2022 (3) TMI 154 - AT - Income Tax

Levy of penalty u/s. 271D - violation of the provisions of Section 269SS - taking or accepting loans/ deposits in cash beyond a specified limit - HELD THAT - The entries are in hundreds with date and signatures of the partner of the assessee firm against each of them. It is not established that the amount represented specified sums,nor that the amount mentioned in hundreds in the entries was actually in lacs as interpreted by the Revenue. The presumption of receipts in lacs, though on the basis of an entry against which CHQ was mentioned and which matched with a bank entry the same day in lacs, is not corroborated by way of any evidence, be it in the form of asset or any other document found with the assessee representing its alleged business receipts. Further in the absence of any name against each entry it is not established that each entry related to receipts from a person. Also that each entry represented cash receipt has no basis. The entire case of the Revenue rests on interpreting the entries in a diary found during search as relating to cash receipts from customers, on the basis of one of the entry having CHQ mentioned against it matching with a bank entry the same day. Treating this entry to be representative of the rest of the entries, the Revenue held that the entries related to business receipts in lacs and in the absence of CHQ mentioned against the entry it was presumed to be receipts in cash. Though it does create a preponderance of probability of the entries being of the same color as the CHQ entry and which may be sufficient for making addition in quantum proceedings, but the same is not sufficient to strictly establish the violation of section 269SS of the Act, of the assessee having received amounts in cash exceeding ₹ 20,000/- from a person on account of sale of flats, so as to attract levy of penalty u/s 271D of the Act. Revenue having not clearly established the violation of provisions of section 269SS of the Act by the assessee ,its entire case resting on interpretation of entry in a diary found during search,it is not a fit case for levy of penalty u/s 271D - Decided in favour of assessee.

Issues Involved:
1. Levy of penalty under Section 271D of the Income Tax Act, 1961.
2. Violation of provisions of Section 269SS of the Income Tax Act, 1961.

Detailed Analysis:

1. Levy of Penalty under Section 271D of the Income Tax Act, 1961:

The primary issue in this appeal is the imposition of a penalty amounting to ?16,00,000/- under Section 271D of the Income Tax Act, 1961. This penalty was levied for the alleged violation of Section 269SS, which prohibits the acceptance of loans or deposits in cash beyond a specified limit.

The assessee, a partnership firm engaged in construction and development, filed its return of income for AY 2016-17. During a search at the residence of one of its partners, certain documents were seized, which the Assessing Officer (AO) interpreted as unrecorded receipts (on-money) from members, amounting to ?26,50,000/-. The assessee contended that these notings were related to petty expenses, but the AO disagreed and added ?26,50,000/- as unaccounted receipts.

The CIT(A) confirmed the AO's finding that the notings were on-money receipts but restricted the addition to the profit derived from these receipts, amounting to ?2,38,500/-. Subsequently, the AO initiated penalty proceedings under Section 271D for the alleged violation of Section 269SS, as the assessee had received ?26,50,000/- in cash, which was prohibited.

The assessee objected to the penalty on several grounds, including the denial of receiving any cash, the lack of specific details in the notings, and the onus being on the department to prove the violation. The AO rejected these contentions and imposed a penalty of ?16,00,000/- for receipts in cash after the amendment to Section 269SS came into force on 01/06/2015.

2. Violation of Provisions of Section 269SS of the Income Tax Act, 1961:

Section 269SS prohibits the acceptance of any loan, deposit, or specified sum in cash beyond ?20,000/-. The AO and CIT(A) held that the assessee violated this provision by accepting cash receipts totaling ?16,00,000/- after the amendment came into force. The CIT(A) noted that the seized documents indicated cash receipts from customers for booking/sale of constructed units, which fell under the definition of "specified sum" as per the amended Section 269SS.

The assessee argued that the entries in the seized diary were not clear cut evidence of cash receipts and that the addition was based on presumptions. The assessee also contended that the provisions of Section 269SS were not applicable to unaccounted income.

The Tribunal analyzed the facts and held that the language of Section 269SS, including "any specified sum," was broad enough to cover all receipts related to the transfer of immovable property, including income. Therefore, the section's applicability was not confined to loans and deposits but extended to any sums received in connection with property transfers.

However, the Tribunal agreed with the assessee that the charge of violating Section 269SS must be clearly established. The Tribunal emphasized that penal provisions should be strictly construed, and the conditions for imposing a penalty must be strictly complied with. The Tribunal found that the Revenue's case was based on presumptions and conjectures, without clear evidence that the entries represented specified sums received in cash from a person exceeding ?20,000/-. The Tribunal noted that the entries were in hundreds, and there was no corroborative evidence to support the Revenue's interpretation.

In conclusion, the Tribunal held that the Revenue had not clearly established the violation of Section 269SS by the assessee. Therefore, it was not a fit case for the levy of penalty under Section 271D. The penalty of ?16,00,000/- was directed to be deleted, and the appeal of the assessee was allowed.

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