ITAT AMRITSAR BENCH ‘SMC’

Rajiana Kheti Store

v.

Income-tax Officer

Joginder Pall, Accountant Member

IT Appeal Nos. 903 and 904 (Asr.) of 1995

[Assessment year 1992-93]

January 24,2005

Section 271D of the Income-tax Act, 1961 - Penalty - For failure to comply with section 269SS - Assessment year 1992-93 - Whether acceptance of cash loan necessitated due to urgent business requirement would constitute a reasonable cause for accepting cash loans under section 273B and no penalty under section 271D would be leviable - Held, yes – Assessing Officer imposed penalty on assessee-firm under section 271D on ground of it having accepted cash loans of Rs. 20,000 each from two persons in violation of section 269SS – Assessee submitted that it was required to make immediate payment of Rs. 50,000 to its supplier for which its cash balance was not sufficient and, hence, it accepted said loans – Said factual position had not been rebutted by revenue and even source of said loans had been accepted - Whether on facts, there was a reasonable cause for assessee to accept said loans in cash and at most it was a technical lapse on part of assessee for which no penalty was leviable - Held, yes - Whether even otherwise, in view of CBDT circular No. 572, dated 3-8-1990 which provides that section 269SS would be attracted only where amount exceeded Rs. 20,000, penalty in instant case was not leviable - Held, yes

Circulars and Notifications:

- CBDT, Circular No. 572, dated 3-8-1990

Section 271E of the Income-tax Act, 1961 - Penalty - For failure to comply with section 269T - Assessment year 1992-93 - Assessing Officer imposed penalty under section 271E on assessee on ground that two loans of Rs. 20,000 each were returned by assessee in cash along with interest - Assessee explained that loans were returned to persons who did not have any bank account - Whether since amounts in question were loans and not deposits, no penalty under section 271D was leviable because at relevant time provisions of section 269T were not applicable to repayment of loans - Held, yes - Whether further, assessee’s explanation constituted a reasonable cause for repayment of said amount in cash and, hence, penalty in question was to be set aside - Held, yes

FACTS

The assessee-firm carried on business of fertilizers and pesticides. The Assessing Officer initiated penalty proceedings against the assessee under section 271D on ground that the assessee had accepted cash loans of Rs. 20,000 each from two persons in violation of provisions of section 269SS. In response to notice issued, the assessee explained that this was first year of its business, that its partners were basically farmers, that the principal, insisted for making payment of Rs. 50,000 as a precondition for supply of pesticides, that the money was urgently required and cash balance as per cash book was not sufficient and, therefore, it accepted a loan of Rs. 20,000 each from an agriculturist and a carpenter in cash and made payment to the principal. Thus, the assessee contended that the loans of Rs. 20,000 each were taken on account of business exigency for meeting major requirements of funds and provisions of section 269SS had not been violated. However, the Assessing Officer was not satisfied with the said explanation and, accordingly, imposed a penalty under section 271D. Further, the Assessing Officer also imposed a penalty under section 271E on ground that the assessee returned the said two loans of Rs. 20,000 each in cash along with nominal interest, which according to the Assessing Officer violated the provisions of section 271E. On appeal, the Commissioner (Appeals) upheld the levy of penalty.

On second appeal :

HELD

ISSUE OF PENALTY UNDER SECTION 271D:

The factual position stated by the assessee before the authorities below that the assessee was required to make immediate payment of Rs. 50,000 to its principal, namely, M/s Bayers India Ltd. and the cash balance as per cash book was only Rs.14,213(sic), this was the first year of assessee’s business and partners of the firm basically belonged to agriculturist family and loans of Rs. 20,000 each were accepted from an agriculturist and carpenter who were not businessmen had not been rebutted by the Revenue.

Acceptance of cash loan necessitated due to urgent business requirement would constitute a reasonable cause for accepting the cash loans under section 273B and no penalty under section 271D is leviable. Further, the amount of loan in each case was Rs. 20,000. As per Board’s Circular No. 572 of the CBDT, dated 3-8-1990, the provisions of section 269SS were attracted only in cases where the amount exceeded Rs. 20,000. Such instructions of the Board were binding on the field officer. Therefore, even otherwise penalty under section 271D was not leviable. In any case it constituted a reasonable cause for accepting cash loans. Besides, it was a fact that source of these loans had been accepted by the Assessing Officer. Therefore, at the most it could only be a technical lapse for which no penalty was leviable. The Commissioner (Appeals) was not justified in sustaining the impugned penalty. Accordingly, the order of the Commissioner (Appeals) was to be set aside and the impugned penalty was to be cancelled.

ISSUE OF PENALTY UNDER SECTION 271E:

It was a fact that the amounts in question were loans and not deposits. Prior to 1-6-2002, provisions of section 269T were applicable only in case of deposits and not loans. It is precisely for this reason that these provisions were amended subsequently so as to cover the loans also. Considering the fact that the amended provisions were not applicable to the assessment year under reference, no penalty under section 271E was leviable because provisions of section 269T were not applicable to the repayment of loans. Further, other reasons given by the assessee before the authorities below that the loans were returned to the persons who did not have any bank account, one was an agriculturist and another was carpenter also constituted a reasonable cause for repayment of the said amount in cash. Thus, the Commissioner (Appeals) was not justified in sustaining the said penalty. His order, therefore, was to be set aside and the penalty was to be cancelled.

In the result, the appeals were to be allowed.