2019 (5) TMI 6 - AT - Income Tax

Penalty u/s 271D - contravention to the provision of section 299SS - cash received from the father - difference between the gift and loan/Deposit - gift deed prepared subsequently - CBDT Circular No.387 dated 06/07/1984 - no allegation that the assessee has introduced unaccounted money in his business - HELD THAT - Provision of section 269SS was brought under the statue to discourage the assessee to justify their unaccounted money. However, in the case on hand, there is no allegation that the assessee has introduced unaccounted money in his business. Thus, keeping in view the object of the provision of section 269SS the cash transaction which is genuine cannot be brought under the net of tax under the provision of section 269SS. Such transactions between the relatives and sister concern are not subject to the provisions of section 269SS. In the similar facts and circumstances in the case of G.D. Subraya Sheregar vs. ITO 2006 (4) TMI 356 - ITAT BANGALORE has decided the issue in favor of the assessee. In view of the above proposition we are of the opinion that the Genuineness of the cash transaction has not been doubted between the son and father. Therefore, the penalty levied u/s 271D of the Act is not sustainable. The controversy arises merely delay in preparation of Gift Deed can cause prejudice to the assessee by holding that the cash transaction is not in the nature of the gift. In this regard we note that a Gift Deed is nothing but an understanding in writing which proves/establishes the nature of transaction carried out between the parties. Once the donor has agreed/confirmed that he had given a gift to the assessee, then the same cannot be denied merely on the ground that the Gift Deed was not prepared at the relevant time. Even if it was given a loan at that relevant time and later on the parties agreed to treat the same as a gift, then the matter ends here as the transaction is between son and father which was substantiated with the gift deed and confirmation. There is the basic difference between the gift and loan/Deposit. A gift is never paid back/return to the donor while it is not so in the case of the loan. There is nothing on record which shows that money is paid back to the father by the assessee directly or indirectly - direct the AO to delete the penalty u/s 271D - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271D of the Income Tax Act, 1961 for cash received as a gift being treated as an unsecured loan.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the penalty under section 271D of the Income Tax Act, 1961. The assessee received cash from their father, claiming it was a gift, supported by a Gift Deed. However, the Assessing Officer (AO) considered it an unsecured loan due to discrepancies in the timing of the Gift Deed and the cash receipt.

The AO initiated penalty proceedings under section 271D, stating that the cash received was an unsecured loan in violation of section 269SS. The assessee argued before the CIT (A) that the transaction was genuine and within the family, thus not subject to penalty under section 271D. However, the CIT (A) disregarded the claim, noting the delay in preparing the Gift Deed and lack of evidence regarding the cash availability with the father.

During the appeal before the ITAT, the assessee contended that the Gift Deed was prepared later when needed, and the transaction was genuine, not falling under section 269SS. The ITAT observed that the genuineness of the transaction was not in doubt, and transactions between relatives were exempt from section 269SS.

The ITAT referred to a circular emphasizing the purpose of section 269SS to deter unaccounted money, which was not the case here. The tribunal also cited a similar case where transactions between closely related persons were excluded from section 269SS. The ITAT concluded that the penalty under section 271D was not sustainable, reversing the lower authorities' decision and directing the deletion of the penalty.

Ultimately, the ITAT allowed the appeal, setting aside the penalty under section 271D. The judgment highlighted the importance of the genuineness of transactions and the distinction between gifts and loans, leading to the decision in favor of the assessee.