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Facts
The assessee challenged penalties under sections 271D and 271E for Assessment Year 2010-11, levied due to acceptance and repayment of loans in cash from four individuals, totaling Rs.37.47 Lacs and Rs.36.62 Lacs respectively. The CIT(A) upheld these penalties, arguing the assessee failed to demonstrate business exigency or bona fide reasons for the cash transactions. The assessee contended that both he and the lenders had agricultural income and income below taxable limits, and the transactions were genuine, occurring in his first year of construction business with family friends.
Held
The Tribunal deleted the penalties, finding that the assessee's income was below the taxable limit and predominantly agricultural, and all lenders were agriculturists, thus falling under the second proviso to Section 269SS/269T. The Tribunal also accepted the reasonable cause plea under Section 273B, considering it was the assessee's first year of business, the nature of business involved cash transactions, and the lenders were rural family friends. Previous tribunal decisions supporting deletion of penalties under bona fide circumstances and reasonable cause were also considered.
Key Issues
Whether penalties under sections 271D and 271E are leviable for cash loans and repayments when the assessee and lenders are agriculturists with income below taxable limits, and reasonable cause is shown.
Sections Cited
271D, 271E, 269SS, 269T, 273B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, CHANDIGARH
(िनधा"रण वष" / Assessment Year: 2010-11) Shri Amit Singh ACIT Range-5 बनाम/ Vs. 381, Labour Bureau, HSG Society Aaykar Bhawan, Sector-17, Sector – 49A, Chandigarh - 160047 Chandigarh - 160017 "थायीलेखासं./जीआइआरसं./PAN/GIR No. BEKPS-6996-A (अपीलाथ"/Appellant) : (""थ" / Respondent) अपीलाथ"कीओरसे/ Appellant by : Sh. Ajay Chauhan Singh (CA) – Ld. AR ""थ"कीओरसे/Respondent by : Sh. Vivek Vardhan (Addl. CIT) – Ld. Sr. DR सुनवाईकीतारीख/Date of Hearing : 06-01-2026 घोषणाकीतारीख /Date of Pronouncement 12-01-2026 : आदेश / O R D E R
In these two appeals for Assessment Year (AY) 2010-11, the assessee is aggrieved by confirmation of levy of penalty u/s 271D and 271E. The impugned penalties have been levied on similar facts. The appeals arises out of separate orders of Learned Commissioner of Income Tax (Appeals), NFAC [CIT(A)] both dated 11-01-2024 in the matter of impugned penalties as levied by Ld. Addl. CIT, Range-5, Chandigarh vide orders dated 12-11-2018. Having heard rival submissions and upon perusal of case records, the appeals are disposed-off as under.
It emerges that the assessee filed return of income declaring business income of Rs.1,17,930/- and other income of Rs.7,500/-. The assessee declared agricultural income of Rs.14 Lacs which was accepted by Ld. AO in the assessment proceedings. However, Ld. AO disallowed Architect Fees of Rs.1.75 Lacs which was claimed as business expenses. The matter reached up-to Tribunal wherein, vide order dated 30-06-2022, the issue was restored back to Ld. AO for fresh consideration.
