Landmark Observation : Transactions between relatives involving receipt of loan in cash may not in the nature of loans or deposits as envisaged in section 269SS – No Penalty u/s 271D

short overview : Where the loans were taken by assessee in cash from his relatives, the transactions between relatives were not in the nature of loans or deposits as envisaged in section 269SS and the penalty imposed under section 271D was accordingly cancelled.

During the course of assessment proceedings, AO noticed that assessee had taken fresh unsecured loans during the year under consideration from her daughter and her son-in-law otherwise than by account payee cheques or account payee Bank Drafts. Since the said loans were taken by assessee in contravention of the provisions of section 269SS, penalty proceedings under section 271D were initiated by AO.

it is held that  The transactions between relatives involving receipt of loan in cash were not in the nature of loans or deposits as envisaged in section 269SS and the penalty imposed under section 271D was accordingly cancelled.

Decision: In assessee’s favour.

Referred: CIT v. T.R. Rengarajan (2005) 279 ITR 587 (Mds) : 2005 TaxPub(DT) 1763 (Mad-HC); Smt. Kusum Dhamani v. Additional CIT [IT Appeal No. 847 (JP.) of 2011, dt. 13-6-2014] : 2014 TaxPub(DT) 3342 (Jp-Trib); Anant Himatsingka v. Addl. CIT [ITA Nos. 331 & 332/Kol/2010, dt. 25-11-2011]; Manisha Prakash Amin v. Jt. CIT [ITA No. 1839/Kol/2010, dt. 24-5-2011].

IN THE ITAT, KOLKATA

P.M. JAGTAP, V.P. (KZ) AND SATBEER SINGH GODARA, J.M.

Snehalata Sitani v. Jt. CIT

I.T.A. Nos. 862/KOL/2018

24 April, 2019

Appellant by: Subash Agarwal , Advocate

Respondent by: I. Jamir, Jt. CIT, Senior Departmental Representative

P.M. Jagtap, V.P. (Kolkata Zone)

This appeal filed by the assessee is directed against the order of learned Commissioner(Appeals), Jalpaiguri dated 16-2-2018, whereby he confirmed the penalty of  Rs. 3,42,000 imposed by the assessing officer under section 271D of the Income Tax Act, 1961.

2. The assessee in the present case is an individual, who is engaged in the business of manufacturing of caps, handles, packing materials, PET jars, bottles etc. under the name and style of her proprietary concern M/s. Krishna Industries. The return of income for the year under consideration was filed by her on 21-12-2012 declaring total income of  Rs. 3,20,860. During the course of assessment proceedings, it was noticed by the assessing officer that the assessee had taken fresh unsecured loans during the year under consideration from her daughter Smt. Monika Sitani and her son-in-law Shri Ajay Kumar Jain amounting to  Rs. 95,000 and  Rs. 2,66,000 otherwise than by account payee cheques or account payee Bank Drafts. Since the said loans were taken by the assessee in contravention of the provisions of section 269SS of the Act, penalty proceedings under section 271D were initiated by the assessing officer.

3. During the course of penalty proceedings, the following explanation was offered by the assessee in response to the show-cause notice issued by the assessing officer:-

“Loan of  Rs. 2,66,000 and  Rs. 95,000 were taken from Shri Ajay Kumar Jain and Smt. Monika Sitani respectively in cash. Shri Ajay Kumar Jain and Smt. Monika Sitani happed to be the son-in-law and daughter respectively of the assessee.

The loans were taken on Sundays to meet urgent business requirement.

The lenders have disclosed the loans advanced to the assessee in their respective returns of income.

Reliance was placed on the following decisions, while claiming that penalty under section 271D of the Act shall not be levied if the loan is taken to meet the urgent business requirement:

(i) CIT v. T.R. Rengarajan (2005) 279 ITR 587 (Mds) : 2005 TaxPub(DT) 1763 (Mad-HC)

(ii) Kusum Dhamani v. Addl. CIT [IT Appeal No. 847 (JP.) of 2011, dt. 13-6-2014] : 2014 TaxPub(DT) 3342 (Jp-Trib)”

The above explanation offered by the assessee was not found acceptable by the assessing officer for the detailed reasons given in the penalty order and rejecting the same, he imposed a penalty of  Rs. 3,42,000 under section 271D of the Act.

