Penalty u/s 271D unjustified when bank refused loan

Penalty u/s 271D unjustified when bank refused loan and cash was obtained for meeting urgent business expenses as it was a reasonable cause u/s 273B

ABCAUS Case Law Citation:
ABCAUS 2750 (2019) (01) ITAT

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

During the course of the assessment proceedings, the AO noted that the assessee had recived cash loans.

When asked, the assessee explained that he had received huge job work orders and for the purpose of their execution, the assessee was in need to purchase new machineries and also employ more people.

It was submitted that when the assessee was refused loan from banks and financial institutions because of his financial position and being a small time businessman, the amount was borrowed from relatives and friends, who were mainly agriculturists, for the purpose of business necessity.

However, the AO, ignoring the explanation given by the assessee, levied penalty under Section 271D of the Act for violation of provisions of Section 269SS of the Act.

The penalty was confirmed by the CIT(Appeals) holding that there was no reasonable cause as provided in Section 273B of the Act.

Before the Tribunal, the assessee reiterated the same and submitted that there was reasonable cause on the part of the assessee in receiving cash from various persons for the purpose of execution of job work received by the assessee.

However, on a query from the Bench whether the assessee could get bank loan, the Revenue fairly acknowledged that the financial position of the assessee could not allow him to borrow funds from banks and financial institutions.

The Tribunal observed that the fact that the assessee received cash loans was not in dispute. The only question for the consideration was whether there was reasonable cause on the part of the assessee in receiving cash loans as provided in Section 273B of the Act?

The Tribunal observed that factually the assessee was a small time businessman. It was also not in dispute that during the year under consideration, the assessee received huge orders of job work. Therefore, the assessee had to make necessary arrangement for purchase of machineries and employment of manpower for which the assessee needed money.

The Tribunal also noted that the fact that the assessee approached banks and financial institutions and they in turn refused to give money to the assessee was not disputed by the Revenue.

The Tribunal stated that the assessee was left with no other way except to approach his friends and relatives many of them were agriculturists and in such circumstances, receiving loan from agriculturists from different places for the purpose of meeting urgent expenses in the business could not result in levy of penalty.

In view of the facts of the case the Tribunal opined that there was a reasonable cause as provided under the provisions of Section 273B of the Act, on the part of the assessee for receiving the cash loans and therefore the levy of penalty u/s 271D was not justified.

Accordingly, the orders of both the authorities below were set aside and the penalty levied by the Assessing Officer under Section 271D of the Act was deleted.

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