2005 (1) TMI 742 - AT - Income Tax

Appeal allowed, penalty canceled under Section 271D. Ruling based on Sections 269SS, 269T, 275, precedents.

Sharda Educational Trust Versus Assistant Commissioner of Income Tax

The Tribunal allowed the appeal, canceling the penalty imposed under Section 271D. The decision was based on the interpretation of Sections 269SS, 269T, ... - Issues Involved:1. Sustaining Penalty under Section 271D.2. Limitation for Imposition of Penalty under Section 275.3. Purpose and Interpretation of Sections 269SS and 269T.4. Nature of the Transaction: Loan or Deposit.5. Technical and Venial Nature of Default.Issue-Wise Detailed Analysis:1. Sustaining Penalty under Section 271D:The appellant argued that the CIT(A) erred in sustaining a penalty of Rs. 16,12,000 under Section 271D without properly appreciating the facts and circumstances. The appellant contended that the transaction was neither a loan nor a deposit and was made to meet urgent needs for material used in construction. The Tribunal, after considering the facts and circumstances, concluded that the transaction was genuine and not in violation of Section 269SS. Consequently, the penalty under Section 271D was canceled.2. Limitation for Imposition of Penalty under Section 275:The appellant argued that the penalty proceedings were initiated after a gap of about seven years, which was beyond the reasonable time limit prescribed under Section 275. The Tribunal agreed with the appellant's interpretation that penalty proceedings must be initiated during the course of some proceedings. Referring to the decision in Noble Pictures v. Jt. CIT, the Tribunal held that the penalty proceedings initiated after more than seven years were barred by limitation and thus invalid.3. Purpose and Interpretation of Sections 269SS and 269T:The appellant argued that the intention behind Sections 269SS and 269T, as clarified by CBDT Circular No. 387, was to curb the tendency of tax evaders to explain unaccounted money as loans. The Tribunal noted that the Revenue had accepted the transaction as genuine, with no involvement of unaccounted money. Consequently, there was no justification for imposing a penalty under Section 271D. The Tribunal relied on the decision in Farrukhabad Investment India Ltd. v. Jt. CIT, which supported the appellant's interpretation.4. Nature of the Transaction: Loan or Deposit:The appellant contended that the transaction in question was neither a loan nor a deposit as it involved a trustee giving money to the trust for urgent needs. The Tribunal agreed, citing several decisions, including Chandra Cement Ltd. v. Dy. CIT and Mohan Karkare v. Dy. CIT, which supported the view that such transactions do not constitute loans or deposits. The Tribunal concluded that the transaction was a receipt to oneself, thus not attracting the provisions of Section 269SS.5. Technical and Venial Nature of Default:The appellant argued that the default, if any, was of a technical and venial nature, given the genuineness and availability of the cash. The Tribunal agreed, referencing the decision in Dillu Cine Enterprises (P) Ltd. v. Addl. CIT and the Supreme Court's decision in Hindustan Steels Ltd. v. State of Orissa, which held that penalties should not be imposed for technical or venial breaches. Consequently, the Tribunal canceled the penalty, considering the default as technical and venial.Conclusion:The Tribunal allowed the appeal, canceling the penalty imposed under Section 271D. The decision was based on the interpretation of Sections 269SS, 269T, and 275, the nature of the transaction, and the technical and venial nature of the default. The Tribunal relied on various judicial precedents and CBDT Circular No. 387 to support its conclusions.