2016 (1) TMI 1480 - AT - Income Tax

Penalty u/s 271D/271E - violation of the provisions of section 269SS/269T - receipts and repayments in cash of transactions other than loans/deposits - HELD THAT - As observed from the impugned order that the assessee categorically stated that it had been purchasing and selling the goods and materials from/to M/s Hindustan Plywood Company and the amounts in question were on account of trading transactions - As perused account of M/s Hindustan Plywood Company, a copy of which has been placed on record. Its perusal indicates that it is a running account in which there are purchase and sale transactions on different dates including 2.4.2007, 24.4.2007, 13.7.2007, 16.7.2007 and 27.11.2007 etc. Apart from that, there are other receipts and payments in cash and by cheques as well. If we look at the totality of the account, it becomes clear that the same is in the nature of current account and does not primarily represent any acceptance or repayment of loans and deposits otherwise than by way of cash as contemplated u/s 269SS/269T - It goes without saying that no penalty can be imposed u/s 271D/271E in respect of receipts and repayments in cash of transactions other than loans/deposits. Under such circumstances, we set aside the impugned order and direct the deletion of the penalty. Appeal of the assessee is allowed.

Summary

Issues: Penalty under sections 271D/271E of the Income-tax Act, 1961 for cash transactions not related to loans/deposits.

Analysis:
1. Issue of Penalty Imposed by AO: The appeal was against the order confirming a penalty of Rs. 3,58,100 imposed by the Assessing Officer (AO) under sections 271D/271E of the Income-tax Act, 1961. The penalty was related to cash transactions totaling Rs. 3,13,400 received from and Rs. 44,700 paid to a sister concern, M/s Hindustan Plywood Company. The AO imposed the penalty despite the assessee's contention that these were not loans or deposits but current account transactions.

2. Contentions and Findings: The assessee argued that the transactions were part of trading activities with M/s Hindustan Plywood Company and not loans/deposits. The Tribunal examined the accounts of the company, which showed various purchase and sale transactions along with other cash and cheque receipts and payments. The overall nature of the account indicated a current account rather than loan/deposit transactions falling under sections 269SS/269T of the Act. Consequently, the Tribunal concluded that penalties under sections 271D/271E cannot be imposed for cash transactions unrelated to loans/deposits.

3. Tribunal's Decision: After considering the submissions and evidence, the Tribunal set aside the penalty order and directed the deletion of the penalty. The appeal of the assessee was allowed, emphasizing that penalties under sections 271D/271E cannot be applied to transactions that do not involve loans or deposits.

4. Conclusion: The Tribunal's decision highlighted the importance of distinguishing between different types of transactions, specifically loans/deposits and current account dealings, to determine the applicability of penalties under sections 271D/271E of the Income-tax Act, 1961. The judgment clarified that penalties should not be imposed for cash transactions that do not fall within the scope of loans/deposits as defined by the Act.