2016 (5) TMI 1168 - AT - Income Tax

Penalty u/s 271D - violation of provisions of section 269SS - Held that - We find that the assessee instead of merely responding by way of journal entry on 26.9.2006 in its books had erroneously passed a receipt entry and a payment entry in its cash book. Hence the entire penalty proceedings had been triggered only based on mere book entries of the assessee and there is no categorical finding that the assessee indeed had received cash from the director when the assessee had actually denied the same. We also find that independent examination of the director was made by the Learned AO to ascertain the true facts wherein the director had categorically stated on oath that he neither had any cash balance or paid any cash loan to the company. We also find that merely by passing one receipt entry in cash book and one payment entry in cash book for the same sum of 17, 25, 000/-, no additional source of cash had emanated to the assessee which fact is quite evident from the relevant pages of the cash book itself forming part of the paper book filed before us. We find that the closing cash balance as on 26.9.2006 was only 13, 17, 466.11 and it had not increased by 17, 25, 000/- as alleged by the Learned AO. We are convinced that there is no case for invoking the provisions of section 269SS of the Act and hence the penalty levied u/s 271D for violation of section 269SS of the Act thereon is quashed herewith - Decided in favour of assessee Penalty u/s 271E - violation of provisions of section 269T - Held that - assessee was duly necessitated by force to make the payments in cash to its director for onward transmission to the buyers of agricultural lands. - assessee had duly adduced reasonable cause in terms of section 273B of the Act and hence no penalty could be levied u/s 271D of the Act. Further, t here is nothing on record that transactions made by the assessee is not genuine and the amount involved was unaccounted. - There is no case for invoking the provisions of section 269T of the Act and hence the penalty levied u/s 271E for violation of section 269T of the Act thereon is quashed herewith.- Decided in favour of assessee

Summary

Issues Involved:
1. Penalty under Section 271D for violation of Section 269SS of the Income Tax Act.
2. Penalty under Section 271E for violation of Section 269T of the Income Tax Act.

Issue-Wise Detailed Analysis:

Penalty under Section 271D for Violation of Section 269SS:

The primary issue is whether the penalty under Section 271D can be levied for violating Section 269SS, which prohibits accepting loans or deposits exceeding ?20,000 in cash. The assessee, a private limited company engaged in civil construction, had a loan from Punjab National Bank (PNB) that was classified as a Non-Performing Asset (NPA) and subsequently assigned to Asset Reconstruction Co. India Ltd (ARCIL). An MOU was signed between ARCIL and the assessee, stipulating repayment terms, including a payment of ?1 lakh in cash.

The assessee's director, Mr. Ashok Kumar Sarda, sold agricultural land, and the buyer issued pay orders directly to ARCIL on behalf of the assessee. The assessee recorded this transaction in its books as cash received from the director and repaid to PNB, which led to the penalty proceedings under Section 271D.

The assessee argued that the transactions were recorded in a current account with the director and did not constitute a loan or deposit. The tribunal found that the assessee had a bona fide belief that the transaction should be recorded on the agreement date and that the director's account should be credited for amounts discharged on behalf of the company. The tribunal cited several case laws, including the decision of the Hon'ble Madras High Court in CIT vs Idhayam Publications Ltd, which held that transactions in a current account do not constitute loans or deposits.

The tribunal concluded that the penalty proceedings were based on mere book entries, with no evidence of actual cash receipt from the director. The tribunal quashed the penalty under Section 271D, allowing the assessee's appeal.

Penalty under Section 271E for Violation of Section 269T:

The second issue is whether the penalty under Section 271E can be levied for violating Section 269T, which prohibits repayment of loans or deposits exceeding ?20,000 in cash. The assessee made cash payments totaling ?17.25 lakhs to its director, Mr. Ashok Kumar Sarda, for onward payment to buyers of agricultural land due to defects in the sale deed.

The assessee argued that the payments were made out of credit balances in the director's current account and were necessitated by the circumstances. The tribunal agreed, citing multiple arguments, including the reasonable cause under Section 273B and the nature of current account transactions, which do not constitute loans or deposits.

The tribunal also noted that the transactions were genuine, with no evidence of tax evasion or unaccounted income. The tribunal referenced the decision of the Jabalpur Tribunal in Mahesh Prasad Soni vs Addl CIT, which held that penalties under Sections 269SS and 269T are not applicable to genuine transactions where no tax evasion is involved.

The tribunal quashed the penalty under Section 271E, allowing the assessee's appeal.

Conclusion:

The tribunal allowed both appeals of the assessee, quashing the penalties under Sections 271D and 271E for violations of Sections 269SS and 269T, respectively. The tribunal emphasized the bona fide nature of the transactions, the reasonable cause, and the absence of tax evasion or unaccounted income.