2018 (5) TMI 1313 - AT - Income Tax

Penalty levied u/s 271D - receipt of capital contribution from the partner by the assessee firm - assessee had received an amount of ₹ 12,00,000/- on various dates from its partner towards capital contribution made by the said partner in the assessee firm - violation of section 269SS - Held that - We find that the capital contributed by the partner in the partnership firm does not tantamount to loan or deposit within the meaning of section 269SS of the Act and accordingly we do not find any infirmity in the order of the ld. CIT(A) cancelling the penalty levied thereon - Decided in favour of assessee.

Summary

Issues:
- Whether the penalty under section 271D of the Act was justified in the case of a partnership firm receiving capital contribution from a partner in cash.

Analysis:
1. The appeal pertains to the Asst Year 2009-10 and challenges the order of the Learned Commissioner of Income Tax (Appeals)-6, Kolkata against the order passed by the J.C.I.T- Range-24, Hooghly under section 271D of the Act dated 30.10.2015.

2. The main issue revolves around determining whether the penalty under section 271D of the Act was rightly deleted by the ld CITA considering the circumstances of the case.

3. The facts reveal that the assessee, a partnership firm in the business of trading in marbles and granites, received a capital contribution of ?12,00,000 from a partner in cash. The ld. AO treated this as a loan or deposit violating section 269SS of the Act and imposed a penalty under section 271D.

4. However, the ld. CIT(A) found that the capital contribution by the partner did not fall under the definition of loan or deposit under section 269SS. The partner had properly reflected the capital contribution in his individual balance sheet, and the firm also accounted for it as capital introduced by the partner. Consequently, the penalty under section 271D was deleted.

5. The Tribunal concurred with the ld. CIT(A) stating that the capital contribution by a partner in a partnership firm does not constitute a loan or deposit as per section 269SS. Therefore, the penalty was rightly cancelled, and no interference with the ld. CIT(A)'s order was warranted. The grounds raised by the revenue were dismissed.

6. Ultimately, the appeal of the revenue was dismissed, affirming the decision to cancel the penalty under section 271D of the Act.

Conclusion:
The judgment highlights the distinction between capital contributions by partners in a partnership firm and loans or deposits under the Income Tax Act. It emphasizes the importance of proper documentation and accounting treatment to differentiate between the two. The decision underscores the need for a clear understanding of statutory provisions to avoid unnecessary penalties and disputes.