2022 (1) TMI 235 - AT - Income Tax

Penalty u/s.271D - default u/s 269SS - assessee firm received loan in cash from one of its partner and repayment and interest of such loan was made in subsequent year - HELD THAT - No penalty under section 271D of the Act can be imposed on assessee firm in respect of transaction inter-se between the assessee and its partners for violation of section 269SS of the Act. The submission of ld.AR finds support from the decision in CIT vs. Lokpat Film Exchange 2007 (1) TMI 165 - RAJASTHAN HIGH COURT AND V. SIVA KUMAR 2013 (3) TMI 265 - MADRAS HIGH COURT - Decided against revenue.

Summary

Issues:
1. Appeal against order of CIT(A) for AY 2008-09.
2. Penalty under Sec 271D for violation of Sec 269SS.
3. Deletion of penalty by CIT(A).
4. Transaction between partnership firm and partner.
5. Validity of penalty imposition.
6. Dissolution of firm and penalty imposition.
7. Assessment order without reference for penalty.

Analysis:
1. The appeal was filed by Revenue against the order of CIT(A) for AY 2008-09. The initial appeal was dismissed due to Low Tax Affect but was later reconsidered.
2. The penalty under Section 271D was imposed by JCIT on the firm for receiving a cash loan of ?75 lakhs from a partner, violating Section 269SS. The firm did not record this transaction in its books of accounts.
3. CIT(A) deleted the penalty, stating that Section 269SS does not apply to transactions between a partnership firm and its partner, citing relevant tribunal decisions.
4. The Revenue argued that the firm and individual partners are separate entities, and the loan transaction violated Section 269SS.
5. The AR of the assessee contended that the penalty was invalid due to the absence of a reference by AO for penalty initiation, citing a Supreme Court decision.
6. The AR further argued that no penalty should be imposed for transactions between a firm and its partners, referencing various court decisions supporting this stance.
7. The Tribunal upheld the CIT(A)'s decision, stating that no penalty was warranted, as there was no satisfaction recorded for initiating the penalty. The Tribunal also agreed that penalties for transactions between a firm and its partners are not applicable under Section 271D.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the penalty, based on the lack of satisfaction recorded for penalty initiation and the inapplicability of penalties for transactions between a firm and its partners under Section 271D.