ITAT deletes Penalty for Establishing “Reasonable Cause”

The Pune bench of the Income Tax Appellate Tribunal (ITAT) has held that penalty under sections 271D and 271E of the Income Tax Act, 1961 is not leviable when cash transactions of accepting loans and repayments were made by the assessee due to “pressing requirements” and the same can be treated as a “reasonable cause” for the same.

The Assessing Officer (AO), during the course of the assessment, observed that the assessee received family loan/advances in cash for a sum of Rs.29.00 lakh from his family members in contravention of section 269SS of the Act. Out of that, a sum of Rs.1,50,000/- was repaid in cash to Ms. Sandhya Sunil Bhide, again in contravention of section 269T of the Act. He, therefore, initiated penalty proceedings under section 271D and 271E of the Act.

The assessee contended that the assessee started construction of a commercial building on his plot. The construction work was halted because of paucity of funds. The assessee received loan from his family members ranging from Rs.1.00 lakh to Rs.10.00 lakh in cash aggregating to Rs.29.00 lakh and diverted the same to the company so as to complete the construction work.

The Tribunal bench comprising Shri R.S. Syal, Vice President and Shri S.S. Viswanethra Ravi, Judicial Member has observed that the above assertion has not been controverted by the AO.

Deleting the penalty order, the Tribunal held that “This shows that the assessee was compelled by the circumstances to accept the loans in contravention of provisions of section 269SS. As regards the repayment of loan of Rs.1,50,000/- to one of the family members, there was a pressing demand on the assessee for immediate repayment because the lender, namely, Ms. Sandhya Sunil Bhide urgently required the money back. Admittedly, there is violation of section 269SS and 269T of the Act, which otherwise calls for imposition of penalties under section s.271D and 271E of the Act. However, it is relevant to note that these penalties are subject to the mandate of section 273B, which provides that where the assessee proves `reasonable cause’ for the contravention of the provisions, inter alia, of section 269SS and 269T, the penalty otherwise imposable under section .271D and 271E will not be inflicted. We are confronted with a situation in which the assessee has established a ‘reasonable cause’ for accepting the loans in cash and repaying a part of them again in cash due to pressing requirements. We, therefore, order to delete the penalties.”

Shri M.S. Khire appeared for the assessee.

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Sunil M. Bhide vs Addl.CIT

Counsel for Appellant:   Shri M.S. Khire

Counsel for Respondent:   Shri M.G. Jasnani

CITATION:   2022 TAXSCAN (ITAT) 615