Penalty under section 271D for failure to comply with the provisions of section 269SS

The provisions of section 269SS and 269T were brought on the statute by the Finance Act, 1984, with effect from, 01.04.1984. The intention behind bringing the above provisions on the statute was clarified by the CBDT vide, its Circular No. 387, dated 06.09.1984. The relevant part of the circular is as under:

"Unaccounted cash found in the course of searches carried out by the Income Tax department is often explained by taxpayers as representing loans taken from or deposits made by the various persons. Unaccounted income is also brought into the books of account in the form of such loans and deposits, and, taxpayers are also able to get confirmatory letter from such persons in support of their explanation.

With a view to circumventing this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Bill seeks to make a new provision in the Income Tax Act debarring persons from taking or accepting, after 30.06.1984, from any other person any loan or deposits otherwise than by an account payee cheque or account payee Bank draft if the amount of such loan or the aggregate amount of such loan and deposit is Rs. 10,000 or more. This prohibition will also apply in cases where on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), and the amount or the aggregate amount remaining unpaid is Rs. 10,000 or more. The proposed prohibition would also apply to cases where the amount of such loan or deposit, together with the aggregate amount remaining unpaid on the date on which such loan or deposit proposed to be taken, is Rs. 10,000 or more"

Keeping the above circular in view, the Hyderabad Bench of the Tribunal in case of Industrial Enterprises v. DCIT (2000) 73 ITD 252 (ITAT Hyderabad) in para 17.2 of its order held as under:

"Provisions of section 269SS were brought in the statute book to counter the evasion of tax in certain cases, as clearly stated in the heading of Chapter XX -B of the Income Tax Act, 1961, which reads requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax legislative. Intention in bringing section 269SS in the Income Tax Act was to avoid certain circumstances to tax evasion, whereby huge transactions are made outside the books of account by way of cash. As far as the case on hand before us is concerned, there is no case against the assessee-firm that these transactions had anything to do with evasion of tax or M/s. S.R Associated Construction Co. (P) Ltd concealment of income. As rightly pointed out by the Commissioner (Appeals) himself, it may be a case of negligence. But a negligent person does not have any intention or mensrea to purposely violate any provision of law, so as to be visited with stringent punishment of heavy penalty".

Finance is the important part and need of every business. The own capital of a person may not be always sufficient to meet the needs of finance of the business. Therefore the Loans and deposits become necessary and important to meet the financial needs of the business. But while taking loans and accepting deposits one also has to keep in mind the restrictions imposed under section 269SS and Section 269T of the Income Tax Act on the mode of taking / Paying  such loans and deposits.

Such provisions regulating the mode of accepting or taking loans or deposits and mode of repayment of certain loans and deposits are contained under section 269SS and Section 269T of the Income Tax Act 1961.

Section 269SS provides that no person shall take or accept loan or deposit or specified sum exceeding Rs. 20,000 by any mode other than account payee cheque or account payee demand draft or use of electricity clearing system through a bank account or through such other electronic modes as may be prescribed.

Text of Section 271D

[1][Penalty for failure to comply with the provisions of section 269SS

271D. [2][(1)] If a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit [3][or specified sum] so taken or accepted.

[4][(2) Any penalty imposable under sub-section (1) shall be imposed by the [5][Joint] Commissioner.]

KEY NOTE

1.    Inserted by the Direct Tax (Amendment) Act, 1987, with effect from 01.04.1989.

2.    Numbered as sub-section (1) by the Finance Act, 1990, with effect from 01.04.1990.

3.    Inserted by the Finance Act, 20115, with effect from 01.06.2015.

4.    Inserted by the Finance Act, 1990, with effect from 01.04.1990.

5.    Substituted for “Deputy” by the Finance (No. 2), Act, 1998, with effect from 01.10.1998.

Text of Section 269SS

[1][Mode of Taking or Accepting Certain Loans deposits and specified sum

No person shall take or accept from any other person (hereafter referred to as the depositor), any loan or deposit or any specified sum otherwise than by an account payee cheque or account payee bank draft or use of electricity clearing system through a bank account [2][or through such other electronic mode as may be prescribed] if,

(a)  the amount of such loan or deposit or the aggregate amount of such loan and deposit ; or

(b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid ; or

(c)  the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b),

is twenty thousand rupees or more :

Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,

(a) Government ;

(b) any banking company, post office savings bank or co-operative bank ;

(c) any corporation established by a Central, State or Provincial Act ;

(d) any Government Company as defined in clause (45) of section (45) of section 2 of the Companies Act, 2013 (18 of 2013);

(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette :

Provided further that the provisions of this section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act.

      

      Explanation : For the purposes of this section,

(i)   banking company means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of that Act ;

(ii) co-operative bank shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949) ;

(iii) loan or deposit means loan or deposit of money.

     (iv) Specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.]

KEY NOTE

1.   Substituted by the Finance Act, 1984, with effect from 01.06.2015.

2.   Inserted by the Finance (No. 2) Act, 2019, with effect from 01.09.2019.

Consequences of contravention of section 269SS

Contravention of the provisions of section 269SS will attract penalty under section 271D. Section 271D of Income Tax Act 1961 provides that if a loan or deposit or specified sum is accepted in contravention of the provisions of section 269SS then a penalty equivalent to the amount of such loan or deposit or specified sum may be levied by the Joint commissioner.

EXAMPLE:

If Mr “X” has a credit balance of a loan of Rs. 18,000 from Mr “Y”. Now in this case Mr “X” cannot take loan in excess of Rs 1,999 more from Mr “Y” except with an account payee cheque or account payee bank draft or use of electricity clearing system through a bank account or through such other electronic mode as may be prescribed.

Nature of default

Accepting or taking any loan or deposit in contravention of provisions of section 269SS i.e.  acceptance of loan or deposit of Rs. 20,000/- or more otherwise than by an account payee cheque or account payee bank draft or use of electricity clearing system through a bank account or through such other electronic mode as may be prescribed.

Quantum of Penalty under Section 271D

For defaults under Section 271D, an assessee will be penalized with an amount which is equal to the loan or deposits taken or accepted.

MINIMUM PENALTY:

Amount equal to the loan or deposit taken or accepted.

MAXIMUM PENALTY:

Same as minimum i.e. amount equal to the loan or deposit taken or accepted.

