2015 (8) TMI 992 - HC - Income Tax

Penalty under Section 271D - violation of provisions of Section 269SS - assessee filed her reply stating that since she did not had the requisite funds at that point of time and the funds were urgently required for conversion of the property, a loan was taken from the Samajwadi Party, which was deposited in her account and, subsequently, the loan was paid back to the Samajwadi Party - ITAT deleted penalty - Held that - Even though the assessee had taken a loan in cash, nonetheless, the loan transaction was a genuine transaction and was routed through the bank account of the assessee which clearly shows the bonafides of the assessee. The cash given by the lender was not unaccounted money but was duly reflected in their books of account. The Assessing Officer also accepted the explanation and found the transaction to be genuine. The contention of the learned counsel for the appellant that since there was no urgency, the assessee could have taken the loan through cheque and should have processed the matter through regular banking channels is immaterial, inasmuch as the genuineness of the transaction has not been disputed by the Assessing Officer. Further, we find that the cash was deposited in the bank account of the assessee and the money was thereafter, routed through the banking channel for payment to the government for converting the land into free hold property. Thus as reasonable cause had been shown by the assessee and the provisions of Section 273B of the Act was applicable. The appellate authorities were justified in holding that no penalty could be imposed since a reasonable cause was shown by the assessee - Decided in favour of assessee.

Summary

Issues Involved:
1. Imposition of penalty under Section 271D of the Income Tax Act for violation of Section 269SS.
2. Whether the transaction of loan in cash was genuine and bonafide.
3. Applicability of Section 273B for reasonable cause for failure to comply with Section 269SS.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271D for Violation of Section 269SS:
The core issue revolves around whether the assessee violated Section 269SS by accepting a loan exceeding Rs. 20,000 in cash and whether a penalty under Section 271D was justified. The Assessing Officer observed that the assessee took a cash loan of Rs. 22,33,604 from a political party for converting leasehold land into freehold, which was a clear violation of Section 269SS. Consequently, a penalty equal to the loan amount was imposed under Section 271D.

2. Genuineness and Bonafide Nature of the Loan Transaction:
The assessee contended that the loan was genuine, recorded in the books of accounts of both the assessee and the lender, and was used for a legitimate purpose. The Tribunal found that the transaction was genuine, the cash was deposited in the bank account, and the loan was repaid. The Tribunal also noted that the Assessing Officer did not dispute the genuineness of the transaction.

3. Applicability of Section 273B for Reasonable Cause:
Section 273B provides relief from penalties if the assessee shows a reasonable cause for the failure to comply with Section 269SS. The Tribunal held that the assessee had demonstrated a reasonable cause for taking the loan in cash due to the urgency of the situation. The Tribunal's findings were that the transaction was genuine and bonafide, and the funds were routed through the banking system, which mitigated any undue hardship caused by the strict application of Section 269SS.

Conclusion:
The High Court upheld the Tribunal's decision, emphasizing that the assessee had shown a reasonable cause for the cash loan, which was genuine and duly recorded. The appellate authorities correctly applied Section 273B, and thus, no penalty under Section 271D was warranted. The appeals filed by the department were dismissed, affirming that no substantial question of law arose for consideration.