2021 (8) TMI 643 - AT - Income Tax

Penalty u/s. 271D - violation of provisions of Section 269SS - assessee had accepted cash unsecured loans - assessee had raised unsecured loans from her husband and from her son and a small part of the loan was also raised from a friend - appellant could not prove that loans given were duly reflected in the books of account - HELD THAT - Lenders to the assessee are individuals and they may not be maintaining books of accounts - they have filed confirmations of having advanced the moneys to the assessee and in the confirmations they have also confirmed that such loans were received back during the year itself. The assessee has reflected the receipt of such loans and repayment thereto in receipt and payment account a copy of receipt and payment account, therefore the first reason for rejecting the appeal of the assessee is not a valid reason. Assessee had not deposited such cash in the bank account - Case the assessee had deposited such cash in the bank account and through that bank account the payment was made whereas in the present case the assessee did not deposit the same in the bank account - in the present case, the purchase of property was done in cash which is apparent from the copy of purchase deed and whereas in that case the assessee had made payments through banking channels therefore this reason is also not sustainable as there is no point in first depositing the cash in the Bank account and then withdrawing it for making cash payment for purchase of property. Assessee could not establish reasonable cause for violating the provisions of Section 269SS of the Act - Assessee had borrowed funds in cash for conversion of leasehold right in to freehold rights and in the present case also the assessee had borrowed funds for purchase of an immovable property. Therefore, the third reason is also not sustainable. - Decided in favour of assessee.

Issues Involved:
1. Legality and jurisdiction of penalty under section 271D of the Income Tax Act, 1961.
2. Applicability of section 269SS concerning cash loans from close family members.
3. Reasonable cause for accepting cash loans due to urgent need.
4. Applicability of section 273B regarding genuine loan transactions.
5. Requirement of recording satisfaction by AO for initiating penalty under section 271D.
6. Application of jurisdictional High Court decisions.

Analysis:

1. Legality and Jurisdiction of Penalty under Section 271D:
The appellant argued that the penalty imposed under section 271D was illegal and without jurisdiction. The Tribunal evaluated the circumstances under which the penalty was imposed, considering the appellant's need for funds to purchase a property and the subsequent repayment of the loans within the same year. It was determined that the imposition of the penalty was not justified given the genuine nature of the transactions and the reasonable cause presented by the appellant.

2. Applicability of Section 269SS to Cash Loans from Close Family Members:
The appellant contended that cash loans amounting to ?3,95,000/- from close family members should fall outside the scope of section 269SS. The Tribunal acknowledged that the loans were taken from the appellant's husband and son, and a small part from a friend, which were repaid within the same year. The Tribunal noted that these transactions were genuine and supported by confirmations from the lenders, thus challenging the applicability of section 269SS in this context.

3. Reasonable Cause for Accepting Cash Loans Due to Urgent Need:
The appellant claimed an urgent need for cash to purchase a property, arguing this as a reasonable cause for accepting loans in cash. The Tribunal examined the urgency and the relationship between the appellant and the lenders. It was found that the appellant had a genuine need for immediate funds, and the loans were taken from close relatives, which constituted a reasonable cause under section 273B, thereby negating the penalty under section 271D.

4. Applicability of Section 273B Regarding Genuine Loan Transactions:
The Tribunal referenced the Allahabad High Court's decision in the case of CIT vs. Dimple Yadav, which held that no penalty should be imposed if there was a reasonable cause for accepting cash loans. The Tribunal found similarities between the appellant's case and the cited case, noting that the loans were genuine, the transactions were recorded, and the funds were used for legitimate purposes. The Tribunal concluded that the appellant's case fell under the purview of section 273B, which provides relief from penalty if a reasonable cause is established.

5. Requirement of Recording Satisfaction by AO for Initiating Penalty under Section 271D:
The appellant argued that the Assessing Officer (AO) had not recorded satisfaction in the assessment order to initiate penalty under section 271D. The Tribunal did not find explicit mention or analysis on this issue in the judgment, focusing instead on the genuineness and reasonable cause of the transactions.

6. Application of Jurisdictional High Court Decisions:
The appellant contended that the Joint Commissioner of Income Tax failed to apply the decision of the jurisdictional High Court, which was directly applicable to the case. The Tribunal reviewed the High Court's decision in CIT vs. Dimple Yadav and found that the facts of the appellant's case were similar. The Tribunal held that the High Court's precedent supported the appellant's position, reinforcing that no penalty should be imposed given the reasonable cause and genuine nature of the transactions.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, concluding that the penalty under section 271D was not imposable due to the reasonable cause and genuine nature of the cash loans taken from close family members for urgent needs. The Tribunal's decision was guided by judicial precedents and the specific circumstances of the case, emphasizing the application of section 273B to mitigate undue hardship.

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