Liberal Approach in Imposing Penalty: ITAT Pune deletes Penalty for Cash Loans effected in Good Faith [Read Order]


While adopting a liberal approach in interpreting the term “reasonable cause”under section 271D and 271E of the Income Tax act, 1961, the ITAT, Pune bench held that penalty under these provisions cannot be levied since the genuineness of the transaction was roved before the authorities. The Tribunal was considering an appeal filed by a woman entrepreneur challenging the order of the first appellate authority who confirmed the penalty order passed against her alleging violation of sections 269SS and 269T of the Income Tax Act, 1961.

In the instant case, penalty for violation of sections 269SS and 269T of the Act was charged against the assessee,on ground that she made cash transactions with her close relatives. The assessee maintained that the penalty proposals should be dropped since the transactions were genuine. It was further submitted that the said payments and repayments were neither the loans nor advances but these were debts. The Addl CIT, without considering the above contentions, passed the penalty order. The CIT(A) confirmed the order on appeal. Thus, the assessee approached the Tribunal challenging the order.

Before the tribunal, the assessee contended that she has taken the money incash from her husband and mother-in-law due to business exigency and has repaid the same in cash.The same was done in bonafide belief and therefore, no penalty can be attributed.

The Tribunal considered the fact that the genuineness of the transaction has not been doubted by the Department.Further the Tribunal noticed the decisions of the Punjab & Haryana Court in the cases Sunil Kumar Goel and in Saini Medical Store. In both these decisions, the High Court observed that penalty under section 271cannot be levied if the assessee proves that there was a reasonable cause for such act which resulted in the violation of the said provisions.

Diving deeply into the facts of the case, the Tribunal found that the assessee had taken cash loan from her husband and mother-in-law which has been repaid in cash and there is no repeated transactions and the assessee has explained the reasonable cause for accepting such loans and repayment thereof in cash. On the basis of this finding, the Tribunal opined that the expression “reasonable cause” in section 273B for imposition of penalty u/s.271D and 271E is needed to be construed liberally. Resultantly, the penalty orders were deleted.

Read the full text of the order below.