2023 (11) TMI 116 - AT - Income Tax

Penalty u/s. 271D - assessee had raised a cash loan from his nephew for making an investment towards purchase of property - AO treated it as undisclosed investment and rejected the claim of the assessee that the investment made by him towards purchase of properties was sourced out of the cash loan as raised from his relative - HELD THAT - Once the A.O had rejected the claim of the assessee, there was no justification for the department to infer that the assessee had raised any such cash loan from the aforementioned person. Once the AO had concluded that no part of investment in the properties was sourced out any cash loan, but in fact it was the latters undisclosed income that was so utilized for sourcing the same, then, it is beyond comprehension that after having rejected the aforesaid explanation of the assessee how the department could have adopted a view to the contrary and saddled the assessee with penalty u/s 271D. Once the source of money invested by the assessee has been given the color as that of unexplained income and accordingly brought to tax by the AO, thereafter the department could not have taken a contrary view and held that part of the said investment was sourced out of a cash loan raised by the assessee. Decided in favour of assessee.

Summary

Issues involved:
The judgment deals with the penalty imposed under section 271D of the Income-tax Act, 1961 on the assessee for allegedly receiving a cash loan in violation of the provisions of Section 269SS. The key issues include the rejection of the assessee's claim regarding the source of investment, the imposition of penalty by the Additional Commissioner of Income Tax, NFAC, and the subsequent appeal challenging the penalty.

Assessment Proceedings and Penalty Imposition:
The Assessing Officer (AO) initiated proceedings under section 147 of the Act as the assessee had not filed the return of income for the relevant assessment year. Subsequently, the AO held the entire investment made by the assessee as sourced from undisclosed income and assessed his income accordingly. The AO also initiated penalty proceedings under section 271D of the Act based on the alleged violation of Section 269SS.

Penalty Imposed by Additional Commissioner of Income Tax:
The Additional Commissioner of Income Tax, NFAC, imposed a penalty of Rs. 1,60,000 on the assessee for receiving a cash loan from a relative in violation of Section 269SS. The penalty was upheld by the Commissioner of Income Tax (Appeals), leading to the appeal by the assessee before the Appellate Tribunal.

Appellate Tribunal's Decision:
The Appellate Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and vacated the penalty imposed by the Additional Commissioner of Income Tax, NFAC under section 271D. The Tribunal observed that once the AO had rejected the assessee's explanation regarding the source of investment, there was no justification for imposing the penalty. The Tribunal emphasized that the department could not adopt a contrary view after rejecting the assessee's explanation and taxing the investment as undisclosed income.

Conclusion:
The appeal of the assessee was allowed by the Appellate Tribunal, highlighting the importance of consistency in the assessment of income sources and penalties under the Income-tax Act. The Tribunal's decision emphasized the need for adherence to legal provisions and reasoned conclusions in penalty imposition cases.