2018 (6) TMI 1848 - AT - Income Tax

Penalty levied u/s 271D - assessee has received cash exceeding 20, 000/- from the Trust - assessee contended before AO that there was no loan or deposit - HELD THAT - We have carefully gone through the judgment of Madras High Court in Idhayam Publications Ltd. 2006 (1) TMI 97 - MADRAS HIGH COURT assessee contended before the Assessing Officer that there was no loan or deposit. AO rejected the claim of the assessee and levied penalty. The Tribunal however found that the proprietor of the sister concern which deposited the funds was one of the directors of the company and there was a running current account in his name. Therefore there is no violation of Section 271D of the Act. In this case also Shri A.N. Radhakrishnan is one of the directors in the assessee-company and he is also a trustee in other two Trusts. Therefore this Tribunal is of the considered opinion that it is not a fit case for levying penalty under Section 271D of the Act. Period of limitation - Moreover for the assessment years 2008-09 and 2009-10 the penalty proceeding was initiated almost after six years. In view of the judgment of Madras High Court in M. Srinivasa Rao 2007 (9) TMI 32 - HIGH COURT MADRAS penalty proceeding should have been initiated within reasonable time even though no limitation was provided in the Income-tax Act. The threat of initiating penalty proceeding cannot be allowed to hang over the head of the assessee for an unreasonable period of time. There should be an end to the proceeding that also within a reasonable period. Hence in view of the judgment of Madras High Court in M. Srinivasa Rao (supra) the penalty proceeding initiated by the Assessing Officer for assessment years 2008-09 and 2009- 10 after the expiry of almost six years is barred by limitation. Appeals filed by the assessee are allowed.

Summary

Issues:
- Penalty levied under Section 271D of the Income-tax Act for assessment years 2008-09 to 2014-15.

Analysis:

Issue 1: Penalty Initiation and Limitation Period
The counsel for the assessee argued that the penalty proceeding under Section 271D of the Act, initiated after almost six years, was beyond a reasonable period and thus barred by limitation. Citing a judgment of the Madras High Court, it was contended that the penalty order was untimely and should not be allowed to continue. The counsel emphasized that the penalty order was issued after an unreasonable delay, and the limitation period should be computed from the date of the letter written by the Assessing Officer. The Delhi High Court's decision was also referred to support the argument that the penalty order was beyond the prescribed time limit.

Issue 2: Merit of the Penalty
Regarding the merit of the penalty, the counsel argued that the cash deposits received by the assessee were caution/mess deposits from students of educational institutions. The deposits were made on behalf of students by the institutions' heads due to logistical reasons, with no physical cash deposit involved. It was contended that the transaction should not be considered a loan or deposit, as the trustees were directors in the assessee-company, and no interest was paid. The counsel relied on a judgment of the Madras High Court to support this argument.

Issue 3: Department's Counter-Argument
The Departmental Representative contended that there was no limitation prescribed under the Income-tax Act for initiating penalty proceedings, emphasizing that equity and hardship should not influence income-tax proceedings. It was argued that the trust, having a bank account, could have used other means to transfer funds instead of depositing cash with the assessee-company. The Departmental Representative supported the penalty levied by the Assessing Officer under Section 271D of the Act.

Judgment
After considering the arguments from both sides and reviewing the relevant material, the Tribunal found that the explanation provided by the assessee regarding the cash deposits was reasonable. The Tribunal opined that there was no violation of Section 271D of the Act based on the circumstances presented. Referring to a previous judgment of the Madras High Court, the Tribunal concluded that the penalty proceeding initiated after almost six years for the assessment years 2008-09 and 2009-10 was barred by limitation. Consequently, the Tribunal set aside the orders of the lower authorities and deleted the penalty levied by the Assessing Officer, thereby allowing all the appeals filed by the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, highlighting the importance of adhering to reasonable time frames in penalty proceedings and considering the specific circumstances of each case to determine the applicability of penalties under the Income-tax Act.