1999 (10) TMI 731 - AT - Income Tax

ITAT overturns penalty under section 271D, accepting revised explanation as credible.

Jay Builders Versus Assistant Commissioner Of Income-Tax

Jay Builders Versus Assistant Commissioner Of Income-Tax - TMI Issues:Levy of penalty under section 271D for violation of section 269SS.Detailed Analysis:1. Background:The appeal pertains to the imposition of a penalty of Rs. 1,00,000 under section 271D of the Income Tax Act for contravening the provisions of section 269SS by taking cash loans from a sister concern, M/s Mehta Construction, during the relevant account year.2. Initial Explanations:The assessee initially explained to the Assessing Officer (AO) that the cash amount was withdrawn from M/s Mehta Construction and mistakenly recorded as a loan, claiming it was not subject to section 269SS due to being introduced as capital without interest payment.3. AO's Decision:The AO rejected the initial explanation as an afterthought and imposed the penalty.4. Revised Explanation Before CIT(A):Before the Commissioner of Income Tax (Appeals), the assessee provided a revised explanation, stating that the funds were transferred to the assessee-firm by family members for a specific purpose related to Mehta Construction's financial presentation to secure a bank loan.5. CIT(A) Decision:The CIT(A) found discrepancies in the explanations provided at different stages and upheld the penalty, deeming the revised explanation as lacking credibility.6. Arguments Before ITAT:The assessee argued before the Income Tax Appellate Tribunal (ITAT) that the transaction between sister concerns was not covered by section 269SS, emphasizing the genuine nature of the transactions and the belief that they were legally compliant.7. Supporting Evidence:The assessee presented various orders of the Tribunal, account copies, confirmation letters, and other documents to support their contentions.8. Revenue's Position:The Revenue relied on the AO's and CIT(A)'s orders, arguing that inconsistent explanations could indicate contumacious conduct, justifying the penalty.9. ITAT's Decision:The ITAT carefully analyzed the explanations provided and found the revised explanation before the CIT(A) to be more accurate and credible. Citing legal precedents, the ITAT emphasized that explanations presented for the first time before appellate authorities could be accepted if found plausible. The ITAT accepted the revised explanation, considering the genuine intent, advice of the accountant, and the transaction's purpose. Consequently, the ITAT concluded that the penalty under section 271D was unwarranted and canceled it, allowing the appeal.In summary, the ITAT ruled in favor of the assessee, overturning the penalty imposed under section 271D due to the genuine nature of the transactions, the revised and credible explanation provided, and the legitimate purpose behind the fund transfer between sister concerns.