The Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the penalty under Section 271D of the Income Tax Act, 1961 emphasizing a reasonable cause for cash loan availment and demonstrating compliance with Section 273B of the Income Tax Act.
The Assessee is a private limited company engaged in the business of wholesale trade of garments. For the Assessment Year 2015-16, assessment was completed under section 143(3) of the Income Tax Act vide order dated 05.12.2017 assessing total income at Rs.44, 97,510/-. On verification of the assessment records and the assessee’s audit report (Form 3CD), it was noticed that the assessee had accepted a loan from N. Krishna, Director of the assessee company, in violation of provisions of section 269SS of the Income Tax Act.
The Assessee was issued notice under section 271D of the Act, on 18.02.2022 directing it to file any objections for the levy of penalty. Assessee filed its reply on 24.03.2022 against the Show Cause Notice (SCN) issued for imposing penalty under section 271D of the Income Tax Act.
The CIT(A) noticed that out of the total sum of loan received by the assessee from the Director, only a sum of Rs.5,60,000/- was obtained in cash and remaining sum of Rs.10 lakhs was obtained through proper banking channel. Further, the CIT (A) granted the benefit of opening cash balance of Rs.1, 05,000/-. Accordingly, the CIT (A) confirmed the imposing of penalty under section 271D of the Act, to the tune of Rs.4, 55,000/-.
Mr. Kaushik M submitted that the assessee had taken temporary accommodation of loan from the Directors in order to meet the business exigencies and hence cannot be made liable for imposing of penalty under section 271D of the Income Tax Act.
The AO had imposed a penalty under Section 271D of the Act amounting to Rs.15, 60,000/-. The penalty was reduced by the CIT(A) to Rs.4,55,000/- after noticing that during the relevant previous year the assessee had taken a cash loan only to the extent of Rs.4,55,000/- thereby violating the provisions of Section 269SS of the Income Tax Act. The penalty imposed under section 271D of the Income Tax Act, can be waived if the assessee proves there is “reasonable cause” as mandated under Section 273B of the Income Tax Act, for availing cash loans .
In the present case, though assessee has averred before the AO that there was reasonable cause as mandated under section 273B of the Act, assessee has not furnished any material to prove that there was business exigency / urgent requirement of funds on the particular day on which assessee was in receipt of cash loans from the Director of the assessee company
The two member bench of the tribunal comprising Laxmi Prasad Sahu (Accountant member) and George George K. (Vice President) observed that the matter needs fresh examination by the AO. Accordingly, the matter is restored to the file of the AO. The AO was directed to examine whether there is “reasonable cause” as mandated under section 273B of the Act, for assessee to avail cash loans from its Directors. Accordingly appeal of the assessee was allowed
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