2016 (7) TMI 1691 - AT - Income Tax

ITAT dismisses section 271D penalty for cash loan from wife, citing procedural invalidity and genuine transaction

The ITAT PUNE dismissed penalty proceedings under section 271D where assessee accepted cash loan from his wife, violating section 269SS provisions. The ... Levy of penalty u/s 271D - competent authority to levy penalty - assessee had accepted loan / deposit in cash from his wife - violation of provisions of section 269SS - JCIT observed that the assessee had failed to prove the business exigency forcing him to accept the amount in cash and further the said transactions were conducted against some business urgency also and there was no major shortage was proved by the assessee - HELD THAT:- Under the provisions of section 272A(3)(c) of the Act, it is provided that any penalty imposable under sub-section (1) or (2) of the said section shall be imposed by the Joint Director or Joint Commissioner in respect of cases other than the cases covered in clauses (a) & (b) of sub-section (3). As considered by the CBDT that the statutory provisions clearly state that the competent authority to levy penalty is the Joint Commissioner, therefore, only the Joint Commissioner can initiate proceedings to levy penalty and such initiation of penalty proceedings could not be done by the AO. The CBDT has further acknowledged that statement in the assessment order that the proceedings under section 271D and 271E of the Act are initiated is consequential since the initiation is by an authority who is incompetent. The proceedings in this regard can be initiated only by issuance of notice by the JCIT and the same has to be initiated in the course of assessment proceedings or any other proceedings under the Act. In the above said circumstances, penalty order passed in the present case by way of reference made by the Assessing Officer to JCIT vide letter dated 03.05.2012 is beyond limits prescribed, where the assessment order was completed on 28.12.2011. Hence on this count, penalty order merits to be dismissed and the same is so dismissed. Merits of levy of penalty under section 271D assessee was running business of contractor and his wife was a civil engineer and was also carrying on her activities. During the course of present assessment proceedings, the assessee had accepted cash from his wife. The wife of assessee was also attached to construction business of the buildings as civil engineer. The assessee claims that where he had received the aforesaid cash amount in cash from his wife, then no adverse interference is called for. There is merit in the claim of assessee as the intention of introducing the present section 269SS of the Act was to prevent the adjustment of entries by way of cash loans. However, the assessee has received the said cash from his wife and in such circumstances, there is no merit in holding the assessee to have defaulted and being liable for levy of penalty under section 271D - On this count also, we direct the AO to delete penalty levied u/s 271D. Issues involved:- Appeal against the order of CIT(A)-I, Nashik related to the penalty under section 271D of the Income-tax Act, 1961 for assessment year 2009-10.Detailed Analysis:1. The primary issue in this appeal is the levy of a penalty under section 271D of the Income-tax Act, 1961 amounting to Rs.4,18,000. The assessee contended that the penalty was unjustified as the transaction in question involved a loan from the wife, who was actively involved in the construction business, and thus did not violate the provisions of section 269SS of the Act. However, the Assessing Officer and CIT(A) upheld the penalty citing the lack of evidence proving any emergency or business exigency for accepting the cash loan.2. The second issue raised by the assessee pertained to the timing of the penalty proceedings initiated by the JCIT after the completion of the assessment proceedings. The assessee argued that as per a CBDT Circular, penalty proceedings should have been initiated during the assessment proceedings. The Tribunal analyzed the provisions of section 272A(3)(c) of the Act, which empowers the Joint Director or Joint Commissioner to impose penalties in certain cases. The Tribunal noted that the Assessing Officer should have referred the case to the JCIT before the completion of assessment proceedings, as per the Circular, to ensure the validity of the penalty proceedings.3. Regarding the merits of the penalty under section 271D, the Tribunal considered the nature of the transaction where the assessee received cash from his wife, who was actively involved in construction-related activities. The Tribunal found merit in the argument that since the cash was received from the wife, who was part of the construction business, the transaction did not fall under the purview of section 269SS aimed at preventing cash loans. Consequently, the Tribunal directed the Assessing Officer to delete the penalty of Rs.4,18,000 imposed under section 271D.4. In conclusion, the Tribunal partially allowed the appeal, ruling in favor of the assessee by dismissing the penalty levied under section 271D. The decision was based on the grounds that the transaction with the wife did not violate the provisions of section 269SS and that the penalty proceedings were initiated incorrectly after the completion of assessment proceedings.