2019 (9) TMI 1133 - AT - Income Tax

Penalty u/s. 271D - receipt of loan and advances in cash - as per 2 agreements amount paid by the two buyers to the present assessee in cash - HELD THAT - Whole allegation is on the basis of two agreements in question. This is true that in both these agreements, it is stated that an amount of ₹ 6 Lakhs and ₹ 2 Lakhs respectively was paid by the two buyers to the present assessee in cash but this is also true that these two agreements are although signed by the Director of the assessee company, these are not signed by the buyers. The department is asking the assessee to establish that the agreements were not executed which is the claim of the assessee. Merely because a proposed agreement was kept ready after typing and signature of the Director of the assessee company, it cannot be said that the agreement was executed and all the contents of such agreement were actually done when the agreements in question were admittedly not signed by the respective buyers. The complete name and address of both these buyers are available in those agreements to sale and if the AO wanted to establish that the agreements were in fact executed and the amount was paid by the respective buyers to assessee in cash, he could have examined these buyers but this is not done by the AO. In fact, even no effort was made by the AO to do so. we are of the considered opinion that the addition made by the AO on the basis of the two draft agreements is not justified in the facts of present case Penalty u/s u/s. 271D - whether there was reasonable cause which prompted the assessee to accept the loan in cash ? - HELD THAT - As per the copy of cash book available on page no. 1 of the paper book, it is seen that opening balance is ₹ 40,423/- and this payment of ₹ 9 Lakhs was paid out of the money provided by the Director Shri Dinesh Ranka. Hence, this is the fact that no cash was available with the assessee company as per the cash book to make this cash payment and hence. Cash borrowing to make this urgent cash payments appears to be reasonable. Under these facts, we are satisfied that the assessee has been able to establish that there was reasonable cause for accepting this loan in cash and hence, in view of section 273B of the IT Act, we delete the penalty- Decided in favour of assessee.

Summary

Issues Involved:
1. Quantum addition under Section 68 of the Income Tax Act.
2. Penalty under Section 271D of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Quantum Addition under Section 68:

The primary issue in the appeal ITA No. 780/Bang/2017 is the addition of ?8,00,000 under Section 68 of the Income Tax Act by the Commissioner of Income-tax (Appeals) [CIT(A)]. The assessee argued that the CIT(A) erred in upholding these additions and that the provisions of Section 68 were not applicable as there were no entries in the books of accounts regarding the alleged receipts. The assessee contended that the agreements in question, which mentioned the cash receipts, were never executed as they were not signed by the buyers.

The Tribunal examined the agreements and noted that although these agreements mentioned cash payments of ?6 Lakhs and ?2 Lakhs respectively, they were not signed by the buyers. The Tribunal emphasized that the burden of proving the execution of these agreements lay with the Assessing Officer (AO), who failed to examine the buyers. The Tribunal also noted that the properties in question were sold in the subsequent financial year, and the income from these sales was declared in that year. Consequently, the Tribunal concluded that the addition based on these draft agreements was not justified and deleted the addition.

2. Penalty under Section 271D:

In the appeal ITA No. 781/Bang/2017, the issue was the levy of penalty under Section 271D for accepting cash loans in violation of Section 269SS. The assessee argued that the amount received was neither a loan nor a deposit and that there was a reasonable cause for accepting the cash, as explained in a letter to the AO. The assessee explained that the cash was received from the Director of the company to pay occupants/tenants to vacate a property, which was necessary to avoid prolonged litigation.

The Tribunal noted that under Section 273B, if the assessee can prove reasonable cause for the violation of Section 269SS, the penalty under Section 271D cannot be imposed. The Tribunal found the explanation provided by the assessee plausible and reasonable, considering the urgent need to pay the occupants to vacate the property. The Tribunal also noted that the cash book showed that the cash was received from the Director and immediately paid to the occupants, indicating a reasonable cause for accepting the cash. Therefore, the Tribunal deleted the penalty.

Conclusion:

The Tribunal allowed both appeals filed by the assessee, deleting the quantum addition of ?8,00,000 under Section 68 and the penalty under Section 271D. The Tribunal's decision was based on the lack of evidence supporting the execution of the agreements and the reasonable cause for accepting the cash loans.