2010 (10) TMI 734 - AT - Income Tax

Penalty u/s 271E - Scrutiny - assessee is a registered partnership firm having two partners and they engaged in the manufacture of garments and their export - AO issued notice u/s 271D/271E of the Income Tax Act inviting explanation of the assessee why penalty under these sections be not imposed for making payments in contravention of section 269SS and 269T of the Income Tax Act - A bare perusal of sections 269SS and 269ST would reveal that for visiting any assessee with penalty for violation of these two sections there should be default at the end of an assessee that he should have accepted the loans or deposits otherwise then by an account payee cheque or account payee bank draft - Since no case for initiation of penalty u/s 271E is made out therefore we do not deem it necessary to go into the facts whether the order was passed within limitation or the proceedings were initiated with limitation - Appeal is dismissed

Summary

Issues:
- Appeal against order of Ld. CIT (A) deleting penalty u/s 271E of the Income Tax Act
- Allegation of penalty proceeding being time-barred

Analysis:

Issue 1: Appeal against order deleting penalty u/s 271E
The case involves a registered partnership firm engaged in garment manufacturing and export. The AO alleged contravention of sections 269SS and 269T by the firm. The AO imposed a penalty of Rs.2,08,66,333 under sections 271D/271E without specifying the contravention. However, the firm contended that transactions with sister concerns were for business purposes, not involving loans or deposits. The Ld. CIT(A) deleted the penalty after examining the details provided by the firm. The ITAT observed that for penalties under sections 269SS and 269T, there must be acceptance or repayment of loans or deposits, which was not the case here. The firm had made payments through account payee cheques, and no loans or deposits were involved. The ITAT upheld the Ld. CIT(A)'s decision, noting the lack of specific charges against the firm in the AO's orders.

Issue 2: Allegation of time-barred penalty proceeding
The revenue contended that the penalty proceeding was not time-barred, contrary to the Ld. CIT(A)'s finding. The AO framed the assessment under section 143(3) on 10th November 2005, based on a special auditor's report. The revenue argued that the penalty notice was issued under sections 271D/271E, inviting the firm's explanation for contravention of sections 269SS and 269T. However, the firm demonstrated that transactions with sister concerns were not in violation of these sections. The ITAT, focusing on the lack of loan or deposit transactions, upheld the Ld. CIT(A)'s decision to delete the penalty. As the AO failed to establish any contravention, the ITAT dismissed the revenue's appeal, emphasizing the absence of specific charges against the firm.

In conclusion, the ITAT upheld the Ld. CIT(A)'s decision to delete the penalty imposed under sections 271D/271E, as the firm's transactions with sister concerns did not involve loans or deposits, as required by sections 269SS and 269T. The ITAT dismissed the revenue's appeal, noting the lack of specific charges against the firm and affirming that the penalty proceeding was rightly deemed time-barred.