that the Tribunal should have followed a precedent set by the Court in a previous case. The Tribunal referred to Sections 269SS and 271D of the Income Tax Act, emphasizing the requirement that loans or deposits exceeding Rs. 20,000 should be accepted only through account payee cheques or demand drafts.

Issue 3: Interpretation of Sections 269SS and 271D
The Tribunal cited legal precedents to establish that the assessee must demonstrate a reasonable cause for accepting loans in cash instead of through proper banking channels. The burden of proof lies on the assessee to justify the receipt of cash, especially when substantial amounts are involved.

Issue 4: Burden of Proof on the Assessee
The Tribunal found that the appellant failed to provide sufficient evidence to support the claim of needing cash urgently for setting up an industrial unit. Unlike a previous case where ignorance of the law was a valid defense, in this instance, the source of funds from the creditors was not verified, raising concerns about potential tax evasion or black money.

In conclusion, the Court upheld the Tribunal's decision to reinstate the penalty under Section 271D, as the appellant could not establish a reasonable cause for accepting substantial amounts in cash instead of through proper banking channels. The Court dismissed the appeal, emphasizing the burden of proof on the assessee to justify such transactions.