2012 (12) TMI 292 - AT - Income Tax

Tribunal upholds penalty for cash loans under Section 271D, ruling for Revenue.

The Tribunal found no reasonable cause for the assessee to accept cash loans in violation of Section 269SS, upholding the penalty under Section 271D ... Penalty u/s 271D - Violation of Provisions of sec 269SS - Held that:- CIT(A) is not justified in accepting the oral explanation offered by the assessee that the depositors do not have PANs and the assessee only acted as a custodian of the amount and did not gain anything and the depositors were agriculturists - there existed no reasonable cause for accepting the loans/ deposits or aggregate of such loans or deposits of Rs. 20,000 or more from various persons otherwise than by crossed account payee cheques or DDs. As such the assessee committed violation of provisions of section 269SS of the Act. Therefore, the penalty u/s. 271D is attracted and rightly imposed by the Assessing Officer and the learned CIT(A) was not factually or legally correct in deleting the penalty levied by the Assessing Officer. Accordingly, we cannot sustain the order of the CIT(A) which is based on irrelevant considerations - order of CIT(A) is reversed and restore the order of the Assessing Officer - In the result, Revenue appeal is allowed. Decision of Commissioner of Income-Tax, Central, Calcutta Versus National Taj Traders [1979 (11) TMI 2 - SUPREME COURT] followed. Issues Involved:1. Erroneous order by CIT(A)2. Acceptance of loans in cash3. Application of Section 269SS4. Deletion of penalty under Section 271DDetailed Analysis:1. Erroneous order by CIT(A):The Revenue contended that the CIT(A)'s order was erroneous both in law and on facts. The CIT(A) had deleted the penalty imposed by the Assessing Officer, which the Revenue argued was incorrect.2. Acceptance of loans in cash:The primary issue was the assessee accepting loans in cash, which was evident from the Balance Sheet showing unsecured loans. The loans were taken for applying for a liquor license. The Assessing Officer observed that the assessee had received cash loans exceeding Rs. 20,000, which violated Section 269SS of the Income Tax Act.3. Application of Section 269SS:Section 269SS mandates that loans or deposits of Rs. 20,000 or more should be accepted only through account payee cheques or demand drafts. The assessee's acceptance of cash loans led to the invocation of Section 271D, resulting in a penalty of Rs. 10.54 lakhs. The CIT(A) deleted the penalty, citing reasonable cause, such as village customs and the lack of PAN among depositors.4. Deletion of penalty under Section 271D:The CIT(A) justified the deletion of the penalty by stating that the assessee had not hidden the transactions and had acted under village customs and traditions. The CIT(A) noted that the depositors were agriculturists and milk vendors from remote villages without PANs. The CIT(A) relied on precedents like Dy. CIT v. Vignesh Flat Housing Promoters, where similar breaches were considered venial due to business exigencies.Revenue's Arguments:The Revenue argued that the CIT(A) deleted the penalty based on irrelevant considerations and that the assessee had not shown any valid reason for accepting loans in cash. The Revenue maintained that the penalty should be confirmed as the assessee failed to establish reasonable cause.Assessee's Arguments:The assessee's representative argued that the CIT(A) had thoroughly examined the case, including the nature, mode, and purpose of the receipts, and found no concealment. The representative cited that the transactions were genuine and that the breach was due to ignorance of the law, supported by precedents like Citizen Co-operative Society Ltd. v. Addl. CIT and Omec Engg. v. CIT.Tribunal's Findings:The Tribunal emphasized that for deleting a penalty under Section 271D, the existence of reasonable cause must be established. The Tribunal found that the assessee accepted cash loans in violation of Section 269SS and failed to provide cogent material to justify the breach. The Tribunal noted that the assessee could have complied with Section 269SS without difficulty and that the CIT(A) accepted the assessee's explanation without substantial evidence.Conclusion:The Tribunal held that there was no reasonable cause for the assessee to accept loans in cash and that the penalty under Section 271D was rightly imposed by the Assessing Officer. The Tribunal reversed the CIT(A)'s order and restored the penalty.Result:The Revenue's appeal was allowed, and the penalty imposed by the Assessing Officer was upheld.