Tribunal rules cash receipts were advances, not loans, under Income Tax Act

The tribunal ruled in favor of the assessee, finding that the cash receipts were advances for the sale of flats and not loans or deposits under Section 269SS of the Income Tax Act. The penalty imposed under Section 271D was deleted, as the tribunal determined that the advances and cash receipts from promoters for business expenses were not covered under the relevant provisions prior to the amendment introduced by the Finance Act, 2015.

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Issues Involved:
1. Levy of penalty under Section 271D of the Income Tax Act, 1961 for violation of Section 269SS of the Act.
2. Classification of cash receipts as advances against sale of flats or as loans/deposits.
3. Applicability of Section 269SS to advances received prior to its amendment by Finance Act, 2015.
4. Treatment of cash receipts from promoters in the current accounts of the company.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271D:
The assessee, engaged in real estate, was penalized under Section 271D for allegedly violating Section 269SS by accepting cash loans/advances totaling Rs. 1,10,26,000. The Assessing Officer (AO) imposed a penalty equal to the amount received in cash.

2. Classification of Cash Receipts:
The assessee contended that Rs. 76,60,000 out of the total amount was received as advances from promoters for day-to-day expenses and the remaining Rs. 33,66,000 as advances towards the sale of land. The AO and the Commissioner of Income Tax (Appeals) (CIT(A)) did not accept this explanation, leading to the confirmation of the penalty.

3. Applicability of Section 269SS to Advances:
The assessee argued that the advances received were genuine and not loans or deposits. They relied on the fact that Section 269SS, as it stood before its amendment by the Finance Act, 2015, did not include advances related to the transfer of immovable property within its ambit. The amendment, effective from 01.06.2015, introduced the term "specified sum" to include such advances, which was not applicable to the assessment year in question.

4. Treatment of Cash Receipts from Promoters:
The assessee claimed that the cash receipts from promoters were for business expenses and were recorded in the current accounts of the promoters. The jurisdictional High Court's decision in the case of Idyayam Publications Ltd was cited, which held that transactions in the current account with promoters could not be considered loans or deposits.

Judgment:
The tribunal found that the assessee had provided sufficient evidence that the amounts received from customers were advances for the sale of flats, supported by confirmation letters and ledger copies. The tribunal noted that Section 269SS, prior to its amendment, did not cover such advances.

Regarding the cash receipts from promoters, the tribunal observed that these were for business expenses and recorded in the current accounts, aligning with the High Court's ruling in Idyayam Publications Ltd. The tribunal concluded that these receipts could not be considered loans or deposits under Section 269SS.

Conclusion:
The tribunal deleted the penalty levied under Section 271D, allowing the appeal of the assessee. The judgment emphasized that the advances received for the sale of flats and the cash receipts from promoters for business expenses were not covered under Section 269SS as it stood before the amendment.

Order Pronouncement:
The order was pronounced on March 21, 2019, in Chennai.

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