[2022] 142 taxmann.

com 281 (Orissa)/[2022] 289 Taxman 300 (Orissa)[30-06-2022]

INCOME TAX : Where assessee had taken loan of Rs. 1.25 crores in cash from its
sister concerns and offered explanation that amounts were taken in cash for making
labour payments at far off places and there was an urgency to do so, explanation
offered by assessee was a reasonable explanation and, therefore, penalty imposed
under section 271D read with section 269SS was not justified

■■■

[2022] 142 taxmann.com 281 (Orissa)

HIGH COURT OF ORISSA
Principal Commissioner of Income-tax
v.
Akash Infra-com-Projects (P.) Ltd.*
DR. S. MURALIDHAR, CJ
AND R.K. PATTANAIK, J.
IT APPEAL. 178 OF 2018†
JUNE 30, 2022

Section 271D, read with section 269SS, of the Income-tax Act, 1961 - Penalty - For failure to
comply with section 269SS (Cash loan from sister concerns) - Assessment year 2013-14 -
Assessee, a company, had taken loan of Rs. 1.25 crores in cash from its sister concerns and
offered explanation that amounts were taken in cash for making labour payments at far off
places and there was an urgency to do so - Assessing Officer rejected explanation and
imposed penalty upon assessee under section 271D on ground that it had taken loan in
question in violation of provisions of section 269SS - Commissioner (Appeals) allowed appeal
and deleted penalty imposed - Tribunal upheld order of Commissioner (Appeals) holding that
genuineness of loan transactions was not in doubt and explanation offered by assessee was
reasonable - Whether no error had been committed either by Commissioner (Appeals) or
Tribunal in deleting penalty imposed upon assessee - Held, yes [Paras 10 and 11] [In favour of
assessee]
CASE REVIEW

CIT v. Deccan Designs (India) (P.) Ltd. [2013] 30 taxmann.com 78/[2012] 347 ITR 580 (Mad.) (para 10) and
CIT v. Maheshwari Nirman Udyog [2008] 170 Taxman 502/302 ITR 201 (Raj.) (para 10) followed.
Order of ITAT, Cuttack in IT Appeal No. 159 (CTK) of 2018, dated 24-8-2018 affirmed.
CASES REFERRED TO

OMEC Engineers v. CIT [2008] 169 Taxman 158/[2007] 294 ITR 599 (Jharkhand) (para 7), CIT v. Saini
Medical Store [2006] 150 Taxman 246/[2005] 277 ITR 420 (Punj. & Har.) (para 7), CIT v. Sunil Kumar Goel
[2009] 183 Taxman 53/315 ITR 163 (Punj & Har.) (para 7), P. Baskar v. CIT [2012] 21 taxmann.com 78/340
ITR 560 (Mad.) (para 8), CIT v. Deccan Designs (India) (P.) Ltd. [2013] 30 taxmann.com 78/[2012] 347 ITR
580 (Mad.) (para 8), DIT (Exemptions) v. Young Men Christian Association [2014] 49 taxmann.com 72/227
Taxman 31 (Mag.) (Mad.) (para 9), CIT v. Maheswari Nirman Udyog [2008] 170 Taxman 502/302 ITR 201
(Raj) (para 9), CIT v. Panchsheel Owners Associations [2017] 88 taxmann.com 504/395 ITR 380 (Guj.) and
CIT v. Smt. Dimpal Yadav [2015] 61 taxmann.com 219/234 Taxman 160/379 ITR 177 (All.) (para 9).
T.K. Satapathy, Sr. Standing Counsel for the Appellant. Chitrasen Parida, Adv. for the Respondent.
ORDER

