2015 (1) TMI 1115 - HC - Income Tax

High Court Upholds Penalty Deletion for Cash Deposits: Business Exigencies Considered

CIT Versus M/s. SHREENATHJI CORPN

CIT Versus M/s. SHREENATHJI CORPN - TMI Issues Involved:1. Whether the Appellate Tribunal is right in law and on facts in deleting the penalty levied under Section 271D of the ActRs.2. Whether the Appellate Tribunal has correctly appreciated the facts on record so as to impliedly reach a conclusion that ignorance of law was a proper excuseRs.Issue-Wise Detailed Analysis:Issue 1: Deletion of Penalty under Section 271DThe Tribunal referred to the High Court for consideration whether the Appellate Tribunal was correct in deleting the penalty levied under Section 271D of the Income Tax Act. The facts of the case revealed that the assessee firm accepted loans/deposits of Rs. 20,000 each from 13 parties, totaling Rs. 2,60,000 in cash, in contravention of Section 269SS. The Deputy Commissioner of Income Tax imposed a penalty of Rs. 2,60,000 under Section 271D after rejecting the assessee's explanation that the deposits were taken in cash for business expediency. The CIT(A) upheld this penalty, but the Tribunal allowed the assessee's appeal and canceled the penalty.The revenue argued that the Tribunal erred in reversing the CIT(A)'s order and claimed that the assessee's actions were a systematic attempt to avoid Section 269SS. The Tribunal, however, noted that the loans/deposits were accepted as genuine by the revenue, and the assessee had provided a reasonable cause for accepting the deposits in cash due to business exigencies. The Tribunal also referenced the Board Circular No. 387 and Circular No. 572, which explained the legislative intent behind Section 269SS and provided that loans/deposits of Rs. 20,000 or below could be accepted in cash.The High Court, after considering the Tribunal's observations and the principles laid down by the Bombay High Court in Commissioner of Income Tax Vs. Madhukar B. Pawar, concluded that the Tribunal was correct in deleting the penalty. The High Court held that the Tribunal rightly canceled the penalty imposed on the assessee, and therefore, the question was answered in favor of the assessee and against the revenue.Issue 2: Ignorance of Law as an ExcuseThe second issue was whether the Tribunal correctly appreciated the facts to conclude that ignorance of law was a proper excuse. The Tribunal had observed that the assessee's impression, based on the Board Circular and advertisement, constituted a reasonable cause for accepting the loans/deposits in cash. However, the High Court held that ignorance of law cannot be a proper excuse and answered this question in favor of the revenue.Conclusion:The High Court concluded that the Tribunal was right in law and on facts in deleting the penalty levied under Section 271D of the Act, answering the first issue in favor of the assessee. However, it held that ignorance of law was not a proper excuse, answering the second issue in favor of the revenue. The reference was thus partly allowed and disposed of accordingly.