2014 (7) TMI 808 - AT - Income Tax

Penalty u/s 271D cash transaction with OSFC a unit of assessee - Cash deposits received more than ₹ 10,000 Violation of provisions of section 269SS - Held that - OSFC is not different from the assessee firm and the AO assessed the income/loss and considered the transactions of OSFC in the assessment of the assessee firm - transactions also cannot be considered as loan or advance and the provisions of Sec.269SS are not applicable - it is not a fit case to levy penalty u/s 271D of the Act there was no reason to interfere with the orders of the CIT(A) as it is basically on appreciation of facts as available in the books of accounts Decided against Revenue.

Summary

Issues involved:
Revenue's appeal against CIT(A)'s orders deleting penalty under section 271D for assessment years 2002-2003, 2003-2004, and 2004-2005.

Detailed Analysis:

Issue 1: Penalty under section 271D
The Assessing Officer levied penalties for receiving cash deposits exceeding Rs. 10,000, citing violations of section 269SS. The assessee, a partnership firm in the business of deposits and loans, contended that all deposits were below Rs. 10,000 and were received through agents. The CIT(A) remanded the matter to the A.O., who failed to provide evidence contradicting the assessee's claims. Consequently, the CIT(A) deleted the penalties, emphasizing that deposits were below Rs. 10,000 and that transactions with another entity were not subject to section 269SS.

Issue 2: Assessment and Impounded Books
During a survey, the A.O. made additions to the income based on interest receipts and unexplained cash credits. The assessee explained discrepancies in the books, attributing errors to unqualified accountants and lack of adherence to RBI guidelines. The firm voluntarily corrected mistakes, incorporating transactions with another entity. The CIT(A) upheld these explanations, leading to the deletion of penalties under section 271D.

Judgment
The ITAT upheld the CIT(A)'s decision, noting that the Revenue failed to substantiate its case. The ITAT affirmed the CIT(A)'s findings based on factual appreciation and previous quantum assessments. As a result, the Revenue's appeals were dismissed, and the penalties under section 271D were deleted.

This judgment highlights the importance of factual substantiation in tax penalty cases and the significance of proper documentation and compliance with regulatory guidelines in financial transactions to avoid penalties under relevant sections of the Income Tax Act.