2014 (12) TMI 923 - AT - Income Tax

Tribunal reduces penalty for cash loan, stresses strict statutory interpretation

Smt. B. Madhavi, Hyderabad Versus Jt. Commissioner of Income tax

The tribunal partially allowed the appeal, reducing the penalty imposed under section 271D for one of the cash loans received by the appellant. The ... Confirmation of penalty u/s 271D – Violation of section 269SS - Assessee obtained unsecured loan in cash - Since the entire loan was received in cash, AO was of the view that provisions of section 269SS have been violated thereby attracting penal provisions of section 271D - Held that:- Assessee has obtained cash loan and there cannot be any doubt with regard to the fact that assessee has violated the provisions of section 269SS of the Act, thereby attracting penal provisions contained u/s 271D – assessee contended that obtaining of cash loans is for a reasonable cause because on the dates when cash loans were availed, assessee was not having sufficient cash balance to discharge its liability on account of labour payment, which is urgent and immediate in nature – section 269SS clearly states that when any person obtains a loan above ₹ 20,000 from another person not by way of crossed-cheque or demand draft, then, there will be a violation of the provisions of section 269SS - when the provision does not make any distinction whether a transaction is genuine or not, it cannot be read into the statutory provision. Assessee’s claim that in absence of sufficient funds, assessee had availed cash loan of ₹ 5 lakh, is not acceptable - so far as the other loan of ₹ 5 lakh, it is to be noted that the closing cash balance as on 04/03/10 was ₹ 1,66,597, therefore, assessee’s explanation that availing of cash loan of ₹ 5 lakh for the purpose of meeting business exigency on account of payments to be made to labourers etc., is acceptable - there was sufficient cash balance on 03/12/09 to meet the business exigency, and there was no need to avail cash loan on 03/12/09 – assessee has failed to reasonably explain availing of cash loan to the extent of ₹ 5 lakh on 03/12/09 - penalty to the extent of ₹ 5 lakh for availing cash loan of ₹ 5 lakh on 03/12/09 has to be sustained – Decided partly in favour of assessee. Issues involved:Penalty imposed u/s 271D of the Act for the assessment year 2010-11.Detailed Analysis:Issue 1: Violation of provisions of section 269SS and imposition of penalty u/s 271DThe appellant, an individual running a nursing home, received unsecured loans in cash, leading to a violation of section 269SS. The Additional CIT initiated penalty proceedings u/s 271D, contending that even genuine transactions fall within the ambit of section 269SS if there is no reasonable cause for accepting cash loans. The Addl. CIT emphasized that the purpose of the section is to penalize technical offenses, and penalties are applicable irrespective of the genuineness of the transaction. The CIT(A) upheld the penalty, noting insufficient evidence to support the claim of business exigency. The appellant argued for a reasonable cause, citing the need to pay laborers urgently. The tribunal found the violation established for one of the loans but reduced the penalty for that specific amount.Issue 2: Reasonable cause for accepting cash loansThe appellant argued that the cash loans were necessary due to urgent business needs, especially for paying laborers who do not accept checks. However, the authorities found discrepancies in the cash balance available to the appellant on the dates of loan availing, indicating that the loans were not entirely justified. While one loan was deemed acceptable for business exigency, the tribunal concluded that the other loan lacked a reasonable cause, resulting in a reduced penalty amount.Issue 3: Interpretation of statutory provisions and penalty impositionThe tribunal emphasized that section 269SS clearly prohibits cash loans above a specified limit without exceptions, regardless of the transaction's genuineness. The tribunal rejected the appellant's argument that penalty imposition should consider the transaction's genuineness, as the statute does not make such a distinction. The tribunal upheld the penalty for one loan amount while reducing it for the other, based on the availability of cash balances on the respective dates.In conclusion, the tribunal partially allowed the appeal, reducing the penalty imposed under section 271D for one of the cash loans received by the appellant. The judgment underscores the strict interpretation of statutory provisions regarding cash transactions and the necessity of demonstrating a reasonable cause for accepting cash loans to avoid penalties.