2012 (10) TMI 856 - AT - Income Tax

Tribunal upholds cancellation of penalty under section 271D, finds reasonable cause.

The Tribunal upheld the CIT(A)'s decision to cancel the penalty under section 271D, finding that the assessee had established a reasonable cause for the ... Penalty u/s. 271D - loan or deposit received from Samajwadi Party - ignorance to the provisions of section 269SS - CIT(A) deleted the levy - Held that:- Samajwadi Party deposited the impugned amount on 23.06.2005 in the joint bank account of the assessee in cash & on the same date, the said amount was withdrawn for the purpose of making payment to Nazul Department for getting the joint property of the assessee converted from lease hold to free hold. The AO did not dispute the genuineness of the transaction entered into between the assessee and Samajwadi Party and no addition has been made in this regard. These facts would clearly reveal that on 23.06.2005 when Samajwadi Party deposited the amount in cash in the joint account of the assessee, the assessee was in dire need of (cash) money because on the same day the amount in cash was withdrawn from the joint account of the assessee and was deposited with the Nazul Department. It is supported by the challan of the treasury and the registered deed executed by the Nazul Officer on 23.06.2005 and 24.6.2005. If the assessee would have taken the loan from Samajwadi Party through banking channel through cheque, it would have taken some time for process in clearing. Since the amount is deposited in the joint account of the assessee on 23.06.2005 and was withdrawn on the same day for making cash payment to the Nazul Authority, there can be no reason to doubt the bona fide of the assessee. Thus, the assessee has been able to prove that for bona fide reasons the assessee had taken cash loan from his own party (Samajwadi Party) and entered into the genuine transaction. Routing of the cash deposit through the bank account of the assessee without direct receipt and payment of the impugned cash would further endorse the bona fide of the assessee. Section 269SS did not prohibit taking of loan in cash from political party or otherwise. It simply provides mode of taking or accepting certain loans and deposits instead of cash. The prohibition is provided under these provisions for taking or accepting from any other person a loan or deposit otherwise than by account payee cheque or draft if it exceeded the prescribed limit. Therefore, whether Samajwadi Party had no provision in their Constitution for giving loan or advance to the assessee, would not be relevant criteria to decide the issue of levy of penalty u/s. 271D. Further, Samajwadi Party has filed their confirmation that the impugned loan was given to the assessee and his wife, which was repaid later on through banking channel - a 'reasonable cause' for failure to comply with the provisions of law is proved - in favour of assessee. Issues Involved:1. Whether the penalty under section 271D of the Income Tax Act was rightly imposed for contravention of section 269SS.2. Whether there was a 'reasonable cause' for the failure to comply with the provisions of section 269SS.3. Whether the transaction between the assessee and the Samajwadi Party was genuine and bona fide.4. Whether the Samajwadi Party was authorized to give loans to the assessee.5. Whether the assessee's age and ignorance of law can be considered as a reasonable cause for failure to comply with the provisions of section 269SS.Issue-wise Detailed Analysis:1. Penalty under Section 271D for Contravention of Section 269SS:The assessee acquired leasehold rights over a property and converted it into freehold by depositing Rs. 44,67,208/- in cash in a joint account, which was subsequently paid to the Nazul Department. The Assessing Officer (AO) noted that the assessee took a cash loan from the Samajwadi Party in contravention of section 269SS and initiated penalty proceedings under section 271D. The AO did not accept the assessee's explanation and levied the penalty, stating that there was no reasonable cause for accepting the cash loan.2. Reasonable Cause for Failure to Comply with Section 269SS:The assessee argued that the funds were urgently required for converting the property into freehold and that the transaction was genuine. The CIT(A) accepted the assessee's contention, noting that the cash was deposited and withdrawn on the same day for payment to the Nazul Department, establishing a reasonable cause under section 273B. The CIT(A) found that the transaction was genuine and bona fide, and deleted the penalty.3. Genuineness and Bona Fides of the Transaction:The Tribunal noted that the transaction was genuine, supported by the confirmation from the Samajwadi Party and the assessment order, which did not dispute the genuineness of the transaction. The Tribunal held that the assessee had a bona fide reason for taking the cash loan and that the transaction was genuine, thus supporting the CIT(A)'s decision to cancel the penalty.4. Authorization of Samajwadi Party to Give Loans:The Tribunal addressed the objection raised by the Department that the Samajwadi Party was not authorized to give loans. The Tribunal found that the provisions of section 269SS do not prohibit taking loans from a political party and that the genuineness of the transaction was not in question. The Tribunal rejected the Department's objection, stating that it was irrelevant to the issue of penalty under section 271D.5. Assessee's Age and Ignorance of Law as Reasonable Cause:The assessee's counsel argued that the assessee's young age and ignorance of the law should be considered as a reasonable cause. The Tribunal rejected this argument, noting that the assessee was a Member of Parliament and later became the Chief Minister of Uttar Pradesh, and thus could not be considered ignorant of the law. The Tribunal found this argument irrelevant and upheld the CIT(A)'s decision based on the reasonable cause established by the facts of the case.Conclusion:The Tribunal upheld the CIT(A)'s decision to cancel the penalty under section 271D, finding that the assessee had established a reasonable cause for the failure to comply with section 269SS. The Tribunal dismissed the Department's appeals in both cases, confirming that the transactions were genuine and bona fide, and that the assessee had a reasonable cause for accepting the cash loan.