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2016 (2) TMI 238 - AT - Income TaxPenalty u/s 271D - whether the loan accepted by the assessee is a loan or deposit within the meaning of sec. 269SS - Held that - Assessing Officer issued show-cause notice to levy penalty under sec. 271E of the Act, but finally levied penalty under sec. 271D of the Act. Sec. 271E deals with levy of penalty for violation of the provisions of sec. 269TT of the Act. In the present case on hand, the Assessing Officer initiated the penalty under sec. 271E for violation of sec. 269TT of the Act, but levied penalty under sec. 271D for violation of the provisions of sec. 269SS. From this conduct of the Assessing Officer, it was clear that the Assessing Officer did not applied his mind before levying penalty. The A.O. himself confused, whether the assessee accepted or repaid loan, which clearly shows that he has passed penalty order without application of mind. Therefore, the penalty order cannot be sustained in the eyes of law. Considering the facts and circumstances of the case and also applying the ratio of Gururaj Mini Roller Flour Mills ( 2015 (2) TMI 362 - ANDHRA PRADESH HIGH COURT ), we are of the opinion that the assessee has not accepted the loan or deposit in contravention of the provisions of sec. 269SS of the Act so as to levy penalty under sec. 271D of the Act. Therefore, we direct the Assessing Officer to delete the penalty levied under sec. 271D of the Act. - Decided in favour of assessee.
Issues Involved:
1. Whether the assessee violated the provisions of Section 269SS of the Income Tax Act by accepting a loan in excess of Rs. 20,000 otherwise than by way of account payee cheque or demand draft. 2. Whether the penalty levied under Section 271D of the Income Tax Act for the alleged violation of Section 269SS is justified. Issue-wise Detailed Analysis: 1. Violation of Section 269SS: The primary issue is whether the assessee accepted a loan or deposit in excess of Rs. 20,000 otherwise than by way of account payee cheque or demand draft, thereby violating Section 269SS of the Income Tax Act. The Assessing Officer (AO) believed that the assessee had violated this provision based on the Tax Auditor's report and levied a penalty under Section 271D. The AO's opinion was that the assessee accepted the loan in cash, which contravened the provisions of Section 269SS. Assessee's Defense: The assessee contended that the loan was accepted through account payee cheques or bank transfers and not in cash. The funds were transferred between two sister concerns owned by the assessee and his wife, and the transactions were made through proper banking channels. The assessee provided ledger extracts showing that out of the total loan amount of Rs. 21,73,162, Rs. 15,47,287 was the opening balance from previous years, and Rs. 6,25,875 was accepted during the year through bank transfers or journal entries. CIT(A)'s Findings: The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the assessee's explanation and deleted the penalty. The CIT(A) held that the loan was accepted by journal entry through book adjustments between the husband and wife, and therefore, there was no violation of Section 269SS. The CIT(A) relied on judgments from the Delhi High Court and Madras High Court, which supported the view that book adjustments do not attract the provisions of Section 269SS. 2. Justification of Penalty under Section 271D: The AO levied a penalty under Section 271D for the alleged violation of Section 269SS. The AO's basis for the penalty was the Tax Auditor's report, which mentioned that the loan was accepted otherwise than by way of account payee cheque or demand draft. However, the AO did not thoroughly examine the details provided by the assessee, which showed that the transactions were through bank transfers and book adjustments. Tribunal's Findings: The Tribunal found that the AO's conclusion was based on suspicion and surmises without proper examination of the assessee's records. The Tribunal noted that the assessee had provided sufficient evidence to show that the loan was accepted through banking channels and book adjustments. The Tribunal emphasized that the levy of penalty under Section 271D is not automatic and requires a finding of contravention without reasonable cause. The Tribunal cited the Andhra Pradesh High Court's judgment in the case of Gururaj Mini Roller Flour Mills, which held that book adjustments between sister concerns do not constitute a violation of Section 269SS. Conclusion: The Tribunal concluded that the assessee had not accepted the loan in contravention of Section 269SS, and therefore, the penalty under Section 271D was unwarranted. The Tribunal upheld the CIT(A)'s order deleting the penalty and dismissed the Revenue's appeal. The Tribunal also noted that the AO's confusion between Sections 271D and 271E indicated a lack of application of mind. Final Order: The appeal filed by the Revenue was dismissed, and the penalty levied under Section 271D was directed to be deleted. The order was pronounced in the open court on 6th January 2016.
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