Reasonable cause in family loan transactions defeated penalty where dealings were disclosed, recorded, and showed no unaccounted cash movement.

Penalty for acceptance and repayment of a loan was held inapplicable where the transactions were between proprietary concerns of father and son, fully recorded in the books, and driven by urgent business needs. The Tribunal treated receipt through bearer cheque and repayment by deposit into the lender's bank account as only a technical infraction, with no unaccounted cash movement, suppression of income, or concealment. It further accepted that genuine family transactions between near relatives, when disclosed and accounted for, can constitute reasonable cause. On that basis, the penalties were cancelled.

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Issues: Whether penalty under sections 271D and 271E of the Income-tax Act, 1961 was leviable for acceptance of loan through bearer cheque and repayment by deposit into the lender's bank account in transactions between father and son, having regard to the family relationship, business exigency, and reasonable cause under section 273B.

Analysis: The transactions were between proprietary concerns of father and son and were duly recorded in the books of account. The amount received through bearer cheque was found to have been taken for urgent business needs, and the repayment was made by deposit into the father's bank account rather than as cash payment directly to the lender. The Tribunal held that there was no unaccounted cash transaction, no escapement or suppression of income, and only a technical infraction, if any. Relying on the principle that genuine family transactions between near relatives, when properly disclosed and accounted for, may constitute reasonable cause, the Tribunal held that the penal provisions were not attracted.

Conclusion: The penalties under sections 271D and 271E were not sustainable and were cancelled.

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