2019 (11) TMI 142 - AT - Income Tax

Tribunal rules in favor of assessee regarding penalty for cash loans under Income Tax Act

Code Engineers Pvt. Ltd. Versus Dy. CIT, Circle 8 (3)

The Tribunal ruled in favor of the assessee in a case concerning the levy of a penalty under section 271D of the Income Tax Act, 1961 for accepting cash ... Levy of penalty u/s. 271D - assessee had accepted the amount and offered it for tax as income by revising its return of income originally filed - HELD THAT:- In Standard Brands Ltd. [2006 (7) TMI 126 - DELHI HIGH COURT] HC has held that the Revenue could not, on the one hand, contend that the amount was undisclosed income in the hands of the assessee and, at the same time, seek to initiate the proceedings against the assessee for alleged violation of the provisions of section 269SS of the Act; and that the Revenue having taken the stand that the income was undisclosed income in the hands of the assessee, it could not resort to the proceedings u/s. 269SS r.w.s 271D of the Act. In Diwan Enterprises [1998 (11) TMI 27 - DELHI HIGH COURT] where the assessee had surrendered the amount of alleged loan as its income, and the A.O. had accepted the surrendered amount and had treated it as the income of the assessee, the Hon’ble Delhi High Court has held that the A.O. cannot treat the amount as a loan for the purpose of section 269SS r.w.s. 271D of the Act and levy penalty; and that the amount having ceased to be a loan, the very foundation for initiating the proceedings, for and levying the penalty u/s. 271D was lost. Also see R. P. Singh Co. (P.) Ltd. [2010 (9) TMI 863 - DELHI HIGH COURT] as held that once the A.O. has treated the share application money received by the assessee in cash, as undisclosed income of the assessee, he could not have proceeded on the basis that it was deposit; and that there was no question of levy of penalty u/s. 271D - Decided in favour of assessee. Issues:1. Levy of penalty under section 271D of the Income Tax Act, 1961 on the assessee for accepting cash loans.2. Confirmation of penalty by the Commissioner of Income Tax (Appeals) (CIT(A)).Analysis:1. The case involves the appeal of an assessee against the penalty of Rs. 1,14,50,000 imposed under section 271D of the Income Tax Act, 1961 for accepting cash loans during the financial year 2011-12. The penalty was confirmed by the CIT(A) based on the findings of a survey conducted on the assessee's office premises, where it was revealed that a significant amount of the loan was accepted in cash without proper documentation. The CIT(A) held that inclusion of the loan amount in the total income by the assessee did not absolve it from penalty as the actual facts of accepting cash loans were established during the survey.2. The CIT(A) rejected the assessee's argument that the non-exclusion of the loan amount from the total income by the Assessing Officer did not imply that it was not a loan. The CIT(A) emphasized that the burden of proving that the transaction was not a loan rested on the assessee, and failure to provide evidence during the penalty proceedings was detrimental to the assessee's case. The CIT(A) also highlighted that the Assessing Officer's power to enhance total income or reduce losses did not extend to excluding amounts declared by the assessee.3. The assessee's counsel cited case laws to support their contention that once the additional income offered by the assessee was accepted and treated as income by the authorities, it could not be considered a loan for penalty purposes under section 271D. The counsel relied on judgments where surrendered amounts were treated as income, leading to the dismissal of penalty proceedings related to alleged loans. The Tribunal, following the precedence set by the cited case laws, ruled in favor of the assessee, reversing the penalty imposed and deleting the penalty amount of Rs. 1,14,50,000.4. The Tribunal's decision was based on the principle that when an amount offered as income is accepted and treated as such by the authorities, it cannot subsequently be treated as a loan for penalty purposes. The Tribunal found merit in the assessee's argument, supported by relevant case laws, and concluded that the penalty imposed under section 271D was not justified in this case. The appeal filed by the assessee was allowed, and the penalty was deleted.This comprehensive analysis outlines the key issues, arguments presented, legal interpretations, and the final decision of the Tribunal in favor of the assessee based on established legal principles and precedents.