2011 (6) TMI 747 - AT - Income Tax

Appeal allowed against penalty under Income Tax Act for loans taken by agriculturists pre-partnership.

The Appellate Tribunal ITAT Amritsar allowed the appeal against the penalty imposed under section 271D of the Income Tax Act, 1961 for the assessment year ... Provisions of section 269SS - Penalty under section 271D - second proviso to section 269SS - Persons having only agricultural incomeProvisions of section 269SS - second proviso to section 269SS - Persons having only agricultural income - Whether the provisions of section 269SS were attracted to the loans in question so as to sustain penalty under section 271D. - HELD THAT: - The Tribunal found on the material before it that the loans were taken prior to the assessee joining the partnership (loans dated 20.08.2004; partnership joined on 26.08.2004) and that both lender and borrower were agriculturists who did not have any income chargeable to tax on the date of the transactions. Those facts were not rebutted by the Revenue. Applying the second proviso to section 269SS, and having regard to the judicial authorities relied upon by the assessee, the Tribunal held that section 269SS is transaction-specific and does not operate to attract its rigours where the parties to the transaction had only agricultural income and no income chargeable to tax at the relevant time. Consequently, the statutory precondition for invoking penalty under section 271D was absent.Penalty under section 271D deleted because section 269SS did not apply to the transactions in view of the second proviso and the parties' agricultural-only income at the time of the loans.Final Conclusion: The appeal is allowed and the penalty imposed under section 271D for assessment year 2005-06 is deleted as section 269SS did not apply to the loans in the facts of the case. Issues involved: Appeal against imposition of penalty under section 271D of the Income Tax Act, 1961 for the assessment year 2005-06.Grounds of appeal raised by the assessee:1. CIT(A) erred in upholding that the appellant is not an agriculturist and violated section 269SS.2. CIT(A) erred in upholding that the appellant is a partner in a firm and drawn salary, violating section 269SS.3. CIT(A) erred in upholding penalty order without considering submissions made during appellate proceedings.4. CIT(A) erred in upholding penalty order without considering reasonable cause as appellant believed section 269SS did not apply.Summary of Judgment:The Appellate Tribunal ITAT Amritsar heard the appeal against the penalty imposed under section 271D of the Income Tax Act, 1961 for the assessment year 2005-06. The assessee contended that section 269SS was not applicable to their case, citing relevant case laws. The Tribunal noted that the loans in question were taken before the assessee became a partner in the firm, and both lender and borrower were agriculturists with no taxable income. Relying on the second proviso to section 269SS and the case laws presented, the Tribunal found in favor of the assessee and deleted the penalty.The Tribunal considered the facts, submissions, and relevant provisions of the Act, along with the case laws cited by the assessee's counsel. It was established that the loans were taken before the assessee became a partner, and both parties involved were agriculturists with no taxable income. The Tribunal found that the penalty imposed was not sustainable based on the second proviso to section 269SS and the case laws presented. Consequently, the penalty imposed on the assessee was deleted.In conclusion, the appeal filed by the assessee was allowed, and the penalty under section 271D was set aside based on the applicable case laws and provisions of the Income Tax Act. The decision was pronounced in open court on 13th June 2011.