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Penalty u/s 271D - When a Proper Explanation is Rendered and Breach, if any, is Merely a Technical or Venial Penalty Cannot be Levied - Gujarat High Court

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Penalty u/s 271D for Accepting Cash Loan in Violation of Section 269SS 

When the assessee has shown reasonable cause of the transaction and proper explanation is given, Penalty u/s 271D cannot be levied

FactsFacts of the Case

1. Following substantial question of law was framed by the Court for consideration :-

“Whether on the facts and in the circumstances of the case, Income Tax Appellate Tribunal was right in law in confirming the penalty u/s. 271D of the Income Tax Act, 1961 even though the transaction of accepting Rs.2 lacs from appellant's son was non-commercial and personal in nature, apart from otherwise found to be genuine?”

2. appellant an individual has income from medical practice and agriculture

3. The appellant had filed his return of income for Assessment Year : 2003 – 2004 on 31.03.2004

4. During the course of assessment proceedings, the Assessing Officer noticed that the appellant had accepted a sum of Rs.2,00,000/= from his son; the appellant's son had issued a cheque in the name of the appellant, but the son had encashed the same and the cash so received by the appellant was deposited by the appellant in his own account and a draft was taken out in favour of the motor car dealer

5. The appellant received delivery of the vehicle on 25.11.2005

6. The respondent made a reference to the Additional CIT, Gandhidham Range for initiating penalty proceedings u/s. 271D on the ground that the aforesaid sum was taken in cash instead of a/c. Payee cheque from the appellant's son

7. In this manner, it was alleged that the appellant had acted in contravention to the provisions of section 269SS of the Act

8. The appellant later clarified that the amount so received from his son was neither a loan nor a deposit within the meaning of section 269SS of the Act and it was received in cash in view of urgent necessity

9. The Additional CIT imposed a penalty of Rs.2,00,000/= on the ground that the appellant being a learned person and well aware of the provisions could not have ignored the law or could have taken the assistance of an income tax counsel

10. Being aggrieved and dissatisfied with the above order, an appeal was preferred before the CIT(A) at Rajkot which deleted the penalty holding that the transaction was between a father and son, to meet the urgent requirement of depositing the margin money in the bank account for buying a vehicle for personal use and thus, it was neither a loan nor deposit nor had anything to do with evasion of tax

11. Against this order, the respondent came in an appeal before the Appellate Tribunal wherein the penalty was confirmed

12. Being aggrieved by this order, present Appeal is preferred

13. Honb. High Court after hearing both parties deleted the penalty


Decision of Gujarat High CourtWe have heard learned Counsel for the respective parties and perused the records of the case. We are of the view that a proper explanation has been rendered by the appellant for the above cited transaction. Besides, the ratio laid down in the decision of Commissioner of Income Tax v. Bombay Conductors & Electricals Ltd. (supra) would apply to the facts of the case. Hence, the issue raised in this appeal is answered in favour of the assessee and against the Department. The Appeal is allowed to the aforesaid extent.

Cases Referred to

1. Commissioner of Income Tax v. Bombay Conductors & Electricals Ltd. 2008 3 DTR (Guj) 200

2. Commissioner of Income Tax v. Balaji Traders 2008 303 ITR 312 (Mad)

Additional Info

Read 13802 times Last modified on Thursday, 05 January 2017 21:29
Anil B.

A practicing Chartered Accountant Anil B. acquired CA, CS and LL.B degrees with over 12 years of rich and diverse management experience across Banking & Financial Services, Insurance and the Logistics industry spanning various markets and geographies globally.

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