2010 (1) TMI 890 - AT - Income Tax

Penalty u/s 271D as well as u/s 271E of the Act for violations of section 269SS and section 269T of the Income Tax Act 1961 - Held that - per section 275(1)(c) order imposing penalty shall have to be passed in the financial year in which the proceedings in the course of which action for imposition of penalty has been initiated are completed or six months from the end of the month in which the action for imposition of penalty is initiated whichever period expires later. As the penalty has been initiated on 30th March 2005 and whereas the penalties have been levied on 16-10-2006 penalties are barred by limitation. as the amount was received as an advance for the purchase of shares it is neither loan nor a deposit which attracts the provisions of section 269SS or section 269T of the Act and no penalty can be levied.

Summary

Issues:
Levy of penalty under section 271D and section 271E of the Income Tax Act, 1961 for violations of section 269SS and section 269T.

Detailed Analysis:

1. Facts and Assessment:
The appellant, engaged in various businesses, received cash from parties for share purchases, later returned due to price disagreements. The AO alleged these were loans, not advances, and levied penalties under sections 271D and 271E. The AO's reasons included frequency of cash transactions and lack of opening/closing balances.

2. Appellate Proceedings:
The CIT(A) upheld penalties, citing the appellant's cash deposits and alleged contradictions. The appellant argued the amounts were advances, not loans, citing case laws differentiating loans from advances and deposits. The appellant also highlighted CBDT circulars exempting share transactions from loan provisions.

3. Contentions and Arguments:
The appellant contended the AO failed to distinguish between loans and advances, and penalties were unjustified. The appellant emphasized the genuine nature of transactions and lack of evidence against their claims. The appellant argued penalties were time-barred and not applicable due to the nature of transactions.

4. Judgment and Conclusion:
The ITAT ruled in favor of the appellant, overturning penalties under sections 271D and 271E. The ITAT found the AO's conclusions based on conjectures, lacking proper investigation. The ITAT emphasized the distinction between advances and loans, canceling penalties due to the genuine nature of transactions and limitations on penalty imposition.

5. Final Decision:
Both appeals by the appellant were allowed, and penalties under sections 271D and 271E were quashed. The ITAT's decision highlighted the importance of proper investigation, distinguishing between different types of transactions, and adherence to statutory limitations on penalty imposition.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved, arguments presented, and the final decision rendered by the ITAT, Mumbai.