2021 (7) TMI 974 - AT - Income Tax

Levying penalty u/s 271D - Accepting loan / deposits in cash from relatives - assessee failed to comply with the provisions of section 269SS - HELD THAT - We notice that assessee has taken loan from her relatives in various dates in cash in order to meet her higher education expenses. We notice that all these loans were taken from close relatives for the purpose of higher education. As held in CIT versus Balaji Traders 2006 (12) TMI 126 - MADRAS HIGH COURT that when there is an immediate need of money the person cannot get it immediately from a nationalized bank. To satisfy such immediate requirement of money a person normally approaches the moneylender or a friend or relative who could lend money immediately. In those circumstances it cannot be said that the assessee has entered into a transaction to avoid the payment of tax or to defraud the revenue. Even in this case, the assessee has taken loans from relatives to finance her higher education. We do not see any reason to impose a penalty in the circumstances of this case where the assessee has taken loan from her relatives without approaching any banking institution. Accordingly, the penalty imposed by the revenue authorities are deleted. Appeal filed by the assessee is allowed.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act 1961 for accepting loans in cash, Applicability of sections 269SS and 271D of the Act, Appeal against penalty imposition.

Analysis:
The case involved an appeal by the assessee against the penalty imposed under section 271(1)(c) of the Income Tax Act 1961 for accepting loans in cash during the relevant assessment year. The Assessing Officer (AO) initiated proceedings under section 269SS against the assessee for accepting loans exceeding ?6,50,000 in cash. Subsequently, a show cause notice under section 271D of the Act was issued and served. The Commissioner of Income Tax (Appeals) sustained the penalty under section 271D, stating that the loans taken in cash attracted the provisions of section 269SS and consequently, the penal provisions of section 271D were applicable.

Upon further appeal, the Tribunal noted that the assessee had taken loans from relatives for higher education expenses, as evidenced by confirmation letters submitted. The Tribunal observed that the loans were taken from close relatives to finance higher education, citing a precedent where immediate financial needs often lead individuals to approach friends or relatives for loans. The Tribunal emphasized that in such cases, where loans are taken from relatives without involving banking institutions, it cannot be inferred that the transaction was to evade tax or defraud revenue. Consequently, the Tribunal ruled in favor of the assessee and deleted the penalty imposed by the revenue authorities.

In conclusion, the Tribunal allowed the appeal filed by the assessee, overturning the penalty imposed under section 271D. The judgment highlighted the context of loans taken for genuine purposes like higher education from close relatives, emphasizing the absence of intent to avoid tax obligations or defraud revenue. The decision underscored the practicality of seeking immediate financial assistance from relatives in certain circumstances, ultimately leading to the deletion of the penalty.