Read order: Ms. Parinita Anil Khot v. Income Tax Officer-24(3)(3) 

Pankaj Bajpai

Mumbai, July 24, 2021: While allowing the appeal of a taxpayer, the Mumbai ITAT recently ruled that penalty u/s 271D of the Income Tax Act cannot be imposed on cash transactions conducted between friends exceeding limit specified u/s 269SS.  

While deleting the penalty imposed by Revenue Authorities, the Coram of Mahavir Singh (Vice President) & S Rifaur Rahman (Accountant Member) observed that cash transaction necessitated by immediate need for money does not attract rigors of Section 271D. 

Going by the background of the case, the AO in the course of assessment proceedings observed that assessee has taken loan from several persons. Based on such observation, AO initiated the proceedings u/s 269SS of Income Tax Act against the assessee for accepting loans/specified sum of Rs. 6,50,000 in cash. Aggrieved, the assessee went in appeal. However, the CIT(A) sustained the penalty levied u/s 271D with the observation that the loans are taken in cash attracting the provisions of section 269SS. 

The Coram found that the assessee has taken loan from her relatives on various dates in cash in order to meet her higher education expenses. 

“As held by the Madras High Court in CIT vs Balaji Traders that when there is an immediate need of money the person cannot get it immediately from a nationalized bank. To satisfy such immediate requirement of money a person normally approaches the moneylender or a friend or relative who could lend money immediately. In those circumstances it cannot be said that the assessee has entered into a transaction to avoid the payment of tax or to defraud the revenue,” noted the Tribunal. 

The ITAT found that in the present case also, the taxpayer has taken loans from relatives and friends, without approaching any banking institution, to finance her higher education. 

Therefore, the Mumbai ITAT concluded that there is no reason to impose a penalty in the circumstances of this case where the amount was financed between friends and relatives for fulfilling dire need. 

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