2007 (7) TMI 216 - HC - Income Tax

Penalty u/s 271D for violation of provision of section 269SS deposit in cash exceeding prescribed limit - no mens rea or mala fide intention in accepting the amount by cash and not by cheque - reasonable cause for accepting the deposits in cash given by assessee - Tribunal was justified and correct in law in upholding the judgment of the Commissioner of Income-tax in deleting the penalty no substantial question of law arise appeal of revenue dismissed

Summary

Issues Involved:
1. Violation of Section 269SS of the Income-tax Act, 1961.
2. Imposition of Penalty under Section 271D of the Income-tax Act, 1961.
3. Reasonable Cause for Failure under Section 273B of the Income-tax Act, 1961.
4. Determination of Genuine Transaction.
5. Jurisdiction of the High Court to Interfere with Findings of Fact.

Analysis:

1. Violation of Section 269SS of the Income-tax Act, 1961:
The respondent-assessee, a contractor, had taken loans amounting to Rs. 5,05,300 in cash from its sister concern. The Assessing Officer found these transactions to be in violation of Section 269SS of the Income-tax Act, which mandates that loans or deposits of Rs. 20,000 or more must be accepted through an account payee cheque or bank draft.

2. Imposition of Penalty under Section 271D of the Income-tax Act, 1961:
The Assessing Officer imposed a penalty equal to the loan amount (Rs. 5,05,300) under Section 271D for the violation of Section 269SS. The respondent-assessee contended that the cash was needed for immediate payments to laborers at a remote site, arguing there was no mens rea or mala fide intention.

3. Reasonable Cause for Failure under Section 273B of the Income-tax Act, 1961:
Section 273B provides that no penalty shall be imposed if the assessee proves there was a reasonable cause for the failure. The appellate authority and the Tribunal accepted the explanation that the respondent-assessee needed cash for spot payments in a remote area, thus constituting a reasonable cause under Section 273B.

4. Determination of Genuine Transaction:
Both the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal found the transactions to be genuine. The appellate authority noted that the respondent-assessee was operating in a remote area and needed cash for immediate payments, thus considering the breach as technical. The Tribunal affirmed this view, citing similar cases where transactions between sister concerns were not considered loans or deposits under Section 269SS.

5. Jurisdiction of the High Court to Interfere with Findings of Fact:
The High Court emphasized that its jurisdiction is limited to correcting substantial errors of law. It cannot re-evaluate findings of fact unless there is a substantial question of law. The Court found that the appellate authority and the Tribunal had correctly applied the law to the facts, determining the transactions to be genuine and the explanation for cash acceptance reasonable.

Conclusion:
The High Court dismissed the appeal, concluding that no substantial question of law arose. The findings of the appellate authority and the Tribunal that the transactions were genuine and the breach was technical were upheld. The Court emphasized the importance of Section 273B in mitigating undue hardship by allowing reasonable cause as a defense against penalties under Section 271D.