Provision of Section 269SS/269T of IT Act not applicable if AO found no Explanation Regarding Source of Cash Loans during Search Proceedings: ITAT deletes Penalty [Read Order]

The Indore bench of Income Tax Appellate Tribunal (ITAT) has recently held that provision of section 269SS/269T Income Tax Act 1961 should not be applicable if Assessing Officer (AO) not found explanation regarding source of cash loans during search proceedings. Thus the bench deleted the penalty imposed by the AO.

Assesee Ravinder Shivhare, is engaged in the business of sale of liquor and assessed regularly by the Income-tax Department. A search under Section 132 of Income Tax Act was conducted on premises of assessee and certain documents were seized.

AO observed that the assessee had taken/repaid cash-loans from/to other persons; that all these loans were in contravention of sections 269SS/269T which attracted penalties under Section 271D/271E for Assessment Year 2013-14 to 2015-16.

Therefore AO issued notice to assessee seeking explanation about the cash loan and assessee reply that he has never carried out any loan transaction.

Subsequently, the AO initiated penalty-proceeding on the same premise that the transactions mentioned in those documents represented cash loans taken/repaid by assessee in violation of section 269SS/269T; finally he imposed penalties under Section 271D and 271E of Income Tax Act.

Aggrieved the assessment order assessee filed an appeal before the CIT(A) but could not succeed. Thereafter the assesee filed a second appeal before the tribunal.

Before the tribunal Anil Kamal Garg, counsel for the assessee submitted that the penalties are imposed on the basis of “LPS-01-Page 135” by alleging that the assessee had taken cash loans from Shri Laxmi Narayan Shivhare.

AO did not make any addition upon Shri Laxmi Narayan Shivharee even if he made loans out of unexplainable sources.Thus AO has just drawn one-sided, self-made conclusion that the assessee has taken cash loans from Laxmi Narayan Shivhare.

Counsel for assessee again point out that the assessee had taken cash-loans from Laxmi Narayan Shivhare and accordingly invoked Section 269SS of the Income Tax Act in the hands of assessee but no enquiry at all was made from Laxmi Narayan Shivhare.

P.K. Mishra, counsel for the revenue, supported the findings and decision of the lower authority.

The tribunal observed that provisions of Section 269SS/269T of the Income Tax Act would trigger where the assessee explains the source of cash or any other asset found during search as representing the cash loans taken from various persons.

Assessee has not explained the source of any cash, jewellery, asset, investment, etc. found during search or any entry in the books of account in any of the assessment-years involved pursuant to search as sourced from alleged cash loans taken by assessee.

If the assessee declared the source of any cash, jewellery, asset, investment etc. found during search as acquired by utilizing loans taken in cash, the AO would have been justified to impose a penalty under Sections 269SS/269T Income Tax Act .

Therefore the two member bench of Chandra Mohan Garg, (Judicial Member) and B.M. Biyani, (Accountant Member) concluded that sections 269SS/269T of the Income Tax Act and consequently Sections 271D/271E of the Income Tax Act could not be applicable in the assessee's case. Thus the bench allowed the appeal of the assessee.

To Read the full text of the Order CLICK HERE

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