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In a recent judgment, Allahabad High Court has held that where genuineness of the loan transaction in cash is not disputed and it was deposited and routed through banking channels subsequently, penalty u/s 271D for violation of section 269SS is not imposable in view of section 273B.

The court has categorically stated that the contention of the ITD that since there was no urgency, the assessee could have taken the loan through cheque and should have processed the matter through regular banking channels was immaterial, inasmuch as the genuineness of the transaction has not been disputed by the Assessing Officer.

Income Tax Appeal No.174 of 2015  
CIT-II, Agra (Appellant) vs  Smt. Dimpal Yadav (Respondent)  
With  
Income Tax Appeal No.71 of 2013  
CIT-II, Agra (Appellant   ) vs   Akhilesh Kumar Yadav (Respondent)  
Coram: Hon'ble Tarun Agarwala, J.   Hon'ble Surya Prakash Kesarwani, J.  
Date of Judgment: 21st August, 2015

Facts of the Case:
Return for the assessment year 2006-07 selected for scrutiny under Section 143(2) of the Income Tax Act, 1961. The Assessing Officer noticed that the assessee had acquired lease hold rights over a nazul land along with her husband vide assignment-cum-sale deed dated 31st January, 2005. The said nazul land was subsequently, converted into free hold in favour of the assessee and her husband vide deed executed on 24th June, 2005 on a total cost of Rs.44,67,208/-. The Assessing Officer noticed that 50% of the amount i.e. Rs.22,33,604/- was taken in cash as an unsecured loan from Samajwadi Party for the purpose of converting lease hold land into free hold land. The cash amount taken from Samajwadi Party was deposited in the joint account of the assessee along with her husband. The amount was subsequently, paid back to the Samajwadi Party on 24th August, 2005.  

Accordingly, Assessing Officer first issued notice and later imposed a penaly u/s 271D of the Act for violating the provisions of Section 269SS.

Assessee’s Contentions before the assessing officer were:
That the funds were urgently required for conversion of the property, and she did not had the requisite funds at that point of time
That the transaction of loan was found to be genuine in assessment proceedings and, therefore, the assessee could not be subjected to penalty.
That the assessee was not aware of the provisions of Section 269SS of the Act.  

On appeal, the Additional Commissioner of Income Tax held that the case did not fall under the exceptional clause under Section 269SS and no evidence to prove the urgency of taking a loan in cash has been given.

Later, ITAT set aside the penalty order

Contentions of the Income Tax Department:
That the taking of the loan in cash, in excess of Rs.20,000/- was in gross violation of Section 269SS of the Act and, consequently, by operation of law, the penalty was rightly imposed.

That there was no urgency for the assessee to receive the entire amount in cash nor any dire need was shown for taking such huge amount in cash.

In support of the above submission, reliance was placed upon a decision of the Punjab and Haryana High Court, Charan Dass Ashok Kumar Vs. Commissioner of Income Tax, 365 ITR 367 and Auto Piston MFG. Co. P. Ltd. Vs. Commissioner of Income Tax, 355 ITR 414 as well as the decision of the Madras High Court P. Baskar Vs. Commissioner of Income Tax, 340 ITR 560.

Contentions of the Assessee:
That the transaction of loan found place in the books of accounts of the assessee as well as by the lender, namely, the Samajwadi Party and that the assessing authority while completing the assessment order had found that the transaction of loan was genuine.

that in the absence of any finding that the transaction of loan was not genuine or it was a sham transaction to cover unaccounted money, no penalty could be imposed.

In support of the above submission, reliance was placed upon a decision of Gauhati High Court in Commissioner of Income Tax Vs. Bhagwati Prasad Bajoria (HUF), 263 ITR 487, Chamundi Granites Pvt. Ltd. Vs. Deputy Commissioner of Income Tax, 255 ITR 258 and M. Janardhana Rao Vs. Joint Commissioner of Income Tax, 2005 (2) SCC 324.  

