2023 (10) TMI 1472 - HC - Income Tax

Penalty u/s 271D - Violation of Section 269SS - counsel submitted that there was no cash transaction made by the petitioner either by way of cash or RTGS or through any other mode, and the loan amount of Rs. 41.66 crores is with respect to the advance from their sister concern to the extent of purchase of shares from the sister concern and the petitioner is yet to discharge their liability HELD THAT - On mere perusal of the balance sheet referred to by the learned counsel for the petitioner, it is clear that no amount has been passed on by the petitioner either by way of cash or RTGS or any other modes. In these circumstances, this Court is of the view that initiation of penalty proceedings under an impression that 100% cash transaction to the tune of Rs. 41,66,39,600/- had taken place, is not proper and such initiation of proceedings is due to wrongful interpretation of the balance sheet of the petitioner's Company, based on which, the 1st respondent passed the impugned order dated 20.09.2023, directing the petitioner to pay 20% of the outstanding demand and the balance 80% of the demand is stayed till the disposal of the Appeal by NFAC/Appellate Authority. Since this Court is of the above view that as there was no cash transaction and no amount was transferred, therefore, the impugned proceedings, based on the audited balance sheet and asking the petitioner to pay the deposit of 20% is not proper and also not justifiable. Therefore, this Court directs the Appellate Authority to take the Appeal on file without insisting upon any deposit and to consider the aspect of transfer of cash by taking into consideration of the entry made under the head Notes. 4 and Note 7.1 in the Balance sheet of the petitioner-Company as on 31.03.2018 (where in, the investment made in shares, the amount is yet to be paid, and this aspect is clear from the fact that an equivalent amount is shown in respect of the column 'Other Long Term Liabilities', which ultimately shows that the consideration is yet to be passed on) and dispose of the Appeal in accordance with law within a period of eight weeks from the date of receipt of a copy of this order.

Issues:
Challenge to order for payment of disputed tax amount; Violation of Section 269 SS of Income Tax Act; Procedural irregularity and violation of natural justice in passing impugned order.

Analysis:

Issue 1: Challenge to order for payment of disputed tax amount
The petitioner challenged the order directing payment of 20% of the disputed tax amount for the Assessment Year 2018-19. The petitioner contended that the demand was raised based on an alleged cash transaction, which the petitioner denied. The petitioner referred to the Balance Sheet to show that the amount in question was a liability towards the purchase of shares and not a cash transaction. The petitioner argued that the penalty imposed was unjustified as there was no cash transaction involved. The court found that the penalty proceedings were initiated based on a wrongful interpretation of the balance sheet, leading to the order for payment of 20% of the disputed tax amount. The court directed the Appellate Authority to consider the balance sheet entries and dispose of the appeal without requiring any deposit. The court emphasized that there was no cash transfer involved, and the penalty proceedings were not justified.

Issue 2: Violation of Section 269 SS of Income Tax Act
The respondent initiated penalty proceedings against the petitioner for violating Section 269 SS of the Income Tax Act, which prohibits certain types of cash transactions. The respondent alleged that the petitioner had accepted loans in a manner that violated the provisions of the Act. The petitioner argued that the loans were for the purchase of shares and not cash transactions. The court examined the Balance Sheet and concluded that the loans were liabilities related to share purchase and not cash transactions. The court held that the penalty imposed based on the alleged cash transactions was unjustified and directed the Appellate Authority to consider the balance sheet entries in disposing of the appeal.

Issue 3: Procedural irregularity and violation of natural justice in passing impugned order
The petitioner raised concerns about procedural irregularities and violation of natural justice in passing the impugned order. The petitioner argued that the Assessing Officer did not consider relevant aspects, such as the nature of the loans and the entries in the Balance Sheet. The petitioner contended that no opportunity was provided to address the allegations before the order was passed. The court agreed with the petitioner's arguments and found that the penalty proceedings were based on a wrongful interpretation of the balance sheet. The court held that the order for payment of 20% of the disputed tax amount lacked procedural fairness and directed the Appellate Authority to consider all relevant aspects in disposing of the appeal within eight weeks.

In conclusion, the court disposed of the Writ Petition, directing the Appellate Authority to review the case without requiring any deposit and to consider the entries in the Balance Sheet to determine the nature of the transactions. The court emphasized that there was no cash transaction involved and that the penalty proceedings were unjustified.

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