2011 (8) TMI 523 - HC - Income Tax

Applicbility of 269SS on temporary advances given by sister concerns - Held that - Where assessee took the money from the sister concern to make urgent payment and there was no intention to avoid taxes - Both the firms are regularly assessed to income-tax - When it is the case of providing temporary accommodation to one sister concern to another sister concern it does not amount to transaction of loan or deposit and therefore, it is outside the purview of section 269SS of the Act. Levy of penalty is not justified

Summary

Issues:
Violation of section 269SS read with section 271D of the Act regarding the amount received as a temporary advance.

Analysis:
The High Court of Karnataka heard an appeal by the revenue against a Tribunal's decision regarding the nature of the amount received by the assessee as a temporary advance. The Tribunal held that the amount did not qualify as a 'loan or deposit,' thus no violation of sections 269SS and 271D of the Act occurred.

The facts were undisputed, with the assessee firm and the lender firm being sister concerns with common partners. The assessee received money from the sister concern for urgent payments, claiming no tax avoidance intent. Both firms were regularly assessed for income tax. The assessing authority imposed a penalty under section 271D for violating section 269SS, which was confirmed by the Appellate Commissioner, leading to the appeal to the Tribunal.

The Tribunal referenced various judgments, including Dillu Cine Enterprises, Muthoot M. George Bankers, Patriam Jain, and Karnataka Ginning & Pressing Factory, to set aside the penalty. The revenue appealed this decision.

The Court noted that the deposits were made between sister concerns to address urgent needs, not constituting borrowing or deposit as per taxation law. Only a few instances involved amounts exceeding Rs. 20,000. Section 273B allows for no automatic penalty imposition if a reasonable cause is shown, which the Tribunal found in favor of the assessee based on the cited judgments.

Consequently, the Court dismissed the appeal, ruling in favor of the assessee and against the revenue. The substantial legal question was answered in favor of the assessee, upholding the Tribunal's decision.