2018 (1) TMI 1294 - AT - Income Tax

Penalty u/s 271D - violation of conditions of section 269SS - taking unsecured loan in cash - Held that - As rightly observed by the CIT(A), that during the appellate proceedings, the assessee filed copies of the drafts by which the payments were made. These drafts were available with the Assessing Officer and Additional Commissioner, the total amount paid through draft was at ₹ 26 lakhs. Regarding the balance amount of ₹ 3 lakhs, the assessee had shown them to be payments through two cheques with Nos. 390102 drawn against lndian Overseas bank for ₹ 1. 50 lakh and 390102 drawn on lndian Overseas Bank for an amount of ₹ 1. 50 lakh both dated 1. 6. 2006 in the name of Khairun Begum and Narmada Devi respectively. As regards, the other cheques payments, the assessee produced the relevant bank accounts. We find that there is nothing on record to show that any cash payments were actually made by any of the payers. The assessee has also filed the sale deeds in which the names of the sellers have been reflected. These transactions relate to before incorporation of the assessee company therefore the assessee company is not liable based on the factual position narrated above. There does not seem to be any reason for invoking the provisions of section 269SS either on the fact of the mode of such conveyance or on the legality of holding the assessee company responsible for acts committed before its incorporation. We quash the penalty order u/s 271D - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty u/s 271D imposed by AO - Violation of provisions of section 269SS - Quashing of penalty order by CIT(A) - Appeal by Revenue challenging CIT(A) order.

Analysis:
1. The appeal filed by the Revenue pertains to the assessment year 2007-08 and challenges the penalty u/s 271D imposed by the AO amounting to Rs. 29,00,000. The penalty was imposed due to alleged violation of provisions of section 269SS of the Income Tax Act, 1961.
2. The AO observed that the assessee company had made payments for the purchase of land through a loan creditor and directly by the promoters and their relatives, subsequently accounted for as share application money. This led to the imposition of the penalty under section 271D.
3. The CIT(A) deleted the penalty after considering evidence provided by the assessee during the appeal proceedings. The CIT(A) noted that the payments were made through drafts and cheques, with no evidence of cash payments. The absence of a bank account at the time of the transaction was due to the company not being incorporated then.
4. The Revenue, dissatisfied with the CIT(A) order, appealed to the ITAT. The arguments presented by the Revenue were not substantiated by evidence. The ITAT noted that the payments were made through drafts and cheques, with no proof of cash transactions. The transactions occurred before the incorporation of the company, absolving it from liability.
5. The ITAT upheld the CIT(A) order and quashed the penalty under section 271D, stating that there was no basis for invoking section 269SS given the mode of conveyance and the pre-incorporation context of the transactions.
6. Consequently, the appeal filed by the Revenue was dismissed, and the penalty order under section 271D was set aside.

This detailed analysis of the judgment highlights the issues involved, the arguments presented, and the rationale behind the decision to quash the penalty order imposed by the AO.