No penalty on cash loan from family

The taxman will no longer breathe down your neck if you take a cash loan from a family member, provided you can explain why you have done so, according to a recent tax tribunal ruling.

Under the Income Tax Act, loans of more than Rs 20,000, even from family members, cannot be taken in cash or bearer cheque. Breach of this provision (269SS) of the Act attracts a penalty that matches the loan amount under section 271D.

The Income Tax Appellant Tribunal (ITAT) recently cancelled the penalty imposed by the tax authorities on three relatives based in Saharanpur for violating this provision, while receiving about Rs 1.5 lakh each from their grandfather through bearer cheques to start a business venture.

Agreeing with the plea of these individuals to cancel the penalty imposed by the tax official, the tribunal said, “The transaction between the assessee and his grandfather can be viewed as financial help coming from elders in the family.”

In fact, the Delhi bench of ITAT added that an assessee or any individual taxpayer cannot be presumed to have knowledge about the intricacies of tax laws, as in this case.

The ITAT added that for assesses, it was just a technical breach and so penalty cannot be levied for such technical breach.

It added that the amount was received by way of bearer cheque which showed the urgency of funds and “hence, (the assessee) was unable to route such transactions through bank. In a way, it can be considered as a reasonable cause within the meaning of Section 273B of the Act.”

Section 273B provides that no penalty under can be imposed for taking loan in excess of Rs 20,000 in cash or bearer cheque, if the assessee proves that there was a reasonable cause for doing so.