Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI “A” BENCH : MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI ANIKESH BANERJEE
Assessment Year : 2010-11 Labtop Instruments Private Addl.CIT-11(1), Limited, R.No. 220/260C, Labtop House, vs. 2nd Floor, Plot No. 59, Waliv Phata, Aayakar Bhavan, Sativali Road, Maharshi Karve Road, Vasai (E), Dist. Thane, Mumbai-400020. Vasai-Virar Maharashtra-401208. PAN : AAHCS4114P (Appellant) (Respondent) For Assessee : Ms. Vidhi Solani For Revenue : Shri Surendra Mohan, Sr.DR Date of Hearing : 18-09-2025 Date of Pronouncement : 19-09-2025 O R D E R PER VIKRAM SINGH YADAV, A.M : This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟], dated 10-06-2025, against the sustenance of levy of penalty u/s. 271D of the Income Tax Act, 1961 („the Act‟).
2. Briefly the facts of the case are that during the course of assessment proceedings, the AO observed that the assessee-company has received a loan of Rs. 2 lakhs in cash from Shri Byju George, who is the Director of the assessee-company and necessary explanation was sought from the assessee-company and in its submission, the assessee-company submitted the loan confirmation, cash book and copy of return of income of Shri Byju George, substantiating the cash loan of Rs. 2 lakhs received by the assessee-company in its account maintained in Vasai Vikas Sahakari Bank Ltd. Though no addition was made in the hands of the assessee- company, the AO observed that by accepting the cash loan, the assessee- company had clearly violated the provisions of section 269SS of the Act and is, therefore, liable for penalty u/s. 271D of the Act and the matter was accordingly referred to the competent authority for initiation of penalty proceedings u/s. 271D of the Act vide letter dt. 12-02-2019.
Thereafter, the Ld. Addl.CIT issued a show cause to the assessee as to why the penalty should not be levied in the instance case vide communication dt. 13-03-2019. In response, the assessee-company submitted that it is due to certain business exigencies that the assessee- company has to take loan from one of its Directors, however, there was no attempt to evade the tax on the part of the assessee-company. Further, reliance was placed on various authorities. The submissions so filed with considered by the Add.CIT but not found acceptable. As per the Addl.CIT, the assessee-company has accepted the fact that the loans were accepted in case from the Director, Shri Byju George in contravention of section 269SS of the Act and no reasonable cause has been shown under section 273B, penalty u/s. 271D of the Act was levied.
4. The assessee, thereafter carried the matter in appeal before the Ld.CIT(A). It was submitted before the Ld.CIT(A) that during the course of assessment proceedings, the assessee-company has submitted necessary documentary evidences in support of the loan transaction and no adverse findings have been recorded by the AO and the said transaction has been accepted. It was further submitted that the said loan amount of Rs. 2 lakhs was taken on 31-03-2010 and was deposited in the assessee‟s bank account on the same date. It was submitted that the assessee-company had issued certain cheques to its vendors and the cash credit facility of the assessee was upto merely Rs.1 crore which was already utilized. It was submitted that the Director of the assessee-company did not have bank account with Vasai Vikas Sahakari Bank Ltd., and, therefore, there was no option left but asking the Director to withdraw the cash from his bank account and deposit the same in assessee‟s bank on the same date. It was submitted that the said facts are affirmed oath by the Director of the assessee-company vide notarized affidavit dt. 11-06-2024. Further a copy of the loan sanction letter issued by the said Vasai Vikas Sahakari Bank Ltd., authorizing the cash credit limit of Rs. 1 crore was submitted for necessary verification. It was further submitted that on examination of the bank statement, it may be noted that the cheques amounting to Rs. 1,37,401/- issued to four parties are cleared on 31-03-2010. It was accordingly submitted that the assessee-company had borrowed required cash to ensure that cheques should not be dishonored and the assessee- company was aware of the fact that cheques issued by it, it found bounced, would have adverse effect on its business interest and, therefore, the assessee-company had borrowed cash loan for meeting business exigencies. Further reliance was placed on the decision of the Co-ordinate Bench of the Tribunal in the case of Maruti Nandan Finance Cap (P.) Ltd. vs. ACIT [2009] 30 SOT 46 and the decision of the Hon‟ble Orissa High Court in the case of PCIT vs. Akash Infra-com-Projects (P.) Ltd. 142 taxmann.com 281 (Orissa), wherein under similar circumstances, the cash received from the Directors was deposited in the bank account for meeting the business exigencies and the penalty levied by the AO was set aside. It was accordingly submitted that there was reasonable cause for the assessee-company to accept the cash amount from its Director and, therefore, there is a reasonable cause in not complying with the conditions so specified u/s. 269SS of the Act and in light of the provisions of section 273B of the Act, the penalty so levied by the AO be directed to be deleted.
