Characterisation of booking advances as deemed sale precludes levy of deposit acceptance penalty; penalty deleted on that basis.

Characterisation of booking deposits or trade advances as income by assessment authorities prevents their simultaneous treatment as third party deposits or loans for imposition of a penalty under the deposit acceptance penalty provisions; the Tribunal held that amounts accounted for and assessed as deemed sales (including under unexplained receipts principles) cannot be re labelled as deposits to sustain a penalty, and upheld deletion of the penalty on these facts. The ratio affirms that assessment as income is outcome determinative and bars double characterisation for levy of deposit acceptance penalties.

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Issues: Whether penalty under Section 271D of the Income-tax Act, 1961 for alleged violation of Section 269SS is sustainable where the cash receipts/booked deposits have been treated as trade advances or deemed sales and assessed as income.

Analysis: The Tribunal examined the assessment records and the special audit report which consistently treated the amounts in question as booking deposits/trade advances that were accounted for as deemed sales and included in the assessee's income. The Assessing Officer had imposed penalty under Section 271D on the view that the cash receipts constituted deposits/loans in contravention of Section 269SS. The Tribunal considered that once booking advances are treated and assessed as income (including being assessed under principles applicable to unexplained receipts under Section 68), they cannot simultaneously be characterized as third-party deposits or loans for the purpose of penalty under Section 271D. The Tribunal also followed precedent of the co-ordinate bench where similar facts led to deletion of penalties where booking amounts were assessed as deemed sales.

Conclusion: Penalty under Section 271D for alleged contravention of Section 269SS is not sustainable; the deletion of penalty by the CIT(A) is affirmed and the Revenue's appeals are dismissed in favour of the assessee.

Ratio Decidendi: Where amounts received as booking deposits or trade advances are assessed and treated as income (deemed sale), they cannot be treated as deposits or loans for levy of penalty under Section 271D of the Income-tax Act, 1961.

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