2014 (11) TMI 227 - HC - Income Tax

Levy of penalty u/s 271D and 271E Applicability of section 269SS r.w section 271D Quantum appeal already decided in favour of assessee - Held that - The Tribunal rightly allowed the appeals filed by the assessee with regard to the penalty levied u/s 271D and 271E of the Income Tax Act - the loans taken in the cases were genuine and the exigency that arose out of the business was a cause for taking such loan - Since in the quantum appeal, the Tribunal found that the assessee was bona fide in such transaction, the Tribunal in exercise of power u/s 273B, considering the reasonable cause submitted by the assessee, thought it fit to set aside the entire penalty by accepting the explanation given by the assessee. - taking of loan is found to be genuine and the same is for business exigency, it is not a case of undisclosed income - If the assessee had not given a reasonable cause, then certainly the initiation of proceedings for violation of 269SS and 269T would be justified. The reasonable cause for not levying penalty exists and the Tribunal was justified in allowing the assesse's appeal - the Tribunal has clearly held in the quantum appeal there was a bona fide on the part of the assessee and as a consequence finding reasonable cause, thought it fit to delete the entire penalty - The assessee has shown the receipt of cash and repayment of the same due to business exigency and that would amount to reasonable cause - The genuineness of the transaction to meet the immediate necessity was accepted by the Tribunal in the quantum appeal and that would amount to reasonable cause in terms of Section 273B of the Income Tax Act thus, no substantial question of law arises for consideration Decided against Revenue.

Summary

Issues:
1. Levy of penalty under Sections 271D and 271E of the Income Tax Act.
2. Applicability of Section 269SS and Section 271D.
3. Applicability of Section 269T and Section 271E.

Analysis:
1. The Revenue challenged the orders of the Tribunal regarding the penalty under Sections 271D and 271E of the Income Tax Act. The respondent, engaged in civil construction business, borrowed loans and made payments in cash without deducting tax at source. The Assessing Officer disallowed certain expenses and imposed penalties under Sections 271D and 271E. The Commissioner of Income Tax (Appeals) upheld the order, but the Tribunal allowed the appeals, both on quantum and penalty. The Tribunal found the loans genuine, supported by individual affidavits, and the repayment due to business exigency.

2. The Tribunal held that the loans taken and repaid in cash were for genuine business exigencies, and the penalties under Section 271D and 271E were not applicable. The Tribunal considered the explanation provided by the assessee, the nature of the business, and the immediate necessity for cash transactions. The Tribunal cited precedents where penalties were not valid when loans were genuine and business-related. The Tribunal exercised power under Section 273B to set aside the penalties, accepting the reasonable cause submitted by the assessee.

3. The High Court upheld the Tribunal's decision, finding no substantial question of law. The Court agreed with the Tribunal's reasoning that the loans and repayments were genuine, supported by business exigencies. The Court noted that the assessee had shown receipts and repayments due to business needs, constituting a reasonable cause under Section 273B. Therefore, the Court dismissed the Tax Case (Appeals) and the related Miscellaneous Petition, affirming the Tribunal's decision to set aside the penalties under Sections 271D and 271E.