2015 (11) TMI 535 - AT - Income Tax

Assessee's Penalties Deleted for Reasonable Cause; Appeals Allowed

Jasti Kannaiah Chowdary Versus Addl. CIT, Eluru

The Tribunal found that the assessee had a reasonable cause for not strictly complying with Sections 269SS and 269T of the Income-Tax Act due to business ... Penalty u/s 271D and 271E - violation u/s 269SS&T - Held that:- The assessee is into the business of fertilizer in a remote place i.e. Jeelakarragudem. The explanation of the assessee is that funds are borrowed for the purpose of business necessity and borrowed funds are kept in the bank. So far as usage of the funds are concerned, it is the assessee who has to decide it has to be withdrawn immediately or thereafter according to the business necessities. The business of the assessee is relating to an urorganised sector deals with the needs of the farmers. When assessee has to buy fertilizer to a huge extent depend upon monsoon and necessity of the farmers also. Keeping in these aspects assessee has to carry his business. There is no doubt that assessee is having a bank account in Hyderabad. However, simply because he is having a bank account at Hyderabad, it cannot be said that he has to borrow the funds in the way of cheque or repayment also in the way of cheque. It depends upon the business necessity of the assessee, the assessee has to take a decision. The authorities below admitted that he is into the business of fertilizer and carrying his business in a remote village. There is nothing on record to disbelieve the explanation given by the assessee. In so far as usage of the funds are concerned, it is left to the assessee to decide to use the funds according to the business necessities/demands. In view of the above facts and circumstances of the case, we find that there is a reasonable cause for the assessee not strictly complied with the provisions of section 269SS of the Act. Therefore, the funds borrowed by the assessee for the business necessity more than the prescribed limit not amounting to violation u/s 269SS & 269T of the Act. Therefore, consequently no penalty u/s 271D&E of the Act can be imposed. - Decided in favour of assessee. Issues Involved:1. Violation of Section 269SS and 269T of the Income-Tax Act, 1961.2. Imposition of Penalty under Section 271D and 271E of the Income-Tax Act, 1961.3. Reasonable cause under Section 273B of the Income-Tax Act, 1961.Detailed Analysis:1. Violation of Section 269SS and 269T of the Income-Tax Act, 1961:The assessee, a proprietor of a fertilizer business, accepted and repaid loans in cash exceeding Rs. 20,000, which contravenes Sections 269SS and 269T of the Income-Tax Act, 1961. The specific transactions involved were loans accepted from three individuals, M. Naveen, M. Sindhuja, and M. Surya Prabha, totaling Rs. 1,09,869 and repaid amounts totaling Rs. 2,59,869.2. Imposition of Penalty under Section 271D and 271E of the Income-Tax Act, 1961:The Assessing Officer (A.O.) referred the matter to the Additional Commissioner of Income Tax (Addl. CIT), who issued a show cause notice to the assessee. The assessee argued that the loans were accepted in cash due to urgent business needs and deposited in the bank, constituting a reasonable cause under Section 273B. However, the Addl. CIT was not convinced, noting that the assessee had a bank account and could have used cheques. The Addl. CIT imposed penalties under Sections 271D and 271E. The CIT(A) upheld this decision, observing that the assessee already had a significant cash balance and delayed the utilization of the borrowed funds, indicating no immediate business necessity.3. Reasonable Cause under Section 273B of the Income-Tax Act, 1961:The Tribunal examined the circumstances, noting that the assessee operated in a remote village and dealt with an unorganized sector involving farmers. The Tribunal found that the business necessities justified the cash transactions. The Tribunal referenced several judicial precedents, including CIT Vs. Maa Khodiyar Construction and CIT Vs. Parma Nand, which emphasized that penalties should not be imposed if there is a reasonable cause and no deliberate defiance of the law.Conclusion:The Tribunal concluded that the assessee had a reasonable cause for not strictly complying with Sections 269SS and 269T due to business exigencies. Consequently, penalties under Sections 271D and 271E were deemed unjustified and were deleted. The appeals filed by the assessee were allowed, setting aside the penalties imposed by the lower authorities.Judgment Pronouncement:The order was pronounced in the open court on 30th September 2015.