Approval of Joint Commissioner [Section 271D(2)]

Section 271D(2) provides that penalty shall be imposed by Joint Commissioner. Joint Commissioner has been defined in section 2(28C) of the Act.

When penalty may not be imposed as per section 273B, if there is reasonable cause

As per section 273B, no penalty shall be imposable on the person or the assessee for any failure referred to in section 271D, if he proves that there was reasonable cause for the said failure.

Order appealable before Commissioner (Appeal)

An appeal can be filed under section 246A(1)(n) before Commissioner (Appeal) against order imposing penalty under section 271D.

In case of penalties above Rs. 20,000/-, penalty be reduced by Rs. 20,000

‘If any loan is there exceeding Rs. 20,000 and any penalty is to be imposed, permissible amount of Rs.20,000 has to be adjusted. – [CIT v. Ajanta Dyeing & Printing Mills (2003) 164 ITR 505 : 130 Taxman 442  (Raj)] 

That is, in case penalty is for accepting cash loan of Rs.1,00,000/- then in such case penalty of Rs.80,000/- should only be levied, as Rs.20,000/- is allowed amount of accepting cash loan.

Penalty proceedings under section 271D be construed to have been initiated only after the JCIT issues Show cause notice 

The CBDT issued Circular No. 09/DV/2016 dated 26.04.2016, wherein it was stated that penalty proceedings under section 271D be construed to have been initiated only after the Joint Commissioner issues Show cause notice  under section 274 read with section 271D of the Act.

CBDT’s Circular No. 09/DV/2016, dated 26.04.2016

Subject:- Commencement of limitation for penalty proceedings under sections 271D and 271E of the Income tax Act, 1961 – reg.

It has been brought to the notice of the Central Board of Direct Taxes (hereinafter referred to as the Board) that there are conflicting interpretations of various High Courts on the issue whether the limitation for imposition of penalty under sections 271D and 271E of the Income tax Act, 1961 (hereafter referred to as the Act) commences at the level of the Assessing Officer (below the rank of Joint Commissioner of lncome Tax.) or at level of the Range authority i.e. the Joint Commissioner of Income Tax./Addl. Commissioner of Income Tax.

Some High Courts have held that the limitation commences at the level of the authority competent to impose the penalty i.e. Range Head while others have held that even though the Assessing Officer is not competent to impose the penalty, the limitation commences at the level of the Assessing Officer where the Assessing Officer has issued show cause notice or referred to the initiation of proceedings in assessment order.

2. On careful examination of the matter, the Board is of the view that for the sake of clarity and uniformity, the conflict needs to be resolved by way of a “Departmental View”.

3. The Hon’ble Kerala High Court in the case of Grihalaxmi Vision Addl. Commissioner of Income Tax, Range 1, Kozhikode, vide its order dated 08.07.2015 in ITA Nos. 83 & 86 of 2014, observed that, “Question to be considered is whether proceedings for levy of penalty, are initiated with the passing of the order of assessment by the Assessing Officer or whether such proceedings have commenced with the issuance of the notice issued by the Joint Commissioner. From statutory provision, it is clear that the competent authority to levy penalty being the Joint Commissioner. Therefore, only the Joint Commissioner can initiate proceedings for levy of penalty. Such initiation of proceedings could not have been done by the Assessing Officer. The statement in the assessment order that the proceedings under Section 271D and E are initiated is inconsequential. On the other hand, if the assessment order is taken as the initiation of penalty proceedings, such initiation is by an authority who is incompetent and the proceedings thereafter would be proceedings without jurisdiction. If that be so, the initiation of the penalty proceedings is only with the issuance of the notice issued by the Joint Commissioner to the assessee to which he has filed his reply.”

4. The above judgment reflects the “Departmental View”. Accordingly, the Assessing Officers (below the rank of Joint Commissioner of Income) may be advised to make a reference to the Range Head, regarding any violation of the provisions of section 269SS and section 269T of the Act, as the case may be, in the course of the assessment proceedings (or any other proceedings under the Act). The Assessing Officer, (below the rank of Joint Commissioner of Income Tax) shall not issue the notice in this regard. The Range Head will issue the penalty notice and shall dispose/ complete the proceedings within the limitation prescribed under section 275(1)(c) of the Act.

5. Where any High Court decides this issue contrary to the “Departmental View”, the “Departmental View” thereon shall not be operative in the area falling in the jurisdiction of the relevant High Court. However, the CCIT concerned should immediately bring the judgment to the notice of the Central Technical Committee. The CTC shall examine the said judgment on priority to decide as to whether filing of SLP to the Supreme Court will be adequate response for the time being or some legislative amendment is called for.

6. The above clarification may be brought to the notice of all officers.

Time limit as per section 275 for imposing penalty under section 271D

The power to initiate penalty proceedings under section 271D rests with JCIT only. Accordingly, the time limit for imposing penalty as provided by section 275 of the Act will be reckoned from the point when JCIT initiates the penalty proceedings.

Section 275 provides time limits for different situations, Viz.

(a)    Where appeal is preferred against the relevant assessment order or other order in the course of which penalty proceeding is initiated (clause a); or

(b)   Where the assessment order is subject matter of revisions under section 263 or 264 of the Act (clause b); or,

(c)    In other matters (clause c)

In the instant case, where question is with regard to imposing penalty under section 271D, there is no as such connection with the assessment of the income as assessee; as penalty under this section is independent of the income being assessed. Thus, no matter the assessment order of the assessee is in appeal, penalty under this section i.e. 271D is to be levied as per clause (c) of section 275(1) i.e.

(a)    within the end of financial year in which proceedings, during the course of which action for imposing penalty were initiated, gets completed

(b)   within the end of six months from the end of the month in which penalty proceedings were initiated, whichever is later

To this effect CBDT came out with the circular (reproduced herein under) wherein it was directed that provision of clause (c) of section 275(1) be made applicable in penalty matters of section 271D & 271E, and had further instructed to withdraw related appeals.

