2019 (8) TMI 1413 - AT - Income Tax

Penalty u/s 271D - default of provisions of section 269SS - settlement Commission accepted the offer made by M/s Spaze Towers Pvt Ltd pursuant to search u/s 132 of additional income of ₹ 52.74 crores on account of bogus purchases and allowed the benefit of telescoping of personal expenses of promoters/directors aggregating to ₹ 16.43 crores - while deciding the appeal of above company CIT(A) suggested the AO to imposed penalty - recording of satisfaction - HELD THAT - There is no dispute about the sources of money wherefrom the expenditure had been incurred which has already suffered taxation in the hands of the company Spaze Towers and the very same money cannot be considered as representing undisclosed income of the appellants for which false explanation is being given as loan to attract the provisions of section 269SS r.w.s 271D. On a perusal of the assessment order in the quantum proceedings, the order of the first appellate authority deciding the quantum additions and also the order of the JCIT levying penalty u/s 271D, we find that the assessment order as well as the order of the JCIT are devoid of any satisfaction regarding initiation of penalty proceedings u/s 271D The Hon'ble Supreme Court in the case of Jai Laxmi Rice Mills Ambala City 2015 (11) TMI 1453 - SUPREME COURT has held that penalty u/s 271D is without any satisfaction and, therefore, no such penalty can be levied We, accordingly, direct the Assessing Officer to delete the penalty levied in respect of the captioned appellants for all the assessment years under consideration.

Issues Involved:
1. Levy of penalty under Section 271D of the Income-tax Act, 1961 for violation of Section 269SS.
2. Treatment of personal expenses incurred by M/s Spaze Towers Pvt Ltd as income or loan/deposit.
3. Satisfaction requirement for penalty proceedings under Section 271D.

Detailed Analysis:

1. Levy of Penalty under Section 271D for Violation of Section 269SS:
The core issue revolves around the levy of penalty under Section 271D for alleged violations of Section 269SS, which prohibits taking or accepting loans or deposits in cash exceeding a specified amount. The appellants were penalized for accepting loans from M/s Spaze Towers Pvt Ltd in cash, violating Section 269SS. The penalty was levied after the first appellate authority advised the Assessing Officer to take necessary action regarding the loans/deposits.

2. Treatment of Personal Expenses Incurred by M/s Spaze Towers Pvt Ltd:
The facts reveal that M/s Spaze Towers Pvt Ltd, during a search and seizure operation, admitted to bogus purchases and offered additional income for tax. The company also sought telescoping of personal expenses of the promoters/directors. The Settlement Commission accepted the additional income and allowed telescoping of personal expenses. However, the Assessing Officer treated these personal expenses as income of the appellants, leading to additions in their hands.

The first appellate authority deleted these additions, stating that the same income cannot be taxed twice in the same assessment year. Despite this, penalty proceedings were initiated under Section 271D, treating the personal expenses as loans/deposits.

3. Satisfaction Requirement for Penalty Proceedings under Section 271D:
The appellants argued that the revenue authorities could not treat the same amount as income and as a loan simultaneously. They relied on the Delhi High Court's decision in Standard Brands Ltd, which held that the revenue cannot contend an amount as undisclosed income and simultaneously initiate proceedings for violation of Section 269SS. The appellants also contended that the penalty was imposed based on the appellate authority's directions, which is against the law requiring independent satisfaction by the Assessing Officer.

The Tribunal noted that the Settlement Commission had accepted the telescoping of personal expenses, and the Assessing Officer initially treated these expenses as income, not loans. The Tribunal emphasized that there was no clear finding that the appellants took or accepted any loan or deposit in cash from M/s Spaze Towers Pvt Ltd. The Tribunal also highlighted the absence of any satisfaction recorded by the Assessing Officer regarding the initiation of penalty proceedings.

Conclusion:
The Tribunal concluded that the transactions in question did not constitute loans or deposits within the meaning of Section 269SS. The Tribunal found that the penalties under Section 271D were not justified, as the same amount could not be treated as both income and a loan. The Tribunal directed the deletion of the penalties and allowed all the appeals. The stay applications became infructuous.

Order:
The Tribunal allowed all the appeals and directed the deletion of penalties levied under Section 271D. The order was pronounced in the open court on 28/08/2019.

← Previous Next →