2021 (3) TMI 427 - AT - Income Tax

Levy of penalty u/s 271D - assessee has received cash other than account payee cheque/draft in contravention of provisions of section 269SS - HELD THAT - Section 273B of the I.T. Act provides that no penalty shall be imposable on the persons or the assessee as the case may be for any failure referred to in section 271D of the I.T. Act, if he proves that there was a reasonable cause for the said failure. The assessee explained before the authorities below that two of the neighbours of the assessee purchased the properties and they were to make payment to HUDA. Since there was having no bank account, therefore, on their request assessee received the amount and deposited in his bank account. The drafts were prepared favouring the HUDA and ultimately the same have been deposited by them. The receipts are in the names of Mrs. Sujata and Shri Dushyant of the equivalent amount. Receipts of HUDA in favour of Shri Dushyant are also placed on record. These facts would clearly disclose that assessee has reasonable cause for failure to comply with provisions of law contained u/s 271D - Further, while passing the assessment order dated 21.03.2014 the AO did not disbelieve the explanation of the assessee as regards receipt of cash from these two neighbours and issue of drafts for these two neighbours and ultimate payment to HUDA. The AO did not record any satisfaction in the assessment order for contravention of provisions of section 271D. Assessee has reasonable cause for failure to comply with provisions of law and that no satisfaction has been recorded by the AO in the assessment order, would clearly show that no penalty is leviable in the matter.

Summary

Issues:
Challenging the levy of penalty u/s 271D of the I.T. Act for AY 2011-12.

Analysis:
The appeal was against the order of Ld. CIT(Appeals) for the imposition of a penalty under section 271D of the I.T. Act. The AO imposed the penalty based on the assessee receiving cash amounts from individuals for whom drafts were prepared in contravention of section 269SS of the Act. The assessee contended that the cash received was for humanitarian reasons to help neighbors who needed to make payments to HUDA through demand drafts, as they did not have bank accounts. The assessee provided bank statements and receipts to support this explanation. The ITAT Jaipur Bench's decision in a similar case was cited to argue that a reasonable cause existed for the cash transactions. The DR, however, supported the lower authorities' decisions.

The ITAT considered Section 273B of the I.T. Act, which provides for no penalty if a reasonable cause is proven for the failure under section 271D. The assessee's explanation that the cash received was to help neighbors make payments to HUDA, supported by evidence, was deemed a reasonable cause. Notably, the AO did not question this explanation during the assessment process. Referring to a Supreme Court judgment, the ITAT emphasized that if no satisfaction regarding penalty proceedings is recorded in the assessment order, the penalty cannot be levied. Therefore, the ITAT concluded that the assessee had a reasonable cause for non-compliance with the law, and since no satisfaction was recorded by the AO, the penalty under section 271D was canceled. Consequently, the orders of the lower authorities were set aside, and the penalty was revoked, allowing the appeal of the assessee.