The judgment establishes the principle that in cases of genuine and bona fide transactions, where a reasonable cause for failure to comply with the provisions of Section 269SS is shown, the penalty under Section 271D may not be imposed.

Tarun Agarwala, J. –

The dispute in the two appeals is the same and are being decided together. For facility, the facts of Income Tax Appeal No.174 of 2015 is being taken into consideration.

2. The present dispute relates to the assessment year 2006-07. The assessee claims to be deriving income from companies for her services as a Director, income from house property and income from business of purchase and sale of food-grains. The return was processed under Section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act) but subsequently, the case was selected for scrutiny and, accordingly, notice under Section 143(2) of the Act was issued. The Assessing Officer passed an assessment order under Section 143(3) of the Act on a total income of Rs. 11,52,470/-. While considering the matter, the Assessing Officer noticed that the assessee had acquired lease hold rights over a nazul land along with her husband vide assignment-cum-sale deed dated 31st January, 2005. The said nazul land was subsequently, converted into free hold in favour of the assessee and her husband vide deed executed on 24th June, 2005 on a total cost of Rs. 44,67,208/-. The Assessing Officer noticed that 50% of the amount i.e. Rs. 22,33,604/- was taken in cash as an unsecured loan from Samajwadi Party for the purpose of converting lease hold land into free hold land. The cash amount taken from Samajwadi Party was deposited in the joint account of the assessee along with her husband. The amount was subsequently, paid back to the Samajwadi Party on 24th August, 2005.

3. Subsequent to the assessment order, the assessee received a notice under Section 274 of the Act to show cause as to why an order of penalty should not be passed under Section 271D of the Act for violating the provisions of Section 269 SS of the Act. In response to the notice, the assessee filed her reply stating that since she did not had the requisite funds at that point of time and the funds were urgently required for conversion of the property, a loan was taken from the Samajwadi Party, which was deposited in her account and, subsequently, the loan was paid back to the Samajwadi Party. It was contended that the transaction of loan was found to be genuine in assessment proceedings and, therefore, the assessee could not be subjected to penalty. It was further urged that the assessee was not aware of the provisions of Section 269 SS of the Act.

4. The Additional Commissioner of Income Tax, after considering the matter, held that the assessee's case did not fall under the exceptional clause under Section 269 SS of the Act nor provided any evidence to prove the urgency of taking a loan in cash and thereby avoiding the transaction through banking channel nor there was any condition of limitation, which compelled the assessee to accept the amount in cash. The authority held that the assessee had violated the provisions of Section 269 SS of the Act and, therefore, imposed a penalty amounting to Rs. 22,33,604/-. The assessee, being aggrieved, filed an appeal, which was allowed and the order of penalty was set aside. The department, being aggrieved by the appellate order, filed an appeal before the Tribunal, which was dismissed. Consequently, the present appeal has been filed by the department under Section 260A of the Act.

5. In this background, we have heard Sri Ashok Kumar, the learned counsel for the appellant and Sri Vijay Bahadur Singh, the learned Senior Counsel assisted by Sri Udai Pratap Singh and Sri Shivam Yadav, the learned counsel for the assessee.

6. The short question that arises for consideration is, whether any penalty could be imposed under Section 271D of the Act?

7. The learned counsel for the department contended that the unsecured loan, which was more than Rs. 20,000/- taken by the assessee from a political party should have been taken by a cheque or a demand draft through banking channels, which had not been done. The taking of the loan in cash, which was more than