2023 (2) TMI 840 - AT - Income Tax

Reopening of assessment u/s 147 - loan given was believed to be undisclosed income of assessee - penalty u/s 271D and 271E - HELD THAT - As both sides agrees that on the basis of LPS-1, Page No. 21 to 23 , the authorities made an original-conclusion that the assessee had given loan to AIDPL, but at a later stage it was observed that AIDPL has given loan to the assessee. They further agree that the re-assessment proceedings as well penalty-proceedings u/s 271D / 271E were initiated on the basis of original conclusion . We observe that the original-conclusion was such that the assessee had given loan to AIDPL but the reversed-conclusion was just opposite i.e. AIDPL had given loan to assessee. Now, if we give weightage to original- conclusion , which could not be said to faulty as per understanding gained by authorities at that time, the result would be such that the order of reassessment would be valid but the penalty-proceeding would be invalid because penalty u/s 271D / 271E are not attracted in case of loan given . As against this, if we give weightage to reversed-conclusion i.e. the AIDPL has given loan to assessee, the consequences would be just opposite i.e. the re-assessment proceeding would be invalid but the penalty-proceeding shall be valid. Thus, if one proceeding is saved, other has to be quashed. Hence we have given our anxious thought in the matter. After a mindful consideration, we are of the view that the original-conclusion was not faulty at the time of initiating re-assessment / passing of order of reassessment / launching of penalty-proceedings. It is a subsequent matter that the dust was clear about the nature of transaction and original-conclusion was reversed. Hence, it would be apt to give preference to the original-conclusion which has set the proceedings in motion. Since the original-conclusion was to the effect that the assessee had given loan to AIDPL, the fate of present appeals / cross-objection, in our considered view, would be as under (i) The order of re-assessment shall be valid for the reason that loan given was believed to be undisclosed income of assessee. Accordingly, we upheld the validity of reassessment and dismiss the Appeal of assessee. (ii) The order of penalty u/s 271D and 271E shall be invalid for the reason that loan given neither attracts section 271D nor section 271E. We, therefore, quash the penalty-order and allow the Cross- Objection of assessee.

Summary

Issues Involved:
1. Validity of the reassessment order under section 143(3) read with section 147 of the Income Tax Act, 1961.
2. Legality of the penalty imposed under section 271D of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Reassessment Order:
- The original assessment was completed on 30.12.2010 under section 143(3) of the Act. A subsequent search on 27.08.2014 at the premises of M/s PATH Oriental Highways Public Limited led to the seizure of documents indicating unrecorded cash transactions between M/s Prakash Asphaltings & Toll Highways (India) Ltd. (the assessee) and M/s Agroh Infrastructure Developers Pvt. Ltd. (AIDPL). The Ld. AO reopened the assessment under section 147 based on these documents, suspecting a loan of Rs. 1,15,00,000/- given by the assessee to AIDPL from undisclosed income.
- The Ld. AO completed the reassessment on 03.03.2016, adding Rs. 1,15,14,659/- to the assessee's income as unexplained cash credit.
- The assessee challenged the reassessment before the Ld. CIT(A), who upheld the legality of the reassessment but deleted the addition on merits, noting that the loan was actually given by AIDPL to the assessee, not vice versa.
- The ITAT observed that the reassessment was initiated based on an "original conclusion" that the assessee had given a loan to AIDPL. This conclusion was later reversed, establishing that AIDPL had given the loan to the assessee. Despite this reversal, the ITAT upheld the validity of the reassessment, emphasizing that the "original conclusion" was reasonable based on the information available at the time.

2. Legality of the Penalty Imposed under Section 271D:
- Penalty proceedings under sections 271D and 271E were initiated based on the "original conclusion" that the assessee had given a loan to AIDPL. The Ld. Addl. CIT imposed a penalty of Rs. 1,15,00,000/- under section 271D for violating section 269SS.
- The assessee appealed to the Ld. CIT(A), who deleted the penalty, noting that the penalty was imposed based on assumptions and presumptions without concrete evidence. The Ld. CIT(A) emphasized that the seized documents were found at AIDPL's premises, not the assessee's, and the presumption under section 292C applied to AIDPL, not the assessee.
- The ITAT concurred with the Ld. CIT(A), stating that the penalty under section 271D was invalid as the "original conclusion" that the assessee had given a loan did not attract the provisions of sections 271D or 271E, which apply to loans taken, not given.

Conclusion:
- The ITAT upheld the validity of the reassessment order, dismissing the assessee's appeal (ITA No. 283/Ind/2021).
- The ITAT quashed the penalty order under section 271D, allowing the assessee's cross-objection (Cross-Objection No. 47/Ind/2021).
- The ITAT dismissed the revenue's appeal (ITA No. 20/Ind/2021) as infructuous, given the quashing of the penalty order.