No penalty on cash loan to meet business exigency u/s 271D

Facts and Issues of the case

The assesse is an individual and having income from business and profession which included interest and remuneration from partnership firm, besides income from other sources. The assesse has filed its original return of income under section 139 of the Act for the Asst.Year 2012-13 and declared total income at Rs.2,15,690/-. However, ongoing through the cash book of the assesse, it was revealed to the AO that the assesse had received an amount of Rs.10.00 lakhs in cash from his HUF. Therefore, penalty under section 269SS was initiated separately for receiving loan in cash. In response the assesse replied that a cash loan of Rs.10 lakhs was received by the assesse from his HUF in compelling circumstances in order to honor the posted cheques issued by him in his individual capacity. Due to shortage of time, he could not transfer Rs.10 lakhs from his bank account to settle posted cheese issued to various third parties Thus, the cash transaction was being done due to business exigency and extreme need of cash and was between family members i.e. Individual to HUF. Thus, penalty under section 271D was not loveable as there was no contravention of section 269SS of the Act.

Observations by the Court

The Court has given thoughtful consideration to the submissions made by the both the parties and also perused the impugned orders of the Revenue authorities. We find that the ld.AO has levied the penalty under section 271D read with section 269SS of the Act on the ground that the assesse has accepted cash loans and the reasons for accepting loan in cash were also not reasonable and sufficient to drop the proceedings. The intention of this provision is to bring down non-genuineness transactions.

The case of the assesse was that the loan in cash was taken from his HUF on account of extreme business exigency and necessity of honoring postdated cheques issued to the third parties. Further at that time, the assesse was not having sufficient balance in the bank, which would otherwise attract provisions of Negotiable Instrument Act and therefore, he was in compelling situation taken the loan in cash from his own HUF. Besides, to prove the genuineness of the transactions, the assesse has filed Income Tax Returns, confirmation; contra ledger accounts. That apart the AO has neither doubted the impugned transaction nor any addition made in this behalf even under section 68 of the Act. Only the reason for the Revenue was that the receipt of the loan was in cash, which was in violation of section 269SS of the Act.

Thus, the Revenue authorities imposed penalty, as if the provision of section 271D is mandatory, without considering the ‘reasonable cause’ explained by the assesse both during the penalty proceedings. We find that the explanation given by the assesse cannot be disregarded, more so, when it was a onetime affair to meet business exigency and urgent financial necessity. Further, the impugned transaction was from his individual capacity to his HUF capacity.

The Court is not inclined to support the view taken by the Revenue authorities. We delete impugned penalty imposed under section 271D of the Act, and allow the ground of appeal of the assesse.