2019 (1) TMI 459 - AT - Income Tax

Penalty orders passed u/s 271D and 271E - Violation of provisions of section 269SS and 269T while taking/returning the loan amount of ₹ 7,00,00,000/- in cash - CIT(A) has deleted the addition mainly on the ground that AO has made addition on the basis of rough noting recovered from the possession of Tara Health Foods Ltd. during search conducted by the department - Held that - In the present case, except the presumption drawn by AO from the rough sheet containing the questioned entries, there is no other direct or circumstantial evidence to substantiate the conclusion of AO that the assessee has accepted loan or deposit in cash from Tata Health Food Ltd. within the meaning of section 269SS of the Act. We further notice that Sh. Balwant Singh, MD of Tata Health Food Ltd. has sworn an affidavit stating that the company Tata Health Food Ltd. had neither given any cash loan to the assessee company nor any amount was received by Tata Health Food Ltd. Sh. Balwant singh has further stated that only in the financial year 2008-09, the Tata Health Food Ltd had purchased Machinery from the assessee company. AO has wrongly arrived at the conclusion that the assessee had obtained the amount in question in violation of section 269SS of the Act, on the basis of loose papers containing the questioned entries, without pointing out any corroboration. In any case, even if one is to go by this documents found by the search tem, the Ld. CIT (A) has rightly inferred that, the nature of transaction is not loan but a business advance for purchase of machinery. As per the settled principles of the law, penal provisions are required to be construed strictly. Hence, in our considered view, the material on record is not sufficient to sustain penalty imposed by the assessment officer u/s 271D read with section 269SS of the Act. Section 271E makes a person liable for penalty for repayment of loan or deposit or specified advance referred to in section 269T otherwise than in accordance with the said section. Since, we have dismissed the appeal of the revenue and upheld the findings of the Ld. CIT (A), holding that the assessee has not violated the provision u/s 269SS of the Act, there is no reason to hold the assessee liable for penalty u/s 271E of the Act for violation of the provisions of section 269T of the Act. We therefore, agree with the Ld. CIT (A) and delete the penalty - Decided in favour of assessee.

Summary

Issues Involved:

1. Legality of penalty u/s 271D for violation of Section 269SS of the Income Tax Act.
2. Legality of penalty u/s 271E for violation of Section 269T of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Legality of Penalty u/s 271D for Violation of Section 269SS:

The revenue appealed against the deletion of a penalty of ?7,00,00,000/- levied under Section 271D for contravention of Section 269SS. The assessment was reopened based on information from a search at M/s Tara Health Foods Ltd., which revealed a document indicating an advance of ?7,00,00,000/- given to the assessee. The AO issued a show-cause notice, and despite the assessee's denial of any cash transactions, the AO concluded that the assessee violated Section 269SS and initiated penalty proceedings under Section 271D.

The CIT(A) deleted the penalty, stating that the evidence was insufficient. The revenue argued that the CIT(A) erred in deleting the penalty as the AO had tangible material in the form of incriminating documents. The assessee countered that the AO wrongly levied the penalty, emphasizing that the Managing Director of Tara Health Foods Ltd. swore an affidavit denying any such transaction. The assessee also argued that even if the transaction occurred, it was an advance for machinery, not a loan or deposit, and thus outside the purview of Section 269SS.

The Tribunal upheld the CIT(A)'s decision, noting that the AO's conclusion was based solely on rough notations without corroborative evidence. The Tribunal referenced the Supreme Court's decision in Common Cause vs. Union of India, which held that loose sheets of paper have no evidentiary value. The Tribunal agreed that the transaction was an advance for machinery, a business transaction not covered by Section 269SS, and thus, the penalty under Section 271D was unwarranted.

2. Legality of Penalty u/s 271E for Violation of Section 269T:

The revenue also appealed against the deletion of a penalty of ?7,00,00,000/- levied under Section 271E for contravention of Section 269T. This appeal arose from the same transaction discussed in the previous issue. The CIT(A) deleted the penalty, reasoning that the evidence was insufficient to prove the existence of such transactions and that the transactions were business advances, not loans or deposits.

Section 271E imposes a penalty for the repayment of loans or deposits otherwise than in accordance with Section 269T. Since the Tribunal upheld the CIT(A)'s finding that the assessee did not violate Section 269SS, it logically followed that there was no violation of Section 269T. The Tribunal agreed with the CIT(A) that the transactions were business advances for machinery, not loans or deposits, and upheld the deletion of the penalty under Section 271E.

Conclusion:

The Tribunal dismissed the revenue's appeals for the assessment year 2010-2011, upholding the CIT(A)'s deletion of penalties under Sections 271D and 271E. The Tribunal concluded that the evidence was insufficient to prove violations of Sections 269SS and 269T, and the transactions in question were business advances outside the purview of these sections.