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2013 (3) TMI 265 - HC - Income TaxPenalty u/s 271D - advance has been accounted as loan and interest debited - assessee was a partner in four firms and Proprietor in Reliance Realtors - ITAT deleted the levy of penalty - Held that - Referring to Commissioner of Income Tax v. R.M.Chdambaram Pillai 1976 (11) TMI 2 - SUPREME Court , Assistant Director of Inspection (Investigation) v. Kum.A.B.Shanti (2002 (5) TMI 4 - SUPREME COURT), Commissioner of Income Tax v. Lokhpat Film Exchange (Cinema) 2007 (1) TMI 165 - RAJASTHAN HIGH COURT there is no separate identity for the partnership firm and that the partner is entitled to use the funds of the firm and that the assessee acted bonafide and that there was a reasonable cause within the meaning of Section 273B of the Act. No error or legal infirmity in the order of the Tribunal warranting interference. The substantial question of law raised in this appeal is answered in favour of the assessee.
Issues:
1. Levy of penalty under Section 271D of the Income Tax Act, 1961 for advance accounted as loan and interest debited. Analysis: The case involved the question of whether the Income Tax Appellate Tribunal was correct in deleting the penalty imposed by the Assessing Officer under Section 271D of the Income Tax Act. The appellant, a partner in four firms, had taken a loan from these firms, which were found to be in cash. The Assessing Officer initiated penalty proceedings and imposed a penalty of Rs.18 lakhs. The Commissioner of Income Tax (Appeals) upheld the penalty, but the Tribunal remitted the matter to the Assessing Officer for further clarification on the nature of the transaction. The Tribunal later dismissed the Revenue's appeal, stating that the transactions between the partner and the firm did not qualify as a Loan or Deposit under Section 269SS of the Act. The Revenue contended that the transactions were not in the capacity of a partner, but as the Proprietor of a separate entity, and therefore, the penalty was justified. However, the Tribunal relied on legal precedents to establish that a partnership firm does not have a separate legal entity from its partners. The Tribunal highlighted the decision in Commissioner of Income Tax v. R.M.Chidambaram Pillai, where the Supreme Court held that for the purpose of Sections 269SS and 269T, a firm and its partners cannot be treated as separate entities. Therefore, the transactions between the partner and the firm were not subject to the provisions of Section 269SS of the Act. Additionally, the Tribunal cited the case of Commissioner of Income Tax v. Lokhpat Film Exchange (Cinema), emphasizing that inter se transactions between partners and the firm are not governed by Sections 269SS and 269T. The Tribunal confirmed the findings of the Commissioner of Income Tax (Appeals) that there is no separate identity for the partnership firm and its partners in such transactions. The Tribunal also noted that the assessee acted bonafide, and there was a reasonable cause under Section 273B of the Act, leading to the dismissal of the Revenue's appeal. The Court further referenced previous judgments, such as Commissioner of Income Tax v. Kundrathur Finance and Chit Co., Commissioner of Income Tax v. Deccan Designs (India) P. Ltd., and Commissioner of Income Tax v. Lakshmi Trust Co., to support the principle that penalties may not be levied if there were genuine and bonafide transactions, even if they involved cash dealings due to valid reasons. Ultimately, the Court found no legal infirmity in the Tribunal's decision and ruled in favor of the assessee, dismissing the appeal and not awarding any costs.
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