2011 (9) TMI 794 - HC - Income Tax

Interpretation of section 269SS: Cash received over Rs. 20,000 not loan but advance payment

Commissioner of Income-tax, Bangalore Versus Bangalore Leather & Leather Crafts Ltd.

Commissioner of Income-tax, Bangalore Versus Bangalore Leather & Leather Crafts Ltd. - TMI Issues:Interpretation of section 269SS - Whether the amount received in cash in excess of Rs. 20,000 is a loan or deposit as per the Income Tax Act.Analysis:The judgment by the Karnataka High Court involved a dispute where the Revenue challenged a Tribunal's order regarding the application of section 269SS of the Income Tax Act. The Tribunal had ruled that an amount received in cash exceeding Rs. 20,000 by the assessee was not a loan or deposit, hence section 269SS was not applicable. The assessee, engaged in job work for a sister concern, received a sum of Rs. 8,15,600 in excess of due amounts, which the Revenue considered a loan, initiating penalty proceedings. The Commissioner of Appeals upheld this view, but the Tribunal accepted the assessee's argument that the cash was an advance payment for job work to help the business survive, not a loan or deposit under section 269SS. Consequently, the penalty was set aside, leading to the Revenue's appeal.The Revenue contended that the Tribunal erred in interfering with the assessing authority's finding that the amount represented a loan, citing an admission during arguments before the Commissioner of Income-tax (Appeals) that it was a breach of section 269SS. On the other hand, the assessee's counsel supported the Tribunal's decision. The judgment referenced Departmental Circular No. 387, explaining the issue of unaccounted cash often being portrayed as loans or deposits, emphasizing the need for strict compliance with tax laws.The Court analyzed the transaction details, noting the absence of evidence indicating the cash received was a loan. The cash component of Rs. 68,15,600, part of a total turnover of Rs. 94,58,272 between the parties, was paid in multiple installments below Rs. 20,000 due to the assessee's financial difficulties. The Court observed that the purpose of the payment was clear from the records, indicating it was not a loan or deposit. Given the relationship between the parties and the circumstances, the Court concluded that the amount was not a loan but an advance to support the struggling business. Consequently, the Tribunal's decision to set aside the penalty and the assessing authority's order was upheld, with the substantial question of law decided in favor of the assessee and against the Revenue.