2019 (1) TMI 144 - AT - Income Tax

Tribunal dismisses penalties under Income Tax Act, deeming transactions as business-related cash withdrawals.

ACIT, Cir 8 (2), Mumbai Versus Ms. Reshma J. Shetty, Mumbai

ACIT, Cir 8 (2), Mumbai Versus Ms. Reshma J. Shetty, Mumbai - TMI Issues Involved:1. Deletion of penalty under Section 271D of the Income Tax Act, 1961.2. Contravention of Section 269SS of the Income Tax Act, 1961.Comprehensive, Issue-wise Detailed Analysis:1. Deletion of Penalty under Section 271D of the Income Tax Act, 1961:The revenue filed appeals against the orders of the Commissioner of Income Tax (Appeals)-47, Mumbai [CIT(A)], which deleted the penalties levied under Section 271D for the assessment years 2006-07 and 2007-08. The penalties were initially imposed because the assessee, a director of M/s. Matrix India Entertainment Consultant Pvt. Ltd (MIECPL), allegedly accepted cash loans exceeding Rs. 20,000 in violation of Section 269SS of the Act.The CIT(A) deleted the penalties based on the following findings:- The transactions in question were bank transactions reflected in the bank statements of MIECPL and not loans to the assessee.- The withdrawals were for the business purposes of MIECPL, such as making payments to workers and other business-related expenses.- The withdrawn amounts were re-deposited into the company's bank account, and there was no evidence of the company making any payment into the assessee's account as a loan.- The CIT(A) concluded that the correct cash withdrawal was Rs. 27,55,000 and not Rs. 31,67,000 as alleged by the Assessing Officer (AO). The re-deposits matched the withdrawals, indicating no loan or advance given to the assessee.- The affidavit submitted by MIECPL confirmed that no cash loan was given to the assessee.Based on these findings, the CIT(A) concluded that the addition of Rs. 31,67,000 as deemed dividend under Section 2(22)(e) was incorrect, and consequently, the penalty under Section 271D was also deleted.2. Contravention of Section 269SS of the Income Tax Act, 1961:The revenue contended that the assessee accepted cash loans exceeding Rs. 20,000 in contravention of Section 269SS, which mandates that no person shall accept any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount exceeds Rs. 20,000. The penalty under Section 271D was levied for this contravention.However, the CIT(A) found that the transactions were not loans but business-related cash withdrawals and re-deposits. The CIT(A) noted that:- The assessee provided all necessary documentation, including bank statements and affidavits, to support the claim that the transactions were not loans.- The AO failed to establish that the transactions were loans or advances to the assessee.- The CIT(A) deleted the addition of Rs. 31,67,000 as deemed dividend, leading to the deletion of the penalty under Section 271D.Judgment:The appellate tribunal, after hearing the arguments and reviewing the records, upheld the CIT(A)'s decision to delete the penalties. The tribunal agreed that since the quantum addition had been deleted, the penalty had no basis to stand. The CIT(A)'s orders were deemed judicious and correct, and the appeals filed by the revenue were dismissed.Conclusion:In conclusion, the tribunal dismissed the revenue's appeals, upholding the CIT(A)'s deletion of penalties under Section 271D. The tribunal found that the transactions in question were not loans but business-related cash withdrawals and re-deposits, and there was no contravention of Section 269SS. The penalties were deleted as the primary addition under Section 2(22)(e) was found to be incorrect.