2014 (3) TMI 218 - HC - Income Tax

Contravention of section 269SS of the Act Penalty u/s 271DD of the Act Proper explanation not made - Held that - There was no material to substantiate the questions raised by the appellant - The main allegation raised by the assessing officer for imposing penalty was that the assessee-firm had received cash in excess of Rs. 20,000/- in violation of Section 269SS The authorities below as well as the Tribunal, on verification of the materials on record, came to a finding that the audit report and balance sheet of the assessee had shown the outstanding amount as loan received from 12 persons thus, the contention that the amounts received by the assessee was from promoters/partners of the firm was not accepted. None of the authorities have found that the reasons stated are genuine and can be accepted to avoid payment of penalty - it is found by the authorities that the contribution made by the respective persons was treated as a loan and the explanation that they were to be made partners later was not accepted thus, the factual issues can be re-opened - The findings of facts by the authorities are neither perverse nor illegal in any form thus, no question of law arises for consideration Decided against Assessee.

Summary

Issues Involved:
Violation of Section 269SS of the Income-tax Act - Penalty imposition - Appeal against Tribunal's order confirming penalty.

Detailed Analysis:

1. Violation of Section 269SS of the Income-tax Act:
The case involved an appeal against the order of the Income-tax Appellate Tribunal regarding the assessment year 2005-2006. The assessee received contributions from 12 persons totaling Rs. 51,20,000, which the assessing officer found to contravene Section 269SS of the Income-tax Act. The assessing officer initiated penalty proceedings under Section 271DD. The assessee explained that the contributions were from promoters unaware of tax provisions for establishing a business unit. However, the assessing officer imposed a penalty equal to the amount received, which was confirmed in subsequent appeals.

2. Penalty Imposition:
The appellant raised questions of law challenging the Tribunal's decision to uphold the penalty. The main contention was that the contributions were genuine capital investments from partners and not loans, thus not violating Section 269SS. The authorities found discrepancies between the audit report, balance sheet, and the explanation provided by the assessee. The Tribunal confirmed the penalty, emphasizing the non-compliance with Section 269SS regarding accepting loans or deposits exceeding Rs. 20,000 without account payee cheques or bank drafts.

3. Appeal Against Tribunal's Order Confirming Penalty:
The appellant argued that the Tribunal did not consider the materials on record and failed to apply established legal principles. However, the High Court found no substantiation for the questions raised. The Court noted that the authorities had correctly determined that the contributions were treated as loans, not genuine capital investments. The Court upheld the penalty, stating that the factual findings were not perverse or illegal. The Court dismissed the appeal, concluding that the questions of law raised did not merit consideration in the appeal.

In conclusion, the High Court upheld the penalty imposed on the assessee for violating Section 269SS of the Income-tax Act by accepting contributions exceeding Rs. 20,000 without account payee cheques or bank drafts. The Court found the explanations provided by the assessee regarding the nature of the contributions to be unconvincing, leading to the dismissal of the appeal against the Tribunal's order confirming the penalty.