2016 (3) TMI 242 - AT - Income Tax

Penalty under S.271D - Appellant made cash borrowings from near relatives who are staying in village, having agricultural incomes and not having bank accounts - Held that - Turning to the circumstances under which loans had to be obtained in cash, we find that as far as Shri Kondiah and Smt.Venkata Subbamma are concerned, in the absence of any evidence brought on record to controvert the claim of the assessee that they are agriculturists living in a village, having no banking facilities, the cause shown by the assessee for making the borrowals in question from them in cash, has to be accepted as reasonable. Merely because the third lender, Shri Nageswara Rao is also a teacher, the factum of he, being also an agriculturist and living in a village, cannot be ignored. It may be noted, at this juncture, that we are not concerned here with any addition made in the quantum proceedings on account of violation of provisions of S.269SS of the Act, but penalty leviable under S.271D of the Act, in relation to the loans/deposits accepted by the assessee in violation of the provisions of S.269SS of the Act. Penalty, being punitive in nature, warrants a liberal approach, while examining the existence or otherwise of a reasonable cause for the borrowals made in cash. Moreover as seen from the assessment order AO accepted borrowal at ₹ 9,60,000 only. The balance of the amount was considered for estimation of income. How the amount could be taken at ₹ 10.10,000 was not explained. Part of the amount was already been taxed separately. In addition assessee has purchased property along with his brother the fact of which was accepted in assessment itself. It was the explanation that the family transactions (HUF) were accounted in assessee bank account as he did not have any other bank account. This explanation was reasonable considering the fact that property for which monies were borrowed was registered in joint names. At best, assessee liability can only be half the amount. This aspect was also ignored by Revenue. Considering the totality of facts and circumstances of the case, and also the fact that the issue involved in these proceedings is not of a quantum but of a penalty, we are of the considered opinion that it is not a fit case for the imposition of penalty under S.271D - Decided in favour of assessee

Summary

Issues Involved:
1. Imposition of penalty under Section 271D of the Income Tax Act, 1961.
2. Violation of provisions of Section 269SS of the Income Tax Act, 1961.
3. Admissibility of additional evidence.
4. Reasonable cause for accepting cash loans.

Detailed Analysis:

1. Imposition of Penalty under Section 271D of the Income Tax Act, 1961:
The appeal was directed against the order confirming the penalty of Rs. 10,10,000 imposed by the Assessing Officer (AO) under Section 271D. The AO initiated penalty proceedings as the assessee received loans in cash, violating Section 269SS, which prohibits accepting loans or deposits of Rs. 20,000 or more in cash. The penalty was ultimately imposed by the Additional Commissioner of Income Tax.

2. Violation of Provisions of Section 269SS of the Income Tax Act, 1961:
The AO noticed deposits of Rs. 33,33,450 in the assessee's bank account. The assessee explained that Rs. 9,60,000 was borrowed for purchasing a house property with his brother, and the balance was his business turnover. The AO treated the cash loans as a violation of Section 269SS and imposed the penalty under Section 271D. The CIT(A) initially upheld the penalty, dismissing the appeal.

3. Admissibility of Additional Evidence:
The Tribunal had previously set aside the CIT(A)'s order and directed the CIT(A) to admit additional evidence and dispose of the appeal afresh. In the second round, the CIT(A) admitted the additional evidence but still upheld the penalty after considering the AO's comments. The CIT(A) noted that the assessee borrowed cash from relatives who were agriculturists without bank accounts and under pressure to complete the property registration.

4. Reasonable Cause for Accepting Cash Loans:
The CIT(A) evaluated the reasonable cause for the cash loans:
- The assessee borrowed from relatives who were agriculturists without bank accounts.
- The loans were for purchasing a house property under pressure to complete the registration to avoid forfeiting an advance payment.

However, the CIT(A) concluded that:
- One lender, Mr. K. Nageswara Rao, was a teacher and not solely an agriculturist.
- The assessee had taxable income and did not fit the exception under Section 269SS, which applies to loans between agriculturists with no taxable income.
- The appellant failed to prove the urgency and genuineness of the cash loans.

Tribunal's Findings:
The Tribunal found the approach of the Revenue authorities unsatisfactory. It accepted the assessee's explanation that the loans were taken to complete the property transaction in time and avoid forfeiture of the advance payment. The Tribunal noted:
- The lenders, except Mr. Nageswara Rao, were proven to be agriculturists without taxable income.
- The urgency of the transaction justified the cash loans.
- Penalty under Section 271D, being punitive, requires a liberal approach in assessing reasonable cause.

The Tribunal also observed inconsistencies in the AO's acceptance of the borrowal amount and the joint nature of the property purchase, indicating the assessee's liability should be considered only for half the amount.

Conclusion:
The Tribunal concluded that the case did not warrant the imposition of penalty under Section 271D and canceled the penalty, allowing the assessee's appeal.

Order Pronounced:
The appeal of the assessee was allowed, and the order was pronounced on 27.1.2016.