The Pune bench of the Income Tax Appellate Tribunal (ITAT) has held that no penalty under section 271D of the Income Tax Act can be levied for cash transactions above the permitted limit if such payment was made due to the insistence of the lenders.
Assessing Officer during the course of assessment proceedings, noted that the assessee accepted certain loans in cash on various dates from Shah group amounting to Rs.79,18,000/-. The Officer also imposed the penalty by observing that there was a violation of the provisions of section 269SS in respect of cash loans received by the assessee amounting to Rs.79,18,000/-.
The assessee submitted that its business activities were close and inoperative for about last 7 years and the assessee firm had borrowed money from many private money lenders and Shree Suvarna Sahakari Bank Ltd. since last 10 years. To meet the financial crunch of the firm, the assessee raised certain loans in cash from unorganized finance sector for disposing of its existing liabilities.
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After considering the facts of the case deeply, the Tribunal held that the assessee specifically submitted before the AO during the course of penalty proceedings, which fact has also been captured in the penalty order, that its business was inoperative for the last 7 years and it had already borrowed loans from Shree Suvarna Sahakari Bank Ltd. and many private money lenders since last 10 years.
“To meet the financial requirements of repayment, for which the lenders were hard pressing, the assessee had to borrow money from unorganized finance sector in cash, which led to the imposition of the instant penalty. Further, the assessee had a bank liability of about Rs.50 crore against mortgage of assets of about Rs.5 crore only, which fact has not been falsified. The submissions made by the assessee in this regard have not been controverted by the AO or the ld. CIT(A) in any manner. When this fact is seen in the light of return filed by the assessee declaring loss of Rs.4.35 lakhs, it clearly emerges that the loans were taken by the assessee in cash in violation of provisions of section 269SS to meet the financial liabilities. This in our considered opinion constitutes a reasonable cause warranting non-imposition of penalty u/s.271D of the Act in terms of section 273B of the Act. We, therefore, order to delete the penalty of Rs.88,18,000/- imposed/enhanced by the AO/ld. CIT(A),” the Tribunal said.
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