The Ld. AO, while framing the assessment, made a reference to Ld. Addl. CIT, Range-5 for initiation of penalty u/s 271D and 271E on the ground that the assessee obtained as well as repaid loans in cash from four persons as tabulated below: - No. Name Amount Amount Accepted (Rs.) Repaid (Rs.) 1. Sh. Surjit Singh (family friend) Rs.10.12 Lacs Ra.9.82 Lacs 2. Sh. Rajpal Rs.16.45 Lacs Rs.14.05 Lacs 3. Sh. Sukhpal Singh Rs.8.90 Lacs --- 4. Sh. Sham Singh (father of the Rs.2 Lacs Rs.12.75 Lacs assessee) Total Rs.37.47 Lacs Rs.36.62 Lacs The acceptance as well as repayment is not in dispute. In recorded statement, Sh. Rajpal and Sh. Sukhpal Singh confirmed advance of loan in cash. The source of loans as granted by other two persons was also not disputed. The acceptance or repayment of loan from any of the above persons is not in dispute. However, since the loans were received / repaid in cash, Ld. AO alleged violation of Sec.269SS and 269T and made reference to specified authority for levy of impugned penalties for such violations. Though the assessee opposed levy of penalty by drawing attention to factual matrix, Ld. Addl. CIT, Range-5 Chandigarh levied penalty of Rs.37.47 Lacs u/s 271D for acceptance of loans. The repayment was for Rs.41.17 Lacs and accordingly, penalty was levied u/s 271E for Rs.41.17 Lacs. Apparently, the amount of repayment is Rs.36.62 Lacs only as tabulated above.
During first appeal, the assessee contended that the assessee as well as the lenders was having agricultural income and his income was also below taxable limit and therefore, such penalties were not leviable. Another contention was that the transactions were under bona-fide belief and the same were genuine. The assessee was new in construction business and prior to this year, the assessee was cultivating his ancestral land only. The assessee obtained loans to start the new business. Reference was made to various case laws to assail levy of penalties on these facts. However, Ld. CIT(A) rejected the contentions on the ground that no business exigency was shown by the assessee and the assessee earned business income. The assessee was to demonstrate bona-fide reasons for taking such loans in order to consider the applicability of Sec.273B (reasonable cause) while assailing impugned penalties. No such cause was established. Accordingly, both the penalties were upheld. Aggrieved, the assessee is in further appeal before Tribunal.
I find that though the provisions of Sec.269SS prohibit any person to accept loan or deposits etc. in cash beyond specified limit, the second proviso provide an exception to this rule. The second proviso exclude application of these provisions to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act. The facts on record, would show that the assessee’s income is below taxable limit whereas the substantial income of the assessee constitute agricultural income of Rs.14 Lacs which has been accepted by Ld. AO. The Delhi Tribunal in the case of Shri Ram Singh vs. Addl. CIT (ITA No.1457/Del/2020 dated 11-08- 2022) held that when the income is below taxable income limit, it could be said that the assessee had no other income which is chargeable to tax under the Act and therefore, the penalty as levied by Ld. AO u/s 271D was deleted. It is also fact that all the lenders are agriculturists which is evident from affidavit of Shri Raj Pal and Shri Sukhpal Singh which was filed by the assessee before Ld. AO. The assessee had also filed copies of land revenue records (Fard) to Ld. AO which is not in dispute. Similar documents have been filed for Shri Surjit Singh. Therefore, the assessee, in my considered opinion, would be covered under second proviso.
Proceeding further, the assessee would succeed on the plea of reasonable cause also since it is the first year of start of business. The nature of business i.e., construction and building material would involve cash transactions. The lenders are agriculturists and close family friends of the assessee residing in remote villages. The genuineness or the source of loan is not in dispute. The Ahmedabad Tribunal in the case of Narinder Kumar Chunilal Soni (ITA No.195/Ahd/2022 dated 17-05-2023) held that penalty u/s 271D is not leviable when cash was accepted under bona fide circumstances and without tax evasion motive. Sec.273B relief would be applicable if reasonable cause was shown. Another bench of Ahmedabad Tribunal in the case of Shri Mohanlal Savjibhai Tilva & Ors. vs. ACIT (ITA Nos.1024/Ahd/2019 &ors. dated 24-06-2022), following the decision of Hon’ble Bombay High Court in Triumph International Finance (I) Ltd. (22 Taxamnn.com 138) holding that the expression ‘reasonable cause’ in Sec.273B for non-imposition of penalty u/s 271E would have to be construed liberally, deleted penalty on similar facts. These case laws duly support the case of the assessee. Considering the facts and circumstances of the case, I order for cancellation of impugned penalties u/s 271D and 271E as levied by Ld. AO.