2015 (1) TMI 1395 - AT - Income Tax

Penalty u/s. 271D/271E - assessee accepted loan or deposit in cash which is ₹ 20,000 or above - reasonable cause for getting the benefit of Section 273B - Held that - For levy of penalty u/s. 271D as well as 271E, it is required for the AO to establish that assessee had accepted or repaid a loan or deposit in contravention of section 269SS/269T, as the case may be. This, in turn, requires to be shown that assessee had accepted loan or deposit in cash which is ₹ 20,000 or above, or repaid similar amount in cash. Without the details regarding receipts & payment, in our opinion, AO could not have proceeded simply based on the figures given in the original financial statements filed by the assessee. Not even a single instance has been shown by the AO from the records that any amount was accepted by the assessee as loan or repaid by the assessee in cash, in excess of the limits laid down u/s. 269SS/269T of the Act. CIT(Appeals) was justified in deleting the penalties levied on the assessee - Decided in favour of assessee

Summary

Issues Involved:
1. Levy of penalties under Section 271D for violation of Section 269SS.
2. Levy of penalties under Section 271E for violation of Section 269T.
3. Admissibility of fresh financial statements under Rule 46A.
4. Verification and cross-examination of revised financial statements.
5. Examination of the auditor who prepared the original financial statements.
6. Re-examination of the facts of the case.

Detailed Analysis:

1. Levy of Penalties under Section 271D for Violation of Section 269SS:
The assessee, a society running an educational institution, was subject to a survey under Section 133A of the Income-tax Act, 1961, which revealed that the assessee had accepted cash loans aggregating to various amounts across multiple assessment years. The Assessing Officer (AO) issued notices for levying penalties under Section 271D for violation of Section 269SS, which prohibits acceptance of loans or deposits in cash exceeding Rs. 20,000. The AO held that the assessee failed to show reasonable cause for the cash transactions, thus attracting penalties under Section 271D.

2. Levy of Penalties under Section 271E for Violation of Section 269T:
Similarly, the AO noted that the assessee had repaid loans in cash to Shri Ashok Bhimappa Naik during the relevant assessment years, violating Section 269T, which prohibits repayment of loans or deposits in cash exceeding Rs. 20,000. Consequently, penalties were levied under Section 271E.

3. Admissibility of Fresh Financial Statements under Rule 46A:
The CIT(A) admitted fresh financial statements submitted by the assessee, which were prepared after a detailed verification of the impounded records. The revenue contended that this was in contravention of Rule 46A of the Income-tax Rules, 1962. However, the CIT(A) justified the admission under Rule 46A(1)(c), noting that the assessee was prevented by sufficient cause from producing the evidence earlier due to the impounded records being with the department and the limited time available for verification.

4. Verification and Cross-Examination of Revised Financial Statements:
The CIT(A) sought a remand report from the AO, who verified the revised financial statements against the impounded material and found them to be in order. The AO's remand report confirmed that the dates of receipt and repayment of loans were not ascertainable from the impounded records, and there were no discrepancies in the revised financial statements.

5. Examination of the Auditor Who Prepared the Original Financial Statements:
The revenue argued that the CIT(A) failed to examine the auditor who prepared the original financial statements. However, the CIT(A) relied on the revised financial statements and the remand report, which did not show any evidence of cash loans or repayments, thus negating the need for further examination of the auditor.

6. Re-examination of the Facts of the Case:
The revenue requested a re-examination of the facts, arguing that the hand loans were reflected in the audited balance sheets and admitted by the assessee during assessment proceedings. However, the CIT(A) and the Tribunal found that the revised financial statements, verified by the AO, did not indicate any violation of Sections 269SS/269T. The Tribunal upheld the CIT(A)'s decision to delete the penalties, noting that the AO failed to establish any instance of cash loans or repayments in excess of the prescribed limits.

Conclusion:
The Tribunal dismissed the revenue's appeals, affirming the CIT(A)'s order to delete the penalties levied under Sections 271D and 271E. The Tribunal concluded that the revised financial statements were correctly admitted and verified, and there was no evidence of cash loans or repayments violating Sections 269SS/269T. The decision was pronounced in the open court on January 22, 2015.