Takes or accepts any loan or deposit-Business of civil construction-Adjustment of loan towards sale of flat– Provision is held to be applicable–levy of penalty under section 271D is held to be justified

Tribunal rejected the contention of the assessee that cash was towards capital contribution of various projects was not supported by any evidence. Tribunal held that provision is held to be applicable in respect of adjustment of loan  towards sale of flats ,accordingly  the levy of penalty is held to be justified. (Related Assessment years :  2012-13, 2014-15) – [Golla Narayana Rao v. ACIT (2019) 198 TTJ 407 : 176 DTR 201 : 174 ITD 67 (ITAT Visakha)]    

Takes or accepts any loan or deposit – Journal entries – Penalty under section 271D cannot be levied if the transactions are bona fide,genuine and reasonable cause -No substantial question of law Dismissing the appeal of the revenue the Court held that for accepting or repaying the loan or deposit by passing journal entries, penalty cannot be levied, if the transactions are bona fide,genuine and have a reasonable cause.No substantial question of law. (Related Assessment year : 2009-10) – [CIT v. Lodha Properties Development (P) Ltd (2019) 412 ITR 316 : (2018) 304 CTR 811 : 165 DTR 227 (Bom), CIT v. Adinath Builders (P) Ltd (2019) 412 ITR 316 : (2018) 304 CTR 811 : 165 DTR 227 (Bom), CIT v. Adinath Hi-Tech Builders (P) Ltd (2018) (2019) 412 ITR 316 : 304 CTR 811 : 165 DTR 227 (Bom), CIT v. Asthavinayak Real Estate (P) Ltd (2019) 412 ITR 316 : (2018) 304 CTR 811 : 165 DTR 227 (Bom), CIT v. Lodha Bulders (P) Ltd (2019) 412 ITR 316 : (2018) 304 CTR 811 : 165 DTR 227 (Bom), CIT v. Lodha Crown Buildmart (P) Ltd (2019) 412 ITR 316 : (2018) 304 CTR 811 : 165 DTR 227 (Bom)

KEY NOTE  :

v  Lodha Properties Development (P) Ltd v. ACIT (2014) 163 TTJ 778 : 106 DTR 226 (ITAT Mumbai) is affirmed

v  SLP of revenue is dismissed CIT v. Adinath Builders (P) Ltd ( 2018) 409 ITR 14 (St) : (2019) 261 Taxman 168 (SC)

Penalty under section 271D for contravention of section 269 SS not leviable if assessee provides reasonable cause

If there existed reasonable cause for the assessee accepting the loans in cash, penalty levied by the Addle. CIT  under section 271D of the Act was deleted. - [Venkata Narayana Raju Pasuparthy v. Addl. CIT – Date of Judgement : 10.05.2019 (ITAT Hyderabad)]

It was upheld the penalty levied under section 271D on account of violation of provision of section 269SS for receipt of cash from unsecured creditor (being promoter & director), holding that the assessee-company had failed to prove with reasonable cause for such receipt. It was noted that (i) the assessee company had failed to show reasonable cause that the emergency funds in form of cash deposited by Dr. AMA (promoter & director) were for business exingencies as the cash flow produced by assessee clearly negated such claim and (ii) In the assessment order of one Mr. J which was made pursuant to search, a finding was given that the unaccounted income of Mr. J had been routed through Dr. AMA and deposited into the accounts of assessee which were laundered and then withdrawn by Dr. AMA and returned to Mr.J and thus, unaccounted income in respect of loan transaction were traced as unaccounted income of J. Vasan. – [Healthcare (P) Ltd v( Addl CIT (2018) 54 CCH 262 (ITAT Delhi)]

As per the provisions of section 273B penalty under section 271D shall not be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions, if he proves that there was a reasonable cause for the said failure. Considering the totality of the facts of the case in the instant case, we are of the opinion that when the assessee has let out the hotel building on a daily basis, when the tenants had no bank account at Shrirampur and the genuineness of the transaction has not been doubted, a fact not controverted by the Revenue, therefore, there was a reasonable cause on the part of the assessee for accepting such security deposit in cash. Under these circumstances, we are of the considered opinion that it is not a fit case for levy of penalty under section 271D of the Act. We accordingly set-aside the order of the CIT(A) on this issue and the penalty is directed to be deleted. – [Sanjay Ramchandra Phand v. Addl. CIT – Date of Judgement : 26.12. 2013 (ITAT Pune)]

Mode Of receipt of loan and deposits-Not offering reasonable cause–levy of penalty under section 271D is held to be justified

Dismissing the appeals the Court held that the assessees did not bring on record their financial position, the details of any time bound purchase orders that were required to be executed and did not correlate the purchases made from the cash loans in question. The assessees had all along relied on the oral assertions of urgent requirement of funds without producing any material to establish such assertion. Order passed by the Tribunal affirming the levy of penalty is held to be justified. (Related Assessment year : 2008-09) – [Nitin Mohan Wadikar v. ACIT (2019) 414 ITR 647 (Bom), Manisha Nitin Wadikar v .ACIT ( 2019) 414 ITR 647 (Bom.)]

Section 269SS not applicable to transactions between relatives

The learned counsel for the assessee, on the other hand, has contended that the provisions of section 269SS are not strictly applicable to the transactions between the relatives and the penalty imposed by the assessing officer under section 271D and confirmed by the learned Commissioner(Appeals) is not sustainable. In support of this contention, he has relied on the decision of the Coordinate Bench of this Tribunal rendered in the case of Manisha Prakash Amin v. JCIT vide its order dated 24.05.2011 passed in ITA No. 1839/Kol/2010, wherein it was held that the transactions between relatives involving receipt of loan in cash are not in the nature of loans or deposits as envisaged in section 269SS of the Act and the penalty imposed under section 271D was accordingly cancelled by the Tribunal. A similar issue was again decided by the Tribunal in the case of Anant Himatsingka v. Addl. CIT (ITA Nos. 331 & 332/Kol/2010) dated 25.11.2011) cited by the ld. Counsel for the assessee, wherein it was held that the loan transaction between son-in law and father-in-law for giving a support and help was not a loan or deposit in stricter sense of section 269SS of the Act and the same having been given only as a financial support, the relevant transaction did not fall in the ambit of section 269SS of the Act. In our opinion, the ratio of these decisions of the Coordinate Bench of this Tribunal is squarely applicable in the present case, where the loans in question were received by the assessee in cash from her daughter and son-in-law and applying the same, we hold that the penalty imposed by the assessing officer under section 271D and confirmed by the learned Commissioner(Appeals) is not sustainable. (Related Assessment Year : 2012-2013) – [Snehalata Sitani v. JCIT - Date of Judgement : 24.04.2019 (ITAT Kolkata)

Tax arrear-penalty levied for contravention of Section 269SS and 269T is eligible to claim the benefit of the Scheme

