2019 (7) TMI 1915 - AT - Income Tax

Penalty u/s 271D - default of taking cash loan in violation of section 269SS - HELD THAT - The stand of the assessee right from the beginning was clear that he has not taken any loan from Shri DP Sehgal. This explanation of the assessee is not a mere vague general explanation but it is based on the relevant facts as well as evidence. In the case in hand, when the documents seized during the course of search in case of Shri DP Sehgal do not establish conclusively the fact of alleged loan of ₹ 15 crores, then the said material can be a relevant evidence but in the absence of any other corroborative material to show the actual transaction and movement of money, it is not established that the transaction of loan of ₹ 15 crores in cash has actually taken place between the assessee and Shri DP Sehgal. We have already discussed the contents of the acknowledgment and arrived at the conclusion that these documents itself do not establish the transaction of loan but these are only submitted in advance for proposal of loan which was not materialized and this fact is also corroborated by the subsequent sanction of loan by AU Finance Ltd. Accordingly, in the facts and circumstances of the case as discussed above, we hold that the revenue has failed to establish conclusively and beyond doubt that the actual transaction of ₹ 15 crores has taken place between the assessee and Shri DP Sehgal, hence the penalty levied under section 271D is not sustainable and the same is liable to be deleted. Accordingly, we delete the penalty. Appeal of assessee allowed.

Summary

Issues Involved:
1. Validity of Penalty Order under Section 271D.
2. Limitation for Imposition of Penalty.
3. Merits of the Levy of Penalty under Section 271D.

Issue-wise Detailed Analysis:

1. Validity of Penalty Order under Section 271D:
The assessee contested the validity of the penalty order under Section 271D of the Income Tax Act, arguing that no cash loan of ?15 crores was received from Shri D.P. Sehgal. The assessee claimed that the letter and blank cheques found during the search were only for seeking a loan as a precondition, which was not pursued further as the loan was eventually obtained from AU Finance Ltd. The assessee also argued that the penalty proceedings were initiated based on documents found during the search of Shri D.P. Sehgal, and not on any assessment proceedings against the assessee. The Tribunal found that the documents seized did not conclusively establish the transaction of the loan and that the penalty order was based on suspicion rather than concrete evidence.

2. Limitation for Imposition of Penalty:
The Tribunal examined whether the penalty order was barred by limitation under Section 275(1)(c) of the Income Tax Act. The penalty proceedings were initiated based on a letter dated 23rd October 2015 from the DDIT Investigation, Jaipur, to the AO of the assessee. The Tribunal held that the limitation period for passing the penalty order should be reckoned from the end of October 2015, expiring on 30th April 2016. Since the penalty order was passed on 11th October 2017, it was held to be barred by limitation and thus invalid.

3. Merits of the Levy of Penalty under Section 271D:
On the merits, the Tribunal found that the documents seized during the search of Shri D.P. Sehgal, including the letters and blank cheques, did not conclusively prove the transaction of a cash loan of ?15 crores. The Tribunal noted that the letters were part of a proposal for a loan that was never materialized, as corroborated by the fact that the assessee obtained a loan from AU Finance Ltd. The Tribunal also considered the retraction of the assessee's statement made under Section 132(4) and found it consistent with the assessee's earlier stand. The Tribunal concluded that the revenue failed to establish beyond doubt that the alleged loan transaction took place, and therefore, the penalty under Section 271D was not sustainable and was deleted.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the penalty order under Section 271D on the grounds of being barred by limitation and lack of conclusive evidence of the alleged loan transaction.