2016 (5) TMI 335 - AT - Income Tax

Penalty proceedings u/s 271D - deposits in contravention of section 269SS - Held that - In the present case on hand, it was proved beyond doubt that the assessee has accepted cash deposits of ₹ 20,000/- and more, in contravention of section 269SS. The assessee has failed to furnish any explanation for the violations referred to in section 269SS of the Act. Therefore, we are of the opinion that the A.O. has rightly levied penalty u/s 271D of the Act, in respect of cash deposits from relatives and fresh deposits. Penalty can be levied on the amounts of loan which exceeds the amount of ₹ 20,000/-. Therefore, the A.O. is directed to exclude ₹ 20,000/- as permissible u/s 269SS of the Act, while levying penalty u/s 271D of the Act. Accordingly, we direct the A.O. to recompute the penalty, after excluding ₹ 20,000/- in each cases as permissible u/s 269SS of the Act. - Decided partly in favour of assessee

Issues Involved:
1. Penalty under Section 271D for contravention of Section 269SS of the Income Tax Act, 1961.
2. Classification of deposits into three parts.
3. Reasonableness of explanations provided by the assessee.
4. Computation of penalty amount under Section 271D.
5. Maintainability of the revenue’s appeal based on the tax effect.

Detailed Analysis:

1. Penalty under Section 271D for contravention of Section 269SS of the Income Tax Act, 1961:
The core issue revolves around the assessee accepting deposits in cash, which allegedly contravenes Section 269SS of the Income Tax Act, 1961. The Additional CIT levied a penalty of ?11,80,000 under Section 271D for this contravention. The CIT(A) confirmed the penalty for deposits from relatives and fresh deposits but deleted it for the renewal of existing deposits. The assessee argued that the deposits were from identifiable parties and genuine transactions, thus should not attract penalties.

2. Classification of deposits into three parts:
The deposits were classified into three categories:
- Deposits from friends and relatives of directors.
- Renewal of existing deposits.
- Fresh deposits during the financial year.
The CIT(A) upheld the penalty for the first and third categories but deleted it for the second category, recognizing that these were renewals and not fresh cash deposits.

3. Reasonableness of explanations provided by the assessee:
The assessee contended that the deposits were genuine and from identifiable parties, and the necessity of accepting cash deposits was due to the insistence of the depositors. However, the CIT(A) and the Tribunal found the explanations insufficient to exempt the assessee from penalties under Section 271D for accepting cash deposits exceeding ?20,000.

4. Computation of penalty amount under Section 271D:
The assessee argued that penalties should only apply to amounts exceeding ?20,000 per deposit, citing the Bombay High Court judgment in CIT Vs. Madhukar B. Pawar (319 ITR 255) and ITAT Kolkata Bench decision in Sri Pintu Karmakar Vs. JCIT. The Tribunal agreed, directing the AO to exclude ?20,000 from each deposit while computing the penalty, aligning with the precedent that penalties should be levied only on amounts exceeding ?20,000.

5. Maintainability of the revenue’s appeal based on the tax effect:
The revenue’s appeal was dismissed based on the CBDT circular no. 21/2015 dated 10.12.2015, which is retrospective and stipulates that appeals with tax effects below ?10 lakhs are not maintainable. The Tribunal noted that the tax effect in this case was below the threshold, rendering the revenue’s appeal non-maintainable.

Conclusion:
The Tribunal partly allowed the assessee's appeal, directing a recomputation of the penalty by excluding ?20,000 from each deposit, and dismissed the revenue’s appeal due to the tax effect being below ?10 lakhs. The judgment emphasized the need for strict adherence to statutory provisions while also considering precedents and CBDT circulars in penalty computations.

← Previous Next →