Loans over Rs. 20,000 in Cash Subject to Penalty under Income-tax Act

The High Court of Bombay held that loans exceeding Rs. 20,000 taken in cash are subject to penalty under section 271D of the Income-tax Act, 1961. The Court ruled that Circular No. 572 issued by the Central Board of Direct Taxes, stating penalties apply to loans exceeding Rs. 20,000 in cash, is binding on the Assessing Officer. Despite discrepancies in wording, the Circular's interpretation prevailed. The Court dismissed the Revenue's appeal, emphasizing adherence to the Circular's provisions, which dictated that penalties did not apply in this case as loans were not over Rs. 20,000 from each individual.

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Issues:
Interpretation of section 269SS of the Income-tax Act, 1961 regarding loans taken in cash exceeding Rs. 20,000 and applicability of penalty under section 271D.

Analysis:
The High Court of Bombay heard an appeal by the Revenue against the Income-tax Appellate Tribunal's order. The case involved the assessee taking loans of Rs. 20,000 each from seven individuals. The Revenue argued that any loan exceeding Rs. 20,000 taken in cash, other than by cheque, would breach section 269SS, leading to a penalty under section 271D. The question of law was whether section 269SS applied only to loans taken in cash exceeding Rs. 20,000. The assessee relied on Circular No. 572 issued by the Central Board of Direct Taxes, which clarified the penalties for defaults under the Income-tax Act. The Circular stated that penalties under section 271D applied to loans or deposits exceeding Rs. 20,000 taken in cash. The Court noted that circulars issued by the Central Board of Direct Taxes are binding on departmental authorities, including the Assessing Officer. The Supreme Court's judgments emphasized the binding nature of such circulars, even if they deviate from the correct interpretation of the law.

The Court held that the Circular's interpretation that loans or deposits should be in excess of Rs. 20,000 for section 271D penalties to apply was binding. Despite the difference in language between the Circular and section 269SS, the Assessing Officer was bound by the Circular's provisions. The Court emphasized that the Board's circulars are legally binding on the Revenue, even if they deviate from the correct interpretation of the law, as long as they are issued under statutory powers. The Court dismissed the appeal, stating that the Assessing Officer could not act contrary to the Circular's provisions. Therefore, as the loans were not in excess of Rs. 20,000 from each person, the question of law did not arise, and the appeal was dismissed.

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