The ITAT Chandigarh in the case of M/s Chawla Chemtech Pvt. Ltd. vs. the Joint CIT, Gobindgarh – 2016 (4) TMI 378 has held that no penalty u/s 271D of the Income Tax Act can be levied if transactions are genuine.
Section 269SS of the Income Tax Act deals with accepting Loans and Section 271D deals with penalty on contravention of Sec 269SS which is equivalent to the Loan amount.
Provisions of Penalty u/s 271D of the Income Tax Act
Section 271D of the Income Tax Act, 1961 provides that if a loan or deposit is accepted by contravening of the provisions of section 269SS of the Income Tax Act, 1961, a penalty that is equal to the amount of the said loan or deposit may be levied from the assessee by the Joint commissioner.
Provisions of Section 269SS of the Act:
Section 269SS of the Income Tax Act, 1961 was inserted by the Finance Act, 1984, with effect from 1st April, 1984 which provides the mode of taking and accepting loans and deposits.
Section 269SS provides that no Person shall accept from any other person any loan or deposit otherwise than by an account payee cheque or draft if –
(a) Such amount of loan or deposit or the total amount of loan and deposit is Rs.20, 000/- or more, or
(b) On the date of taking the loan or deposit, any loan or deposit that has already been accepted by such person from the depositor is unpaid amounting to Rs.20,000/- or more
(c) The total of the amount of loan or deposit to be taken and the amount of loan or deposit taken earlier which is due as on the date is Rs.20, 000/- or more.
However the provisions of section269SS of the Income Tax Act, 1961 shall not apply to any loan or deposit taken or accepted by,
(i) Government;
(ii) Any bank, post office, co-operative bank, etc;
(iii) Any corporation formed by a central, state or provincial act;
(iv) Any company that is run by the government.
Moreover the provisions of section 269SS shall not apply to any loan or deposit where the person from whom it is taken or accepted and the person by whom it is accepted are both having agricultural income and they do not have any income chargeable to tax under the Income Tax Act.
Provisions of section 269SS do not apply to cases where there are entries and payment was made through account payee cheque. This was held in the case of Commissioner of Income Tax vs. Noida Toll Bridge Co. Ltd. (2003) 184 CTR Del. 266.
From the reading of the aforesaid provision, it is clear that after the introduction of the aforesaid section, no person should take or accept from any another person any loan or deposit otherwise than by an account payee cheque or bank draft if the amount of such loan or deposit is Rs. 20,000/- or more.
Other judicial precedents in case of Penalty u/s 271D of Income Tax Act:
The Allahabad High Court In a recent judgment passed in CIT-II, Agra (Appellant) vs. Smt. Dimpal Yadav (Respondent) being Income Tax Appeal No.174 of 2015 along with Income Tax Appeal No.71 of 2013, CIT-II, Agra (Appellant) vs. Akhilesh Kumar Yadav (Respondent) has held that if the genuineness of the loan transaction in cash is not challenged and the same has been done through banking channels, penalty under section 271D for violation of section 269SS shall not be imposed in view of section 273B of the Act.
The bench comprising of Hon’ble Tarun Agarwala, J. and Hon’ble Surya Prakash Kesarwani, J. passed the judgment on 21.8. 2015.
In the case of Commissioner of Income Tax vs. Balaji Traders, 303 ITR 312 (Mad) it was held that deletion of penalty was justified if the creditors were genuine and transactions are not challenged. It was further held that there is no revenue loss and there is business exigency compelling the assessee to take loan through cash.
In the case of Omec Engineers vs. CIT (2007) 294 ITR 599, it was held that where it is not observed that transactions were not genuine and there is no malafide intention on behalf of the assessee, the penalty under section 271D of the Income Tax Act could not be sustained in the eye of law.
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