2025 (2) TMI 87 - AT - Income Tax

Penalties under Sections 271D and 271E quashed; reasonable cause found due to urgent CBI demand under Section 273B.

The HC set aside the penalties imposed on the assessee under sections 271D and 271E of the Income Tax Act, 1961, for accepting and repaying cash loans in ... Penalties levied u/s 271D - accepting cash loans in violation of section 269SS - Receipt of on-money - Middle class and uneducated assessee - The persons who advanced money to her were agriculturist and that was why they had given cash loans, in anonymity, in the fear of CBI actions on them also. - HELD THAT:- As there is a reasonable cause for not only accepting cash loans of Rs. 17,00,000/- immediately after the CBI actions on the assessee in the fear of the arrest but also the repayment of part of the loan on insistence of the person who advanced the said loan to the assessee in the dire need as mentioned above. We are of the firm opinion that there are reasonable causes for not levying penalties u/s 271D and 271E r.w.s. 274 of the Act. Accordingly, we set aside the impugned orders and quash the penalties levied by the JCIT, Range Panipat. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment were:Whether the penalties levied under section 271D of the Income Tax Act, 1961, for accepting cash loans in violation of section 269SS, were justified.Whether the penalties levied under section 271E of the Income Tax Act, 1961, for repaying cash loans in violation of section 269T, were justified.Whether there existed a reasonable cause for the assessee's actions that would exempt them from the penalties under sections 271D and 271E.ISSUE-WISE DETAILED ANALYSIS1. Penalty under Section 271D for Violation of Section 269SSRelevant Legal Framework and Precedents: Section 269SS prohibits accepting loans or deposits in cash exceeding Rs. 20,000, and section 271D prescribes penalties for violations. The assessee was penalized for accepting a total of Rs. 17,00,000 in cash from five individuals.Court's Interpretation and Reasoning: The Court considered the circumstances under which the assessee accepted the cash. It acknowledged the pressure and urgency created by the CBI's demand to return Rs. 30,00,000 within three days, which justified the assessee's actions.Key Evidence and Findings: The evidence included the CBI's search and the assessee's subsequent need to gather Rs. 17,00,000 quickly. The Court noted the assessee's limited time and the threat of arrest as significant factors.Application of Law to Facts: The Court applied the reasonable cause exception under section 273B, determining that the circumstances constituted a reasonable cause for the assessee's actions, thus exempting her from penalties under section 271D.Treatment of Competing Arguments: The Court considered the arguments of the Revenue, which emphasized strict adherence to the Act, and balanced them against the assessee's situation, ultimately finding in favor of the latter.2. Penalty under Section 271E for Violation of Section 269TRelevant Legal Framework and Precedents: Section 269T prohibits repayment of loans or deposits in cash exceeding Rs. 20,000, and section 271E prescribes penalties for violations. The assessee was penalized for repaying Rs. 3,50,000 in cash to Mr. Naveen Kaushik.Court's Interpretation and Reasoning: The Court examined the context of the repayment, noting the insistence of the lender and the urgency of the situation. The Court found that these factors provided a reasonable cause for the violation.Key Evidence and Findings: The evidence included the repayment transaction and the lender's insistence. The Court found that the repayment was not an attempt to circumvent the law but was driven by external pressures.Application of Law to Facts: The Court applied the reasonable cause exception under section 273B, determining that the circumstances justified the repayment in cash, thus exempting the assessee from penalties under section 271E.Treatment of Competing Arguments: The Court weighed the Revenue's arguments against the specific facts of the case, ultimately deciding that the assessee's actions were justified under the circumstances.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'We find merit in the arguments of the Ld. AR that there is a reasonable cause for not only accepting cash loans of Rs. 17,00,000/- immediately after the CBI actions on the assessee in the fear of the arrest but also the repayment of part of the loan on insistence of the person who advanced the said loan to the assessee in the dire need as mentioned above.'Core Principles Established: The judgment reinforces the principle that penalties under sections 271D and 271E can be waived if the assessee demonstrates a reasonable cause under section 273B. The Court emphasized the importance of considering the specific circumstances and pressures faced by the assessee.Final Determinations on Each Issue: The Court set aside the penalties levied under sections 271D and 271E, concluding that the assessee had reasonable cause for both accepting and repaying the cash loans. The appeals were allowed, and the penalties were quashed.