2023 (9) TMI 477 - AT - Income Tax

Loan accepted through banking channel not subject to penalty under section 271D.

The appeal against the penalty order under section 271D for accepting a loan in contravention of section 269SS was allowed. The Tribunal found that the ... Penalty u/s. 271D - acceptance of cash loan in contravention of provisions of section 269SS - HELD THAT:- It is pertinent to note that since the assessee was an agriculturist and deriving income related to agricultural activities, as on salary there was no regular assessment in assessee’s case. The Assessing Officer at no point of time disputed the bank statement of the assessee wherein the amount of Rs. 1,42,000/- was transferred in The Berna Gamni Seva Sahakari Mandali Ltd. and the same was shown in the bank statement dated 26-03-2011. The transaction as well as the ledger along with the certificate was not doubted and in fact the contention of the ld. Departmental Representative that it was mismatching appears to be not correct and thus there was no cash involved in the present transaction. Therefore, section 269SS will not be applicable in the present case and the penalty levied u/s. 271D does not survive. CIT(A) as well as the AO was not correct in levying the penalty u/s. 271D - Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271D can be levied for acceptance of a loan where the transaction is evidenced to be through bank transfers and not by cash, thereby engaging section 269SS? 2. Whether initiation and confirmation of penalty proceedings under section 271D is permissible in the absence of a regular income-tax assessment in the assessee's case. 3. Whether evidence in the form of bank statements, ledger entries and a certificate from the cooperative society, not specifically disbelieved by the Revenue, suffices to rebut an allegation of cash acceptance attracting section 269SS/penalty under section 271D. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of section 269SS and levy of penalty under section 271D where transaction is by banking channel Legal framework: Section 269SS prohibits acceptance of certain loans or deposits otherwise than by an account payee cheque or account payee bank draft or through banking channel; section 271D prescribes penalty for contravention of section 269SS. Precedent treatment: The Tribunal noted that identical factual issues in the assessee's own earlier appeals for other assessment years were decided in favour of the assessee (relying on those decisions as directly persuasive for identical facts), and applied the reasoning consistently to the present year. Interpretation and reasoning: The Assessing Officer initiated penalty proceedings alleging cash acceptance of a loan of Rs. 1,42,000. The assessee produced contemporaneous bank statement showing transfer of the amount to the cooperative society dated 26-03-2011, ledger entries and a certificate from the society corroborating the transaction. The Revenue did not dispute the bank statement or the certificate; its contention that adjustments did not match or correlate was not supported by positive findings or evidence contradicting the banking records. The Tribunal emphasized that where the documentary evidence demonstrates that the transaction passed through the banking channel and the Revenue does not cast credible doubt on those records, the statutory prohibition in section 269SS is not attracted and the consequential penal provision in section 271D cannot be sustained. Ratio vs. Obiter: Ratio - a penalty under section 271D cannot be levied where the acceptance of loan is demonstrably effected through banking channels and not in cash, supported by uncontested bank statements and corroborative documents. Obiter - reliance on assessee's earlier identical decisions is used as persuasive authority but the decisive factor is the documentary proof in the record. Conclusions: The penalty under section 271D was not sustainable because the transaction was effected through the banking channel; therefore section 269SS did not apply and the penalty was quashed. Issue 2: Validity of initiating/confirming penalty proceedings in absence of a regular assessment Legal framework: Levy of penalties under the Income-tax Act is generally independent of the completion of regular assessment proceedings, subject to statutory conditions and the existence of material to justify the penalty; but the existence of an assessment may affect the evidentiary or procedural posture in individual cases. Precedent treatment: The Tribunal observed that the assessee was an agriculturist with income from agricultural activities and salary and that there was no regular assessment for the relevant year. The Tribunal treated the absence of regular assessment as pertinent background but did not rely on it as a standalone bar to penalty proceedings. Interpretation and reasoning: The Tribunal reasoned that even if there is no regular assessment, imposition of penalty requires satisfaction of the statutory condition - namely proof of contravention of section 269SS. In the present case the foundational factual predicate for penalty (cash acceptance) was negated by bank records. Thus the absence of a regular assessment did not permit sustaining a penalty where the substantive factual requirement for invoking section 271D was not met. Ratio vs. Obiter: Ratio - absence of regular assessment does not by itself validate a penalty; the penalty must be founded on proved statutory contravention. Obiter - procedural posture (no assessment) is noted but not treated as determinative. Conclusions: Confirmation of penalty in the absence of regular assessment was unsustainable where the material discloses no contravention of the substantive provision (section 269SS); accordingly the penalty could not be sustained. Issue 3: Evidentiary sufficiency of bank statements, ledger entries and society certificate to rebut allegations of cash transactions Legal framework: The onus to establish contravention of section 269SS lies on the Revenue; documentary evidence showing transfer through banking channels is relevant and admissible to displace an allegation of cash acceptance. Precedent treatment: The Tribunal relied on the unchallenged contemporaneous records produced by the assessee and consistent earlier decisions on identical facts in favour of the assessee to conclude that documentary proof is determinative where unrefuted. Interpretation and reasoning: The assessee produced a bank statement showing the transfer, ledger entries and a certificate from the cooperative society. The Assessing Officer and the CIT(A) did not reject the bank statement on any positive findings; the Revenue's assertion of 'mismatch' was not substantiated. The Tribunal found no basis to disbelieve the banking records or the society's certificate; in such circumstances the statutory prohibition against non-banking receipts is not attracted. Ratio vs. Obiter: Ratio - contemporaneous bank records and corroborative society records, when not rebutted by the Revenue, are sufficient to establish that the transaction was through the banking channel and to negate applicability of section 269SS/271D. Obiter - suggestions about what constitutes adequate rebuttal by Revenue (i.e., positive contradiction rather than bald assertions of mismatch) are illustrative. Conclusions: The documentary evidence produced by the assessee sufficed to rebut the allegation of cash acceptance; in absence of credible contrary evidence the penalty under section 271D could not be sustained. Overall Conclusion The Tribunal allowed the appeal: the penalty under section 271D was quashed because the disputed loan was evidenced to have been accepted through the banking channel (negating section 269SS), the Revenue did not satisfactorily dispute the bank records or the society's certificate, and confirmation of penalty in absence of a regular assessment could not stand where the substantive contravention was not established.