By TIOL News Service

CHENNAI, JAN 11, 2019: THE ISSUE IS - Whether when the assessee had shown a cause, the burden shifts on the AO to establish that the cause shown is not a reasonable cause by establishing that it lacks bona fides, before levying any penalty u/s 271D. YES IS THE VERDICT.

Facts of the case:

The assessee is an individual and is engaged in the business of pawn broking. During the course of his assessment, the AO noticed that the assessee received loan from certain creditors in cash amounting to Rs.3 lakhs during the A.Y 2008-09. Having noticed the same, the AO referred the case to the Add CIT for initiating penalty proceedings u/s 271D r/w/s 269SS. Accordingly, a notice was issued to the assessee u/s 274 r/w/s 271D to show cause as to why penalty should not be levied u/s 271D. The assessee's case was that she had received an advance amounting to Rs.50,000/- from one Mr.Natesan for the sale of an immovable property. However, the registration could not be done within time and hence, she borrowed a sum of Rs.1 lakh from one Mr.Kishanlal HUF, who was none other than her uncle, for repayment of the said advance. The further case of the assessee was that the said Mr.Natesan requested for additional three months' time for getting the property registered in his name and also agreed to pay higher sale consideration. Owing to that, she received an additional sum of Rs.2 lakhs as advance from the said Mr.Natesan. However, the sale transaction did not fructify and therefore, she had to refund the advance received from the said Mr.Natesan. It was also the case of assessee that she borrowed from her maternal uncle and maternal aunt a sum of Rs.2 lakhs and this was done with a view to repay the said Mr.Natesan for the advance paid by him. The borrowal was stated to be on account of extraneous circumstances for emergency purposes and the same was done within the close family relatives. With these facts, the assessee requested to drop the penalty proceedings. However, the AO did not agree with the stand taken by the assessee, confirmed the proposal in the show cause notice and levied penalty. On appeal, the CIT(A) as well as the ITAT confirmed the penalty.

High Court held,

++ the crucial aspect to be considered is as to whether the assessee had shown reasonable cause for having received money in cash in contravention of the provisions of Section 271D. The AO had no material to show that the case, as projected by the assessee, was false or for that matter, there was no transaction between the assessee and the said Mr.Natesan. In the absence of any material to disbelieve the said property transaction, all that is required to be seen is as to whether the explanation offered was reasonable. Admittedly, the amount was borrowed by the assessee from her maternal uncle and maternal aunt. In more or less identical circumstances, a Division Bench of this Court granted relief to the assessee by dismissing the appeal filed by the Revenue in the case of CIT Vs. Smt.M.Yesodha - 2013-TIOL-113-HC-MAD-IT. In the said case, the Tribunal held that the transaction between the father in law and the daughter in law was a genuine transaction and this was not in dispute because the amount was paid for purchase of a property. Before the Division Bench, the Revenue contended that the assessee had nowhere pleaded any reasonable cause as contemplated u/s 273B and that therefore, the Tribunal was not right in holding that the genuineness of the transaction was not disputed;

++ even before this Court, the Revenue's counsel submits that the provision namely Section 273D uses the expression 'reasonable cause' and not the expression 'sufficient cause' and that the Authorities had rightly found that the reason given by the assessee was not a reasonable cause. However, a similar contention was rejected by the Division Bench in the decision in the case of Smt.M.Yesodha wherein it was held that even though the assessee had not taken a specific plea of reasonable cause, it must be considered as applied to human action and where transactions were bona fide, penalty could not be imposed. In the case on hand, the assessee had shown a cause for having received the amount in cash. Therefore, if the assessee had shown a cause, the burden shifts on the AO to establish that the cause shown is not a reasonable cause by examining the cause shown and establish that it lacks bona fides. In the instant case, there is no such finding recorded by the Authorities or for that matter by the Tribunal. Admittedly, the transaction in the instant case is between the assessee and her maternal uncle and aunt and there is nothing on record to show that the transaction lacks bona fides or the assessee came forward with a false case. In the result, the case on hand does not warrant levy of penalty u/s 271D.

(See 2019-TIOL-86-HC-MAD-IT)