2019 (9) TMI 53 - AT - Income Tax

Tribunal upholds penalties for cash loans violating tax laws, lack of evidence leads to dismissal

The Tribunal upheld penalties imposed under Section 271D for violating Section 269SS for assessment years 2002-03, 2004-05, and 2006-07. The penalties ... Levy of penalty u/s 271D - violation of provision 269SS - assessee has given promissory note and accepted the loan in cash - AY 2002-03 - HELD THAT:- No amount was outstanding as per the recitals of the sale deed. There was no mention with regard to the fact that the Managing director has given promissory note towards part of sale consideration in the sale deed. As per CIT(A), there was no entry in the company’s books of accounts with regard to amounts received from Sri K.Mallesh for pending sale consideration. Therefore, we are unable to accept the contention of the assessee that the transactions were related to the company in respect of sale transaction of Agreement cum GPA dated 27.06.2001. The company has refunded the plot advance, but not the balance sale consideration. The account also does not relate to the impugned assessment year, but related to the financial year 01.04.2005 to 31.03.2006 relevant to the A.Y. 2006-07. The assessee could not furnish any evidence to establish that the transaction in question was related to the company, but not related to him. There is no dispute that the assessee has given promissory note and accepted the loan in cash in violation of provision 269SS of the act. The contention of the assessee that the transaction was related to the company was not established with any tangible evidence. AY 2004-05 - ledger account copies alone cannot establish that loans accepted by the assessee were related to the company. The entries of the books of accounts of the company and the seized documents should support the contention of the assessee. Against the opening balance of ₹ 85,000/- as on 01.04.2005 in the books of the company, the company has refunded the sum of ₹ 1,35,000/- and shown closing balance of ₹ 50,000/-. The opening balance in the company’s accounts, the amount refunded to Shri Rao and Shravani and the cash loans of ₹ 60,000/- each does not match with the explanation and the entries in the books of accounts of the company and the claim of the assessee. Since the assessee could not substantiate with supporting evidence, we are unable to accept the contention of the assessee that the transactions were related to the company. Therefore, we hold that the assessee failed to establish with tangible evidence that the transactions were pertaining to the company, but not to the assessee. The assessee also failed to assign reasonable cause for accepting the loan in cash in violation of provisions of section 269SS AY 2006-07 - As per the promissory note in page No.74 of the paper book, it is evident that the assessee has accepted the cash loan from Shri P.Rayappa on 25.11.2005. The said transaction was not recorded in the books of accounts of the company. Repayment of loan was not established with the bank account of the company. The Ld.CIT(A) has given finding that the transaction was not recorded in the books of accounts of the company. And the seized material also did not establish that the amount was related to the company and during the appeal hearing also, the assessee failed to produce any evidence to show that the cheque given to P.Rayappa for ₹ 11 lakhs was to square off the loan received by the assessee.. Therefore, we hold that the assessee has accepted the cash loan of ₹ 11 lakhs from P.Rayappa in violation of provisions of section 269SS and there is no evidence to establish that the transaction in question was related to the company, but not related to the assessee. The assessee also failed to submit reasonable cause for accepting the loan otherwise than account payee cheque Assessee's appeal dismissed. Issues Involved:1. Penalty levied under Section 271D for violation of Section 269SS.2. Whether the transactions in question were related to the company or the individual assessee.3. Adequacy of evidence provided by the assessee to substantiate claims.4. Justification for the penalties confirmed by the CIT(A).Issue-wise Detailed Analysis:1. Penalty levied under Section 271D for violation of Section 269SS:The Addl. Commissioner of Income Tax levied penalties for the assessment years 2002-03, 2004-05, and 2006-07 for accepting cash loans in violation of Section 269SS. The penalties imposed were Rs. 3,58,04,875/-, Rs. 8,80,000/-, and Rs. 61,05,000/- respectively. The CIT(A) provided partial relief, reducing the penalties to Rs. 2,00,000/-, Rs. 1,20,000/-, and Rs. 12,00,000/- respectively.2. Whether the transactions in question were related to the company or the individual assessee:The assessee contended that the cash loans were related to the company, M/s R.K. Township Promoters Pvt. Ltd., and not to him personally. This claim was based on the argument that the loans were plot advances received on behalf of the company. However, the AO and CIT(A) found that the transactions were not recorded in the company's books and lacked corroborative evidence to support the assessee's claims.3. Adequacy of evidence provided by the assessee to substantiate claims:The assessee provided various documents, including promissory notes and ledger accounts, to support the claim that the transactions were company-related. However, these documents failed to establish a direct link between the transactions and the company. For instance, the sale deed dated 27.06.2001 did not mention any outstanding balance or promissory notes related to the company. Similarly, ledger accounts provided were for different financial years and did not match the loan amounts in question.4. Justification for the penalties confirmed by the CIT(A):The CIT(A) upheld the penalties after considering the remand reports from the AO, which confirmed that the transactions were not recorded in the company's books. The CIT(A) found that the assessee failed to provide tangible evidence to prove that the loans were company-related. The Tribunal also noted that the assessee did not establish reasonable cause for accepting cash loans in violation of Section 269SS.Assessment Year 2002-03:The assessee accepted a cash loan of Rs. 2,00,000/- from Sri K.Mallesh. The CIT(A) confirmed the penalty as the assessee failed to demonstrate that the transaction was company-related. The Tribunal upheld this decision, noting that the sale deed and promissory notes did not support the assessee's claims.Assessment Year 2004-05:The assessee received cash loans totaling Rs. 1,20,000/- from Mr. TPS Rao and Ms. T.Shravani. The CIT(A) confirmed the penalty, finding no evidence that the transactions were recorded in the company's books. The Tribunal agreed, noting discrepancies in the ledger accounts and the lack of corroborative evidence.Assessment Year 2006-07:The assessee accepted cash loans of Rs. 1,00,000/- from K.Mallesh and Rs. 11,00,000/- from P.Rayappa. The CIT(A) upheld the penalties, as the assessee could not establish that the loans were company-related. The Tribunal found that the promissory notes and other documents did not substantiate the assessee's claims, and the transactions were not recorded in the company's books.Conclusion:The Tribunal dismissed the appeals for all assessment years, confirming the penalties imposed under Section 271D for violation of Section 269SS. The assessee's failure to provide adequate evidence and establish reasonable cause for accepting cash loans led to the upholding of the penalties.