2019 (4) TMI 293 - HC - Income Tax

High Court dismisses appeal for accepting cash loans without valid explanation

The High Court held that the appellant failed to establish a valid explanation or reasonable cause for accepting cash loans, as mandated by Section 273B. ... Penalty u/s 271D - violation of Section 269SS - accepting the loans or deposits in cash - persons from whom the loans were availed were having bank accounts - loans were repaid through cheques drawn in the name of the lenders - non-utilization of the money by the assessee for any of his business purposes - HELD THAT:- reasonable cause contemplated under Section 273B should be a reasonable cause as to why or what was the reason which compelled the assessee to accept the loans or deposits in cash. In other words, it should be proved that there existed reasonable and acceptable cause for not accepting the loans or deposits through crossed cheques or demand drafts. When analysed based on the dictum as mentioned above, none of the facts contended or proved by the appellant will constitute a valid explanation or reasonable cause coming within the purview of Section 273B. The mere proof that the loans were repaid through cheques drawn in the name of the lenders or that there was no attempt to induct black money into the business, itself cannot be considered as a reasonable cause or as a compelling circumstance under which the mandate of Section 269SS can be violated. It cannot be termed as a reasonable cause contemplated under Section 273B to condone the violation. Hence, we are of the opinion that, the appellant has not succeeded in bringing the case within the ambit of Section 273B, warranting exoneration from imposition of penalty under Section 271D. - Decided in favour of revenue Issues Involved:1. Validity of penalty under Section 271D for violating Section 269SS of the Income Tax Act, 1961.2. Whether the appellant had reasonable cause for the failure to comply with Section 269SS as contemplated under Section 273B.Issue-wise Detailed Analysis:1. Validity of Penalty under Section 271D for Violating Section 269SS:The appellant accepted loans in cash from seven different persons, with amounts ranging from Rs. 1,50,000 to Rs. 4,00,000, in violation of Section 269SS, which mandates that loans or deposits of Rs. 20,000 or more must be accepted only through account payee cheques or drafts. The Joint Commissioner of Income Tax imposed a penalty of Rs. 24,57,000 under Section 271D, as the appellant admitted to receiving these loans in cash. The appellant’s explanation that the loans were repaid on the same day through account payee cheques was not accepted as a reasonable cause to avoid the penalty.2. Whether the Appellant Had Reasonable Cause for the Failure to Comply with Section 269SS as Contemplated under Section 273B:The Commissioner of Income Tax (Appeals) initially set aside the penalty, finding that the source of the loans was explained, and the amounts were returned, with no attempt to evade tax or introduce black money. However, the Income Tax Appellate Tribunal reversed this decision, stating that the immediate return of the loans does not exonerate the appellant from the liability of penalty under Section 271D. The Tribunal found no reasonable cause for accepting the loans in cash.The High Court considered whether the appellant successfully proved a reasonable cause for the failure to comply with Section 269SS. It was established that the loans were repaid on the same day through crossed cheques, and there was no tax evasion or black money involved. However, the Court emphasized that the reasonable cause under Section 273B must explain why the loans were accepted in cash and not through cheques or drafts.Case Law References:- In Commissioner of Income Tax v. P K Shamsuddin, it was held that furnishing the source of lenders is a reasonable cause against the levy of penalty, as the violation becomes technical when the source is provided.- In K.V. George v. Commissioner of Income Tax, the Court distinguished Shamsuddin’s case, noting that the source of funds was not from the bank, and black money induction could not be ruled out.- In NSS Karayogam v. Commissioner of Income Tax, it was reiterated that the burden is on the assessee to establish a reasonable cause for receiving the amount in cash.- In Grihalakshmi Vision v. Additional Commissioner of Income Tax, it was observed that the assessee must prove why the cash loan was accepted and whether there was a reasonable cause for not accepting it through cheques or drafts.- In Commissioner of Income Tax, Trichur v. Al-Ameen Educational Trust, the Court found no reasonable cause for accepting loans in cash, even if the transactions were genuine and some loans were repaid by cheques.Conclusion:The High Court concluded that the appellant did not provide a valid explanation or reasonable cause for accepting the loans in cash, as required under Section 273B. The mere repayment of loans through cheques and the absence of tax evasion or black money were not sufficient to constitute a reasonable cause. Consequently, the appeal was dismissed, and the question of law was answered against the appellant and in favor of the revenue.