2022 (8) TMI 1604 - AT - Income Tax

Cash loans between agriculturists under section 269SS held excluded from prohibition, penalty under section 271D quashed

Interpretation of the second proviso to section 269SS clarifies that cash loans between persons who both derive agricultural income and have no other ... Penalty imposed u/s 271D - non-genuine transactions made in cash - technical violation of section 269SS - Scope of exceptions provided in the second proviso to section 269SS. HELD THAT:- Assessee is an agriculturist. For purchasing some agricultural land jointly, the assessee has availed cash loan from other agriculturists. It is a fact on record that major part of the loan availed by the assessee has been accepted by the departmental authorities. Of course, there is no denial of the fact that the assessee has availed the loan in cash. The issue arising for consideration is, whether there is violation of section 269SS of the Act while availing cash loan. On a reading of second proviso to section 269SS of the Act, it is very much clear that it excludes cash loan availed by a person, if the person borrowing and person lending, both are having agricultural income and do not have any other income chargeable to tax under the Act. In the facts of the present appeal, undoubtedly, both the assessee and the lenders are having agricultural income. In fact, the departmental authorities have also accepted this factual position. The second condition of the second proviso to section 269SS which requires to be fulfilled is, both the assessee and lenders should not have any other income chargeable to tax under the Act. Assessee’s contention, in this regard, have been rejected by the AO and Commissioner (Appeals) on the ground that the assessee had business income. The quantum of other income offered by the assessee is an amount of Rs. 1,54,000/-. There is no dispute that the quantum of other income is below the taxable income limit. Therefore, on a plain interpretation of the expression “chargeable to tax under this Act”, it can be said that the assessee had no other income which is chargeable to tax under the Act. Assessee’s claim that the lenders did not have any income chargeable to tax has not been rebutted by the Revenue. Thus, assessee’s case would be covered under the exceptions provided in the second proviso to section 269SS. Hence, the provision of section 269SS would not be applicable. Penalty imposed under section 271D of the Act is unsustainable - Assessee appeal is allowed. Issues: Whether penalty under section 271D of the Income-tax Act, 1961 is sustainable where cash loans were availed from agriculturists and both lender and borrower have only agricultural income and no income chargeable to tax, thereby invoking the second proviso to section 269SS of the Income-tax Act, 1961.Analysis: The factual matrix shows the assessee (an agriculturist) availed cash loans from other agriculturists for purchase of agricultural land. The departmental authorities accepted the major part of the loans and it is undisputed that the transactions were in cash. The second proviso to section 269SS excludes the application of section 269SS where both lender and borrower have agricultural income and neither has any income chargeable to tax under the Act. The assessee's declared non-agricultural income was below the taxable threshold and therefore not 'chargeable to tax'. The Revenue did not rebut the claim that the lenders had no income chargeable to tax.Conclusion: Penalty under section 271D is unsustainable and is deleted; decision rendered in favour of the assessee.Ratio Decidendi: Where both lender and borrower are agriculturists and neither has any income chargeable to tax under the Income-tax Act, 1961, the second proviso to section 269SS excludes the operation of section 269SS and consequent penalty under section 271D cannot be sustained.