2018 (12) TMI 2033 - AT - Income Tax

Penalty for alleged cash loan under 271D remitted pending verification of land ownership; waiver if ownership established

Penalty under Section 271D was contested where a cash receipt of Rs. 1 crore was explained as an advance for sale of a specified parcel of land; the ... Penalty U/s 271D - violation of provision of Section 269SS - cash loan of Rs. 1.00 crore taken by the assessee - Assessee explained that the amount received was not a loan but it was an advance against the sale of land vide registered agreement - As per revenue assessee prepared the document on old stamp paper and it was a afterthought evidence. HELD THAT:- It is pertinent to note that if the assessee is having/ holding the land in question measuring 1.11 hectare situated at village in Alwar then in absence of any contrary record, the explanation of the assessee that the said amount was received as an advance against the sale of the land, cannot be rejected. However, neither the Assessing Officer nor the ld. CIT(A) has examined whether the assessee owned this land in question which is subject matter of the transaction. Even the assessee did not produce any record about the ownership of the said land in question, therefore, to give the concluding finding on the matter, it is necessary to verify the fact that the land in question is owned by the assessee and free from all encumbrances so it can be freely transferred. Accordingly for the limited purpose we set aside this issue to the record of the Assessing Officer to conduct a necessary enquiry in respect of the status and ownership of the land in question as on the date of the alleged agreement. In case, the land in question is found to be owned by the assessee then the claim of the assessee shall be accepted and no penalty can be levied. Appeal of the revenue is allowed for statistical purposes only. Issues: Whether the penalty under Section 271D of the Income-tax Act, 1961 can be sustained for receipt of Rs. 1,00,00,000 where the assessee contends the amount was an advance for sale of land and not a loan in contravention of Section 269SS of the Income-tax Act, 1961.Analysis: The Assessing Officer treated the amount as a cash loan and imposed penalty under Section 271D, finding the agreement to sell was an afterthought. The Commissioner (Appeals) accepted the assessee's contention that the amount was advance against sale of land based on the notarized agreement. The Tribunal observed that, apart from the notarized agreement, there was no contemporaneous independent documentary evidence on record prior to issuance of the show-cause notice to substantiate the claim. The Tribunal further noted that neither the Assessing Officer nor the Commissioner (Appeals) examined whether the assessee owned the land in question or whether it was free from encumbrances such that it could legitimately be the subject of a sale. The Tribunal directed that the issue be remitted to the Assessing Officer to verify ownership and status of the land as on the date of the alleged agreement, and held that if ownership is established, the assessee's claim of advance would be accepted and penalty under Section 271D would not be leviable.Conclusion: The appeal is allowed for statistical purposes by setting aside the matter to the Assessing Officer to verify ownership and status of the land; if ownership is established, no penalty under Section 271D shall be levied, otherwise the Assessing Officer may proceed in accordance with law.Ratio Decidendi: Where the characterisation of a receipt as an advance for sale versus a prohibited cash loan is in dispute, the assessing authority must verify ownership and the existence of supporting contemporaneous evidence; absent such verification the matter should be remitted for inquiry, and penalty under Section 271D cannot be sustained if ownership and the advance character are established.