INCOME TAX ACT, 1961

Penalty under sections 271D and 271E- Contravention of sections 269SS and 269T-Reasonable cause-Genuineness of loans and parties

Assessee filed its return for the relevant assessment year. AO found that the assessee had taken a cash loan violating the provisions of section 269SS and repaid the amount in cash violating section 269T, therefore he levied penalty under sections 271D and 271E. CIT(A) held that the business of the assessee which was done mostly in Erode required cash purchases which made the assessee to accept loans in cash from sister concerns and that repayments to sister concerns were also made in cash. As the transactions of loans were genuine and the identity of lenders was not in doubt, CIT(A) cancelled the penalties under sections 271D and 271E. Tribunal upheld the order of CIT(A) with a holding that the transaction did not result in treatment of loan as unexplained cash credit because it was found to be fully explained and there was no intention on the part of the assessee to contravene the provisions of section 269SS. Held: It was held that if there was genuine and bona fide transaction and the tax payer could not get a loan or deposit by account payee cheque or demand draft for some bona fide reason, the authority vested with the power to impose penalty has a discretion not to levy penalty. In the present case, Both CIT(A) and Tribunal held that the transactions were genuine and the identity of the lenders was also satisfied and there was no intention on the part of the assessee to evade the tax. Once the said finding as to the genuineness of the transactions was arrived at by Tribunal on the facts, no question of law much less a substantial question of law would arise.

Income Tax Act, 1961 Section 271D/271E

Decision: In favour of Assessee.
A.Y. 1997-98

Commissioner of Income Tax v. Lakshmi Trust Co.