COMMISSIONER OF INCOME TAX-I vs. BARODA EXTRUSION LTD.

Facts

The assessee, Baroda Extrusion Ltd., filed its return for Assessment Year 1995-96. The Assessing Officer imposed a penalty of Rs. 5,21,000 under Section 271D of the Income Tax Act, 1961, for accepting cash deposits totaling Rs. 5,21,000 from five parties, otherwise than by account payee cheques or drafts, where each individual amount exceeded Rs. 20,000. The Commissioner of Income Tax (Appeals) partly allowed the assessee's appeal, reducing the penalty to Rs. 4,10,100. The assessee then appealed to the Income Tax Appellate Tribunal (ITAT), which allowed the assessee's appeal, cancelling the penalty. The revenue has filed this appeal against the ITAT's order dated May 19, 2006.

Held

The High Court held that the Tribunal was right in cancelling the penalty of Rs. 4,10,100 imposed under Section 271D. The Court relied on its previous decision in Tax Appeal No. 325 of 2014, which discussed Sections 269SS, 271D, and 273B. The Court noted that Section 273B provides a defence against penalty if the assessee proves a reasonable cause for the failure. In the cited case, the High Court found that the assessee had sufficiently proved reasonable cause by producing substantiating evidence like 7/12 Extracts, reflecting transactions in accounts, and establishing the identity of lenders, along with a satisfactory reason for taking the loan and a bona fide belief that the transactions, involving agriculturists from remote villages, would not attract Section 269SS. The Court reiterated the principle from Hindustan Steel Limited v. State of Orissa that penalty is a quasi-criminal proceeding and should not be imposed for technical or venial breaches or where there is a bona fide belief of non-liability. The High Court agreed with the Tribunal that the assessee had a bona fide belief and that the deposits did not represent unaccounted income, thus dismissing the revenue's appeal.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in cancelling the penalty of Rs. 4,10,100 imposed under Section 271D as confirmed by the CIT(A)? Assessee's Contention: The judgment does not record specific contentions made by the assessee before the High Court. However, it refers to the ITAT's finding that the assessee was under a bona fide belief that the transactions were not covered by Section 269SS and that the lower authorities had not found the deposits to represent unaccounted income. The judgment also cites a previous decision of the High Court in Tax Appeal No. 325 of 2014, which discussed the concept of reasonable cause under Section 273B. Revenue's Contention: The revenue contended that the Tribunal erred in allowing the assessee's appeal and cancelling the penalty. It argued that the Tribunal had not properly appreciated the material on record and urged the Court to allow the appeal in favour of the revenue.