2017 (9) TMI 374 - AT - Income Tax

Levy of penalty u/s 271D and 271E - violation of provisions of section 269SS and 269T - Held that - The initial onus lies on the assessee and not on the Revenue. The assessee has merely contended that these are advances to staff and its contractors for meeting the site expenses and repayment thereof, however it has failed to demonstrate the same with verifiable evidence. There is nothing on record to support the contention of the assessee that 13 persons in respect of whom provisions of section 269SS and 269T have been invoked by the Add CIT are assessee s employees and/contractors and transactions with them are in the regular course of business for meeting site expenses. CIT(A) has merely endorsed the contentions of the assessee without any credible evidence on record to support the said contentions. Unless and until, the assessee discharge the initial onus placed on him, the onus cannot shift to the Revenue. CIT(A) has further held that the Addl. CIT during the proceeding u/s 269SS or 269T has not cross examined the above version of the assessee by issuing summons u/s 131 or commission u/s 133(6) to any of the persons whose names are mentioned in the annexure and the fact that all these cash payments being only for loan and advances is not established beyond doubt and no presumption based financial liabilities can be levied upon the assessee. CIT(A) has further highlighted certain contradictions in the findings of the Add CIT. As we have held above, the initial onus is on the assessee and once the assessee discharges its initial onus, the onus thereafter shift on the Revenue. In the instant case, it is also a fact that Section 271D and Section 271E being the penal provisions which have been invoked, it is to be seen that the conditions specified in the provisions are strictly fulfilled before the levy of penalty which is equal to the value of the transactions. It has to be established that there are transactions in the nature of loans and advances and their repayment, both in cash, which have clearly violated the provisions of section 269SS and 269T of the Act without any reasonable cause. On perusal of records, we find that there is not enough material on record for us to take a view in the matter. In the interest of justice and fair play, we are setting aside the matter to the file of the ld CIT(A) to examine the same afresh taking into consideration the above discussions. Appeals filed by the Revenue are allowed for statistical purposes

Summary

Issues Involved:
1. Limitation for penalty orders under sections 271D and 271E.
2. Merits of the penalty levied under sections 271D and 271E.

Detailed Analysis:

1. Limitation for Penalty Orders under Sections 271D and 271E:

The primary issue was whether the penalty orders under sections 271D and 271E were barred by limitation as per section 275 of the Income Tax Act. The assessee argued that the penalty orders were time-barred since the assessment order was passed on 19.10.2014 and the penalty was levied on 29.10.2015, which was beyond six months from the date of the assessment order.

The Revenue referred to CBDT Circular No. 9/DV/2016, which clarified that the limitation for penalty imposition should commence from the issuance of the notice by the Joint Commissioner, the competent authority for imposing such penalties. The Hon'ble Kerala High Court in Grihalaxmi Vision v. Addl. Commissioner of Income Tax supported this view, stating that penalty proceedings are initiated by the Joint Commissioner, not the Assessing Officer.

The Hon'ble Rajasthan High Court in Hissaria Bros and Jitendra Singh Rathore held that penalty proceedings under sections 271D and 271E are independent of assessment proceedings and the limitation period should be reckoned from the issuance of the first show-cause notice by the competent authority. In this case, the first notice was issued by the Additional CIT on 23.04.2015, and the penalty order was passed on 29.10.2015, within the six-month period. Thus, the penalty orders were not barred by limitation.

2. Merits of the Penalty Levied under Sections 271D and 271E:

The Addl. CIT imposed penalties based on transactions highlighted by the special auditor, which were claimed to be loans and deposits in cash, violating sections 269SS and 269T. The assessee contended that these transactions were advances given to staff, labor, and subcontractors for business expenses, not loans or deposits.

The CIT(A) found that the assessment-related appeal upheld the rejection of books of accounts and estimation of net profit, implying that the transactions in question were not reliable for penalty purposes. The CIT(A) noted that the Addl. CIT did not conclusively prove these transactions were loans or deposits, nor did he verify the identity of the lenders or the nature of transactions through independent inquiries.

The Tribunal held that where books of accounts are rejected, and net profit is estimated, it does not preclude the examination of independent financial transactions for penalty purposes. The Tribunal emphasized that the initial onus to prove the nature of transactions lies with the assessee. The assessee failed to provide credible evidence to support its claim that the transactions were business advances.

The Tribunal found that the Addl. CIT's findings were based on presumptions without adequate verification. The matter was remanded to the CIT(A) to re-examine the transactions and determine whether they were indeed loans or deposits attracting penalties under sections 271D and 271E.

Conclusion:

The appeals filed by the Revenue were allowed for statistical purposes, and the cross-objections filed by the assessee were dismissed. The matter was remanded to the CIT(A) for a fresh examination of the transactions in question.