Cash loan from wife due to business expediency. Penalty 271D deleted as business was in family’s interest

Cash loan from wife due to business expediency. Penalty u/s 271D deleted as the business was carried on in the interest of family and genuineness/sources was not doubted

ABCAUS Case Law Citation:
ABCAUS 3161 (2019) (10) ITAT

Important case law relied upon by the parties:
Penmetsa Venkata Soma Raju
Dr. Dutta Siva Sankara Rao
Smt. Kusum Dhamani.v. Additional Commissioner of Income-tax

Cash loan from wife due to business expediency

In the instant case, the appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals)

In this case, the Joint Commissioner of Income Tax (‘JCIT’) received information from ITO/Assessing Officer (AO) that the assessee had received a sum of Rs. 15.00 lakhs as loan otherwise than account payee cheque in violation of provisions of section 269SS of the Income Tax (‘Act’).

Therefore, the JCIT initiated penalty proceedings u/s 271D of the Act and accordingly issued show cause notice calling for the explanation of the assessee as to why the penalty should not be levied against him for accepting the cash loan in violation of section 269 SS of the Act.

In response to the notice issued by the JCIT, the assessee filed explanation stating that he had accepted the loan from his wife for purchase of machinery due to business expediency. Since the loan was received from his wife for business purposes, the assessee requested to drop the penalty proceedings as the loan was from closely related person and the source was explained in her hands.

The JCIT, not being convinced with the explanation of the assessee levied the penalty u/s 271D r.w.s.296SS of the Act observing that the acceptance of loan in cash whether for the purpose of capital asset or revenue purpose attracts the provisions of section 269SS of the Act.

The CIT(A) confirmed the penalty stating that there was acceptance of loan in cash otherwise than by cheque, accordingly dismissed the appeal of the assessee.

The Tribunal observed that there was no dispute that the source was explained in the hands of his wife. The AO did not doubt the genuineness of the loan as well as the sources of the loan.

The Tribunal considered various provisions of the Act dealing with transactions with close relatives. It was noted that the transactions of gifts between the close relatives are exempt from the tax u/s 56(2) of the Act. Also, the sums received exceeding twenty-five thousand rupees without consideration by an individual are exempt from taxing it from other sources as provided in the proviso to section 56(2)(v) of the Act which shows that in case of genuine and bonafide transaction between close relatives required to be taken a lenient view.

In the instant case, as the wife had given a loan to the assessee (husband) who was carrying on the business and the transaction was between the assessee and his wife. The business was carried on in the interest of family and it was the responsibility of both wife and husband to run the family and to share the responsibilities of the family.

The Tribunal opined that when the gift between the close relatives are not taxed under section 56(2) we are of the view that genuine loan transaction also needs to be considered in favour of the assessee.

The Tribunal observed that in similar facts and circumstance, the ITAT had deleted the penalty levied by the AO. Also in another case, considering the similar issue the coordinate bench of ITAThad held that where assessee was running a proprietorship concern and took cash loans from her husband carrying on another proprietorship business on account of business exigencies for making payments to labourers and lenders, there being no violation of provisions of section 269SS and the penalty order passed under section 271D was set aside.

In the instant case, the assessee had taken a loan from his wife due to business expediency and the AO had not doubted the genuineness and the sources of the loan. Therefore, following the view taken by the Tribunal/ coordinate Bench the Tribunal held that the penalty was not leviable in this case and was accordingly set deleted.

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