Dr. S.Muralidhar, CJ. - The Revenue is in appeal against an order dated 24th August 2018 of the Income-tax
Appellate Tribunal, Cuttack Bench, Cuttack (ITAT) in ITA No. 159/CTK/2018 for the assessment year (AY)
2013-14. By the said impugned order, the ITAT rejected the Revenue's appeal filed against an order dated 1st
February 2018 of the Commissioner of Income-tax (Appeals) [CIT(A)] deleting the penalty of Rs. 1.7crores
levied on the Respondent-Assessee by the Additional CIT under section 271 D read with section 269 SS of the
Income-tax Act, 1961 (Act).
2. The Assessing Officer reported the matter to the Additional CIT who the order dated 29th September 2016
levied the above penalty under section 271 D of the Act on the ground that the Assessee had accepted the loans
of 1.5crores in cash from M/s Laxmi Nrushingha Construction and Rs. 20lakhs in cash from M/s S.S. Parida
during the AY in question in violation of the provision of section 269SS of the Act.
3. The reason given by the Assessee in response to the show cause notice issued by the Additional CIT for
imposition of penalty was that both the entities from whom the cash loan was taken were partnership firms in
which the Directors of the Assessee had controlling stake and other partners of the firms were family members
and relatives of the Directors of the Assessee-Company. It was submitted by the Assessee that the cash was
needed since urgent payments had to be made to the labourers and items required at the construction site had to
be purchased. The funds were transferred outside the banking channel since the project site was located at a
remote place where banking facility for encashment of the multicity cheques and/or transfer of funds was not
available. The sister concerns were assessed to Income-tax and all these transactions had been duly accounted
for in the accounts.
4. The Additional CIT, however, rejected the explanation observing that the Assessee could have first accepted
the money through its bank account from the sister concerns and then made the cash disbursements for labour
and other expenses.
5. The CIT (A) in the impugned order noted that the impugned loan transactions were genuine transactions and
in the assessment order, the AO had accepted the same as such. The CIT (A) pointed out that the following
facts were evident:
"(i) The so-called loans in cash were obtained from two sister concerns who had enough cash in hand to do
so.
(ii) Sri S.S. Parida as the managing director of the assessee company and the main partner of the two sister
concerns was the person who was handling cash for all the 3 entities.
(iii) The amounts were taken in cash from the two sister concerns for making labour payments at far off
places and there was an urgency to do so.
(iv) There was business expediency which compelled the assessee to accept the amount in cash.
(v) Sri S.S. Parida was not aware of the provisions of section 269SS."
6. Accordingly, the CIT (A) allowed the Assessee's appeal and deleted the penalty imposed.
7. The ITAT has in the impugned order concurred with the CIT (A) after referring to the decisions of the
Jharkhand High Court in OMEC Engineers v. CIT [2008] 169 Taxman 158/[2007] 294 ITR 599; and of the
Punjab and Haryana High Court in CIT v. Saini Medical Store [2006] 150 Taxman 246/[2005] 277 ITR 420 and
CIT v. Sunil Kumar Goel [2009] 183 Taxman 53/315 ITR 163. Since the genuineness of the loan transactions
were not in doubt and the explanation offered by the Assessee was reasonable, the ITAT declined to interfere
with the order of the CIT(A).
8. Mr. T.K. Satapathy, learned Senior Standing Counsel for the Revenue, refers to the decision of the Madras
High Court in P. Baskar v. CIT [2012] 21 taxmann.com 78/340 ITR 560 to urge that the CIT(A) was in error in
deleting the penalty.
9. On the other hand, Mr. Parida, learned counsel for the Assessee, relies on other decisions of the Madras High
Court in CIT v. Deccan Designs (India) (P.) Ltd. [2013] 30 taxmann.com 78/[2012] 347 ITR 580 and DIT
(Exemptions) v. Young Men Christian Association [2014] 49 taxmann.com 72/227 Taxman 31 (Mag.). He
further relied on the decision of the Rajasthan High Court in CIT v. Maheswari Nirman Udyog [2008] 170
Taxman 502/302 ITR 201; of the Gujarat High Court in CIT v. Panchsheel Owners Associations [2017] 88
taxmann.com 504/395 ITR 380 and of the Allahabad High Court in CIT v. Smt. Dimpal Yadav [2015] 61
taxmann.com 219/234 Taxman 160/379 ITR 177.
10. The above submissions have been considered. The Court finds that in P. Baskar (supra) the Madras High
Court was not satisfied with the explanation offered by the Assessee for not complying with the provisions of
Section 269 SS of the Act. It was specifically observed that "the Assessee had not shown any reasonable cause
for taking cash loan". However, in the present case, as noted by the CIT(A), the Assessee did offer a reasonable
explanation for taking cash loan and the circumstances in which it was required. In Deccan Designs (India)(P.)
Ltd. (supra), where an Assessee accepted cash loans from a sister concern mainly for the purpose of
disbursement of salaries to its employees, it was held that the penalty under section 271D was uncalled for. In
Maheswari Nirman Udyog (supra), it was found that loans had been taken by the Assessee from a sister
concern in cash to make payments to the labourers at site. This was held to be a reasonable explanation which
was accepted by the CIT (A) and the ITAT and therefore, did not warrant any interference in appeal.
11. In the circumstances of the present case, the Court is satisfied that no error has been committed either by the
CIT (A) or the ITAT in deleting the penalty imposed on the Assessee.
12. No substantial question of law arises for consideration in this appeal. The appeal is accordingly dismissed.
S.K.
JAIN

*In favour of assessee.

†Appeal arising out of Tribunal in IT Appeal No. 159 (CTK) of 2018, dated 24-8-2018.