2023 (10) TMI 31 - AT - Income Tax

Penalty u/s. 271D - AO found the assessee to have indulged in receipt of loans/deposits through modes other than banking channels as reflected in Sl.No.31(1) of Form 3CD, being, the Tax Audit Report of the assessee, violating the provisions of section 269SS - HELD THAT - Since section 269SS is attracted when a person takes or accepts any loan or deposit in a mode otherwise than the banking channel etc,. it has no application in the instant case of the assessee when no loan was taken or accepted by the assessee from Ms. Ritu Sanghavi. The credit amount is a transfer entry from her account to that of her husband, which again does not call for imposition of any penalty. On an examination of the account of Mr. Deepak Sanghavi first amount is debited to his account. The assessee paid this amount on his behalf and debited his account. Similar is the position regarding the second and third amounts which have been debited to the account of Mr. Deepak Sanghavi. These amounts are in the nature of payments made by the assessee on behalf of Mr. Deepak Sanghavi. Thus, the provisions of section 269SS are not attracted, which apply only on taking or accepting loan and deposit. Also minor amounts items of crediting his account with rent etc., which do not violate section 269SS - We, therefore, hold that the assessee did not take or accept any loan either from Ms. Ritu Sanghavi or Mr. Deepak Sanghavi in violation of provisions of section 269SS of the Act, which could have magnetized penalty u/s. 271D of the Act. The impugned order is, therefore, overturned to this extent. Assessee appeal is allowed.

Summary

Issues:
The judgment involves the penalty imposed by the Assessing Officer (AO) under section 271D of the Income-tax Act, 1961 for alleged violation of section 269SS in relation to the assessment year 2016-17.

Summary:

Issue 1: Alleged violation of section 269SS and imposition of penalty under section 271D

The AO imposed a penalty under section 271D on the assessee for accepting loans in violation of section 269SS, based on a qualification in the tax audit report. The assessee explained the transactions, stating they were not loans but payments made on behalf of others. The Tribunal held that section 269SS applies when a person takes or accepts a loan or deposit in a mode other than banking channels, which was not the case in the transactions with Ms. Ritu Sanghavi and Mr. Deepak Sanghavi. The Tribunal examined the details of the transactions and concluded that no loans were taken or accepted, overturning the penalty imposed by the AO.

Key Takeaways:
- The penalty was imposed based on a qualification in the tax audit report.
- The Tribunal emphasized that the penalty should be based on actual facts, not the auditor's view.
- Section 269SS prohibits taking or accepting loans in modes other than banking channels.
- Detailed examination of transactions with Ms. Ritu Sanghavi and Mr. Deepak Sanghavi showed no violation of section 269SS.
- Payments made on behalf of others did not constitute accepting loans, as per the provisions of the Act.
- The Tribunal overturned the penalty, holding that no loans were taken or accepted in violation of section 269SS.