Single Judge held that penalty levied for contravention of Section 269SS and 269T is eligible to claim the benefit of the Scheme. On appeal by the revenue dismissing the appeal the division bench held that when a specified sum was provided as penalty, such specified sum was the minimum. penalty payable. This did not, however, mean that the benefit of the Scheme could be claimed only by those assessees who had been levied penalty under the provisions of the Act providing for minimum. penalty and maximum penalty. Apart from the fact that such a contention was not raised when the writ petitions were heard by the single judge, on the merits also, such contention was rejected. According to Section 271D a person who was liable to pay penalty thereunder was liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified sum so taken or accepted, in contravention of Section 269SS. Similarly, under Section 271E also, the penalty provided was a sum equal to the amount of loan or deposit or specified advance, if so repaid. The assessees could not be denied the benefits of the Scheme. – [CIT v. Grihalakshmi Productions And Another (2018) 405 ITR 75 : 304 CTR 199 : 169 DTR 70 (Ker)]

No Penalty to be levied under section 271D if there is reasonable cause

As per Section 273B of Income Tax Act no penalty shall be levied if the failure to comply with the provisions of section 269SS is due to some reasonable cause.

It is not enough for the assessee to show that the transaction of taking loan/ deposit by cash is genuine or bona fide. It has also to be shown that there was reasonable cause under section 273B for the assessee being unable to take the loan/deposit by account payee cheque or account payee bank draft

There is no dispute between the parties that bonafide nature of transactions alone would not be sufficient to escape the clutches of section 271D of the Act. As per the decision rendered by Hon’ble Supreme Court in the case of Kum. A.B. Shanthi (supra), it is required to be established that there was some bonafide reasons for the assessee for not taking or accepting loan or deposit by account payee cheque or account payee bank draft, so that the provisions of section 273B of the Act will come to the help of the assessee. Only in such cases, the Assessing Officer is precluded from levying penalty under section 271D of the Act.

[Deepak Sales & Properties (P) Ltd v. ACIT - Date of Judgement : 13.06.2018 (ITAT Mumbai)(Special Bench)13.06.2018

Transfer of money between family members to help and support – Penalty not justified

To support and help the family members assesssee was transferring money from one family member to another family, in law, is not a loan or deposit in stricter sense of section 269SS and 269T and it is only a financial support. Hence, imposition of penalty under sections 271D and 271E on said transfer of money between family members was not justified.--During the course of assessment proceedings, AO observed that the assessee had accepted loan in cash on an unspecified date his son, in contravention of sections 269SS had repaid loans in cash to various family members in contravention of section 269T. Therefore, AO initiated penalty proceedings under sections 271D and 271E.Held: Assessee had accepted the loan in cash from his son and repaid the same to his son, his wife and his another son. All these transactions were between husband and wife, and between father and son, being close relative of one family. It was also noted that assessee was a salaried employee and not a businessman. Therefore, based on the facts narrated above, these transactions do not fall within the ambit of sections 269SS and 269T as the said transaction between son and father and wife and husband, for giving a support and help, in law, was not a loan or deposit in stricter sense of section 269SS and it was only a financial support. Hence, penalty imposed by the Assessing Officer was not justified. – (Related assessment year 2010-11 - [Nikhil Banik Mazumder v. JCIT (2018) TaxPub(DT) 635 (ITAT Kolkata)]

Takes or accepts any loan or deposit-Acceptance of Loan in cash in excess of specified limits-Deletion of penalty under section 271D based on entries alone-Matter remanded to Tribunal for fresh consideration

It was held that the Tribunal in its findings had primarily relied on entries in the books of account that the two cash payments were imprest, and therefore neither loan nor deposit. It had not considered and noticed specific aspects referred to in the order of penalty under section 271D and the observations and findings of the Commissioner (Appeals) holding that the contention and claim of imprest was a sham and facile. Accordingly the penalty order was set aside and the matter was remanded to the Tribunal. (Related Assessment year : 1999-2000) – [CIT v. Pawan Kumar Jain. (2018) 407 ITR 405 (Del)]

It was held that the assessee failed to show that there was any urgent business necessity due to which the assessee was constrained to take loans by way of cash. As the the assessee has failed to show that there was a reasonable cause for getting loans in violation of the provisions of Section 269SS of the Act. CIT(A) was justified in confirming the penalty of Rs. 2.00 lakhs imposed by the Assessing Officer. (Related Assessment year 2008-09) – [Deepak Sales & Properties (P) Ltd. v. ACIT (2018) 194 TTJ 690 : 172 ITD 33 : 168 DTR 65 (ITAT Mumbai)]

Accepts any loan or deposit – loan received from father – same could be treated as gift and not loan – levy of penalty under section 271D unjustified.

It has been held by the Appellate Tribunal that merely because loan taken by assessee from his father for purchasing the assets was shown as debt in his father’s balance sheet, same need not be treated as violation of the provision of Section 269SS and attracting levy of penalty under section 271D of the Act. (Related Assessment year : 2009-10) – [Gokavarapu Venkata Satya Durga Prasad v. Addl. CIT (2018) 194 TTJ 14 (ITAT Vishakha)(UO)]

Section 269SS of the Act were not applicable on the loan transaction between husband and wife

It was held that provisions of Section 269SS of the Act were not applicable on the loan transaction between husband and wife. It relied on the judgment in case of Tuhinara Begum Hoogly v. JCIT wherein it was held that the provisions of Section 269SS were not applicable on the loan transaction between husband and wife because there was no debtor-creditor relationship. The transaction between the husband and wife are protected from the legislation as long as they are not for commercial use. Thus, the question of levying of penalty under section 271D of the Act does not arise. – [Nabil Javed v. ITO [TS-701-ITAT-2018(DEL)]

Takes or accepts any loan or deposit-Genuineness of the transaction was not in doubt - Levy of penalty under section 271D was not justified

Dismissing the appeal of the revenue, the Court held that the transaction was found to be genuine. The Assessing Officer had not doubted the transaction. In that view of the matter, both the Commissioner (Appeals) and the Tribunal had rightly deleted the penalty. (Related Assessment year : 1994-95) – [CIT v. Panchsheel Owners Associations (2017) 395 ITR 380 (Guj)]

Takes or accepts any loan or deposit-cash received from son for urgent necessary, penalty under section 271D cannot be levied 

