2019 (3) TMI 1259 - AT - Income Tax

Levy of penalty u/s 271D - violation of the mandate u/s 269SS - Advances received from customers for transfer of immovable property - advances to promoter for day to day expenditure - advances received by the assessee were found to be genuine in such assessment - amendment by Finance Act, 2015 in Section 269SS w.e.f. 01.06.2015 - HELD THAT - Advances or other receipts of money in relation of transfer of immovable property, whether or not such transfer took place, came within the ambit of Section 269SS only w.e.f. 01.6.2015. Thus in our opinion receipts of cash by the assessee as advance against sale of flats were not covered u/s.269SS for the impugned assessment year. Coming to the second part of the cash receipts received from the promoters of the assessee company, explanation given by the assessee was never found to be incorrect. Nothing has been brought on record by the Revenue to show that the receipts were superfluous in nature and not for the business of the assessee. Had it been so, it would have come out in the scrutiny assessment done for the impugned assessment year. Admittedly, there were no adverse findings in such scrutiny. Hon ble Jurisdictional High Court in the case of Idyayam Publications Ltd 2006 (1) TMI 97 - MADRAS HIGH COURT has clearly held that cash transactions in the current account of a company with its promoters, where such current account was a running one, could not be considered as loan or advances. There is no case for the Revenue that assessee had not produced ledger before AO during the course of assessment proceedings or that the accounts of the promoters in the books of the assessee were not in the nature of funds introduced for the running of its business. Hence we are of the opinion that advances received from the promoters in cash through their respective current accounts could not be considered as loan or advances coming within the ambit of Section 269SS of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under Section 271D of the Income Tax Act, 1961 for violation of Section 269SS of the Act.
2. Classification of cash receipts as advances against sale of flats or as loans/deposits.
3. Applicability of Section 269SS to advances received prior to its amendment by Finance Act, 2015.
4. Treatment of cash receipts from promoters in the current accounts of the company.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271D:
The assessee, engaged in real estate, was penalized under Section 271D for allegedly violating Section 269SS by accepting cash loans/advances totaling ?1,10,26,000. The Assessing Officer (AO) imposed a penalty equal to the amount received in cash.

2. Classification of Cash Receipts:
The assessee contended that ?76,60,000 out of the total amount was received as advances from promoters for day-to-day expenses and the remaining ?33,66,000 as advances towards the sale of land. The AO and the Commissioner of Income Tax (Appeals) (CIT(A)) did not accept this explanation, leading to the confirmation of the penalty.

3. Applicability of Section 269SS to Advances:
The assessee argued that the advances received were genuine and not loans or deposits. They relied on the fact that Section 269SS, as it stood before its amendment by the Finance Act, 2015, did not include advances related to the transfer of immovable property within its ambit. The amendment, effective from 01.06.2015, introduced the term "specified sum" to include such advances, which was not applicable to the assessment year in question.

4. Treatment of Cash Receipts from Promoters:
The assessee claimed that the cash receipts from promoters were for business expenses and were recorded in the current accounts of the promoters. The jurisdictional High Court's decision in the case of Idyayam Publications Ltd was cited, which held that transactions in the current account with promoters could not be considered loans or deposits.

Judgment:
The tribunal found that the assessee had provided sufficient evidence that the amounts received from customers were advances for the sale of flats, supported by confirmation letters and ledger copies. The tribunal noted that Section 269SS, prior to its amendment, did not cover such advances.

Regarding the cash receipts from promoters, the tribunal observed that these were for business expenses and recorded in the current accounts, aligning with the High Court's ruling in Idyayam Publications Ltd. The tribunal concluded that these receipts could not be considered loans or deposits under Section 269SS.

Conclusion:
The tribunal deleted the penalty levied under Section 271D, allowing the appeal of the assessee. The judgment emphasized that the advances received for the sale of flats and the cash receipts from promoters for business expenses were not covered under Section 269SS as it stood before the amendment.

Order Pronouncement:
The order was pronounced on March 21, 2019, in Chennai.