2014 (9) TMI 937 - AT - Income Tax

Validity of order of Penalty u/s 271D of the Act Bar of limitation as provided in Section 275(1)(c) of the Act Violation of section 269SS of the Act - Held that - Following decision of Commissioner of Income Tax-VI Versus Worldwide Township Projects Ltd. 2014 (6) TMI 47 - DELHI HIGH COURT - Decided against Revenue.

Summary

Issues:
- Appeal against penalty order under section 271D of the Income Tax Act, 1961 for AY 2007-08.
- Interpretation of Section 269SS regarding acceptance of money through account payee cheque or draft.
- Application of legal provisions in cases of book entries without physical money transfer.
- Comparison with relevant case laws for determining violations of Section 269SS.

Analysis:
1. The appeal was filed by the Revenue against the penalty order imposed under section 271D of the Income Tax Act for the assessment year 2007-08. The dispute centered around transactions involving M/s Worthwhile Developers P. Ltd. and M/s Jai Krishan Estates P. Ltd., where a significant sum was transferred through book entries without physical cash transfer, raising concerns under Section 269SS.

2. The Assessing Officer (AO) initiated penalty proceedings under section 271D based on the provisions of Section 269SS, emphasizing the importance of transactions involving account payee cheques or drafts to prevent currency-related malpractices. The penalty amount of Rs. 1,19,13,736 was levied due to the alleged violation of Section 269SS by the assessee.

3. The First Appellate Authority, however, ruled in favor of the assessee, noting that the payments were received through account payee cheques, thereby negating any breach of Section 269SS. This decision led to the Revenue appealing against the cancellation of the penalty.

4. During the hearing, the Tribunal considered the facts, legal provisions, and relevant case laws, including the judgement of the Delhi High Court in CIT vs. Worldwide Township Projects Ltd. The High Court's ruling clarified that Section 269SS applies to transactions involving the acceptance of money, excluding cases where liabilities arise through book entries without physical cash involvement.

5. The Tribunal, in alignment with the High Court's interpretation, upheld the First Appellate Authority's decision to cancel the penalty, albeit on different grounds. The Tribunal emphasized that the transactions in question did not contravene Section 269SS as they were executed through account payee cheques, aligning with the legal requirements.

6. Ultimately, the Tribunal dismissed the Revenue's appeal and the assessee's Cross Objection, which was not pressed. The judgement highlighted the importance of adherence to legal provisions, especially concerning the acceptance of money through prescribed financial instruments to prevent violations of the Income Tax Act.