Cash loan from father to son for financial support not covered u/s 269SS. Repayment also not covered u/s 269T – Tribunal

Cash loan from father to son for financial support not covered u/s 269SS. Repayment also not covered u/s 269T-Tribunal deletes penalty u/s 271D and 271E

ABCAUS Case Law Citation:
ABCAUS 2387 (2018) 06 ITAT

Important Case Laws Cited/relied upon by the parties:
Anant Himatsingk vs Addl. Commissioner of Income-tax,
CIT vs. Maa Khodiyar Construction

The instant appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) on confirming the levy of penalty under section 271-D and 271-E of the Income Tax Act, 1961 (the Act) for alleged violation of provisions under Section 269-SS and 269-T of the Act which prohibit certain cash transactions received and paid in cash.

The assessee took a loan of Rs. 1,00,000/- in cash from his father to pay for a land which was paid on the very next day. The assessee had in urgent need of money and therefore, the said amount was borrowed from his father as a financial support.

According to the assessee, since there was reasonable cause for taking such amount, he was not under obligation to repay though later he returned the said amount to his father from the surplus cash, therefore, provisions of section 269 SS and 269 T were not attracted.

However, the AO did not consider the submission made by the assessee in the penalty proceeding u/s 271D of the Act. He held that there was a violation of the provisions of section 269-SS and section 269-T warranting levy of penalty. Accordingly, he imposed penalty of Rs. 1 lakh each u/s 271-D and 271-E of the Act separately.

The assessee appealed to CIT(A) and contended that the cash was received from his father who was always under an obligation to help his son in need without any contra obligation on part of his son. Therefore, it was proved that there was reasonable cause for the said failure. The assessee was in urgent need of money to make payment which resulted in huge profit in the subsequent period.

The CIT(A) observed that the assessee was not able to show of being prevented by any reasonable cause in not accepting the advance through account payee cheque or bank draft and there was no contention to that effect. Therefore, he held that the assessee was not able to establish any genuine and reasonable cause for violation of the relevant provisions of the Act. Accordingly, the appeal was dismissed.

The Tribunal observed that the bonafide and/or the genuineness of the transactions had not been question by the lower authorities while imposing penalty. Identity of the father had also been well established which was accepted by the authorities. The amount was borrowed from the father of the assessee and was repaid subsequently.

The Tribunal opined that once the finding as to the genuineness of the transactions was arrived at by the authorities, it was not proper for them to impose penalty. Neither there was any finding that the assessee intended to evade tax.

The Tribunal noted that in a similar case, the ITAT Kolkata had observed that the transaction between son in law and father in law for giving financial support and help, in law was not a loan or deposit in stricter sense of section 269SS of the Act when there was no allegation that the father in law of assessee had charged any interest on the above loan.

The Tribunal also observed that the Hon’ble Gujarat High Court had held that the requirement of Section 273B is for the assessee to prove that there was a reasonable cause for its having failed to abide by the provisions of Section 269SS. The Hon’ble High Court upheld the deletion of the penalty when the assessee had given satisfactory reason for taking such loan.

Following the ratio laid down in the said judements, the Tribunal deleted the order of penalty passed u/s 271D & 271E of the Act

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