ITAT upheld the section 271D fine for the director’s cash loan

Fact and issue of the case

The brief facts of the case are that during the course of assessment proceedings conducted by the AO under Section 143(3) read with Section 143(2) of the 1961 Act for the impugned assessment year in the case of the assessee, it was observed by the AO that the assessee had accepted cash loan of Rs. 1,10,00,000/- from Shri Hemant Kumar Sindhi, Allahabad on various dates, in contravention of provisions of Section 269SS of the 1961 Act, and for such default the assessee is liable to be penalized under Section 271D of the Act. The details of such cash loans taken by the assessee, are as under:

Amount ( Rs. )	Date	Nature of Receipt
10,00,000	26.09.2011	In cash
50,00,000	4.10.2011	In cash
50,00,000	4.11.2011	In cash
Total Rs. 1,10,00,000

The AO i.e. ACIT, Central Circle, Allahabad made reference / proposal to the office of the Joint Commissioner of Income Tax ,Central Range, Varanasi vide Letter No. ACIT/CC/Alld/2017-18/581 dated 20.09.2017 for initiation of penalty proceedings against the assessee under the provisions of Section 271D of the 1961 Act for contravention of provisions of Section 269SSof the 1961Act. The Ld. JCIT,Varanasi initiated penalty proceedings against the assessee u/s 271D of the 1961 Act and a show cause notice was issued to the assessee on 21.09.2017 to explain the case and to show cause as to why penalty under Section 271D may not be imposed upon the assessee. This notice was duly served on the assessee through AO. The hearing was fixed for 09.10.2017,but the assessee did not appear in compliance to notice before the ld. JCIT nor any compliances were made as no reply /communication was sent by the assessee. The ld. JCIT gave further opportunity to the assessee for compliance. The assessee submitted reply before ld. JCIT vide letter dated 25.11.2017 vide dak in the office of the AO on 28.11.2017, in which the assessee sought further 10 days time for furnishing reply on the issues. However, the assessee submitted in the aforesaid reply that no cash loan was taken by the assessee company from Shri Hemant Sindhi, Director and the amount was actually deposited by the aforesaid Director in cash in the bank account of the assessee to the tune of Rs. 60,00,000/- , while remaining amount of Rs. 50,00,000/- was paid by Director in cash for purchase of stamps. The assessee claimed that no cash was increased in the cash book of the company on account of these transactions, and hence provisions of Section 269SS are not applicable and prayers were made to drop penalty proceedings. The relevant part of the submission of the assessee is reproduced hereinunder:-

The Ld. JCIT waited for the response of the assessee for more than 15 days, as requested by the assessee vide letter dated 25.11.2017 wherein the assessee submitted that reply explaining the issues will be filed within next 10 days, but, however, no further reply was filed by the assessee, and Ld. JCIT confirmed/upheld penalty of Rs. 1,10,02,000/- by rejecting the contentions of the assessee that it had not taken any cash loan from the Director, but the Director has deposited cash in the bank account of the assessee company and also paid amount in cash for purchase of stamp paper . The ld. JCIT observed that the assessee has not filed any judicial pronouncement to support its claim ,and there is no such exemption to the Director u/s 269SS that payments may be made by Director, on behalf of the company from his own cash. The ld. JCIT also rejected the argument of the assessee that cash was not increased in cash book of the assessee, which contention of the assessee was held by ld. JCIT to be against the principles of accountancy. The ld. JCIT observed that when the amount was paid in cash by the Director and the same was deposited in the bank account of the assessee company, it is clear case of cash loan accepted/ taken by the assessee company. It was observed by Ld. JCIT that since cash was deposited in the bank account of the assessee company, it is required to be entered in cash book otherwise there will be shortage or negative cash balance in the cash book, which is against the principles of accountancy . It was also observed by the Ld. JCIT that similarly the liability of the assessee company , paid by the Director , in cash , from own sources is also a cash loan accepted/taken by the assessee company. The ld. JCIT observed that its entry is also required to be appropriately entered in the cash book. The ld. JCIT observed that the assessee has not denied these loans and rather the assessee has shown these transactions under the “unsecured loans” in its books of account. The relevant copy of the ledger account of Shri Hemant Kumar Sindhi in the books of the assessee company were reproduced by ld. JCIT in his order dated 12.12.2017,which is reproduced as hereinunder:

The Ld. JCIT referred to the provision of Section 269SS of the 1961 Act and observed that provision of Section 269SS is clear and unambiguous . The ld. JCIT observed that the assessee cannot take shelter of direct cash deposit by the director in its bank account or payment of its liability in cash for its default or violation of Section 269SS, as there is no such exemption in the law . The ld. JCIT observed that there is further entry of cash receipt of Rs. 2,000/- dated 4.11.2011, on which also penalty is leviable u/s 271D , and hence the assessee is liable to penalty u/s 271D of Rs. 1,10,02,000/-, which was imposed by ld. JCIT vide penalty order dated 12.12.2017 passed u/s 271D of the 1961 Act for contravention of provisions of Section 269SS of the 1961 Act.

Observation of the court

In this case also, the Director deposited the money in the bank account of the assessee, and the Hon’ble High Court held that no genuine or bonafide reason for not accepting the loan/deposit through account payee cheque or account payee bank draft and rather accepting the same in cash was shown by the tax-payer. Hon’ble Supreme Court dismissed the SLP filed by the assesse.

