2013 (3) TMI 829 - AT - Income Tax

Construction company wins case on nature of amount received from AOP, penalty under Section 271D deleted

Ridhi Sidhi Infraprojects Pvt Ltd Versus JCIT, Range -1 Udaipur

The Tribunal ruled in favor of the assessee, a construction company, in a case involving the nature of an amount received from an AOP. The Tribunal held ... - Issues Involved:1. Whether the amount received by the assessee from the AOP is a loan or a withdrawal.2. Applicability of Section 269SS of the Income-tax Act, 1961.3. Levy of penalty u/s 271D for contravention of Section 269SS.Summary:Issue 1: Nature of Amount ReceivedThe assessee, a company engaged in construction, received Rs. 3.25 crores in cash from an AOP of which it was a member. The A.O. treated this amount as a loan and initiated penalty proceedings u/s 271D for violating Section 269SS. The assessee argued that the amount was a withdrawal from the AOP and not a loan. The A.O. disagreed, noting that interest was paid on the amount, and classified it as a loan.Issue 2: Applicability of Section 269SSSection 269SS mandates that loans or deposits above Rs. 20,000 must be taken through an account payee cheque or draft. The A.O. held that the assessee violated this provision. The assessee contended that the transaction was between sister concerns and thus outside the purview of Section 269SS. The A.O. and CIT(A) did not accept this argument, emphasizing the different nature of businesses and the minimal shareholding of the assessee in the AOP.Issue 3: Levy of Penalty u/s 271DThe A.O. imposed a penalty of Rs. 3.25 crores u/s 271D, which was upheld by the CIT(A). The assessee appealed, highlighting that the transaction was genuine, the AOP was identifiable, and no tax evasion was intended. The assessee also argued that the transaction was recorded in the books and the repayment was made via cheque, showing no malafide intent.Tribunal's Decision:The Tribunal found that the amount received was not a loan but a withdrawal from the AOP. It noted that the assessee had a running account with the AOP, and such transactions do not constitute loans. The Tribunal referenced several judgments, including CIT Vs. Idhayam Publications Ltd. and Muthoot M. George Bankers Vs. ACIT, which supported the view that transactions between sister concerns or within a running account do not attract Section 269SS.The Tribunal also held that the transaction was between sister concerns, managed by the same individuals, and thus outside the purview of Section 269SS. It emphasized that the primary intent of Section 269SS is to curb tax evasion, which was not the case here. The Tribunal concluded that there was a reasonable cause for the cash transaction, and no penalty u/s 271D was warranted.Conclusion:The Tribunal deleted the penalty of Rs. 3.25 crores imposed u/s 271D, allowing the appeal of the assessee. The judgment underscored that genuine transactions between sister concerns, even if conducted in cash, do not necessarily attract penalties under Sections 269SS and 271D, especially when no tax evasion is involved.