No penalty u/s 271D for cash loans taken to meet financial liabilities

No penalty u/s 271D for cash loans taken to meet financial liabilities of a closed business as it constituted a reasonable cause under section 273B – ITAT

ABCAUS Case Law Citation:
ABCAUS 2727 (2019) (01) ITAT

The Assessee hand challenged the order passed by the CIT(A) in confirming penalty under section 271D of the Income-tax Act, 1961 (the Act).

During the course of assessment proceedings, the Assessing Officer (AO), on verification of cash book, observed that that the assessee accepted certain loans in cash on various dates.

The AO was of the view that there was a violation of the provisions of section 269SS in respect of cash loans received by the assessee. Accordingly, he initiated penalty proceedings in the assessment order passed u/s 143(3) r.w.s. 147.

On being show caused as to why penalty u/s 271D of the Act be not imposed in this regard, the assessee submitted that its business activities were close and inoperative for about last many years and the assessee firm had borrowed money from many private money lenders and Sahakari Bank since last 10 years.

It was explained that to meet the financial crunch of the firm, the assessee raised certain loans in cash from unorganized finance sector for disposing off its existing liabilities.

Not convinced by the replies of the assessee, the AO imposed penalty of the equal sum.

The assessee approached the CIT(A) enhanced the penalty.

The Tribunal observed that there was no denial of fact that the assessee, in fact, raised loans in cash in violation of section 269SS of the Act. Once there is violation of the provisions of section 269SS, penalty is triggered u/s.271D of the Act.

However, the Tribunal also observed that section 273B which deals with certain penal provisions, including section 271D, provides that no penalty shall be imposed if the assessee succeeds in proving that the failure resulting in imposition of penalty was for a reasonable cause. Thus, the escape from the clutches of penalty u/s 271D for violation of the provisions of section 269SS is possible when the assessee succeeds in proving that a reasonable cause existed in terms of section 273B for violation of section 269SS.

The Tribunal noted that the assessee specifically submitted before the AO during the course of penalty proceedings, which fact had also been recorded in the penalty order, that its business was inoperative for the last 7 years and it had already borrowed loans from Cooperative Bank and many private money lenders since last 10 years.

The assessee had also submitted that to meet the financial requirements of repayment, for which the lenders were hard pressing, the assessee had to borrow money from unorganized finance sector in cash, which led to the imposition of the instant penalty.

The Tribunal also noted that the assessee had a bank liability of about Rs. 50 crore against mortgage of assets of about Rs.5 crore only, which fact had not been found false or controverted by the AO or the CIT(A) in any manner.

The Tribunal opined that when the submission of the fact was seen in the light of return filed by the assessee declaring loss of Rs.4.35 lakhs, it clearly emerged that the loans were taken by the assessee in cash in violation of provisions of section 269SS to meet the financial liabilities.

The Tribunal opined that in the given circumstances it did constitute a reasonable cause warranting non imposition of penalty u/s271D of the Act in terms of section 273B of the Act.

Therefore, the Tribunal ordered to delete the penalty imposed/enhanced by the AO/CIT(A).  

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