Allowing the appeal the Court held that, penalty is not automatic under section 271D of the Income-tax Act, 1961 on mere violation of the provisions of section 269SS of the Act. The assessee explained that the amount 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. A proper explanation had been rendered by the assessee for the transaction. Hence, the imposition of penalty under section 271D was not valid. – [Dr. Rajaram L. Akhani v. ITO (2017) 395 ITR 497 (Guj)]

The Court reversed the Tribunal’s order and held that assessee-firm was liable to penalty under Section 271D for contravention of section 269SS as it had accepted deposits, otherwise than by account payee cheque / draft. It held that a plain reading of Section 271D establishes that it was a mandatory provision and since its language is crystal clear, the object or the purpose of the enactment of said provision had no say in the matter. In the absence of ‘reasonable cause’ proved by assessee under section 273B no immunity from penalty was available to the Assessee. – [CIT v. M/s Sunil Sugar Co. TS-353-HC-2017 (All)]

Penalty under section 271D cannot be imposed in absence of payment in cash

Section 269SS does not include in its ambit where there is a transaction of loan or deposit by way of entries in the books of account by crediting or debiting the account of the other person. In other words, the provisions of section 269SS of the Act, according to us, are not attracted when there is an acknowledgement of debt by passing entry in the books of account and there is no transfer of money in cash from one person to another person by way of loan or deposit. (Related Assessment year : 2001-02) – [CIT v. Apex Finlease Ltd. & Ors. Date of Judgement : 17.10.2016 (All)]

Takes or accepts any loan or deposit- Limitation – Assessing Officer has the power to initiate penalty proceedings under section 271D of the Act and upon referral to the Additional Commissioner, the penalty order would by barred by limitation as the date of issue of notice would be the date when the Assessing Officer issued notice

Dismissing the appeal of the revenue, the Court held that; Section 271D(2) of the Act provides that the jurisdiction of imposing penalty is vested in the Joint Commissioner. The High Court held that though section 271D of the Act vests the jurisdiction of imposing penalty solely in the Joint Commissioner, it is silent as regards to who could initiate the proceedings. Relying on the ruling of the Supreme Court in the case of D. M. Manasvi v. CIT (1972) 86 ITR 557, the High Court held that in a case falling under section 271D the Assessing Officer is not precluded from initiating the proceedings by issuing a notice. The High Court had distinguished the ruling of the Kerala High Court in the case of Grihalakshmi Vision (2015) 379 ITR 100, wherein it was held that if the AO has come across a case of violation of law attracting penal provisions and has thereafter a notice, it would tantamount to be an act without jurisdiction. Thus, the High Court held that the order is hit by limitation as the proceedings were initiated on 26.12.2006 when the notice was issued by the Assessment year and hence the period of limitation expired on 30.06.2007, whereas the order imposing penalty was passed on 21.09.2007. Thus, the appeal was dismissed. (Related Assessment year 2004-05) – [CIT v. Narayani & Sons (P) Ltd. (2016) 289 CTR 301 : 141 DTR 315 : 73 taxmann.com 21 (Cal)]

Takes or accepts any loan or deposit-Loan was taken to meet sudden business exigency – Levy of penalty under section 271D was held to be not justified

Allowing the appeal of the assesse , the Tribunal held that ;since cash transactions were due to business exigency warranting immediate discharge of certain liability, these transactions would be genuine and there was reasonable cause as envisaged in under section 273B,therefore, no penalty could be imposed. (Related Assessment year : 2008-09) – [Chawla Chemtech (P) Ltd. v. JCIT (2016) 158 ITD 48 (ITAT Chandigarh)]

It was held that where the assessee received a sum of Rs. 2 lakh in cash from his son in view of urgent necessity, no penalty under section 271D of the Act could be levied by the Assessing Officer on account of violation of the provisions of Section 269SS, since there was a reasonable cause for such failure and there was no evidence on record to indicate that the assessee had indulged in any tax planning or tax evasion and there was no evidence on record to show that the infraction of the provisions was with knowledge or in defiance of the provisions. – [Dr Rajaram Lakhani v. ITO (2016) 96 CCH 43 (Guj)]

Where assessee had sufficiently proved that share application money was taken in cash from a director to meet urgent and immediate requirement of business and there was a reasonable cause to take 'loan' or deposit otherwise than by account payee cheque or account payee bank draft, penalty under section  271D could not have been levied. – [Valley Extraction (P) Ltd. v. JCIT (2016) 68 taxmann.com 202 (ITAT Chandigarh)]

Penalty proceedings for contravention of Sections 269SS & 269T are not related to the assessment proceeding but are independent of it. Therefore, the completion of appellate proceedings arising out of the assessment proceedings has no relevance. Consequently, the limitation prescribed by section 275(1)(a) does not apply. The limitation period prescribed in section 275(1)(c) applies to such penalty proceedings

In CIT v. Hissaria Bros 291 ITR 244 Raj, the Rajasthan High Court held that penalty proceedings for default in not having transactions through the bank as required under Sections 269SS and 269T are not related to the assessment proceeding but are independent of it, therefore, the completion of appellate proceedings arising out of the assessment proceedings or the other proceedings during which the penalty proceedings under Sections 271D and 271E may have been initiated has no relevance for sustaining or not sustaining the penalty proceedings. It was held that clause (a) of sub-section (1) of Section 275 was not attracted to such proceedings. It was held that if that were not so, clause (c) of Section 275(1) would be redundant because otherwise as a matter of fact every penalty proceeding is usually initiated when during some proceedings such default is noticed, though the final fact finding in this proceeding may not have any bearing on the issues relating to establishing default e.g. penalty for not deducting tax at source while making payment to employees, or contractor, or for that matter not making payment through cheque or demand draft where it is so required to be made. On appeal by the department to the Supreme Court HELD dismissing the appeal:

On perusing the judgment of the High Court, it is found that penalty imposed on the respondent herein was also set aside on the ground that the provisions of Section 271-D and 271-E of the Income Tax Act were invoked after six months of limitation and, therefore, such penalty could not have been imposed. Since the outcome of the judgment of the High Court can be sustained on this aspect alone, it is not even necessary to go into other aspects. Leaving the other questions of law open, the appeal is dismissed. There shall be no order as to costs. – [CIT v. Hissaria Brothers –– TS-471-SC-2016 – Date of Judgement : 22.08.2016 (SC)]

