Cash gift from father-in-law for property purchase not subject to section 271D penalty

ITAT Chennai ruled in favor of the assessee regarding penalty under section 271D for alleged violation of section 269SS. The assessee received cash as gift from father-in-law for property purchase. CIT(A) upheld the penalty, rejecting the gift claim. However, ITAT relied on precedent from Mani Sundaram case and Madras HC decision in Nanda Kumari, establishing that no section 271D penalty applies when cash is obtained from family members as gift. The penalty was deleted.

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Issues:
Challenge to penalty under section 271D of the Income Tax Act for obtaining interest-free hand loan from family members.

Detailed Analysis:
The appeal was against the order confirming the penalty under section 271D of the Act for obtaining interest-free hand loans from family members. The Assessing Officer initiated penalty proceedings for violating section 269SS of the Act, resulting in a penalty of Rs. 8,05,000. The appellant contended that the loans were obtained from family members and thus should not attract a penalty. The appellant referred to a similar case before the ITAT, Chennai Bench, where it was held that no penalty is leviable if the loan in cash is availed from family members.

The Tribunal noted that the Assessing Officer recorded cash deposits in banks, which the appellant explained as being from salary, gold loans, and personal loans. The ld. CIT(A) did not accept the explanation, stating that the cash was obtained as a gift from the appellant's father-in-law for property purchase, not violating section 269SS. The Tribunal referred to a case where it was held that no penalty is attracted if cash is obtained from family members as a gift. The Tribunal emphasized the importance of showing reasonable cause for receiving money in contravention of the Act.

In a similar case, the Division Bench granted relief to the assessee, emphasizing the genuineness of the transaction between family members. The Tribunal held that the levy of penalty was not warranted in such circumstances. The Tribunal further highlighted the necessity of demonstrating a reasonable cause for receiving cash. The Tribunal concluded that the case did not warrant a penalty under section 271D of the Act and directed the Assessing Officer to delete the penalty.

Based on the identical facts and the decision in the referenced case, the Tribunal held that the confirmation of the penalty by the ld. CIT(A) was not maintainable. Consequently, the Tribunal directed the Assessing Officer to delete the penalty levied under section 271D of the Act. The appeal filed by the assessee was allowed, and the order was pronounced on 26th July 2024 in Chennai.

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