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Facts
The assessee, a private limited company, accepted a loan from its Director in violation of Section 269SS of the Income Tax Act. The Assessing Officer imposed a penalty under Section 271D. The CIT(A) reduced the penalty, considering only the cash loan component and the opening cash balance.
Held
The Tribunal noted that while the assessee claimed business exigency for accepting cash loans from Directors, no material was furnished to prove this reasonable cause. The matter was restored to the AO for fresh examination of whether there was a reasonable cause under Section 273B for the cash loans.
Key Issues
Whether the penalty imposed under Section 271D for violation of Section 269SS can be waived due to business exigency as a reasonable cause under Section 273B.
Sections Cited
269SS, 271D, 273B, 143(3), 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K & SHRI LAXMI PRASAD SAHU
Per George George K, Vice President:
This appeal at the instance of the assessee is directed against CIT(A)’s order dated 16.10.2023, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2015-16.
The solitary issue that is raised is whether CIT(A) is justified in sustaining penalty imposed under section 271D of the Act, amounting to Rs.4,55,000/- for violating the provisions of section 269SS of the Act.
Brief facts of the case are as follows:
Assessee is a private limited company engaged in the business of wholesale trade of garments. For the Assessment Year 2015-16, assessment was completed under section 143(3) of the Act vide order dated 05.12.2017 assessing total income at Rs.44,97,510/-. The AO, on verification of the assessment records and the assessee’s audit report (Form 3CD), it was noticed that assessee had accepted loan from Shri. N. Krishna, Director of the assessee company, in violation of provisions of section 269SS of the Act. Assessee was issued notice under section 271D of the Act, on 18.02.2022 directing it to file any objections for the levy of penalty. Assessee filed its reply on 24.03.2022 against the show cause notice issued for imposing penalty under section 271D of the Act. It was submitted that it is the first year of the operation of the business of the assessee and there were business exigencies requiring quick influx of funds. Therefore, it was stated that Directors of the company introduced capital which was used to deal with business exigencies. It was further submitted that assessee had disclosed all material facts relating to the transaction and the loans were accepted only to meet the business exigency that arose in the initial years of its business. However, the objections raised by the assessee were rejected and AO imposed penalty under section 271D of the Act amounting to Rs.15,60,000/- being the entire loan received from the Director of the assessee company.
Aggrieved by the Order imposing penalty under section 271D of the Act, assessee filed appeal before the First Appellate Authority (FAA). The FAA partly allowed the appeal of the assessee. The CIT(A) noticed that out of the total sum of loan received by the assessee from the Director, only a sum of Rs.5,60,000/- was obtained in cash and remaining sum of Rs.10 lakhs was obtained through proper banking channel. Further, the CIT(A) granted the benefit of opening cash balance of Rs.1,05,000/-. Accordingly, the CIT(A) confirmed the imposing of penalty under section 271D of the Act, to the tune of Rs.4,55,000/-.
Aggrieved by the Order of CIT(A), assessee has filed the present appeal before the Tribunal. The learned AR submitted that assessee had taken temporary accommodation of loan from the Directors in order to meet the business exigencies and hence cannot be made liable for imposing of penalty under section 271D of the Act. In this context, the learned AR relied on the judgment of the Hon’ble Karnataka High Court in the case of CIT Vs. Sree Krishna Promoters and Builders reported in (2011) 16 taxmann.com 138 (Karnataka).
Learned DR supported the order of the AO imposing penalty and the CIT(A) confirming the penalty to the extent of Rs.4,55,000/-.
We have heard the rival submissions and perused the material on record. The AO had imposed a penalty under section 271D of the Act amounting to Rs.15,60,000/-. The penalty was reduced by the CIT(A) to Rs.4,55,000/- after noticing that during the relevant previous year assessee had taken a cash loan only to the extent of Rs.4,55,000/- thereby violating the provisions of section 269SS of the Act. The penalty imposed under section 271D of the Act, can be waived if assessee proves there is “reasonable cause” as mandated under section 273B of the Act, for availing cash loans . In the instant case, assessee before the AO had contended that it had taken loan from its Directors out of business exigencies, since the relevant previous year was the first year of assessee’s business operations. Assessee had strongly relied on the judgment of the Hon’ble jurisdictional High Court in the case of CIT Vs. Sree Krishna Promoters and Builders (supra). In the aforesaid judgment of the Hon’ble jurisdictional High Court, there was a categoric finding that money was taken from the assessee’s sister concern to make urgent payment (refer para 3 of the judgment of the Hon’ble jurisdictional High Court). In the instant case, though assessee has averred before the AO that there was reasonable cause as mandated under section 273B of the Act, assessee has not furnished any material to prove that there was business exigency / urgent requirement of funds on the particular day on which assessee was in receipt of cash loans from the Director of the assessee company. In the interest of justice and equity, we are of the view that the matter needs fresh examination by the AO. Accordingly, the matter is restored to the files of the AO. The AO is directed to examine whether there is “reasonable cause” as mandated under section 273B of the Act, for assessee to avail cash loans from its Directors. It is ordered accordingly.
In the result, appeal filed by the assessee is allowed for statistical purposes.