Penalty u/s 271D absurd when assessee himself was karta of HUF giving cash

Penalty u/s 271D was absurd when assessee himself was karta of HUF from where he obtained cash loan-ITAT deleted penalty for violation of section 269SS

ABCAUS Case Law Citation:
ABCAUS 2749 (2019) (01) ITAT

Important Case Laws Cited/relied upon by the parties
Rajendra Suryavanshi Vs ACIT (2011) 141 TT J 620
ADIT (Inv) vs. Kum. A.B. Shanthi 255 ITR 258

The instant appeal by the assessee was against the order passed by the Commissioner of Income Tax (Appeals) confirming the levy of penalty by the Assessing Officer (AO) u/s 271D of Income Tax Act, 1961 (the Act).

During the course of scrutiny assessment, the AO observed that the assessee had obtained loan by way of cash from HUF.

On query, the assessee submitted that he had dual role, one as individual and another as Karta of HUF.  

He explained that the HUF had no physical form and its affairs were handled by the Karta. That he had handled the cash as an individual and Karta of HUF and as such there was no established lender-borrower relationship.

The assessee explained that as per the Act, loan has to be taken by way of account payee cheque or demand draft for which two individuals are necessary. In this case transaction had taken place between a real person and an imaginary person, where both the individuals were the same, issuing of crossed cheque or demand draft by one person on himself was difficult.

Therefore, it was submitted that there was no element of loan at all in the cash transactions between the assessee as an individual and Karta of the HUF.

However the AO opined that the assessee and the HUF wherein the assessee was the Karta, were two distinct entities who were assessable to tax independently and therefore the cash loan obtained by the assessee from his HUF was in violation of the provision of Section 269SS of the Act and accordingly penalty U/s.271D of the Act was attracted.

The AO also rejected the decisions relied by the assessee by distinguish it from the case of the assessee and thereafter invoked the penal provision of Section 271D of the Act and levied penalty on the assessee being the amount of loan obtained by the assessee in cash from his HUF.

On first appeal, the CIT(A) confirmed the order of the AO by agreeing with his view.

The Tribunal observed that apparently the assessee had obtained cash loan from the HUF in which he was Karta. It was also not undisputed that the assessee as well as the HUF shared the same address. Both the assessee and the HUF were closely interrelated because the assessee was the Karta of the HUF from whom he had borrowed loan by way of cash.

The Tribunal opined that in view of the circumstances of the case, the transaction was nothing but transfer of cash from one cash box to another located in the same place.

The Tribunal further opined that in the case of the assessee there was nothing to suggest that the assessee had used the cash loan transaction in order to give false explanation for his unaccounted money. There was nothing to suggest that the transaction was not bonafide.

Therefore, the Tribunal said that it would be absurd to invoke the penal provision of Section 271D of the Act when the assessee himself was part and parcel of the HUF from where he had obtained the cash loan.

Accordingly, keeping in mind the provisions of Section 273B of the Act, the Tribunal set aside the order of the CIT(A) and direct the AO to delete the penalty.

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