2023 (2) TMI 970 - HC - Income Tax

Penalty proceedings u/s 271D - contravention of the provisions of Section 269SS - Assessee was one of the directors of Company Spaze Towers Pvt. Ltd as inflating its purchase and cash so generated was spent on the personal needs of the directors/promoters in the form of ceremonial functions, farm house construction etc and in the process nowhere actual cash changed hands, but was spent on personal expenses of promoters/directors - Spaze Towers Pvt. Ltd had approached the learned Settlement Commission and made disclosure of income - HELD THAT - Once the Assessing Officer has treated the personal expenses incurred by M/s Spaze Towers Pvt. Ltd as income of the assessee, then the same amount cannot be treated as loan in violation of the provisions of Section 269SS of the Act 1961. The same income cannot be taxed in two hands in the same assessment year and CIT (A) has rightly deleted the additions made by the Assessing Officer. Decided in favour of assessee.

Summary

Issues:
Appeal under Section 260-A of the Income Tax Act, 1961 seeking setting aside of the order passed by the Income Tax Appellate Tribunal, Delhi Bench 'D'. Addition of cash receipts, unrecorded investments, and expenses in the assessment of the respondent. Confirmation of penalty under Section 271D by CIT (A) and subsequent appeal before ITAT. Interpretation of personal expenses incurred by a company as income of the assessee and its treatment under Section 269SS of the Act.

The judgment involves an appeal filed under Section 260-A of the Income Tax Act, 1961, challenging the order passed by the Income Tax Appellate Tribunal, Delhi Bench 'D'. The case originated from a search conducted at the premises of a company, leading to additions in the income of the respondent for cash receipts, unrecorded investments, and expenses related to a marriage function. The CIT (A) confirmed some additions but deleted others, leading to penalty proceedings under Section 271D initiated against the respondent. The penalty was imposed and confirmed by CIT (A), prompting the respondent to appeal before ITAT, which subsequently allowed the appeal on the grounds that the company inflated purchases, and cash generated was used for personal needs of directors without constituting loans.

The central issue pertains to the treatment of personal expenses incurred by a company as income of the assessee and its implications under Section 269SS of the Income Tax Act. The judgment cites precedents from the Hon'ble Delhi High Court to establish the principle that income treated as undisclosed cannot simultaneously be considered a loan for the purposes of the Act. The court emphasized that if the Assessing Officer treats personal expenses as income, it cannot be construed as a loan under Section 269SS, ensuring that the same income is not taxed twice in the same assessment year. The CIT (A) was justified in deleting the additions made by the Assessing Officer based on this legal interpretation.

The judgment also references a case involving the Commissioner of Income Tax vs. Standard Brands Ltd., where the Hon'ble Delhi High Court dismissed an appeal by the revenue department, holding that if an amount is treated as undisclosed income, proceedings under Section 269SS cannot be initiated simultaneously. Another case, Commissioner of Income Tax vs. R.P. Singh and Co. Pvt. Ltd., further supports the principle that once income is treated as undisclosed, it cannot be considered a deposit. These cases reinforce the position that income treated as undisclosed cannot be subjected to provisions related to loans or deposits under the Act.

Ultimately, the court dismissed the appeal brought by the revenue department, upholding the decision of ITAT. The judgment underscores the legal principle that income treated as undisclosed cannot be deemed a loan under Section 269SS, ensuring a consistent application of tax laws and preventing double taxation of the same income. The absence of contradicting legal precedents further solidifies the court's decision to dismiss the appeal.