Loans and deposits are to be taken different and distinct

“The two expressions loans and deposits are to be taken different and the distinction can be summed up by stating that in the case of loan, the needy person approaches the lender for obtaining the loan therefrom. The loan is clearly lent at the terms stated by the lender. In the case of deposit, however, the depositor goes to the depositee for investing his money primarily with the intention of earning interest.” - [Housing & Urban Development Corporation Ltd. v. JCIT (2006) 102 TTJ 936 (Del)(SB)]

Assessees were members of HUF of M. Subramaniam. The assessing officer noticed that during the assessment year 2009-10 both the assessees who were husband and wife had received and repaid cash loans exceeding Rs. 20,000 from/to M. Subramaniam (HUF) thereby contravening the provisions of sections 269SS and 269T of the Act. Thus, the assessing officer levied penalty under sections 271D and 271E of the Act. The assessee contended before the assessing officer that he has not received any loan or deposit but it was only an accommodation transaction there was no revenue leakage or evasion of tax from accepting and repaying the amounts from HUF, therefore pleaded that no penalty to be levied. – [S. Vasundara Devi v. JCIT (2015) 66 (II) ITCL 578 (ITAT Chennai)]

No Penalty is Imposable under section 271D for Contravention of Section 269SS if Cash Loan Transaction is Genuine

It was held that where genuineness of the loan transaction in cash is not disputed and it was deposited and routed through banking channels subsequently, penalty under sections 271D for violation of section 269SS is not imposable in view of section 273B. The court has categorically stated that the contention of the ITD that since there was no urgency, the assessee could have taken the loan through cheque and should have processed the matter through regular banking channels was immaterial, inasmuch as the genuineness of the transaction has not been disputed by the Assessing Officer. (Related Assessment year 2006-07) - [CIT-II, Agra (Appellant) v. Smt. Dimpal Yadav (Respondent) - Date of Judgment: 21.08.2015 (All)]

Acceptance of loan or deposit otherwise than by crossed cheque--Book adjustment of funds by assessee to its sister concern – Not a loan or deposit - No identification of loanee or depositor- Penalty under section 271D could not be imposed

Held, allowing the appeal, that except making reference to the relevant provisions of the Act and the allegation contained in the show-cause notices, the Assessing Officer did not indicate the method of payment. It was simply mentioned that everything was done in cash. The very fact that from the same agencies, amounts were said to have been received and repaid, as reflected in the books, disclosed that it was nothing but book adjustment. Making book adjustment of the funds by a firm vis-a-vis its sister concern, could not be said to be violation or contravention of section 269SS and section 269T. Levy of penalty was deleted. (Related Assessment years : 1992-93, 1993-94) – [Gururaj Mini Roller Flour Mills v. Addl. CIT (2015) 370 ITR 50 : 277 CTR 53 : 118 DTR 218 (T & AP)]

Where even though assessee had taken a loan in cash, since loan was routed through bank account of assessee for payment to Government for converting land into free hold property, no penalty could be imposed under section 271D. – [CIT v. Smt. Dimpal Yadav (2015) 61 taxmann.com 219 (Allahabad)]

If assessee's plea about compulsion to pay/ receive loans in cash is not disputed, the violation of section 269SS/269T is deemed to be bonafide and does not attract penalty. - [Chemfert Traders (Bombay) Pvt. Ltd v. ACIT - Date of Judgement : 18.02.2015 (ITAT Mumbai)

Cash transaction between assessee and its HUF being genuine--No penalty under section 271D leviable

Assessee accepted loan amount of more than Rs. 20,000 in cash from her father-in-law for purchase of property and the High Court held that the Tribunal has rightly found that transaction between the daughter-in-law and father-in-law is a reasonable transaction and genuine one owing to urgent necessity and money to be paid to the seller and this would amount to reasonable cause shown by the assessee to avoid penalty under section 271D of the Act. (Related Assessment year 2005-06)- [M. Yesodha (2013) 351 ITR 265 (Mad)]

Absence of adequate banking facility amounts to reasonable cause

Existence of inadequate banking facilities and reluctance of customers to utilize banking facilities due to illiteracy and non-cooperation in bank constituted a reasonable cause so as to delete penalty imposed by Assessing Officer under section 271D. – [CIT v. Sahara India Financial Corpn. Ltd. (2012) 26 taxmann.com 269 (Delhi)

Where assessee could prove genuineness of accepting cash loan beyond exempted limit and no involvement of unaccounted or black money was traceable, penalty under section 271D could not be levied for violation of section 269SS. – [DCIT v. Akhilesh Kumar Yadav (2012) 26 taxmann.com 264 (ITAT Agra)]

The assessee in the present case has also raised the plea of reasonable cause, that the person advancing the loan was agriculturist and had no bank account. Accordingly, we delete the penalty levied under sections 271D and 271E of the Act. (Related Assessment Year : 2005-06) - [Baldev Singh v. Addl. CIT - Date of Judgement : 28.02.2012 (ITAT Chandigarh)

Capital contribution in cash of a partner in the partnership firm does not attract provisions of Section 269SS even if the amount is returned on non-approval of Government for constitution of partnership firm. – [Bhikhabhai Dhanjibhai Patel v. ACIT (2010) 127 TTJ 479 (ITAT Ahmedabad)]

Penalty can be initiated even after completion of assessment proceedings

The penalty proceedings under sections 271D and 271E could be initiated even after completion of regular assessment proceedings. - [CIT v. Emeskay Financial Services Ltd. (2010) 124 ITD 435 (ITAT Vishakhapatnam)]

Deposit assessed as income - No penality can be imposed under section 271D in such case

It was held that where the A.O having treated the impugned amount of deposit as income, he is precluded from treating the same amount as deposit or loan for the purpose of section 269SS and levy penalty under section 271D. The penalty ought to be cancelled. – [Bajrang Textiles v. Additional CIT (2009) 122 (JD.) 190 [ITAT Jodhpur]

No penalty under section 271D for receipt of share application money in cash

The Assessing officer initiated proceedings for alleged violation of section 269SS of the Act in as much as the assessee accepted share application money being Rs. 20,000/- in cash. Thereafter, penalty was imposed. On appeal, CIT(A) upheld the stand of the assessee that the amount received was not loan or deposit and no interest was payable. It was further held that transaction was bonafide and default was of technical nature and in any case, the amount was received from public and not from directors or share holders. High Court upheld the view of CIT(A). – [CIT v. M/s Speedways Rubber (P) Limited - Date of Judgement : 22.10.2009 (P&H)]

