2021 (2) TMI 729 - AT - Income Tax

Tribunal upholds penalty for cash loan violations under Income Tax Act, rejects business expediency defense

The Tribunal upheld the penalty imposed under Section 271D of the Income Tax Act for violating Section 269SS by accepting cash loans exceeding Rs. 20,000. ... Penalty levied u/s 271D - accepting unsecured loan above ₹ 20,000/- violating provisions of section 269SS - whether case of the assessee should falls under the provisions of Section 273B ? - reasonable cause, leading to failure of complying the provisions of Section 269SS - HELD THAT:- It is not the case that the place where the assessee is residing has no banking facility nor it is demonstrated that all the cash creditors are agriculturists having no banking facility in the area of their residence. The assessee in the instant case has set up a petrol pump allotted by Indian Oil Corporation (In short ‘IOC’). All the transactions with IOC are to be carried out through banking channel. In the present times the bank transfers are quick through National Electronic Funds Transfer (In short ‘NEFT’) which hardly takes a day to transfer the amount. Ld. Counsel for the assessee failed to controvert this fact and the general submission that the cash loans were taken to purchase the land for setting up a petrol pump and is in the nature of business expediency fails to find any merit. In our view it was not a reasonable cause for the said failure of taking cash loan exceeding ₹ 20,000/- Assessee do not deserve any immunity from paying the penalty u/s 271D of the Act by taking the shield/cover of Section 273B of the Act claiming it to be a reasonable cause for the said failure. We accordingly set aside the finding of Ld. CIT(A) and confirm the action of the Ld. A.O levying the penalty u/s 271D - Decided in favour of revenue. Issues Involved:1. Deletion of penalty levied under Section 271D of the Income Tax Act, 1961 for violation of Section 269SS by accepting unsecured loans in cash exceeding Rs. 20,000.Issue-wise Detailed Analysis:1. Deletion of Penalty under Section 271D for Violation of Section 269SS:The primary issue in this case is the deletion of the penalty levied under Section 271D of the Income Tax Act, 1961, for violating the provisions of Section 269SS by accepting unsecured loans in cash exceeding Rs. 20,000. The Revenue filed an appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which had deleted the penalty imposed on the assessee.Facts of the Case: The assessee, belonging to an agriculturist family, declared an income of Rs. 3,65,750 and was running a petrol pump. During the scrutiny assessment, it was observed that the assessee had taken cash loans totaling Rs. 85,98,257 from various persons, violating Section 269SS. The Assessing Officer (A.O) levied a penalty under Section 271D for this violation.Assessee's Contention: During the penalty proceedings, the assessee contended that the loans were taken in cash to purchase land for setting up a petrol pump, as the seller insisted on cash payment. The identity, genuineness, and creditworthiness of the cash loan were not disputed by the A.O. The assessee argued that there was a reasonable cause for the cash transactions, supported by the registered deed, and thus, the penalty should not be levied.CIT(A)'s Decision: The CIT(A) deleted the penalty, relying on various decisions, stating that there was no adverse finding about the genuineness and identity of the cash creditors. The CIT(A) concluded that the transactions were carried out in the interest of the business, and the assessee deserved immunity under Section 273B of the Act, which provides for non-imposition of penalty if there is a reasonable cause.Revenue's Appeal: The Revenue challenged the CIT(A)'s decision, supporting the A.O's order of levying the penalty.Tribunal's Analysis: The Tribunal observed that the assessee had taken cash loans in excess of Rs. 20,000 from various persons, violating Section 269SS. The Tribunal noted that the penalty under Section 271D is attracted if there is a failure to comply with Section 269SS, which mandates that loans or deposits above Rs. 20,000 should not be accepted in cash.Reasonable Cause under Section 273B: The Tribunal examined whether the assessee's case fell under Section 273B, which provides for non-imposition of penalty if there is a reasonable cause. The Tribunal found that the assessee failed to prove the business expediency or reasonable cause for not complying with Section 269SS. It was noted that the area had banking facilities, and transactions with Indian Oil Corporation (IOC) were to be carried out through banking channels. The general submission that cash loans were taken to purchase land for business did not constitute a reasonable cause.Conclusion: The Tribunal concluded that the assessee did not deserve immunity from the penalty under Section 271D, as there was no reasonable cause for the failure to comply with Section 269SS. The Tribunal set aside the CIT(A)'s decision and confirmed the A.O's action of levying the penalty of Rs. 85,98,257 under Section 271D.Final Judgment: The appeal of the Revenue was allowed, and the penalty levied under Section 271D was upheld.The order was pronounced in the open Court on 16.02.2021.