ADDL.COMMISSIONER OF INCOME TAX, BANGALORE vs. SRI SHYAM JAMADAGNI, BANGALORE

This appeal by the assessee is against the order dated 1.5.2014 of the CIT(Appeals)-II, Bangalore relating to A.Y. 2009-10.

The assessee is an individual. In the course of assessment proceedings, the Assessing Officer noticed that assessee had taken a loan of Rs.5 lakhs from one Shankar Subramanyam, C.A. and another sum of Rs.1,73,000 by cash from different friends. The AO was of the view that under the provisions of section 269SS of the Act, the assessee ought not to have taken loans in cash in excess of Rs.20,000 and that such loans had to be taken only by account payee cheque or draft. Since there was violation of the provisions of sec. 269SS of the Act, the AO initiated penalty proceedings u/s. 271D of the Act.

U/s. 273B of the Act, penalty u/s. 271D cannot be imposed if the assessee proves that there was a reasonable cause for taking loans in cash in excess of Rs.20,000. The assessee explained that he had issued a cheque for Rs.5 lakhs to one Shri Sandeep Kumar in connection with a property transaction. The said cheque was present by the payee to the assessee’s bankers for payment. Since there was no sufficient balance in the assessee’s bank account, the bankers called the assessee and asked him to deposit funds in his account so that cheque could be honoured and that in case funds are not arranged, the cheque would be dishonoured. It was in these circumstances that the assessee took a cash loan of Rs.5 lakhs from Shankar Subramanyam and deposited the same into his bank account.

With regard to cash loan of Rs.1,73,000, the assessee pointed out that cash loans have been availed from 12 different persons and each of the cash loan was less than Rs.20,000 and therefore there was no violation of the provisions of section 269SS of the Act, insofar as borrowing of Rs.1,73,000 is concerned.

The AO did not dispute the aforesaid facts as stated by the assessee, but was of the view that the circumstances which prompted the assessee to avail cash loans was not enough to prove that there was reasonable cause for failure to comply with provisions of section 269SS.

On appeal by the assessee, the CIT(Appeals) was of the view that the circumstances explained by the assessee was sufficient to hold that there was reasonable cause for the assessee’s failure to comply with the provisions of section 269SS of the Act.

Aggrieved by the order of CIT(Appeals), the revenue is in appeal before the Tribunal.

We have heard the submissions of the ld. DR, who relied on the order of the AO. The ld. counsel for the assessee relied on the order of CIT(Appeals).

We have considered the rival submissions. As already stated, the factual position with regard to issue of a cheque for Rs.5 lakhs for a property transaction and lack of funds in the bank account of the assessee to honour the said cheque is not in dispute. The fact that assessee borrowed Rs.5 lakhs from Shankar Subramanyam and deposited the same in the bank account to honour the cheque of Rs.5 lakhs issued by him is also not in dispute. In the circumstances, we are of the view that there was a reasonable cause for the assessee’s failure to comply with the provisions of section 269SS of the Act.

As far as cash loan of Rs.1,73,000 is concerned, each of the cash loan is less than Rs.20,000. The details in this regard are given by the assessee at page 7 of the assessee’s paperbook filed before us. Therefore, there cannot be any violation of the provisions of section 269SS, as far as sum of Rs.1,73,000 is concerned.

We are of the view that the ld. CIT(Appeals) was fully justified in cancelling the order of the Assessing Officer imposing penalty on the assessee. We therefore confirm the order of CIT(Appeals).

In the result, the appeal by the Revenue is dismissed.