2011 (11) TMI 494 - AT - Income Tax

Penalty u/s 271D - amounts provided by Natco and Ajay Grover by way of bearer demand draft and cash on behalf of the assessee, as a consequence of which the assessee became debtor to these persons - amount provided by Natco has been assessed as dividend u/s 2(22)(e) by the AO - Held that - In absence of any agreement between the assessee on one hand and Natco or Ajay Grover on the other, indebtedness in the form of loan arises. Also, carrying of the transactions indirectly does not make any difference because if it had been carried on directly, it would have amounted to acceptance of loans. It is also a fact that the transactions have been disclosed by the assessee. The lower authorities have not given any finding in the matter of recording of the transactions by any of the creditors or the parties to whom the amounts were paid. In these circumstances, it can be said that the transactions are genuine as far as the assessee is concerned. There is sufficient cause shown for non-levy of penalty - Decided in favor of assessee

Summary

Issues:
Levy of penalty under section 271D of the Income-tax Act, 1961 for receiving loans in violation of section 269SS.

Analysis:
1. The appellant contested the levy of penalty under section 271D for receiving loans from Natco Exports Pvt. Ltd. and Ajay Grover, arguing that the transactions were made by a sister concern and a director on behalf of the assessee, and thus, no violation of section 269SS occurred. The appellant also highlighted that the transactions were disclosed to the revenue, and the amount from Natco had already been taxed as deemed dividend.

2. The ld. CIT(Appeals) upheld the penalty, citing precedents where penalties were justified for violations of section 269SS. The appellant relied on various cases to support their argument that the penalty was not justified due to genuine transactions and disclosure to the revenue.

3. The Tribunal analyzed the facts, emphasizing that the transactions resulted in the assessee becoming indebted to Natco and Ajay Grover, constituting loans. The Tribunal noted that the transactions were genuine and disclosed, leading to the conclusion that the loans were accepted indirectly, which did not negate their nature as loans repayable on demand.

4. Considering the genuineness of the transactions and the absence of findings on the recording of transactions by the creditors, the Tribunal held that the explanation provided by the assessee constituted a reasonable cause for non-levy of penalty. Consequently, the Tribunal allowed the appeal, ruling in favor of the assessee.

In conclusion, the Tribunal set aside the penalty levied under section 271D, emphasizing the genuine nature of the transactions and the reasonable cause shown by the assessee for non-levy of the penalty.