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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI DR. A.L. SAINI
Aforesaid appeal by the assessee is directed against order dated 30th November 2016, passed by the learned Commissioner (Appeals)– 13, Mumbai, sustaining penalty imposed of ` 3,60,340, under section 271D of the Income Tax Act, 1961 (for short “the Act”) for the assessment year 2011–12.
2 M/s. M.I. Realty Pvt. Ltd.
Brief facts are, the assessee a company is engaged in the business of development of real estate. During the assessment proceedings for the impugned assessment year, the Assessing Officer noticing that in the relevant previous year the assessee has received in cash ` 1,00,000 towards share capital and ` 3,60,500 towards loan observed that the assessee has violated the provisions of section 269SS of the Income Tax Act, 1961 (for short “the Act”). Accordingly, he recommended initiation of penalty proceedings under section 271D of the Act. In response to the show cause notice, though, the assessee submitted that the default in accepting the cash loan in violation of section 269SS of the Act is for a reasonable cause, however, the Assessing Officer rejecting the explanation of the assessee passed an order imposing penalty of ` 4,60,340 under section 271D of the Act. Against the penalty order so passed, the assessee preferred appeal before the first appellate authority.
The learned Commissioner (Appeals) after considering the submissions of the assessee, though, agreed that no penalty under section 271D of the Act can be imposed against the amount of ` 1,00,000 received towards share capital, however, he sustained penalty under section 271D of the Act to the extent of ` 3,60,340, representing the loan taken in cash.
3 M/s. M.I. Realty Pvt. Ltd.
The learned Counsel for the assessee submitted that the company was incorporated on 29th July 2010 and this is the first year of commencement of business. He submitted, the loan taken was from the two directors of the company. Explaining the reason for availing the loan in cash, the learned Authorised Representative submitted that the assessee was in the process of undertaking a real estate project and for that purpose it wanted to execute the sale deed. He submitted, for execution of the sale deed the assessee was required to pay stamp duty.Therefore, it urgently required fund for paying the stamp duty. Since funds were not available from any other source, the assessee was compelled to avail the loan in cash from the directors and on the very same day, the assessee withdrew the amount from its bank account for payment of stamp duty required for execution of sale deed. In this context, he drew our attention to the copy of the bank account placed at Page–18 of the paper book. He also drew our attention to the copy of the sale deed. Thus, it was submitted that the default committed by the assessee by availing the cash loan was due to reasonable cause, hence, no penalty should be imposed.
The learned Departmental Representative strongly relying upon the observations of the learned Commissioner (Appeals) submitted
4 M/s. M.I. Realty Pvt. Ltd. that the assessee having violated the provisions of section 269SS of the Act, imposition of penalty is justified.
We have considered rival submissions and perused materials on record. There is no dispute to the fact that the assessee has availed cash loan of ` 3,60,340, from two of its directors. Hence, there is violation of the provisions of section 269SS of the Act. However, the issue to be decided is, whether such violation would automatically lead to imposition of penalty 271D of the Act. A reading of section 271D of the Act, no doubt, makes it clear that acceptance of loan or deposit of cash in contravention of provision contained under section 269SS of the Act would lead to imposition of penalty equaling to the amount of loan or deposit taken or accepted in cash. However, imposition of penalty under section 271D of the Act is neither mandatory nor automatic, as the said provision is subject to the exceptions provided under section 273B of the Act. A reading of section 273B of the Act makes it clear that in a case where the assessee proves that the default or failure in complying to the provision was due to a reasonable cause, no penalty shall be imposable. Thus, it needs to be examined whether in the present case there is reasonable cause for commission of the default by the assessee. It is evident from facts on record that this is the first year of the business of the company after
5 M/s. M.I. Realty Pvt. Ltd. incorporation. It is explained by the assessee that it was in the process of undertaking a real estate project for which it was to execute a sale deed which required payment of stamp duty of an amount of ` 3,00,000 or thereabout. Since, the stamp duty was to be paid urgently, the assessee had no other option but to avail the cash loan from the directors. On a perusal of the bank statement copy filed in the paper book it is noticed that the cash loan of ` 3,50,000 was deposited in bank account on 5th October 2010 and on the very same day, the said amount was transferred from the bank account to the Sub–registrar and some other Government Agency towards payment of stamp duty. This fact is also corroborated from the endorsement made in the sale deed executed by the assessee, a copy of which is at Page–19 of the paper book. Thus, prima–facie, it appears that for payment of stamp duty the assessee was compelled to avail the cash loan from the directors looking at the urgency of the matter. Thus, in our considered opinion, there is a reasonable cause for the default or failure on the part of the assessee to comply to the provisions of section 269SS of the Act. That being the case, imposition of penalty under section 271D of the Act in the facts of the present case is not justified, hence, deleted. Grounds raised are allowed.
M/s. M.I. Realty Pvt. Ltd.
In the result, assessee’s appeal is allowed. Order pronounced in the open Court on 27.06.2018