2016 (8) TMI 609 - HC - Income Tax

Penalty under section 271D - violation of the provisions of section 269SS or not - treating the deposit/loan of ₹ 40,00,000/- as capital contribution of the member of AOP, for the AOP - Held that - We have perused the orders of the Commissioner (Appeals) as well as the Tribunal. In this case the transaction was found to be genuine. The Assessing Officer has not doubted the transaction. In that view of the matter, both the Commissioner (Appeals) and the Tribunal have rightly deleted the penalty. We do not find any infirmity in the orders passed by the Tribunal. We are, therefore, of the opinion, that the question referred to us is required to be answered in favour of the assessee and against the revenue. The appeal is dismissed accordingly. We answer the question in favour of the assessee and against the revenue.

Summary

Issues Involved:
1. Whether the Appellate Tribunal was correct in deleting the penalty under section 271D of the Income-tax Act?
2. Whether the Appellate Tribunal was correct in treating the deposit/loan as capital contribution and not a violation of section 269SS of the Income-tax Act?

Issue 1: Penalty under Section 271D:
The case involved an appeal challenging the order of the Income-tax Appellate Tribunal (ITAT) that confirmed the deletion of the penalty under section 271D of the Income-tax Act. The appellant, an Association of Persons (AOP), had borrowed a loan in cash for land acquisition, which the Assessing Officer deemed a violation of section 269SS. However, the Commissioner of Income-tax (Appeals) deleted the penalty, citing that the loan was a capital contribution for business purposes. The Commissioner highlighted that the funds were borrowed through account payee cheques, and the transaction was genuine. The Tribunal upheld this decision, emphasizing the urgency and business necessity of the cash loan for land acquisition. The Tribunal found no infirmity in the order of the Commissioner (Appeals) and dismissed the revenue's appeal.

Issue 2: Treatment of Deposit/Loan as Capital Contribution:
Regarding the treatment of the deposit/loan as a capital contribution and not a violation of section 269SS, the Commissioner of Income-tax (Appeals) and the Tribunal both held that the transaction was genuine and necessary for the AOP. The Tribunal emphasized the urgency in raising a cash loan to avoid delays in acquiring the land, which would have defeated the purpose of the AOP. The Tribunal cited various case laws to support the view that a reasonable cause existed for accepting the cash loan. The revenue contended that the introduction of section 269SS aimed to prevent dubious cash transactions, but the courts found the transaction genuine and upheld the deletion of the penalty. The High Court affirmed the decisions of the lower authorities, stating that the transaction was genuine, and there was no infirmity in deleting the penalty. The High Court dismissed the appeal, ruling in favor of the assessee and against the revenue.

In conclusion, the High Court upheld the decisions of the lower authorities in deleting the penalty under section 271D and treating the deposit/loan as a capital contribution, finding the transaction genuine and necessary for the AOP's business purposes.