2016 (2) TMI 927 - AT - Income Tax

Penalty u/s. 271D and 271E - advance receipt on sale of goods from dealers as deposit - Held that - As find from the facts that the assessee has merely collected advances in cash from various dealers for supply of rice and wheat during the course of business. Hence, it can safely be concluded that the said receipts pertained the character of revenue receipts in the hands of the assessee. It is not in dispute that the said advances were duly adjusted by supply of goods by the assessee before the end of previous year. In these circumstances, we hold that the advance receipt on sale of goods from dealers as deposit and invoking the provisions of section 269SS and 269T is not warranted. - Decided in favour of assessee

Summary

Issues Involved:
Levy of penalty under sections 271D and 271E of the Income Tax Act, 1961.

Analysis:

Issue 1: Penalty under Section 271D and 271E
The appeals concerned the penalty orders issued by the JCIT under sections 271D and 271E of the Income Tax Act, 1961. The primary issue was whether the penalties could be rightfully imposed based on the circumstances of the case. The assessee, a distributor of goods, had received advances in cash from various parties against which goods were supplied. The AO completed the assessment without raising any concerns regarding the cash advances received by the assessee, but the JCIT initiated penalty proceedings under sections 271D and 271E. The Tribunal noted that the advances received were revenue receipts and were adjusted against the supply of goods before the end of the previous year. It was concluded that invoking sections 269SS and 269T for the cash advances was unwarranted. Additionally, it was highlighted that the AO did not record any satisfaction in the assessment order regarding the violations of sections 269SS and 269T, which is a prerequisite for initiating penalty proceedings under sections 271D and 271E. Citing a Supreme Court decision, the Tribunal directed the JCIT to delete the penalties imposed under sections 271D and 271E, thereby allowing the appeals of the assessee.

This judgment underscores the importance of assessing the factual and legal aspects before imposing penalties under the Income Tax Act. It clarifies that penalties under sections 271D and 271E should be based on valid grounds and supported by recorded satisfaction in the assessment order. The decision also emphasizes the need to consider the nature of transactions and whether they align with the provisions of the Act before penalizing taxpayers.