2017 (9) TMI 637 - AT - Income Tax

Tribunal deletes penalty under Section 271D for genuine cash loans

The Tribunal allowed the appeal of the assessee, deleting the penalty imposed under Section 271D of the Income Tax Act. The Tribunal found that the loans ... Penalty u/s 271D - loans received from directors and their close relatives in cash - proof of taking cash loans in urgent and extreme situation and without proving mens rea - Held that:- From perusal of the record, it transpires that the assessee is a private limited company engaged in the business of builders. It is not in dispute that during the year under consideration, the assessee had taken loan of ₹ 5,76,000/- from five persons. All these persons are either director of the company or close relatives of the director of the company. They are filing their income tax return regularly and assessed to tax. It is very pertinent to note that the Assessing Officer has invoked the provisions of Section 269SS of the Act treating the amount as cash loans received from many persons. The loans were taken in cash in extreme and urgent situation. It was due to accounts were used to fund shortage of part payment to honour the cheques issued to Rajasthan Financial Corporation’s installments. Therefore, considering the various case laws on this issue, no penalty should be imposed on the assessee for contravention of Section 271D of the Act - Decided in favour of assessee. Issues Involved:1. Imposition and confirmation of penalty under section 271D of the Income Tax Act, 1961.2. Consideration of reasonable cause for accepting loans in cash.3. Applicability of judicial pronouncements and legal precedents.Detailed Analysis:1. Imposition and Confirmation of Penalty under Section 271D:The primary issue in this appeal is the imposition of a penalty amounting to Rs. 5,76,000 under section 271D of the Income Tax Act, 1961, for violating the provisions of Section 269SS. The Addl. CIT, Range-6, Jaipur, levied this penalty, which was subsequently confirmed by the CIT(A). The CIT(A) held that the loans taken in cash were not solely for urgent payments to financial institutions but were also used for regular business transactions. Therefore, the submission of urgent need was not substantiated by facts.2. Consideration of Reasonable Cause for Accepting Loans in Cash:The assessee argued that the loans were taken in extreme and urgent situations to honor cheques issued to Rajasthan Financial Corporation to avoid financial offenses. The assessee contended that the loans were received from directors and their close relatives, who were regularly filing their income tax returns, and TDS was deducted on the interest paid. The assessee relied on Section 273B, which provides that no penalty shall be imposed if there was a reasonable cause for the failure to comply with Section 269SS.3. Applicability of Judicial Pronouncements and Legal Precedents:The assessee cited various judicial pronouncements to argue that no penalty should be imposed under Section 271D if there was a reasonable cause. Key cases referenced include:- CIT vs. Samora Hotels Pvt. Ltd., which held that the expression 'any other person' in Section 269SS does not exclude directors or members of the company.- Chamundi Granites, where the Supreme Court held that Section 273B mitigates undue hardship by allowing for reasonable cause.- Bhagwati Prasad Bajoria, where the Gauhati High Court held that genuine transactions reflected in books of accounts should not attract penalties.- CIT vs. Raj Kumar Sharma, where the Rajasthan High Court ruled that penalties should not be imposed if there was no intent to evade tax.The assessee emphasized that the loans were genuine, taken in urgent circumstances, and used to honor cheques, thus constituting a reasonable cause under Section 273B.Conclusion:The Tribunal, after considering the facts and circumstances, found that the assessee had established a reasonable cause for accepting loans in cash. The loans were taken from directors and their close relatives, who were regularly assessed to tax, and the transactions were genuine. The Tribunal relied on various judicial precedents to conclude that no penalty should be imposed under Section 271D. Consequently, the appeal of the assessee was allowed, and the penalty sustained by the CIT(A) was deleted.Order:The appeal of the assessee is allowed, and the penalty under Section 271D is deleted. The order was pronounced in the open court on 25/07/2017.