2014 (5) TMI 665 - AT - Income Tax

Levy of penalty u/s 271D of the Act Cash loan taken for purchase of property - Held that - Assessee relied upon MOU dated 2.7.2008 - the assessee alongwith Mr. R.M. Zafarullah had jointly invested money to purchase property and thereafter share profit from its sale - The property was purchased on 11.7.2008 in the name of assessee - the assessee repaid the amount invested by Mr. R.M. Zafarullah. Mr. R.M. Zafarullah has sworn an affidavit dated 27.06.2011 which was produced before the AO wherein he has admitted the execution of MOU for purchase of property AO in assessment order dated 26.09.2011 has accepted the contention of assessee with regard to investment of Mr. R.M. Zafarullah in the property - There is nothing on record to show that the assessee has taken loan from Mr. R.M. Zafarullah - Penalty proceeding have been initiated by drawing inferences from the transaction between the assessee and Mr. R.M. Zafarullah - penalty u/s. 271D has been levied on assumption that the assessee has violated the provisions of section 269SS by taking cash loan from Mr. R.M. Zafarullah - the penalty cannot be levied on the basis of presumptions and probabilities thus, penalty u/s 271D of the Act is set aside Decided in favour of Assessee.

Summary

Issues involved: Appeal against penalty u/s.271D of the Income Tax Act, 1961 for allegedly taking cash loan from an individual for property purchase.

Analysis:
1. Assessment of Investment vs. Cash Loan:
The assessee, an individual with income from salary and building maintenance business, purchased a property jointly with another individual. The contention was whether the amount received was a cash loan or an investment. The MOU between the parties indicated a joint venture for investment, with the other individual contributing funds. The Assessing Officer accepted the investment part but initiated penalty proceedings for violating Sec. 269SS regarding cash loan. The Tribunal noted the lack of evidence for a cash loan and emphasized that penalties cannot be based on assumptions.

2. Contentions of the Parties:
The appellant argued that the transaction was a joint investment as per the MOU and supported by an affidavit from the co-investor. The department contended that it was a cash loan, supported by repayment with interest. The Tribunal considered the documentary evidence, including the MOU and affidavit, to determine the nature of the transaction.

3. Evaluation of Evidence:
The Tribunal reviewed the MOU, the affidavit of the co-investor, and the transaction details. It observed that the property was purchased jointly, profit-sharing was agreed upon, and the co-investor confirmed the investment. The absence of proof for a cash loan led the Tribunal to conclude that the penalty was imposed based on assumptions, contrary to established legal principles.

4. Legal Decision:
The Tribunal, after analyzing the facts and legal precedents, decided to delete the penalty imposed under Sec. 271D. It emphasized that penalties cannot be levied on presumptions and probabilities. The appeal of the assessee was allowed, highlighting the importance of concrete evidence in tax penalty cases.

In conclusion, the judgment focused on distinguishing between investment and cash loan transactions, emphasizing the need for clear evidence to support penalty imposition under tax laws. The decision underscored the significance of factual substantiation over assumptions in legal proceedings.