4. The penalty imposed by the assessing officer under section 271D was challenged by the assessee in the appeal filed before the learned Commissioner(Appeals) and since the submissions made by the assessee in support of her case were not found acceptable by him, the learned Commissioner(Appeals) proceeded to confirm the penalty imposed by the assessing officer for the following reasons given in paragraph no. 4.1.6 of his impugned order:-

“4.1.6. I agree with the observation of the learned Jt. CIT that even though the amounts have been received on Sunday but in view of the other facts mentioned by the Jt. CIT that the amounts were once received were not immediately utilised by the appellant and were not squared off till the end of the year, did not reflect any element of urgency on the basis of business exigencies and denied him the discretion given to the authority levying penalty under section 271D of the Income Tax Act, 1961.

In view of the findings given by the Jt. CIT, I find no force in the arguments made by the learned authorised representative to modify the order of penalty under section 271D of the Income Tax Act, 1961. The authorised representative, during the course of appellate proceedings, has merely reiterated what has already been stated before the lower authorities and has been disposed off via speaking order. There is no fresh compelling argument or material justifying modifying of the order of the Jt. CIT. As to the case laws relied by the appellant, the same pertain to the genuineness of the transaction based on the facts of those cases being a reason in using discretion of the authority levying penalty in favour of the assessee. However, the facts of the present case are distinguishable from the case laws cited by the appellant in as much as that learned Jt. CIT before levy of penalty has clearly made out the case of there being no reasonable cause requiring use of discretion in favour of the appellant.

Neither any fresh compelling reason/argument has been made by the appellant during the course of appellate proceedings showing that Jt. CIT has wrongly or excessively exercise his discretion while levying penalty.

In view of foregoing discussion, I do not find any reason to interfere with the order of JCIT and the penalty levied by the learned Jt. CIT under section 271D read with section 26988 is hereby confirmed and the appeal of the appellant is dismissed”.

Aggrieved by the order of the learned Commissioner(Appeals), the assessee has preferred this appeal before the Tribunal.

5. We have heard the arguments of both the sides and also perused the relevant material available on record. The learned Departmental Representative has relied on the orders of the authorities below in support of the revenue’s case that imposition of penalty under section 271D is fully justified in the facts and circumstances of the case. The learned counsel for the assessee, on the other hand, has contended that the provisions of section 269SS are not strictly applicable to the transactions between the relatives and the penalty imposed by the assessing officer under section 271D and confirmed by the learned Commissioner(Appeals) is not sustainable. In support of this contention, he has relied on the decision of the Coordinate Bench of this Tribunal rendered in the case of Manisha Prakash Amin v. Jt. CIT vide its order dated 24-5-2011 passed in ITA No. 1839/Kol/2010, wherein it was held that the transactions between relatives involving receipt of loan in cash are not in the nature of loans or deposits as envisaged in section 269SS of the Act and the penalty imposed under section 271D was accordingly cancelled by the Tribunal. A similar issue was again decided by the Tribunal in the case of Anant Himatsingka v. Addl. CIT (ITA Nos. 331 & 332/Kol/2010) dated 25-11-2011) cited by the ld. Counsel for the assessee, wherein it was held that the loan transaction between son-in law and father-in-law for giving a support and help was not a loan or deposit in stricter sense of section 269SS of the Act and the same having been given only as a financial support, the relevant transaction did not fall in the ambit of section 269SS of the Act. In our opinion, the ratio of these decisions of the Coordinate Bench of this Tribunal is squarely applicable in the present case, where the loans in question were received by the assessee in cash from her daughter and son-in-law and applying the same, we hold that the penalty imposed by the assessing officer under section 271D and confirmed by the learned Commissioner(Appeals) is not sustainable. We accordingly cancel the said penalty and allow the appeal of the assessee.

6. In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 24-4-2019.