Provisions of section 269SS were not applicable to amount advanced for future supply of goods. – [CIT v. Kailash Chandra Deepak Kumar (2009) 317 ITR 351 (All)]

Amount paid by firm to partners or vice versa- is payment to self and does not partake the character of loan or deposits in general law. Provisions of section 269SS are not applicable to such facts. – [CIT v. Lokhpat Film Exchange (Cinema) (2008) 304 ITR 172 (Raj)]

The Hon ble Madras High Court in the case of CIT v. Lakshmi Trust Co. upheld the orders of Commissioner (Appeals) and the Tribunal who found on facts that transactions were genuine and identity of the lender was established, there was no intention on the part of the assessee to evade tax, the cancellation of penalty under section 271D was justified. - [CIT v. Lakshmi Trust Co. (2008) 303 ITR 99 (Mad)]

Deposits and loans in cash in excess of prescribed limit – Finding    that amounts    were mere    book entries    and transactions on behalf of family    members    ‐  No violation of sections    269SS and 269T – Penalty could not be imposed. – [Natvarlal Purshottamdas Parekh v. CIT (2008) 303 ITR 5 : 219  CTR  509 : 205 Taxation 237 : 4 DTR 37 (Guj)]

It is necessary to show the motive to evade tax in order to justify the levy of penalty under section 271D and section 271E

Deposits in cash in excess of specified limit – Effect of section 273B – Reasonable explanation for such deposits – Penalty cannot be imposed ‐  Purchase of goods – Balance due adjusted by book entries  ‐ No intention to evade tax – Penalty could not be imposed‐ Income Tax Act, 1961. – [Bombay Conductors and Electricals Ltd. v. CIT (2008) 301 ITR  328 : 205 Taxation  259  173  Taxman  434 (Guj)

Transactions between  sister concerns  ‐  Tribunal having deleted penalty   under ss. 271D and 271E observing that transactions between   sister concerns are not covered by either provisions of section 269SS or  section 269T and that the default if any  was of venial nature, no interference is called for. [Shree Ambica Flour  Mills Corpn. v. CIT (2008) 6 DTR  169 (Guj)]  

Penalty under section 271D can not be levied on mere surmises or incomplete evidences

Penalties being strict in nature they cannot be automatic. Unless the fact of breach of provision is proved beyond doubt and the act or omission falls within four corners of the provision of law, penalty should not be levied.

In the absence of any definite material to establish that the assessee had received loan/deposit in contravention of the provisions of section 269SS, except for the photocopies of statement of loan submitted by the alleged creditor which was contradicted by the assessee and which has been shown to be incomplete and had been rejected by the CIT(A). Penalty under section 271D could not be levied. (Related Assessment years :  1995-96, 1996-97) - [Navin Kumar v. JCIT (2006) 99 TTJ 267 : 98 ITD 242 (TM)(ITAT Amritsar)] 

Hon’ble Pune ITAT in the case of DCIT v. M/s. Sneh Builders held that “The action of the Assessing Officer in imposing the penalty under section 271D on the presumption that against the security of these cheques of Rs. 95,50,000/- the assessee must have taken equivalent amount of cash is not borne from the records. There is no concrete evidence to fact that such amount was in fact received in cash by the assessee except the statement of Shri B.H. Shah. General statement of third person cannot be valid basis for taking action against the assessee. As the penalty has been imposed only on the basis that against the security of cheques equivalent amount of cash might have been taken cash loans is not justified. Under the facts and circumstances penalty of Rs. 95,50,000/- was rightly deleted by the CIT(A). We uphold the same.’ (para no. 7 of the order)” - (Related Assessment year : 2004-05) - [DCIT Central Circle v. M/s. Sneh Builders [I.T.A. No. 520/PN/2008 : ITAT Pune)]

There being no finding of Assessing Officer, CIT (A) or tribunal that the transactions in violations of section 269SS were not genuine, assessee’s return of having been accepted under section 143(3) after scrutiny, there being also no finding that transactions were malafides aimed at disclosing concealed money, imposition of penalty under 271D merely for technical mistake could not be sustained. - [Omec Engineers v. CIT (2008) 217 CTR 144 (Jharkhand)] 

Transactions between  sister concerns  ‐  Tribunal having deleted penalty 

Tribunal having deleted penalty   under sections 271D and 271E observing that transactions between sister concerns are not covered by either provisions of section 269SS or  section 269T and that the default if any  was of venial nature, no interference is called for. High Court held:

"..... The transaction of loan has found place in the books of account of the assessee as well as the lender of the loan. None of the authorities have reached the conclusion that the transaction of the loan was not genuine and it was a sham transaction to cover up the unaccounted money. It appears to us that the assessee felt need of money and thus he approached the money-lender for advancement of the money, the transaction is reflected in the promissory notes executed by the assessee in favour of the lender. When there is an immediate need of money the person cannot get such money from the nationalised bank to satisfy the immediate requirement. ....." - [Shree Ambica Flour  Mills Corpn. v. CIT v. (2008) 6 DTR 169(Guj)] 

Where Depositors residing in rural areas are not having access to banking facility and are ignorant of relevant provisions of law, it would constitute bonafide reasons for payment in cash. – [ACIT v. Vinman Finance & Leasing Ltd. (2008) 306 ITR 377 (ITAT Visakha)]

It was held that Assessee was not aware of provisions of section 269SS or 269T. His councel did not apprise him about the provisions. No penalty under section 271D shall be attracted. - [ITO v. Prabhulal Sahu (2006) 99 TTJ 177 (ITAT Jodhpur)] 

Loan given by relatives on Sunday for safe custody and for use in business. No contravention of section 269SS takes place

No penalty can be levied where the loan had been received by the assessee in a case exceeding the prescribed limit from the family member on a Sunday, to be kept in safe custody and use in business. - [CIT v. T. R. Renagrajan (2005) 279 ITR 587 (Mad)]  

When the credit entry made in books of account of assessee are by way of transfer entry, there had been no deposit as per mode of section 269SS. [CIT v. Lala Murari Lal and Sons (2004) 2 SOT 543 (ITAT Lucknow)]

A genuine transaction made in an emergency, does not attract penalty under section  271D

