2018 (9) TMI 1616 - AT - Income Tax

ITAT Mumbai Revokes Penalty for Cash Loan Under Income Tax Act

The ITAT Mumbai allowed the appeal, revoking the penalty imposed under section 271D of the Income Tax Act, 1961. The tribunal found that there was a ... Penalty u/s 271D - Default in accepting the cash loan in violation of section 269SS - urgency of matter - Held that:- It is explained by the assessee that it was in the process of undertaking a real estate project for which it was to execute a sale deed which required payment of stamp duty of an amount of ₹ 3,00,000 or thereabout. Since, the stamp duty was to be paid urgently, the assessee had no other option but to avail the cash loan from the directors. On a perusal of the bank statement copy filed it is noticed that the cash loan of ₹ 3,50,000 was deposited in bank account on 5th October 2010 and on the very same day, the said amount was transferred from the bank account to the Sub–registrar and some other Government Agency towards payment of stamp duty. This fact is also corroborated from the endorsement made in the sale deed executed by the assessee. Thus, prima–facie, it appears that for payment of stamp duty the assessee was compelled to avail the cash loan from the directors looking at the urgency of the matter. there is a reasonable cause for the default or failure on the part of the assessee to comply to the provisions of section 269SS of the Act. That being the case, imposition of penalty under section 271D not justified - Decided in favour of assessee Issues:1. Penalty imposed under section 271D of the Income Tax Act, 1961 for violation of section 269SS.2. Whether the imposition of penalty under section 271D is justified.3. Reasonable cause for default in complying with the provisions of section 269SS.Analysis:The appellate tribunal ITAT Mumbai heard an appeal against a penalty imposed under section 271D of the Income Tax Act, 1961 for violating section 269SS. The case involved a company engaged in real estate development that received cash towards share capital and a loan in the relevant year. The Assessing Officer recommended penalty proceedings under section 271D, which was upheld by the Commissioner (Appeals) for the loan amount. The company explained that the loan was urgently needed for paying stamp duty for a real estate project and was taken from directors due to the lack of alternative funds. The tribunal considered whether the violation automatically leads to penalty imposition under section 271D or if there was a reasonable cause for the default. It noted that section 271D allows exceptions under section 273B if a reasonable cause is proven. The tribunal found that the urgent need for stamp duty payment justified the cash loan from directors, as evidenced by bank statements and the sale deed. Therefore, it concluded that there was a reasonable cause for the default, leading to the deletion of the penalty under section 271D. The appeal was allowed, and the penalty was revoked.In conclusion, the tribunal's detailed analysis focused on determining the reasonable cause for the default in complying with section 269SS, ultimately leading to the deletion of the penalty under section 271D. The case highlighted the importance of establishing justifications for violations to avoid penalty imposition under the Income Tax Act, 1961.