Excerpts of the Judgment:

The object of introducing Section 269SS of the Act was to ensure that a tax payer was not allowed to give false explanation for his unaccounted money or if the tax payer made some false entries, he would not escape by giving false explanation for the same. It was found that during the search and seizure, unaccounted money was found and the tax payer usually gave an explanation that he had borrowed or received deposits from his relatives or friends and, consequently, it became easy for the so called lender to manipulate his record to suit the plea of the tax payer. In order to curb this menace, Section 269SS of the Act was introduced to do away with the menace of making false entries in the account books and later give an explanation for the same. Section 269SS of the Act consequently, required that no person shall take or accept any loan or deposit, if it exceeds more than Rs.20,000/- in cash.  

Section 271D of the Act caused undue hardship to the tax payers where they took a loan or deposit in cash exceeding Rs.20,000/- even where there was a genuine or bonafide transaction. The legislature accordingly, introduced Section 273B of the Act, which provided that if there was a genuine and bonafide transaction and the tax payer could not get a loan or deposit by an account payee cheque or demand transaction for some bonafide reason, the authority vested with the power to impose penalty had a discretion not to levy the penalty.  

In Chamundi Granites (supra) the Supreme Court considered the provision of Section 271D and 273B of the Act and held:-  

"It is important to note that another provision, namely section 273B was also incorporated which provides that notwithstanding anything contained in the provisions of section 271D, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision is he proves that there was reasonable cause for such failure and if the assessee proves that there was reasonable cause for failure to take a loan otherwise than by account-payee cheque or account-payee demand draft, then the penalty may not be levied.

Therefore, undue hardship is very much mitigated by the inclusion of section 273B in the Act. If there was a genuine and bona fide transaction and if for any reason the taxpayer could not get a loan or deposit by account-payee cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty has got discretionary power."  

In Bhagwati Prasad Bajoria's (supra) the Gauhati High Court held:  

"....... The transaction of loan has found place in the books of account of the assessee as well as the lender of the loan. None of the authorities have reached the conclusion that the transaction of the loan was not genuine and it was a sham transaction to cover up the unaccounted money. It appears to us that the assessee felt need of money and thus he approached the money-lender for advancement of the money, the transaction is reflected in the promissory notes executed by the assessee in favour of the lender. When there is an immediate need of money the person cannot get such money from the nationalised bank to satisfy the immediate requirement....."  

In the instant case, we find that the Tribunal has given a categorical finding that the assessee had established a reasonable cause for failure to comply with the provision of Section 269SS of the Act. The Tribunal further found that the loan given by the Samajwadi Party was a genuine loan, which was reflected in the books of accounts on account of the Samajwadi Party as well as in the books of account of the assessee and that the cash given by the party was deposited in the bank of the assessee and, thereafter, used for the purpose of converting the nazul land into free hold. The Tribunal found that the genuineness of the transaction was also not disputed by the Assessing Officer.  

In the light of the aforesaid, we find that even though the assessee had taken a loan in cash, nonetheless, the loan transaction was a genuine transaction and was routed through the bank account of the assessee which clearly shows the bonafides of the assessee. The cash given by the lender was not unaccounted money but was duly reflected in their books of account. The Assessing Officer also accepted the explanation and found the transaction to be genuine. The contention of the learned counsel for the appellant that since there was no urgency, the assessee could have taken the loan through cheque and should have processed the matter through regular banking channels is immaterial, inasmuch as the genuineness of the transaction has not been disputed by the Assessing Officer. Further, we find that the cash was deposited in the bank account of the assessee and the money was thereafter, routed through the banking channel for payment to the government for converting the land into free hold property.  

In the light of the aforesaid, we are of the view that reasonable cause had been shown by the assessee and the provisions of Section 273B of the Act was applicable. The appellate authorities were justified in holding that no penalty could be imposed since a reasonable cause was shown by the assessee  

Download Full Judgment Click Here >>

In view of Section 273B, No Penalty is Imposable u/s 271D for Contravention of Section 269SS if Cash Loan Transaction is Genuine-Allahabad High Court | 24-08-2015 |

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