2018 (4) TMI 525 - HC - Income Tax

Penalty u/s 271D - assessee accepted loans by way of cash from seven persons - Held that - The transactions with six parties have been considered by the Commissioner of Income Tax (Appeals). But, nowhere in the order, there is any finding to the effect that raw materials supplied by those six parties were shown as cash in the books of accounts of the assessee. Therefore, we find that the Tribunal was fully justified in holding that the CIT (Appeals) erroneously held that the transactions were trade transactions. Tribunal was also fully justified in observing as to how the purchases made by the assessee resulted in acceptance of cash from suppliers. Apart from that, the Tribunal was right in reversing the finding of the Commissioner of Income Tax (Appeals) on the ground that there was no distress situation for the assessee so as to take loan, since it is their own case that they had sufficient cash during the relevant time. - Decided against assessee.

Summary

Issues:
Appeal against ITAT order on penalty under Section 271D for assessment year 1999-2000.

Analysis:
1. The appeal challenged the ITAT's decision upholding the penalty under Section 271D of the Income Tax Act, 1961. The appellant argued that the transactions with seven persons were trade transactions related to the purchase of raw materials and not loans. The Assessing Officer found that the appellant accepted loans in contravention of Section 269SS, leading to penalty initiation under Section 271D.

2. The Commissioner of Income Tax (Appeals) allowed the appeal, stating that the transactions were trade-related and not loans, hence Section 269SS did not apply. The Department then appealed to the ITAT. The ITAT proceeded ex parte as the appellant did not appear, and reversed the Commissioner's decision. The appellant challenged this in the High Court on substantial questions of law.

3. The High Court found that the Commissioner did not provide a valid reason for ignoring the report submitted by the Additional Commissioner of Income Tax, which supported the Department's position. The Court noted that the Commissioner failed to establish that the raw materials supplied by the parties were shown as cash in the appellant's books. The Tribunal's decision was deemed justified as it highlighted the acceptance of cash from suppliers by the appellant, despite having sufficient cash on hand.

4. The Court concluded that the questions of law raised by the appellant did not hold merit as the Tribunal correctly decided on the factual issues. The Tribunal's decision was upheld, dismissing the appeal. The Court found no fault in the Tribunal's order and ruled in favor of the Department.