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2018 (7) TMI 1314 - AT - Income TaxImposition of penalty u/s. 271D - getting loans in violation of the provisions of sec. 269SS - loan exceeding permissible limit - Held that - As per the explanations of the assessee, the goods were being imported from Hongkong. The assessee received first loan of ₹ 1.00 lakh on 01-10- 2007. It was repaid on 03-10-2007, since the consignment was stated to be delayed. The second loan of ₹ 1.00 lakh was received on 05.12.2007, since the foreign supplier was expected to ship the goods on 11.12.2007. The above said explanation would show that the goods were not shipped either on 01-10-2007 or on 05-10-2007, i.e., on the dates on which the impugned loans were taken. The question of payment of customs duty etc., would arise only upon shipment or receipt of goods. In fact, the assessee admits that the goods were expected to be shipped on the second occasion only on 11.10.2007, while the cash loan was taken on 05-10-2007. If the director had given cheque on 05-10-2007, the funds would have been credited to the account of the assessee well before 11.10.2007. These facts would show that there was no urgent business necessity for the assessee on both the occasions to accept the loan in cash. Further, the assessee has also failed to demonstrate that on both the dates the assessee was not having sufficient funds in its possession. We are of the view that the assessee has failed to show that there was a reasonable cause for getting loans in violation of the provisions of sec. 269SS of the Act. Penalty confirmed - Decided against assessee
Issues Involved:
1. Imposition of penalty under Section 271D of the Income Tax Act for violation of Section 269SS. 2. Existence of reasonable cause as per Section 273B of the Act. 3. Interpretation of bona fide transactions in the context of Section 269SS and 271D. 4. Applicability of the provisions of the Companies Act, 1956 regarding deposits from directors. 5. Evaluation of the assessee's explanations and evidence for urgent business needs. Issue-wise Detailed Analysis: 1. Imposition of Penalty under Section 271D for Violation of Section 269SS: The assessee challenged the penalty of ?2.00 lakhs levied by the Additional Commissioner of Income Tax under Section 271D for accepting cash loans in violation of Section 269SS during the assessment year 2008-09. The Division Bench referred the issue to the Hon’ble President for constituting a Special Bench due to conflicting views on whether a bona fide transaction exempts the assessee from penalty under Section 271D. 2. Existence of Reasonable Cause as per Section 273B: The assessee argued that there was a business emergency necessitating the acceptance of cash loans, which constitutes a reasonable cause under Section 273B. The Division Bench noted that merely proving the genuineness of the transaction is insufficient; the assessee must also demonstrate a bona fide reason for not using an account payee cheque or bank draft. 3. Interpretation of Bona Fide Transactions in the Context of Section 269SS and 271D: The Division Bench highlighted that the decision in Zodiac Developers P Ltd was contrary to the Supreme Court's ruling in Kum. A.B. Shanti, which requires both the genuineness of the transaction and a bona fide reason for not using an account payee cheque or bank draft. The Special Bench concurred, emphasizing that the assessee must show reasonable cause beyond the transaction's bona fide nature. 4. Applicability of the Provisions of the Companies Act, 1956 Regarding Deposits from Directors: The assessee contended that deposits from directors are not considered "deposits" under Section 58A of the Companies Act, 1956. However, the Tribunal clarified that the case is examined under the Income Tax Act, and the Delhi High Court in Samora Hotels P Ltd held that transactions with directors are not excluded from Section 269SS. 5. Evaluation of the Assessee's Explanations and Evidence for Urgent Business Needs: The assessee provided explanations for receiving cash loans, citing urgent business needs for payment of customs duty and freight. However, the Tribunal found these explanations unsubstantiated by documentary evidence. The Tribunal noted that the loans were taken before the shipment of goods, indicating no urgent business necessity. The assessee also failed to demonstrate a lack of sufficient funds on the dates of the loans. Conclusion: The Tribunal concluded that the assessee did not establish a reasonable cause for accepting cash loans in violation of Section 269SS. Consequently, the penalty of ?2.00 lakhs under Section 271D was upheld, and the appeal was dismissed.
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