2015 (2) TMI 852 - HC - Income Tax

Penalty under section 271D - Held that - While referring to the scope of section 269SS read with section 271D , the burden is on the assessee to establish what was the reasonable cause for not receiving the loan or deposit by way of account payee cheque or a demand draft. It is not a single transaction but several transactions which have to be explained by the appellant-assessee. Though there is no specific consistent stand as stated on behalf of the appellant-assessee, since the matter is remitted back to the Assessing Officer for fresh consideration, so far as the factual situation whether all transactions were ₹ 20,000 and above, we are of the opinion, no prejudice would be caused to the Revenue if an opportunity is given to the appellant- assessee to explain such transactions which are ₹ 20,000 and above. After giving an opportunity to the appellant-assessee, the Assessing Officer shall proceed with the matter and decide the controversial issue either accepting or rejecting the explanation depending upon the nature of the explanation.

Summary

Issues:
1. Whether the Appellate Tribunal was justified in confirming the penalty under section 271D?
2. Did the Appellate Tribunal err in not following binding precedents and dismissing the appeal?
3. Whether the Appellate Tribunal erred in sustaining the penalty under section 271D?
4. Is the order of the Appellate Tribunal arbitrary and illegal?

Analysis:

Issue 1:
The appellant, a Karayogam, accepted cash deposits exceeding the limit specified in section 269SS of the Income-tax Act. The Assessing Officer imposed a penalty, which was partly allowed by the first appellate authority. The Appellate Tribunal upheld the penalty, stating that the appellant failed to provide a valid defense such as the absence of banking facilities in the locality. The appellant argued that there could be various reasons for receiving cash, but the Tribunal found inconsistencies in the explanations provided. The court emphasized that the burden is on the assessee to establish a reasonable cause for not receiving payments through proper banking channels. The matter was remitted back to the Assessing Officer for fresh consideration.

Issue 2:
The appellant contended that the Appellate Tribunal did not consider the legal principles laid down by various High Courts supporting the appellant's contentions. The court noted that the appellant's defense of ignorance or lack of banking facilities was not sufficient to justify the cash transactions. The Tribunal's decision was based on the need for the appellant to explain the reasons for not using account payee cheques or demand drafts for transactions exceeding the specified limit. The court referred to a previous judgment discussing the burden on the assessee to provide a reasonable cause for cash transactions.

Issue 3:
The standing counsel for the Revenue argued that the appellant's defense of ignorance was not acceptable, as the appellant should have been aware of the legal requirements due to engaging in financial activities. The court highlighted the importance of consistent explanations from the appellant regarding the cash transactions. The court agreed that the matter should be reconsidered by the Assessing Officer to determine if all transactions exceeding the limit were adequately explained.

Issue 4:
The court found that the appellant's inconsistent explanations and failure to establish a valid reason for cash transactions led to the penalty imposition. The court directed the Assessing Officer to provide the appellant with an opportunity to explain transactions exceeding the specified limit. The court emphasized the importance of the appellant demonstrating a reasonable cause for not using proper banking channels for transactions.