Company's personal expenses treated as income cannot simultaneously be deemed loan violating section 269SS penalty provisions

ITAT Delhi held that penalty under section 271D for contravention of section 269SS regarding loan acceptance from M/s Spaze Towers Pvt. Ltd was not sustainable. Following Aman Sharma precedent from Punjab and Haryana HC, the tribunal ruled that once the Assessing Officer treated personal expenses incurred by the company as assessee's income, the same amount cannot simultaneously be treated as loan violating section 269SS provisions. The same income cannot be taxed in two hands in the same assessment year. CIT(A) correctly deleted the additions. Decision favored the assessee.

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Issues Involved:
1. Deletion of penalty u/s 271D for violation of section 269SS.
2. Treatment of transactions as loans/deposits or personal expenses.

Summary:

The present appeal was filed by the Revenue against the order of Ld. CIT(A)-3, Gurgaon, dated 16.03.2020 for the A.Y. 2013-14. The issues raised by the Revenue are as follows:

Issue 1: Deletion of penalty u/s 271D for violation of section 269SS:

The Revenue contended that the Ld. CIT(A) erred in deleting the penalty u/s 271D of the Act, arguing that the payment of Rs. 2,00,00,000/- made by M/s Spaze Towers Pvt. Ltd. to the assessee was not a loan transaction in contravention of section 269SS. The penalty was imposed by JCIT, Central Range, Gurgaon, due to the acceptance of loans from M/s Spaze Towers Pvt. Ltd. in violation of section 269SS.

Issue 2: Treatment of transactions as loans/deposits or personal expenses:

The Revenue also argued that the Ld. CIT(A) erred in deleting the penalty despite the funds flow submitted by M/s Spaze Towers Pvt. Ltd. before the Settlement Commission, showing that the company discharged the liabilities of the assessee by making payments in cash, violating section 269SS. The Ld. CIT(A) relied on the ITAT's order, which held that the expenses incurred by M/s Spaze Towers Pvt. Ltd. for the personal needs of the directors/promoters could not be construed as loans or deposits.

The ITAT Delhi 'D' Bench adjudicated a similar issue in the case of M/s K.S. Chawla & Sons (HUF) ITA No. 5614/Del/2019, where it was held that the telescoped personal expenses incurred by M/s Spaze Towers Pvt. Ltd. were treated as income of the promoters/directors. The CIT(A) deleted the additions, stating that the same income could not be taxed in two hands in the same assessment year.

The ITAT observed that the JCIT, while levying the penalty, did not have a clear finding based on cogent and reliable material that the appellants took or accepted any loan or deposit in cash from Spaze Towers. The transactions were devoid of any lender-borrower relationship, and the amount in question was out of tax-paid income/disclosed sources of Spaze Towers.

The Hon'ble Delhi High Court in the case of Standard Brands Ltd and R.P. Singh & Co. [P] Ltd held that once the income was treated as undisclosed income, the initiation of proceedings u/s 269SS r.w.s 271D was not valid. The ITAT also referred to the Hon'ble Supreme Court's decision in Jai Laxmi Rice Mills Ambala City, which held that penalty u/s 271D without any satisfaction could not be levied.

In conclusion, the ITAT dismissed the Revenue's appeal, holding that the penalty imposed u/s 271D could not be sustained, as the transactions were not loans but personal expenses incurred by Spaze Towers for the directors/promoters.

Order Pronounced in the Open Court on 05/01/2024.

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