2015 (6) TMI 1252 - AT - Income Tax

Penalty u/s.271D 271E - loans in violation of the provision of Section 269SS - HELD THAT - We found that in the instant case there was already credit in the account of Mr. Rahul G. Shah, which was not paid in cash but was credited in the name of his wife. Such credit either in the account of Rahul G. Shah was never doubted insofar as there was already credit existing in the books of account of assessee, or crediting this amount in the name of his wife by debiting account of Rahul G. Shah was doubted as non-genuine. The amount of Director s remuneration credited to the account of Mr. Rahul G. Shah does not amount to any loan by assessee company to R.G.Shah, therefore, the AO was not justified in treating such credit of Director s remuneration in his account as loan transaction and thereby imposing penalty u/s.271D - No justification for imposition of penalty by assuming that amount crediting in the name of assessee s wife by debiting assessee s loan account, which was already there in the books of account amounts to any contravention of provisions of Section 269SS so as to impose penalty u/s.271D 271E. Debiting assessee s account was treated by the AO as repayment of loan and crediting his wife s account was treated by the AO as receipt of loan. Period of limitation - We found that penalty proceedings u/s.274 r.w.s.271D 271E, were initiated on 2-8-2007. As per Section 275(1)(c), penalty could be imposed only before end of the financial year or within the six months in which the penalty proceedings were initiated. As the later period expired on 31-3-2008, the penalty could have been imposed by that date only. Thus, the penalty imposed in 11-9-2012 was barred by limitation

Summary

Issues:
Appeals against penalty u/s.271D & 271E of the I.T. Act for assessment year 2005-06.

Analysis:
1. The AO observed that the assessee accepted loans in violation of Section 269SS of the Act. Penalty u/s.271D equal to the loan amount was imposed. The CIT(A) confirmed the penalty.

2. The assessee received instructions from a director to transfer funds between accounts via journal entries. The High Court recognized journal entries as a valid mode of loan repayment. As there was no finding of mala fide intent, no penalty under section 271E could be imposed.

3. The Tribunal found that the journal entries made by the assessee were genuine and not in violation of Section 269SS. Crediting the director's wife's account and debiting the director's account did not constitute a loan transaction, thus penalty u/s.271D was unjustified.

4. The Tribunal also noted that the penalty proceedings initiated in 2007 were time-barred as per Section 275(1)(c), which required penalties to be imposed within a specified timeframe. Since the penalty was imposed in 2012, it was beyond the statutory limitation.

5. Consequently, the Tribunal allowed both appeals of the assessee, highlighting that the transactions were genuine and not in contravention of the law. The penalty imposed was deemed unjustified and time-barred.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved, the arguments presented, and the ultimate decision reached by the Tribunal.