2023 (10) TMI 125 - AT - Income Tax

Penalty u/s 271D/271E - nature of transaction with other party - taking or repaying cash-loans contravention of sections 269SS/269T - other party is being assessed by the same AO and enquiry was made by the AO to ascertain the facts - HELD THAT - Despite a simultaneous search on the assessee as well as Shri Laxmi Narayan and despite centralization of assessments of assessee and Shri Laxmi Narayan in the same AO, the Ld. AO has not made any enquiry whatsoever qua the alleged transactions from Laxmi Narayan Shivhare. We agree with the submission of Ld. AR that when the case of Laxmi Narayan Shivhare was very much assessed by same AO, the AO ought to have examined from Laxmi Narayan Shivhare as to whether he had really made loans to assessee or not and if yes, then whether he had explainable sources or not? Before us, Ld. AR has made a clear assertion that no such exercise was done by AO and that AO has not made any addition u/s 69/69A/69B in the hands of Laxmi Narayan Shivhare. Secondly, on a prima facie perusal of LPS-01-Page 135 , we find that there are transactions of Demand-Draft, Cheques, Plots, lands, etc. noted in the said document and at the end of document, there is a mention of deposit of Rs. 33,13,000/- at the showroom. Apparently, these transactions do not speak of cash-loans having been taken/repaid by assessee from Laxmi Narayan Shivhare. Therefore, the contentions raised by AR are very much meritorious which Ld. DR could not contradict or rebut. In these circumstances, we are unable to sustain the view taken by lower-authorities. Decided in favour of assessee. Penalty u/s 271D qua the alleged loans taken from other persons - AR submitted that although a search u/s 132 was also conducted upon assessee but the assessee never claimed to have taken loans for explaining source of any cash, jewellery, asset, investment found during search or any entry in the books of account in any of the assessment-years involve - HELD THAT - ssessee being in liquor business, the possibility of bringing cash from shops cannot be ruled out. Secondly, we find merit in AR s submission that if the AO really believed that the assessee had taken loans from different persons, the AO ought to have made enquiries from those persons and examined whether they had explainable sources of giving loans to assessee or not. Needless to mention that the enquiries from those persons would have unearthed the truth. But the AO has not carried out any such exercise. Thirdly, we also find that although a search was also conducted upon assessee but there is no single document, paper, slip, promissory note, agreement, etc. found by authorities to corroborate the indulgence of assessee in taking loans. It is also noteworthy that the AO has not made any addition on account of payment of unaccounted interest by assessee. Thus, we find that the AO s action is based on mere surmises and conjectures without having any valid, positive, cogent or corroborative evidence. AR has also relied upon CBDT Circular No. 387 dated 07.06.1984 to advance an argument that the intention behind introduction of section 269SS/269T as explained by CBDT clearly encapsulates, rather guards, the assessee s case. On perusal of Circular, we find the opening para itself Unaccounted cash found in the course of searches carried out by the Income-tax Department is often explained by taxpayers as representing loans taken from or deposits made by various persons . It conveys that the provisions of section 269SS/269T would trigger where the assessee explains the source of cash or any other asset found during search as representing the cash loans taken from various persons. As a matter of fact, Ld. AR has made a clear assertion standing at the Bar that the assessee has not explained the source of any cash, jewellery, asset, investment, etc. found during search or any entry in the books of account in any of the assessment-years involved pursuant to search as sourced from alleged cash loans taken by assessee. Had the assessee declared the source of any cash, jewellery, asset, investment etc. found during search as acquired by utilizing loans taken in cash, the AO would have been justified to impose penalty u/s 269SS/269T. But the situation is just opposite. In the present case, there is no such declaration by assessee. Therefore, going by Circular also, one can conclude that the sections 269SS/269T and consequently sections 271D/271E can t be applied in present case - Decided in favour of assessee.

Summary

Issues Involved:
1. Penalty under Section 271D for Assessment Years 2013-14, 2014-15, and 2015-16.
2. Penalty under Section 271E for Assessment Year 2015-16.

Summary:

Issue 1: Penalty under Section 271D for Assessment Years 2013-14, 2014-15, and 2015-16

The assessee, engaged in the liquor business, faced penalties under Section 271D for alleged cash loans taken in contravention of Sections 269SS and 269T of the Income-tax Act, 1961. The penalties were based on documents seized during a search operation. The AO imposed penalties of Rs. 23,00,000/- and Rs. 24,56,000/- for AY 2013-14 and 2014-15 respectively, based on "LPS-01-Page 135," alleging cash loans from Shri Laxmi Narayan Shivhare. The Tribunal found merit in the assessee's contention that no enquiry was made from Laxmi Narayan Shivhare, despite both being assessed by the same AO. Additionally, the document did not explicitly demonstrate cash loans. Consequently, the penalties for AY 2013-14 and 2014-15 were deleted.

For AY 2015-16, the penalty of Rs. 59,32,000/- included Rs. 11,00,000/- based on "LPS-01-Page 135" and Rs. 48,32,000/- based on "LPS-02-Page 48." The Tribunal applied the same reasoning as for the previous years to delete the penalty of Rs. 11,00,000/-. Regarding the Rs. 48,32,000/-, the Tribunal found that the document did not indicate loans, and no corroborative evidence was found during the search. The AO did not make necessary enquiries from the alleged loan givers. Therefore, this penalty was also deleted.

Issue 2: Penalty under Section 271E for Assessment Year 2015-16

The assessee challenged the penalty of Rs. 35,43,000/- for alleged cash repayments to Shri Laxmi Narayan Shivhare, inferred from "LPS-01-Page 135." The Tribunal, applying the same analysis as for the penalties under Section 271D, found no basis for the penalty and deleted it.

Conclusion:

All penalties imposed under Sections 271D and 271E for the relevant assessment years were deleted, and the appeals of the assessee were allowed.