2019 (1) TMI 283 - AT - Income Tax

Appeal allowed as penalty for transactions between close relatives for family purposes is unsustainable

Shri Sanmathi Ambanna Versus The Joint Commissioner of Income-tax

Shri Sanmathi Ambanna Versus The Joint Commissioner of Income-tax - TMI Issues Involved:1. Levy of penalty under section 271D of the Income Tax Act, 1961.2. Contravention of provisions of section 269SS of the Income Tax Act, 1961.3. Reasonable cause for failure to comply with section 269SS.4. Nature of transactions between close relatives.5. Applicability of judicial precedents on similar facts.Detailed Analysis:1. Levy of Penalty under Section 271D:The primary issue in this case is the levy of penalty under section 271D of the Income Tax Act, 1961. The Assessing Officer (AO) imposed a penalty of Rs. 3,20,000 on the assessee for accepting cash loans exceeding Rs. 20,000, which is in contravention of section 269SS of the Act. The CIT(A), Davangere, upheld this penalty in an ex-parte order.2. Contravention of Provisions of Section 269SS:Section 269SS prohibits accepting loans or deposits in cash exceeding Rs. 20,000. The assessee accepted cash loans totaling Rs. 3,20,000 from his father-in-law, which the AO found to be in violation of this provision. Consequently, the AO initiated penalty proceedings under section 271D, which mandates a penalty equal to the amount of the loan or deposit taken in contravention of section 269SS.3. Reasonable Cause for Failure to Comply with Section 269SS:Under section 273B of the Act, no penalty shall be imposed if the assessee can establish a reasonable cause for failing to comply with section 269SS. The assessee argued that the transactions were not loans but gifts from his father-in-law due to the close familial relationship and urgent business needs. However, the AO did not accept this explanation and proceeded with the penalty.4. Nature of Transactions Between Close Relatives:The assessee contended that transactions between close relatives should not attract the provisions of section 269SS. The Tribunal referred to several judicial pronouncements supporting the view that transactions between close relatives do not fall within the ambit of section 269SS. For instance, in the case of Dr. B.G. Panda vs. DCIT, it was held that transactions between husband and wife for family purposes are not loans or deposits and thus do not attract section 269SS. Similarly, in the case of M. Yeshodha, the Madras High Court held that loans between father-in-law and daughter-in-law in cash are not subject to penalty under section 271D.5. Applicability of Judicial Precedents on Similar Facts:The Tribunal relied on the decision in the case of Smt. Deepika vs. Addl. CIT, where it was held that cash loans from close relatives do not attract section 269SS. The Tribunal also referred to the Punjab and Haryana High Court's decision in CIT vs. Sunil Kumar Goel, which stated that family transactions based on casualness and disclosed in accounts do not attract penalties under sections 271D and 271E. The Tribunal concluded that the imposition of penalty in the present case was unsustainable and directed its deletion.Conclusion:The Tribunal allowed the assessee's appeal, holding that the imposition of penalty under section 271D was unsustainable. The Tribunal emphasized that transactions between close relatives, especially for family purposes, do not attract the provisions of section 269SS. Consequently, the penalty of Rs. 3,20,000 was deleted.Order Pronounced:The order was pronounced in the open court on January 2, 2019.