By TIOL News Service

ERNAKULAM, JAN 16, 2014: THE issue before the Bench is - Whether when the assessee accepts loan in cash, exceeding the limit u/s 269SS, and when the source of funds is not withdrawal from banks, such loan may be construed as black money and the same attracts penalty u/s 271D. And the answer goes against the assessee.

Facts of the case

The assessee, an individual, had filed its return of income for the AY 2007-2008 declaring total income of Rs 2,59,830/-, which was scrutinized after issuing notice u/s 143(2) and the assessment was completed u/s 143(3). By a notice, JCIT called upon the assessee to furnish extract of the ledger account of six creditors in whose names amount was due and payable. It was indicated that the assessee had accepted loan exceeding the limits specified u/s 269SS from six creditors during the FY 2006-2007. The assessee submitted his explanation. However, penalty was imposed u/s 271D equal to the loan amount taken amounting to Rs.29,47,500/-.

On appeal before the CIT(A), it was found that the levy of penalty u/s 271D was not justified. On further appeal, Tribunal reversed the order of the CIT(A) and restored the order of penalty. Main contention urged by the assessee was that the Tribunal should have followed the decision of HC in CIT v. P.K.Shamsuddin (ITA No. 237/2010) wherein it was held that when the factual position of the source of fund was accepted by the Department there was a reasonable cause against levy of penalty since the violation became technical. Tribunal also found that the failure in the case was not receiving the loan, but the receipt or acceptance of amounts exceeding Rs. 20,000/- by way of account payee cheques or demand drafts. If the assessee was capable of explaining to the satisfaction of the concerned authority that there was a reasonable cause or failure to receive the loan or deposit by way of account payee cheque or demand draft, then the penalty shall not be levied. Therefore reasonable cause for receiving the loan or deposit in cash had to be proved by the assessee.

It was not in dispute that for exercising jurisdiction u/s 269SS read with S. 271D, there should be receipt of loan or deposit by the assessee by way of cash. It was an admitted fact that the assessee had received substantial amounts from his creditors by way of cash. What was the reasonable cause for receiving such a huge amount by way of cash or what was the reason for not receiving the loan or deposit by way of account payee cheque or demand draft was a matter to be explained by the assessee. It was contended that since the appellant had to put up an industrial unit and he was not in a position to get loan from the bank he had to collect cash from various agriculturists, who were residing in the State of Tamil Nadu and since it was found that the transactions were genuine and bona fide, there was no reason to impose penalty on the petitioner. As rightly observed by the Tribunal setting up an industry/business was a long process and it was for the assessee to demonstrate with sufficient material that he required cash urgently to meet his requirements. It was open for him to prove that he had applied for loan and he was awaiting for loan. No such materials were available. In the absence of any proof to show that the transaction was a genuine transaction and that there was a reasonable cause for receiving the amount in cash, it may not be possible for HC to come to a conclusion that the assessee was not liable for payment of penalty.

Held that,

++ the burden is on the assessee to prove that there was reasonable cause for receiving cash from various persons. In the absence of any such proof we are of the view that the Tribunal was justified in rejecting the contentions of the appellant;

++ now, coming to P.K.Shamsuddin's case, the contention taken was ignorance of law. That apart, it was found that the assessee took cash from relatives and friends who had taken loan from Banks for helping the assessee and such persons could not have issued cheques. It is in that circumstances, when the source of funds were found to be acceptable by the Department, the Division Bench opined that there is no tax evasion or black money introduced in the business;

++ that is not the situation here. The source of funds of the creditors was not from the Bank and introduction of black money cannot be ruled out. There is a clear finding by the assessing officer that no proof was furnished regarding earnings of agricultural income by the creditors. Hence P.K.Shamsuddin's case does not apply to the facts of this case. For that reason itself we do not think that there is any perversity in the findings of the Tribunal and since no question of law arises for consideration, the appeal is liable to be dismissed and we dismiss the appeal.

(See 2014-TIOL-61-HC-KERALA-IT)