1998 (11) TMI 27 - HC - Income Tax

Penalty under section 271D quashed where Rs.30,000 cash treated as income, not a loan under section 269SS

HC allowed the writ and quashed the penalty levied under section 271D read with section 269SS. The AO had treated the cash receipt as surrendered income ... Imposition of Penalty u/s 271(1)(c) for furnishing inaccurate particulars of income and u/s 271D for accepting the loan in cash in violation of the provisions of section 269SS - income derives from manufacture of high class polypropylene and Polythene tubing films and bags - provisions of section 269SS(b) - HELD THAT:- Section 269SS provides, inter alia, that no person shall, after June 30, 1984, take or accept from any other person, any loan or deposit otherwise by an account payee cheque or account payee bank draft, if the amount of such loan or deposit or the aggregate thereof is Rs. 20,000 or more. Section 271D provides that if a person takes or accepts any loan or deposit in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted. For non-compliance with the provisions of section 269SS, the genuineness of the transaction as loan was doubted by the Assessing Officer and so the amount was surrendered by the assessee. The surrender was accepted by the Assessing Officer as income of the assessee. It ceased to be a loan and, therefore, the very foundation for initiating the proceedings for and levying penalty under section 271D was lost. The Assessing Officer had recorded a finding that the amount of Rs. 30,000 was the income of the assessee. Impliedly he had recorded a finding that it was neither any loan nor a deposit. The question of the provisions of section 269SS having been contravened was then lost in oblivion and could not have rearisen at any subsequent stage or in subsequent proceedings. The penalty imposed under section 271D read with section 269SS cannot, therefore, be sustained. C.W.P. No. 3868 of 1997, therefore, deserves to be allowed and the penalty deserves to be quashed. Issues Involved:1. Quantum of income fixed by the Assessing Officer.2. Penalty u/s 271(1)(c) for furnishing inaccurate particulars of income.3. Penalty u/s 271D for accepting a loan in cash in violation of section 269SS.Summary:Issue 1: Quantum of Income Fixed by the Assessing OfficerThe assessee, engaged in the manufacture of polypropylene and polythene products, filed a return for the assessment year 1991-92 declaring an income of Rs. 29,910. During assessment, it was found that R. R. Jindal had advanced a cash loan of Rs. 30,000 to the assessee, which was surrendered to be treated as income. The Assessing Officer accepted this surrender and disallowed the interest paid on the loan, adding it back to the income. The assessee's revision against this assessment was dismissed, and the court found no fault with the impugned orders, dismissing C.W.P. No. 3870 of 1997.Issue 2: Penalty u/s 271(1)(c)The Assessing Officer issued a notice u/s 271(1)(c) for concealing particulars of income. The assessee did not provide any explanation, leading to a penalty of Rs. 31,586. The revision against this penalty was dismissed. The court noted that the surrender of income was unconditional and the burden of proof had shifted to the assessee, who failed to appear before the Assessing Officer. However, the court found a jurisdictional defect as the Assessing Officer did not record satisfaction of concealment during the assessment proceedings. Consequently, C.W.P. No. 3869 of 1997 was allowed, and the penalty was set aside.Issue 3: Penalty u/s 271DA penalty of Rs. 30,000 was imposed on the assessee for accepting a cash loan in violation of section 269SS. The revision against this penalty was also dismissed. The court observed that the Assessing Officer had treated the amount as income, not a loan, thereby losing the foundation for penalty u/s 271D. The court held that the Assessing Officer could not treat the amount as income for tax purposes and as a loan for penalty purposes simultaneously. Thus, C.W.P. No. 3868 of 1997 was allowed, and the penalty was quashed.Conclusion:C.W.P. No. 3870 of 1997 was dismissed, while C.W.P. Nos. 3869 and 3868 of 1997 were allowed, quashing the penalties u/s 271(1)(c) and 271D, respectively. All petitions were disposed of without any order as to costs.