2018 (11) TMI 649 - HC - Income Tax

Penalty imposed u/s 271D r.w.s. 269SS - Held that - To attract provisions of Section 269SS, the amount paid in cash must be either loan or deposit. In the present case the assessee and M/s Saamag Construction Ltd. had entered into a joint venture and payments were made by M/s Saamag Construction Ltd. in terms of the MoU. These payments were not to be refunded. Essential attributes of a loan or deposit, is the right to claim payment and obligation to re-pay. This was missing. On completion of project, the net profit was to be distributed between the assessee and M/s Saamag Construction Ltd. It is a well settled principle applicable to income tax that entry in the books of account on description and treatment is not decisive as to the nature of the transaction as held in Kedarnath Jute Mfg. Co. Ltd. Vs. CIT 1971 (8) TMI 10 - SUPREME COURT . Clearly Section 269SS does not apply to every transaction. Therefore Section 269ST of the Act was enacted by Finance Act, 2017 w.e.f. 01.04.2017. This section postulates that no person shall receive an amount of ₹ 2,00,000/- or more in aggregate in cash from any person in respect of a single transaction or in respect of transactions relating to one event or occasion, otherwise than by way of account payee cheque, account payee bank draft or by way of electronic clearing system through a bank account. The said Section 269ST of the Act is not applicable to the present assessment year.

Summary

Issues:
- Appeal against deletion of penalty under Section 271D of the Income Tax Act.
- Interpretation of transactions between two companies under a joint venture.
- Application of Section 269SS of the Act.
- Analysis of the Memorandum of Understanding (MoU) between the parties.
- Consideration of the purpose of transactions in cash.

Analysis:
The High Court addressed the appeal challenging the deletion of a penalty imposed under Section 271D of the Income Tax Act. The case involved a joint venture between two companies, where one company made cash payments to the other. The Assessing Officer treated these payments as loans or deposits, leading to the imposition of a penalty. However, the Commissioner of Income Tax (Appeals) later deleted the penalty, emphasizing that the payments were part of a business transaction related to developing an integrated township. The Tribunal upheld this decision, noting that the payments were made in cash for business purposes and could not be categorized as loans or deposits solely based on accounting entries.

The Court examined the Memorandum of Understanding (MoU) between the parties, which outlined the financial arrangements for the joint venture project. It was highlighted that the payments were not refundable and were part of the project's financing. The Court emphasized that for a transaction to fall under Section 269SS, it must involve a loan or deposit with a repayment obligation, which was not the case here. The Court cited the principle that accounting entries do not determine the nature of a transaction, as established in the case of Kedarnath Jute Mfg. Co. Ltd. Vs. CIT [1971]82 ITR 363 (SC).

Furthermore, the Court discussed the applicability of Section 269ST of the Act, which sets limits on cash transactions. However, this section was not relevant to the assessment year in question. Ultimately, the Court found no merit in the appeal and dismissed it, affirming the Tribunal's decision. The judgment emphasized the business nature of the transactions and the absence of loan or deposit characteristics, leading to the deletion of the penalty under Section 271D.