Penalties for violation of Sec 269SS & 269T deleted if there is reasonable cause for accepting/repaying loan in cash

The facts of the case are that the Assessing Officer (AO) observed during the course of assessment proceedings that the assessee received family loan/advances in cash for a sum of Rs.29.00 lakh from his family members in contravention of section 269SS of the Act. Out of that, a sum of Rs.1,50,000/- was repaid in cash to Ms. Sandhya Sunil Bhide, again in contravention of section 269T of the Act. He, therefore, initiated penalty proceedings u/s.271D and 271E of the Act. The assessee pleaded reasonable cause before the AO which led to the receipt of loans in cash and part repayment thereof in contravention of section 269SS and 269T of the Act. Not convinced, the AO imposed penalty under both the sections by his common order dated 14-01-2015. The ld. CIT(A) countenanced the penalties through his two separate orders, both dated 29-08-2019. Aggrieved thereby, the assessee has come up in appeal before the Tribunal.

Violation of section 269SS and 269T of the Act

It is seen from the penalty order that the assessee pleaded before the AO that he started construction of a commercial building on his plot. The construction work was halted because of paucity of funds. The said plot of land along with part construction was leased out to one company, which is related with the assessee’s family members. As the construction was lying pending and the assessee was to complete the same, the company applied for a loan in the State Bank of India. The loan was not disbursed because of certain bank formalities. The assessee received loan from his family members ranging from Rs.1.00 lakh to Rs.10.00 lakh in cash aggregating to Rs.29.00 lakh and diverted the same to the company so as to complete the construction work. This assertion has not been controverted by the AO. This shows that the assessee was compelled by the circumstances to accept the loans in contravention of provisions of section 269SS. As regards the repayment of loan of Rs.1,50,000/- to one of the family members, there was a pressing demand on the assessee for immediate repayment because the lender, namely, Ms. Sandhya Sunil Bhide urgently required the money back. Admittedly, there is violation of section 269SS and 269T of the Act, which otherwise calls for imposition of penalties u/s. 271D and 271E of the Act.

Penalties u/s. 271D and 271E of the Act subject to the mandate of section 273B

However, it is relevant to note that these penalties are subject to the mandate of section 273B, which provides that where the assessee proves ‘reasonable cause’ for the contravention of the provisions, inter alia, of section 269SS and 269T, the penalty otherwise imposable u/s.271D and 271E will not be inflicted. We are confronted with a situation in which the assessee has established a ‘reasonable cause’ for accepting the loans in cash and repaying a part of them again in cash due to pressing requirements. We, therefore, order to delete the penalties.