2026 (1) TMI 706 - AT - Income Tax

Cash loans from agriculturist lenders found bona fide; penalties u/s271D/271E deleted; reasonable cause u/s273B

Dominant issue - levy of penalty under s.271D/271E for cash loans: Tribunal found on evidence that the assessee's chargeable income was below the taxable ... Penalty u/s 271D and 271E - assessee obtained as well as repaid loans in cash from four persons - Reasonable cause to get relief u/s 273B - assessee contended that the assessee as well as the lenders was having agricultural income and his income was also below taxable limit and therefore, such penalties were not leviable - transactions were under bona-fide belief and the same were genuine. The assessee was new in construction business and prior to this year, the assessee was cultivating his ancestral land only. HELD THAT:- The facts on record, would show that the assessee’s income is below taxable limit whereas the substantial income of the assessee constitute agricultural income of Rs. 14 Lacs which has been accepted by Ld. AO. As decided in the case of Shri Ram Singh [2022 (8) TMI 1604 - ITAT DELHI] held that when the income is below taxable income limit, it could be said that the assessee had no other income which is chargeable to tax under the Act and therefore, the penalty as levied by Ld. AO u/s 271D was deleted. It is also fact that all the lenders are agriculturists which is evident from affidavit of Shri Raj Pal and Shri Sukhpal Singh which was filed by the assessee before.AO. The assessee had also filed copies of land revenue records (Fard) to Ld. AO which is not in dispute. Similar documents have been filed for Shri Surjit Singh. Therefore, the assessee, in my considered opinion, would be covered under second proviso. Proceeding further, the assessee would succeed on the plea of reasonable cause also since it is the first year of start of business. The nature of business i.e., construction and building material would involve cash transactions. The lenders are agriculturists and close family friends of the assessee residing in remote villages. The genuineness or the source of loan is not in dispute. As decided in the case of Narinder Kumar Chunilal Soni (2023 (7) TMI 271 - ITAT AHMEDABAD) held that penalty u/s 271D is not leviable when cash was accepted under bona fide circumstances and without tax evasion motive. Sec.273B relief would be applicable if reasonable cause was shown. Assessee appeal allowed. Issues: Whether penalties under Section 271D and Section 271E of the Income-tax Act, 1961 are leviable for acceptance and repayment of loans in cash where (i) both lender(s) and borrower have agricultural income and neither has income chargeable to tax, and (ii) the transactions are bona fide and there exists reasonable cause (first year of business) for cash dealings.Analysis: The legal framework includes the prohibitions on cash acceptance and repayment under Sections 269SS and 269T and the penal provisions under Sections 271D and 271E, with an exception in the second proviso to Section 269SS excluding loans/deposits between parties who both have agricultural income and neither has income chargeable to tax. Section 273B permits waiver of penalty where reasonable cause is shown. The Tribunal examined evidence of agricultural status (affidavits and land records) of the lenders and the assessee's income being below taxable limit with significant agricultural income accepted in assessment. The Tribunal also considered the factual matrix that the year was the assessee's first year in construction business, the genuineness and source of loans were undisputed, and the lenders were agriculturists and close acquaintances residing in remote villages. Relevant precedents and decisions construing reasonable cause and bona fide cash transactions were applied to these facts.Conclusion: Penalties under Section 271D and Section 271E are not leviable on the facts: the second proviso to Section 269SS applies because both parties were agriculturists with no income chargeable to tax, and, alternatively, reasonable cause/bona fide circumstances exist for relief under Section 273B; therefore the impugned penalties are cancelled in favour of the assessee.