2012 (10) TMI 656 - AT - Income Tax

Loan or deposit have been defined in section 269T to mean any loan or deposit of money which is repayable after notice or repayable after a period and, in case of person other than a company, includes loan or deposit of any nature - The latter part of the definition is not applicable in the case of the assessee as it is a company. Penalty u/s 271D / Penalty u/s 271E - assessee received deposits from D.D. Township (P) Ltd. otherwise than by way of account payee cheque or draft - DD made payments on behalf of the assessee for purchasing land from the farmers Held that - Credit has been given for purchase of lands - lands were purchased in the course of business of developing them in association with the DD - transactions are in the nature of business transactions, recorded through the current account. The DD was subsequently paid through this account - it is not a case of accepting loan or deposit - assessee had tendered explanation in regard to transactions, the circumstances in which payments were made in cash by Shri J.P. Khanna, and such explanation ought to have been taken as a bona fide explanation. The transaction is also not one of loan or deposit - CIT(Appeals) was right in deleting the penalty. Orders of lower authorities no where show that the money was repayable after notice or after a period of time. This is an additional factor in favour of the assessee - levy of penalty u/s 271D, rightly deleted

Summary

Issues Involved:
1. Leviability of penalty under Section 271D of the Income-tax Act, 1961.
2. Leviability of penalty under Section 271E of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Leviability of Penalty under Section 271D:

The primary issue in appeal no. 5689(Del)/2010 was whether the CIT(Appeals) erred in deleting the penalty of Rs. 11,84,314/- levied by the AO under Section 271D of the Income-tax Act, 1961. The AO observed that the assessee received deposits from D.D. Township (P) Ltd. ("DD") otherwise than by way of account payee cheque or draft, leading to the issuance of show cause notices.

The assessee explained that DD made payments on its behalf for purchasing land from farmers, and these payments were made in cash by DD's representative, Mr. J.P. Khanna. The corresponding entries were made in the assessee's books by way of journal entries. The AO found this explanation unsatisfactory and levied the penalty, asserting that the assessee had to accept any loan or deposit only by way of account payee cheque or draft.

The CIT(Appeals) considered the facts and submissions, noting that the payments were made to landowners on behalf of the assessee, and the corresponding entries were passed through journal, indicating no loan or deposit was accepted by the assessee from DD. The CIT(Appeals) concluded that the transactions were business exigencies and not loans or deposits, thus deleting the penalty.

The senior DR argued that the chain of transactions involving the assessee, DD, and Mr. Khanna was created to camouflage the actual transaction of loan or deposit, asserting that the case was covered under Section 271D for levy of penalty. The DR relied on the decision in Chaubey Overseas Corpn. v. CIT, where the court held that the term "deposit" includes all sorts of deposits, including trade deposits.

In reply, the ld. counsel argued that the transactions were in respect of a development agreement with DD, and no loan or deposit was received by the assessee. The transactions were recorded by way of journal entries, and no money in cash was received from DD. The counsel supported their case with various judicial precedents where penalties under Section 271D were deleted due to the transactions being business-related and not loans or deposits.

Upon consideration, the Tribunal noted that the transactions were business transactions for purchasing land and making payment thereof, recorded through a current account. The Tribunal held that the transactions did not involve acceptance of any loan or deposit and the explanation tendered by the assessee was bona fide. Therefore, the CIT(Appeals) was right in deleting the penalty under Section 271D.

2. Leviability of Penalty under Section 271E:

The primary issue in appeal no. 5690(Del)/2010 was whether the CIT(Appeals) erred in deleting the penalty of Rs. 77,07,502/- levied by the AO under Section 271E of the Income-tax Act, 1961. The AO noted several transactions representing repayments to DD by way of journal entries, asserting that the payments were made otherwise than by account payee cheque or draft.

The Tribunal observed that the submissions of rival parties were identical to those made in respect of penalty under Section 271D. The Tribunal noted that the transactions were recorded in the current account of DD maintained in the books of the assessee and that the money was not repayable after notice or after a period of time, which is an additional factor in favor of the assessee.

Relying on the order in respect of the levy of penalty under Section 271D, the Tribunal held that the CIT(Appeals) rightly deleted the penalty under Section 271E as well.

Conclusion:

In conclusion, the Tribunal dismissed both appeals, upholding the CIT(Appeals)'s decision to delete the penalties under Sections 271D and 271E of the Income-tax Act, 1961, as the transactions were business-related and did not involve acceptance or repayment of loans or deposits.