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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
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: 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 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: 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:
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.
"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."
"....... 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.
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