ITAT rules against penalty under section 271D citing absence of cash payments & lack of bank account

The ITAT upheld the CIT(A) order and quashed the penalty under section 271D, ruling that the transactions were made through drafts and cheques, with no evidence of cash payments. The absence of a bank account at the time of the transactions due to the company not being incorporated then was considered. The appeal by the Revenue challenging the CIT(A) decision was dismissed, and the penalty order was set aside.

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Issues:
Appeal against penalty u/s 271D imposed by AO - Violation of provisions of section 269SS - Quashing of penalty order by CIT(A) - Appeal by Revenue challenging CIT(A) order.

Analysis:
1. The appeal filed by the Revenue pertains to the assessment year 2007-08 and challenges the penalty u/s 271D imposed by the AO amounting to Rs. 29,00,000. The penalty was imposed due to alleged violation of provisions of section 269SS of the Income Tax Act, 1961.
2. The AO observed that the assessee company had made payments for the purchase of land through a loan creditor and directly by the promoters and their relatives, subsequently accounted for as share application money. This led to the imposition of the penalty under section 271D.
3. The CIT(A) deleted the penalty after considering evidence provided by the assessee during the appeal proceedings. The CIT(A) noted that the payments were made through drafts and cheques, with no evidence of cash payments. The absence of a bank account at the time of the transaction was due to the company not being incorporated then.
4. The Revenue, dissatisfied with the CIT(A) order, appealed to the ITAT. The arguments presented by the Revenue were not substantiated by evidence. The ITAT noted that the payments were made through drafts and cheques, with no proof of cash transactions. The transactions occurred before the incorporation of the company, absolving it from liability.
5. The ITAT upheld the CIT(A) order and quashed the penalty under section 271D, stating that there was no basis for invoking section 269SS given the mode of conveyance and the pre-incorporation context of the transactions.
6. Consequently, the appeal filed by the Revenue was dismissed, and the penalty order under section 271D was set aside.

This detailed analysis of the judgment highlights the issues involved, the arguments presented, and the rationale behind the decision to quash the penalty order imposed by the AO.

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