2019 (6) TMI 669 - AT - Income Tax

Levy of penalty u/s 271D - violation of the provisions of section 269SS - acceptance of cash loans - non application of mind by JCIT - HELD THAT - JCIT has not applied his mind while imposing the penalty and did not come to a conclusion whether the explanation offered by the assessee was acceptable or not. On such wrong impressions and surmises the penalty is not leviable. The ld.CIT(A) cannot improve the satisfaction reached by the JCIT for levying penalty applying his mind. In the instant case, JCIT has levied the penalty on incorrect assumption and without application of mind hence, the same is unsustainable. assessee had taken the cash loans for purchase of car from the close relatives i.e. sons-in-law of the Managing Partner through their spouses who are partners and all of them are assessed to income tax and submitted the confirmations. It was stated by the assessee that the amounts were received as capital contribution and due to inadvertent mistake of the accountant the same was recorded as loans. This aspect neither examined by the JCIT nor the Ld.CIT(A) by making cross verification. No penalty is leviable without application of mind by the levying authority. JCIT has not considered the explanation of the assessee before levy of penalty and levied the penalty under mistaken impression and presumptions. Therefore, we hold that the JCIT has not made out case for levy of penalty under section 271D - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271D for accepting cash loans without account payee cheques.

Analysis:
The case involved the imposition of a penalty under section 271D of the Income Tax Act for accepting cash loans of ?6,90,000 from various individuals without using account payee cheques. The Joint Commissioner of Income-tax (JCIT) levied the penalty based on the admission of accepting cash loans by the assessee and voluntary payment of the penalty. The Commissioner of Income Tax (Appeals) upheld the penalty, stating that there was no reasonable cause for accepting the cash loans and that the explanation provided by the assessee was not satisfactory. The CIT(A) also rejected the alternative contention that the cash loans were received towards a capital account, as it was not substantiated with entries in the books of accounts.

The assessee challenged the penalty before the Appellate Tribunal, arguing that the penalty was levied without proper application of mind by the JCIT. The assessee contended that the loans were accepted from close relatives for the purchase of a car, and the capital contribution was mistakenly recorded as loans. The Tribunal observed that the JCIT did not adequately consider the explanation offered by the assessee and levied the penalty on incorrect assumptions. The Tribunal emphasized that no penalty is imposable if there is a reasonable cause for the failure to comply with the provisions of the Act.

Ultimately, the Tribunal held that the JCIT did not establish a case for the levy of the penalty under section 271D. The Tribunal set aside the order of the CIT(A) and canceled the penalty imposed by the JCIT, allowing the appeal of the assessee. The Tribunal emphasized the importance of the levying authority applying its mind and appreciating the facts before imposing a penalty under the Income Tax Act.

In conclusion, the Appellate Tribunal ruled in favor of the assessee, highlighting the necessity for the tax authorities to thoroughly examine explanations provided by taxpayers before levying penalties under the Income Tax Act. The judgment underscored the significance of ensuring that penalties are imposed based on a proper understanding of the facts and circumstances of each case, rather than on incorrect assumptions or inadequate consideration of explanations provided by taxpayers.