ITAT deletes penalty since Cash Transactions with Sister-in-Law and Nephew not amount to ‘Loan’ for the purpose of s. 269SS [Read Order]

Cash Transactions- Tax

Income Tax Appellate Tribunal (ITAT), Kolkata bench has deleted penalty under section 273B of Income Tax Act 1961 and proclaimed that the cash transactions with sister-in-law and nephew does not fall in the definition of ‘loan’ for the purpose of section 269SS of the Act.

In the present case, the assessee is an individual engaged in the business of repairing and plying of trucks. While completing an assessment, the Assessing Officer (AO) has noticed that the assessee has not revealed the source of Rs. 11 lakhs deposited with the co-operative bank in cash. He also found that the assessee has obtained Rs. 11 lakhs as the loan from Raniganj Co-operative Bank. On inquiry, it was transpired that out of this, the assessee has repaid around Rs. 5 lakhs in cash. It was therefore, concluded that the acceptance and repayment of such loans was never brought to notice of the Department in an earlier stage of assessment and therefore, the assessee violated the provisions of section 269SS and Section 269T of the I.T. Act for which, penalty u/s 271D at Rs.5,00,000/- and u/s 271E at Rs.5,00,000/- is leviable.

The assessee has contended that all the lenders subjected to the loan were the elder brother (Rs. 50,000), nephew (Rs. 50,000) and sister-in-law (Rs. 4,00,000) of the assessee and further argued that transactions between family relatives are not covered by the provisions of section 269SS and 269T of the Act.

The first appellate authority partially accepted the contentions and found that the amount received from elder brother cannot be deemed as a loan. The CIT(A), however, sustained the penalty in respect of cash received from the sister-in-law. The CIT(A) was of the opinion that “Other than very close relatives like parents, siblings or spouse, it cannot be expected in any situation to deposit cash with a person technically not part of ‘family’.”

Aggrieved by the assessee was on appeal before the tribunal on the remaining penalty on the remaining sum.

After giving careful consideration to the rival submissions of both the parties the tribunal bench comprising of Judicial Member N.V.Vasudevan and Accountant Member Dr.A.L.Saini has objected the penalty proceedings of the lower authorities. The bench further observed that the transaction with sister-in-law and Nephew should also be considered as a part of family members and the definition of relatives include husband, wife, brother, sister, sister-in-law, Niece and Nephew etc.

The division bench also specified that the transactions between these family members are neither loans nor deposit and purely a family system and purely a family requirement to help each other in the needy hours. Therefore, the transaction between Sister-in-law and Nephew did not fall in the definition of the loan.

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