It was held that cash paid to meet medical treatment expenditure in emergency, does not attract penalty under section 271D. - [Mrs Rupali R. Desai v. ACIT (2005) 273 ITR 109 : (2004) 88 ITD 76 : 82 TTJ 190 {ITAT Mumbai), ITO v. Shree Mahaveer Industries (2004) 82 TTJ 549 (ITAT Jodhpur)]

It is held that once it was found that payment made by promoter of assessee-company to assessee was not by way of deposit or loan, but towards adjustment of amount drawn by him from assessee’s account, no penalty to be levied. The dispute is regarding payments made to the assessee in instalments, by one Shri R. C. Khosla, in the relevant assessment year, amounting to Rs. 2,31,390. Apparently, Shri Khosla was the promoter and managing director of the respondent-company. According to the assessing authority as also the Commissioner of Income-tax (Appeals), the said payment was in contravention of Section 269SS of the Income-tax Act and the assessee was, therefore, liable to pay penalty. The penalty so imposed was, however, vacated in second appeal by the Tribunal on the finding that the said payment was not by way of deposit or loan, but towards adjustments of the amount drawn by Shri Khosla, from the company's account. We find ourselves in full agreement with the Tribunal that the aforesaid finding is a finding of fact, and, therefore, does not give rise to any question of law to be answered by this court. - [CIT v. Indore Plastics (P) Ltd. (2003) 262 ITR 163 (MP)]

Repayment or receipt of amount to partners –  cannot be called as loans or deposits

If a partner introduces capital in cash in the firm or withdraws the same to the tune of Rs 20000 or in excess of Rs 20,000, then Provisions of section 269SS or 269T shall not be attracted as the introduction of capital or withdrawl from firm cannot be called as loans or deposits.

Acceptance or repayment through Journal entry donot attract section 269SS or 269T: Acceptence or repayment through Journal Entry would not come within the ambit of the words ‘loans or deposits’-section 269SS applies only where money passes from one person to another by way of ‘loan or deposit’- [CIT v. Noida Toll Bridge Co. Ltd. (2003) 262 ITR 260 (Del)]

In case the assessee had accepted deposit or taken loan from agriculturalist who had no bank account default was mainly technical in nature and penalty was not attracted - [ITO v. Tarlochan Singh (2003) 128 Taxman 20 (Mag)]

It was held that the penalty under section 271D was not leviable for the reason that transaction of loan finds place in the books of accounts of the assessee.- [Bhagwati Prasad Bajoriya (2003) 183 CTR 484 (Gau)]

It was held that the introduction of section 269 SS and 269 T in the statute was to prevent proliferation of black/unaccounted money deposited with banks and other persons by introducing the system of repayment through A/c payee cheques and drafts and thus to ensure that the identity of payee is established. When the identity is known and genuineness of loan transaction was not in doubt, if any could be set to be a technical default for which no penalty would be leviable. – [Addl. CIT v. Smt. Prahati Baruah (2003) 113 Taxman 74 (Gau)(Mag)]

Ignorance of law is no excuse for violation of provisions of sections 269SS and 269TT [Udaichand Santoshkumar Jain v ITO (2003) 79 TTJ 88 (ITAT Indore)]

Where the transaction of loan has found place in the books of account of the assessee as well as the lender of the loan – Penalty not justified

The Supreme Court considered the provision of Section 271D and 273B of the Act and held:--

"It is important to note that another provision, namely section 273B was also incorporated which provides that notwithstanding anything contained in the provisions of section 271D, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision is he proves that there was reasonable cause for such failure and if the assessee proves that there was reasonable cause for failure to take a loan otherwise than by account-payee cheque or account-payee demand draft, then the penalty may not be levied. Therefore, undue hardship is very much mitigated by the inclusion of section 273B in the Act. If there was a genuine and bona fide transaction and if for any reason the taxpayer.. [Chamundi Granites (P) Ltd. v. CIT (2002) 255 ITR 258 (SC)]  

Takes or accepts any loan or deposit-Representative of the assessee consented to the proposition that apart from the bona fides of the transaction, assessee is also required to prove the existence of reasonable cause to come within the immunity provided in S. 273B of the Act, Accordingly the Tribunal has not dealt with the reservations expressed by the Division Bench in the reference note. Accordingly on facts the assessee has failed to show that there was a reasonable cause for getting loans in violation of the provisions of Section 269SS of the Act. Levy of penalty under section 271D is held to be justified

It was held that since the Learned representative for the assessee consented to the proposition that apart from the bona fides of the transaction, assessee is also required to prove the existence of reasonable cause to come within the immunity provided in Section 273B of the Act, there was no reason to dwell upon any further on the reservations expressed by the Division Bench . – [ADIT (Inv) v. Kum. A.B. Shanthi (2002) 255 ITR 258 (SC)]

It was held that when the genuineness of the borrowings were not doubted by Assessing Officer and Assessing Officer was satisfied with the assessee’s explanation regarding the nature & source of the amount, the transactions of deposits does not fall within the mischief of section 269SS. – [Karnataka Ginning And pressing factory v. JCIT (2001) 77 ITD 478 (ITAT Mumbai)] 

Where the assessee obtains certain loans from his wife in case for construction of house which was naturally a joint venture for prosperity of family and the transaction did not involve any interest limit and there was no promise to return amount with or w/o interest , it could be said that there was reasonable causes for non complying with section 269SS.- [Dr. B.G. Panda v. CIT (2000) 111 Taxman 86 (Cal)]

Cash Transaction made on Sunday. No penalty could be imposed in such a case.- [ITO v. Narsing Ram Ashok Kumar (1993) 47 ITD 38 (Pat)]

Penalty is not leviable on loan taken in cash by partners from firm

It was held that partnership is only a collective of separate persons and not a legal person in itself. Thus, there cannot be a contract of service in strict law between a firm and one of its partners. – [CIT v. R.M. Chidambaram Pillai (1977) 106 ITR 292 (SC)]

It was held that, an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of it is obligation. The penalty will not also be imposed merely because of it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of authority to be exercised judicially and on a consideration of all relevant circumstances. Even if a minimum penalty is prescribed the authority competent to impose penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or when there is breach flows from the bona fide belief that the offender is not liable to act in the manner prescribed by the statute. – [Hindustan Steel Ltd v. State of Orisa (1972) 83 ITR 26 (SC)]