2015 (8) TMI 832 - AT - Income Tax

Penalty u/s. 271D - Payment made by the Directors to the creditors to save the company from litigation - Violation of Section 269S and 269T - Transaction is reflected in the books of accounts through Journal Entries - CIT(A) deleted penalty levy - Held that - From the perusal of ledger copy furnished by the Ld. AR, no cash entries in the ledger account of Shri K. Anil Kumar were passed. It is only through journal entries the transactions between the respondent assessee-company and the Managing Director Shri K. Anil Kumar were reflected. Further, we notice that Shri K. Anil Kumar had issued his personal cheques to meet the urgent business needs of the respondent assessee-company directly in favour of the persons to whom the respondent assessee-company owes money and no cash in any form either loan or deposit was directly given by him to the respondent, assessee-company. Case of CIT Vs. Preeti Fuels and Flames P. Ltd., 2010 (11) TMI 702 - CHHATTISGARH HIGH COURT had held that when the transactions in question went through bank and were deposited by some other Directors, the provisions of Section 269SS are not applicable. Case of Gururaj Mini Roller Flour Mills Vs. Additional Commissioner of Income Tax 2015 (2) TMI 362 - ANDHRA PRADESH HIGH COURT held that, Mere book adjustment of funds by the assessee vis- -vis its sister concern can by no means be said to be violation of Section 269SS/269T so as to attract penalty u/s. 271D/271D. Where there is a reasonable cause for accepting the cash, penalty cannot be levied - See Srishti Life Needs (P) Ltd., Hyderabad Vs. Addl. CIT, Range- 3, Hyderabad (2015) 2 TMI 245, ITAT, Hyderabad - Decided in favour of assessee.

Summary

Issues: Violation of Section 269SS and 269T - Penalty under Section 271D - Additional evidence admitted by CIT(A)

Violation of Section 269SS and 269T - Penalty under Section 271D:
The case involved the Revenue appealing against the order of the Commissioner of Income Tax (Appeals)-V, Hyderabad, regarding penalty proceedings under Section 271D and 271E of the Income Tax Act, 1961. The Assessing Officer found that the assessee-company accepted deposits in cash and repaid them in cash, violating the provisions of Section 269S and 269T. A penalty of Rs. 16,69,117 was levied under Section 271D. The CIT(A) allowed the penalty appeal, stating that the payments were made to save the company from financial difficulties and legal issues, not for loans or deposits, thus exempt from Section 269SS. The Tribunal upheld this decision, emphasizing that the transactions were made to meet urgent business needs, not as loans or deposits, as evidenced by journal entries and personal cheques issued by the Managing Director directly to creditors.

Additional evidence admitted by CIT(A):
The Revenue argued that the CIT(A) admitted additional evidence without following Rule 46A(3) of the Income Tax Rules. However, the Tribunal found that no additional evidence was filed before the CIT(A), and the order was not based on any such evidence. Therefore, this ground of appeal was dismissed. The Tribunal's decision was based on the analysis that the transactions did not violate Section 269SS, as they were not in the nature of loans or deposits, and were essential for the business's smooth operation. The Tribunal cited relevant case laws to support its conclusion, emphasizing that mere book adjustments or transactions through banks did not attract penalties under Section 271D. Ultimately, the appeal filed by the Revenue was dismissed, affirming the CIT(A)'s decision to delete the penalty under Section 271D.

Judgment by Inturi Rama Rao, AM: The judgment by Inturi Rama Rao, AM, highlighted the factual background of the case, the penalty proceedings initiated by the Assessing Officer, and the subsequent appeal before the CIT(A). The judgment analyzed the arguments presented by both parties, focusing on whether the transactions constituted violations of Section 269SS and 269T. It emphasized the importance of distinguishing between loans/deposits and payments made for business exigencies, ultimately supporting the CIT(A)'s decision to delete the penalty based on the evidence provided regarding the nature of the transactions.

Conclusion: The Tribunal's detailed analysis and interpretation of the legal provisions, supported by relevant case laws, led to the dismissal of the Revenue's appeal. The judgment underscored the significance of the purpose behind transactions in determining their applicability to tax penalties, ultimately upholding the CIT(A)'s decision in favor of the assessee-company.