Penalty under section 271D Not Sustained for Loans via Banks: ITAT

Vijayaben G. Zalavadia Vs JCIT (ITAT Ahmedabad)

Introduction: The Income Tax Appellate Tribunal (ITAT) Ahmedabad recently ruled in the case of Vijayaben G. Zalavadia Vs JCIT, making significant determinations regarding penalties imposed under Section 271D and the conditions under which Section 269SS is applicable.

Background: The assessee, Vijayaben G. Zalavadia, is an agriculturist who accepted a loan of Rs. 1,70,000/- from The Berna Gamni Seva Sahkari Mandali Ltd. The Assessing Officer penalized the assessee under Section 271D for contravention of Section 269SS of the Act, asserting that the loan was accepted in cash.

The case reached ITAT Ahmedabad after the assessee’s appeal was dismissed by the Commissioner of Income Tax (Appeals) or CIT(A).

Detailed Arguments and Proceedings:

1. Assessee’s Position:

• Contended that the loan was accepted through the banking channel and not in cash.
• Submitted bank statements, certificates, and ledger accounts as evidence.
• Argued that as an agriculturist, there was no regular assessment, thus Section 269SS could not be contravened.
• Requested deletion of the penalty.

2. Department’s Position:

• Relied on the penalty order and the order of the CIT(A).
• Argued that the assessee did not substantiate that the loan was not in cash.
• Suggested remanding the matter back to the CIT(A).

ITAT Ahmedabad’s Analysis:

1. No Regular Assessment:

• ITAT noted that there was no regular assessment done, as the assessee is an agriculturist.
• Hence, the question of contravention of Section 269SS did not sustain.

2. Bank Transactions not Doubted:

• The bank statement demonstrating the transaction was not doubted by the Assessing Officer or the CIT(A).
• The amount of Rs. 2,30,000/- was transferred from The Berna Gamni Seva Sahkari Mandali Ltd. on 24.05.2012, and other corroborating documents were undisputed.
• Therefore, the loan was accepted through a banking channel, and no cash was involved in the transactions.

3. Application of Sections 269SS and 271D:

• Section 269SS prohibits the acceptance of a loan or deposit or specified sum, otherwise than by an account payee cheque or account payee bank draft if the amount is exceeding Rs. 20,000/-.
• Since the transaction was made through the banking channel, Section 269SS was not applicable.
• Thus, the penalty under Section 271D did not sustain.

Conclusion and Implications:

The ITAT Ahmedabad allowed both appeals for A.Ys. 2013-14 & 2016-17, setting a noteworthy precedent for similar cases.

• Precedent for Future Cases: This ruling establishes clear guidance on the application of Sections 269SS and 271D when a loan is accepted through a banking channel.
• Emphasis on Evidence: The case highlights the importance of producing clear and substantiated evidence to counter penalties imposed under tax laws.
• Protection for Agriculturists: As the assessee’s status as an agriculturist played a role in the case, this ruling may have specific implications for those engaged in agriculture.

This case adds to the body of jurisprudence surrounding Sections 269SS and 271D, further defining the conditions under which these provisions are applicable, and how the principles of equity and natural law must be maintained in the assessment and imposition of penalties.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

1. Both appeals filed by the same assessee are against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi on 26.04.2023 & 27.03 .2023 for A.Ys. 2013-14 & 2016-17.

2. As all the grounds of appeal are identical in both the appeals except the figure so we are only raised the grounds of ITA No. 338/Ahd/2023 for A.Y. 2013-14 as under:

“1. The order passed by Ld. CIT(A) is against law, equity and natural.

2. The Ld. CIT(A) has erred in law and on facts in upholding the penalty levied U/S 271D by Ld. JCIT Gandhinagar of Rs. 1,70,000/-

3. The Ld. CIT(A) has erred in law and on facts confirming impugned penalty initiated and levied in the absence of regular assessment.

4. The Ld. CIT(A) has erred in law and on facts in confirming and levying penalty in contravention of Section 269SS ignoring the fact that payments were through banking channel.

5. The appellant craves liberty to add, amend, alter or modify all or any grounds of appeal before final appeal.”

3. The assessee is agriculturist and having agricultural income in the form of salary. The Assessing Officer on receipt of information from DDIT (Investigation) observed that assessee has accepted loan of Rs. 1,70,000/- during the relevant period from The Berna Gamni Seva Sahkari Mandali Ltd. The Assessing Officer based on the said information issue show-cause notice dated 13.05.2019 for levy of penalty under Section 271D for contravention of Section 269SS of the Act. The assessee filed reply dated 20.05.2019 thereby stating that acceptance of loan of Rs. 1,70,000/- from the society was through banking channel only and not in cash. The assessee further submitted the bank statement wherein transaction of taking the said loan was demonstrated before the Assessing Officer. The assessee has given the certificate issued by The Berna Gamni Seva Sahkari Mandali Ltd. as well as the ledger from The Berna Gamni Seva Sahkari Mandali Ltd.

4. The Assessing Officer issued notice under Section 274 for imposition of penalty proceedings under Section 271D. The assessee filed without. After taking cognizance of the reply the Assessing Officer impose penalty under Section 271D amounting to Rs. 1,70,000/- for acceptance of cash loan in contravention of provision of Section 269SS of the Act.

5. Being aggrieved by the said penalty order the assessee filed appeal before the CIT(A). The CIT(A) dismiss the appeal of the assessee.

6. The Ld. A.R. submitted that since the assessee is an agriculturist there was no regular assessment done by the authorities. Therefore, the question of contravention of Section 269SS of the Act does not sustain. The Ld. A.R. further submitted that all the documentary evidence that the said loan was taken through banking channel and the respective certificates of the Sahkari Mandali Ltd. was presented before the Assessing Officer alongwith banking statement and ledger account of The Berna Gamni Seva Sahkari Mandali Ltd. Thus, the Ld. A.R. submitted that penalty levied under Section 271D be deleted.

7. The Ld. D.R. relied upon the penalty order and the order of the CIT(A) and further submitted that assessee did not substantiated the loan from the balance that the said loan was not in cash. Thus, the Ld. D.R. submitted that the documents presented before the Tribunal should be The Ld. D.R. submitted that the matter may be remanded back to the file of the Ld. CIT(A).

8. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that there was no regular assessment done in assessee’s case as the assessee is an agriculturist. Further, the Assessing Officer as well as the CIT(A) has not doubted the bank statement of the assessee wherein the amount of Rs. 2,30,000/- which was transferred from The Berna Gamni Seva Sahkari Mandali Ltd. was shown dated 24.05.2012. The transactions as well as the ledger alongwith the certificate issued by The Berna Gamni Seva Sahkari Mandali Ltd. was not doubted by the revenue authorities. Thus, the loan was accepted through banking channel and there was no cash involved in the present transactions. Therefore, Section 269SS does not attract. Thus, the penalty levied under Section 271D does not sustain. The Ld. CIT(A) as well as the Assessing Officer was not justified in levying the penalty under Section 271D of the Act. Hence, the appeal of the assessee being ITA No. 228/Ahd/2023 is allowed.

9. As relates to ITA No. 339/Ahd/2023 for A.Y. 2016-17 the issue involved therein is also identical and therefore, the findings given hereinabove for A.Y. 2013-14 are applicable in these year as well. Hence, appeal for A.Y. 2016-17 is also allowed.

10. In result, both the appeals are allowed.

This Order pronounced in Open Court on 14/07/2023