The assesse has relied upon the judgment and order of Hon’ble Allahabad High Court in the case of CIT v. Dimple Yadav, reported in (2015) 280 CTR 309(Alld.), in the instant case keeping in view the facts and circumstances of the case, the Hon’ble Court held that the tax-payer was able to demonstrate the bonafide and reasonable cause. But, in the instant case before us, we have already held that no reasonable cause or urgency is shown by the assesse for having accepted cash aggregating to Rs. 1,10,02,000/- on different occasions from Mr. Hemant Kumar Sindhi. It could not be shown as to why the transactions could not be undertaken in compliance with the prescribed modes u/s 269SS.

Similar is the case of CIT v. Panchsheel Owners Associations(supra) relied upon by the assesse, the Hon’ble Court held that the tax-payer was able to demonstrate the genuineness and reasonable cause. But, in the instant case before us, we have already held that no reasonable cause or urgency is shown by the assesse for having accepted cash aggregating to Rs. 1,10,02,000/- on different occasions from Mr. Hemant Kumar Sindhi. It could not be shown as to why the transactions could not be undertaken in compliance with the prescribed modes u/s 269SS.

Similar is the case of Dr Rajaram L. Akhani(supra) relied upon by the assesse, the Hon’ble Court held that the tax-payer was able to give proper explanation of having received cash of Rs. 2,00,000/- from his son. But, in the instant case before us, we have already held that no reasonable cause or urgency is shown by the assesse for having accepted cash aggregating to Rs. 1,10,02,000/- on different occasions from Mr. Hemant Kumar Sindhi. It could not be shown as to why the transactions could not be undertaken in compliance with the prescribed modes u/s 269SS.

In the case of CIT v. Jai Laxmi Rice Mills(supra) relied upon by the assesse, the satisfaction was recorded in the original assessment order which assessment order stood set aside, but in set aside assessment order no satisfaction for invoking provisions of Section 271D was recorded, but in the instant case before us, we have already held that the AO has recorded satisfaction before invoking provisions of Section 271D for contravention of Section 269SS.

In the case of Chawla Chentech Private Limited(supra) replied upon by the assesse, sudden business exigency that required immediate discharge of certain liabilities were shown by the tax-payer for accepting cash from Director and their spouse . But, in the instant case before us, we have already held that no reasonable cause or urgency is shown by the assesse for having accepted cash aggregating to Rs. 1,10,02,000/- on different occasions from Mr. Hemant Kumar Sindhi. It could not be shown as to why the transactions could not be undertaken in compliance with the prescribed modes u/s 269SS.

In the case of Sunil Kumar(supra) relied upon by assesse, urgency and reasonable cause for depositing cash in bank account and obtaining demand draft in favour of excise department for participating in the tender of the liquor shops were shown. But, in the instant case before us, we have already held that no reasonable cause or urgency is shown by the assesse for having accepted cash aggregating to Rs. 1,10,02,000/- on different occasions from Mr. Hemant Kumar Sindhi. It could not be shown as to why the transactions could not be undertaken in compliance with the prescribed modes u/s 269SS.

In the case of CIT v. Speedways Rubber Private Limited(supra) relied upon by the assesse, the tax-payer accepted share application money of Rs. 20,000/- in cash, which was accepted by Hon’ble Court as it was merely a technical breach. But, in the instant case before us, we have already held that no reasonable cause or urgency is shown by the assesse for having accepted cash aggregating to Rs. 1,10,02,000/- on different occasions from Mr. Hemant Kumar Sindhi. It could not be shown as to why the transactions could not be undertaken in compliance with the prescribed modes u/s 269SS.

In the case of Smt. Meera Devi Kumawat(supra) relied upon by the assesse , the cash transaction were between husband and wife, the tribunal accepted the explanation of the assesse. But, in the instant case before us, we have already held that no reasonable cause or urgency is shown by the assesse for having accepted cash aggregating to Rs. 1,10,02,000/- on different occasions from Mr. Hemant Kumar Sindhi. It could not be shown as to why the transactions could not be undertaken in compliance with the prescribed modes u/s 269SS.

In the case of Surendra Engineering Corporation(supra) relied upon by the assesse, the tax-payer accepted the cash loan from its partners under bonafide belief that transaction between partner and firm are not covered u/s 269SS as they could not be treated as separate entities, and the urgency for taking cash loan was proved. But, in the instant case before us, we have already held that no reasonable cause or urgency is shown by the assesse for having accepted cash aggregating to Rs. 1,10,02,000/- on different occasions from Mr. Hemant Kumar Sindhi, Director. It could not be shown as to why the transactions could not be undertaken in compliance with the prescribed modes u/s 269SS. Further, the Private Limited company and Director are altogether different person under the provisions of Section 2(31), and there could not be two view on this.

The ld. CIT-DR has rightly relied upon judicial precedents to support his contentions, which we have reproduced in preceding para’s of this order, and the same are not repeated again. Thus, keeping in view our aforesaid discussions as above, we uphold the penalty of Rs. 1,10,02,000/- levied by ld. JCIT and as upheld by ld.CIT(A). The appeal filed by the assesse stand dismissed. We order accordingly.

In the result, appeal filed by the Assessee in ITA no. 46/Alld/2019 for ay: 2012-13 stands dismissed. We order accordingly.

Order pronounced on 13/12/2022 at Allahabad, U.P. in accordance with Rule 34(4) of the Income-tax (Appellate Tribunal) Rules, 1963

Read the full order from here

H.K.