The Chennai ‘A’ Bench of Income Tax Appellate Tribunal ( ITAT ) held that penalties under Sections 269SS and 269T of the Income Tax Act, 1961, cannot be levied on a company for the receipt and repayment of cash loans from directors due to business exigency.
Pearl Beach Promoters P. Limited filed appeal against the penalties confirmed by the lower authorities. The penalties were levied for contraventions under Sections 269SS and 269T, which pertain to accepting and repaying loans or deposits in cash.
The assessment was framed under Section 143(3) on 30-12-2019, where the Assessing Officer (AO) made certain disallowances and found that the assessee received and repaid cash loans from its directors and related concerns.
The AO proposed penalties and made a reference to the Joint Commissioner of Income Tax (JCIT), for their imposition.
The assessee, represented by M. Karunakaran, contended that the cash loans were taken to meet urgent business needs at the project site, where banking facilities were not available. They argued that the penalties were time-barred based on the decision of thr Delhi High Court in the case of Pr. CIT vs. Mahesh Wood Products Pvt. Ltd.
The counsel further contended that the penalties should not apply as the loans were genuine and taken out of necessity.
The respondent, represented by A.R.V Srinivasan, countered that the assessee had sufficient bank balances at the time of accepting and repaying the loans, thereby negating the claim of necessity.
The JCIT rejected the merits and legal grounds raised by the appellant and imposed penalties of Rs.36.16 Lacs each under Sections 271D and 271E of Income Tax law.
The two-member bench of Mahavir Singh, Vice President, and Manoj Kumar Aggarwal, Accountant Member, rejected the argument that receipt and repayment of cash loans from directors were not covered under Sections 269SS and 269T, noting that no such exceptions are provided in these statutory provisions.
The bench found that the penalties were levied within the statutory limit, considering the delay due to the Covid-19 pandemic as a valid reason for the extended period between the reference date and the issue of the show-cause notice.
The income tax appellate tribunal acknowledged that the nature of the assessee’s business required frequent labor payments and other expenditures at remote project sites, where banking facilities might not always be accessible. It accepted the argument of business exigency, noting that the loans were from directors and related concerns, which added credibility to the assessee’s claim.
The ITAT concluded that the penalties under Sections 271D and 271E were not justified in this case. It allowed the appeals of the assessee, deleting both penalties.
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