2022 (7) TMI 225 - HC - Income Tax

Penalty u/s 271 D - default u/s 269SS - Assessee had accepted the loans in cash - as pe assessee both the entities from whom the cash loan was taken were partnership firms in which the Directors of the Assessee had controlling stake and other partners of the firms were family members and relatives of the Directors of the Assessee-Company - Since the genuineness of the loan transactions were not in doubt and the explanation offered by the Assessee was reasonable, the ITAT declined to interfere with the order of the CIT(A) - HELD THAT - The Court finds that in P. Baskar v. CIT ( 2011 (4) TMI 1157 - MADRAS HIGH COURT was not satisfied with the explanation offered by the Assessee for not complying with the provisions of Section 269 SS of the Act. It was specifically observed that the Assessee had not shown any reasonable cause for taking cash loan . However, in the present case, as noted by the CIT(A), the Assessee did offer a reasonable explanation for taking cash loan and the circumstances in which it was required. In Commissioner of Income Tax v. Deccan Designs (India)(P) Ltd. ( 2010 (7) TMI 818 - MADRAS HIGH COURT where an Assessee accepted cash loans from a sister concern mainly for the purpose of disbursement of salaries to its employees, it was held that the penalty under Section 271D was uncalled for. In Commissioner of Income Tax v. Maheswari Nirman Udyog ( 2007 (7) TMI 216 - RAJASTHAN HIGH COURT it was found that loans had been taken by the Assessee from a sister concern in cash to make payments to the labourers at site. This was held to be a reasonable explanation which was accepted by the CIT (A) and the ITAT and therefore, did not warrant any interference in appeal. No error has been committed either by the CIT (A) or the ITAT in deleting the penalty imposed on the Assessee. - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty under Section 271 D read with Section 269 SS of the Income Tax Act, 1961 for assessment year 2013-14.

Analysis:
1. The Revenue appealed against the ITAT's order rejecting the penalty imposed on the Assessee for accepting cash loans in violation of Section 269 SS of the Income Tax Act. The Additional CIT levied a penalty of Rs.1.7 crores based on the Assessee accepting loans in cash during the assessment year.

2. The Assessee explained that the cash loans were necessary for urgent payments and were received from sister concerns where the Directors had controlling stakes. The Additional CIT rejected this explanation, suggesting the Assessee could have used the banking channel for transactions.

3. The CIT (A) noted the loans were genuine, given by sister concerns with sufficient cash, and used for legitimate business purposes. The Assessee's explanation was deemed reasonable, leading to the deletion of the penalty.

4. The ITAT upheld the CIT (A)'s decision, citing precedents from Jharkhand and Punjab & Haryana High Courts. The genuineness of the transactions and the reasonableness of the Assessee's explanation were key factors in the decision.

5. Arguments were made citing various High Court decisions, with the Revenue relying on a Madras High Court case. However, the Court found the Assessee's explanation in this case valid, distinguishing it from the Madras High Court precedent.

6. Ultimately, the Court concluded that no error was made in deleting the penalty, as the Assessee's explanation for accepting cash loans was reasonable and justified by business exigencies. No substantial question of law was found, leading to the dismissal of the appeal.