2018 (2) TMI 265 - AT - Income Tax

Penalty u/s 271D and penalty u/s 271E - accepting loans in cash and payment in cash of the loans received - Held that - There is no dispute with the reference to amounts offered as income which are supported by letter written by Assessee to the Addl.CIT dated 28-09-2010 and subsequent filing of return on 05-08-2011. An amount of ₹ 13.50 lakhs has been admitted as income out of the amount received in cash. Payments made to Mr. D Raju and Mr. D Srinu to an extent of ₹ 6 lakhs are part of the amounts offered as income. Consequently, the repayment in cash does not arise. Accordingly levy of penalty u/s 271E of the Act becomes infructuous, in the light of the facts that borrowed amount was treated as income of the assessee. The repayment in cash does not violate the provisions of Sec. 269I, therefore levy of penalty u/s 271E is not warranted. Therefore the levy of penalty u/s 271E is cancelled and is accordingly allowed. Levy of penalty u/s 271D out of the borrowed amounts, there cannot be any penalty u/s 271D, therefore ₹ 13.50 lakhs admitted by Assessee should not have been considered for levy of penalty. Coming to the balance amount, it is the Assessee s contentions that these are advances received for sale of apartments. The statement recorded in the course of survey do indicate that Assessee has taken over certain flats being constructed by the firm for individual trading / construction business, but assessee admitted in the course of survey that these are borrowed on promissory notes. Subsequently Assessee retracted statement to submit that these were advances received and relied on copies of the agreement of sale impounded along with promissory notes. During the course of present hearing, it was pointed out that there are only three promissory notes involving Sri Polisetty Venkateswarlu (Rs. 5 lakhs) Konda Venkateswalu (Rs. 2.50) lakhs and T. Harshavardhan (Rs. 3 lakhs) and for the balance of amounts, there were no promissory notes at all. A.O did not examine these aspects and relied on the statement alone holding that all the amounts were received by way of promissory notes. This aspect require examination by A.O. Thus set aside the order of the A.O U/s 271Dand restore the entire issue to the file of the A.O for examination of facts and decide the issue whether the amounts are received by way of agreement of sale or not and if so to, what extent.

Summary

Issues Involved:
1. Penalty under Section 271D of the IT Act for accepting loans in cash.
2. Penalty under Section 271E of the IT Act for repayment of loans in cash.

Issue-wise Detailed Analysis:

1. Penalty under Section 271D of the IT Act for accepting loans in cash:

The Assessee faced penalties under Section 271D for accepting cash loans amounting to ?33,50,000. During a survey on 08-03-2010 at M/s Sri Surya Constructions, promissory notes were impounded, and the Assessee admitted to receiving various loans in cash. Later, the Assessee claimed these were advances for apartment sales, supported by sale agreements impounded during the survey. The Assessee offered ?13.50 lakhs as income in the subsequent return. However, the Assessing Officer (A.O) did not consider these explanations and levied penalties based on the initial survey statement. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this penalty.

Upon appeal, the tribunal noted discrepancies between the amounts mentioned in sale agreements and those stated as received. The Assessee provided evidence of receiving amounts as advances for apartment sales, supported by impounded sale agreements. The tribunal found that the A.O did not examine these facts properly. It was also noted that ?13.50 lakhs admitted as income should not attract penalties under Section 271D. The tribunal directed the A.O to reassess the facts, considering the amounts received via sale agreements and excluding those offered as income from the penalty calculation. Thus, the order under Section 271D was set aside for re-examination.

2. Penalty under Section 271E of the IT Act for repayment of loans in cash:

The Assessee was also penalized under Section 271E for repaying loans in cash amounting to ?6 lakhs. The Assessee argued that these amounts were included in the ?13.50 lakhs offered as income, hence no penalty should arise. The tribunal agreed, stating that since the borrowed amounts were treated as income, the repayment in cash does not violate Section 269I. Therefore, the penalty under Section 271E was deemed unwarranted and was cancelled.

Conclusion:

The tribunal allowed the appeal regarding the penalty under Section 271E, cancelling it entirely. For the penalty under Section 271D, the tribunal set aside the order and remanded the case back to the A.O for a detailed examination of the facts, specifically whether the amounts were received through sale agreements and to what extent. The A.O was directed to exclude the amounts received via sale agreements and those offered as income from the penalty calculation under Section 271D. The Assessee was to be given due opportunity to present submissions during the re-examination process.