2017 (8) TMI 1539 - AT - Income Tax

Penalty u/s 271D - unexplained income of the assessee - contravening the provisions of Section 269SS HELD THAT - A.O. made addition of the aforesaid amounts considering it to be unexplained income of the assessee. In the assessment order, the A.O. did not record any satisfaction contravening the provisions of Section 269SS of the I.T. Act. When the Ld. CIT(A) deleted the additions on merit, the A.O. initiated the penalty proceedings under section 271D of the I.T. Act against the assessee. Therefore, the issue is covered in favour of the assessee by judgment of CIT vs. Jai Laxmi Rice Mills 2015 (11) TMI 1453 - SUPREME COURT CIT(A) found on examination of the material on record that assessee entered into the genuine transactions and funds are transferred inter-se between assessee and the AOP which are recorded in the books of account. Since for renewal of the licence of liquor business, immediate cash is required for obtaining the licence from the Government, assessee had taken cash. Therefore, Ld. CIT(A) found reasonable cause for failure to comply with the above provision. Therefore, penalty was rightly cancelled - Decided in favour of assessee

Summary

Issues:
Challenge to cancellation of penalty under section 271D of the I.T. Act, 1961.

Analysis:
1. The Revenue appealed against the Ld. CIT(A)'s order canceling the penalty under section 271D of the I.T. Act, 1961 for A.Y. 2008-2009. The Assessing Officer (A.O.) had earlier made additions to the income of the assessee based on investments made in two entities, which the assessee failed to provide the source of. The A.O. added the amounts to the income of the assessee, leading to a penalty under section 271D.

2. The assessee challenged the additions before the Ld. CIT(A) and provided documentary evidence to support the genuineness of the transactions. The Ld. CIT(A) deleted both additions after considering the additional evidence and material on record. Subsequently, the penalty under section 271D was imposed by the A.O. as the assessee failed to explain the need for making cash payments.

3. The Ld. CIT(A) reviewed the facts and found that the additions were unjustified, as the funds were taken in cash from an Association of Persons (AOP) due to an urgent need for cash for liquor business operations. The penalty was canceled based on the genuine nature of the transactions and the reasonable cause for taking cash for business purposes.

4. Referring to a Supreme Court judgment in a similar case, the Tribunal found that since the A.O. did not record any satisfaction regarding contravention of Section 269SS of the I.T. Act in the assessment order, the penalty under section 271D could not be sustained. The Ld. CIT(A) also noted that the transactions were genuine and properly recorded in the books of account, with a valid reason for requiring immediate cash for liquor license renewal.

5. Ultimately, the Tribunal dismissed the Revenue's appeal, upholding the cancellation of the penalty under section 271D. The decision was based on the genuineness of the transactions, the absence of satisfaction regarding contravention of the Act, and the reasonable cause for the cash transactions in the liquor business context.