The submissions so filed by the assessee-company were considered, but not found acceptable to the Ld.CIT(A). As per the Ld.CIT(A), section 271D of the Act speaks “he shall be liable to pay”. The word “Shall” has been used and not “may”. It means that when there is contravention of section 269SS of the Act, penalty u/s. 271D of the Act is leviable and accordingly he confirmed the findings of the AO. Against the said findings, the assessee is in appeal before us.
During the course of hearing, the Ld.AR reiterated the submissions made before the authorities and further relied upon the written submissions the contents of which read as under:
The present appeal is against the levy of penalty u/s 271D, amounting to Rs. 2,00,000/-on account of a loan borrowed in cash by the appellant from its Director/Shareholder, Mr. Byju George. The appellant is a private limited company engaged in the manufacturing and trading of equipments/instruments required by blood banks, hospitals, etc.
Brief facts The appellant company enjoys a cash credit facility with Vasai Vikas Sahakari Bank Ltd to the tune of Rs. 1,00,00,000/- (sanction letter at pg no. 40 to 43 of the paperbook). The said cash credit facility stood fully utilized on 31.03.2010 (the last day of the financial year), and the appellant company had issued cheques to its creditors. There was pressure from the bank to reduce the amount overdrawn, i.e. amount drawn exceeding the granted facility. To serve this purpose, the main shareholder director, Mr. Byju George, contributed the funds available with him, being the sum of Rs. 2,00,000/-by way of a deposit in the bank account of the appellant in cash. This is for the reason that the said shareholder director did not have a bank account with Vasai Vikas Shakari Bank Ltd., nor did he have an online banking facility in his own personal bank account. It is thus the case that the business necessity on the last day of the financial year, ie. 31.03.2010, forced borrowing funds in cash from the main shareholder director of the appellant company.
3. Provisions of section 273B ignored The ld AO has levied penalty u/s 271D, and the Hon CIT(A) has upheld such penalty, holding that the levy of penalty was mandatory considering the usage of the word "shall" and not "may" in the provision. The case of the lower authorities is that any failure to conform to the provisions of section 269SS would warrant compulsory levy of penalty u/s 271D of the Act. This is inspite of the fact that, during appeal proceedings, the appellant vide para 4 of his submission dt. 13.06.2024 (appearing on pg no.7 of the Hon. CIT(A) order) had brought to the attention of the Hon. CIT(A), the provisions of section 273B, which, on the existence of reasonable cause, mitigates the gravity of the offence and in such cases, penalty u/s 271D is not to be levied.
Appellant covered by section 273B-Relevant decisions The appellant reiterates that if there is a reasonable cause in accepting loans in violation of provisions of section 269SS, then such transactions would not be visited with the rigours of section 271D of the IT Act, 1961.
Per contra, the Ld.DR is heard, who has relied on the order passed by the lower authorities.
We have heard the rival contentions and perused the material available on record. We find that the assessee has reasonably demonstrated the business exigency of receiving cash loan from one of its directors due to issuance of cheques to its vendors over and above the cash credit limit sanctioned by the bank and business risk and related consequences of cheques not being cleared. The cash withdrawal by the assessee‟s director from his bank account and deposit directly in the assessee‟s bank on the same date further demonstrate the urgency of such cash loan transaction. Thus, in the facts and circumstances of the case, we find that there was a reasonable cause on part of the assessee in accepting the cash loan and in such circumstances, the levy of penalty is directed to be set-aside in terms of section 273B read with section 271D of the Act.
In the result, the appeal of the assessee is allowed.