TaxTMI 
TaxTMI 
2023 (6) TMI 519
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....he CIT(A) ought to have cancelled the order levying penalty as barred by limitation. 3.1 The CIT(A) failed to see that the Addl. CIT has arbitrarily assumed jurisdiction to levy penalty u/s. 271D and hence the same is illegal and liable to be quashed ab initio. 3.2 The CIT(A) erred in upholding the penalty levied u/s 271D to the tune of Rs. 57,18,500/-. 3.3 The CIT(A) ought to have seen that the provisions of Section 269SS does not have any application to the facts of the present case and consequently no penalty u/s. 271D can be levied. 3.4 The CIT(A) should have appreciated the submissions of the Appellant that the business exigency of the Appellant Company in operating from the remote town requires only cash and hence was constrained to make payments in cash. 3.5 In any event, the CIT(A) ought to have seen that the Director of the Appellant Company only made payments to his running account in the Company which cannot partake the nature of a loan and thus provisions of Section 269SS will not apply. 4. Any other grounds that may be raised at the time of hearing. 3. The assessee has raised the following grounds of appeal in IT....
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....assessee to explain 'as to why' penalty shall not be levied for contravention of provisions of Sec. 269SS & 269TT of the Act. In response to the notice, Mr.K.Subramaniam, CA, appeared for hearing on 04.09.2018, and contended that the assessee has accepted cash loans from Mr.M.Muruganandam, Managing Director of the company for urgent commitments of cash such as payments for purchases, labour, freight, administrative expenses, and deposits to bank to reduce credit limits and honour cheques given for business. He further contended that cash receipts and payments to Mr.M.Muruganandam is nothing but current account of Director in the ordinary course of business, and the same cannot be considered as loans & advances, and invoke provisions of Sec. 271D & 271E of the Act. 5. The AO, however, was not convinced with the explanation of the assessee and according to the AO, the assessee could not substantiate its claim that it has received cash from Director for urgent requirement to incur various expenditure and also deposit cash into bank account to reduce credit limit or to honour cheques, because, the assessee is well served by banking facilities in a place where it is having its place ....
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....t, which warrants levy of penalty u/s. 271D & 271E of the Act. The Ld.CIT(A) discussed the issue at length in light of nature of the business of the assessee and its place of business and observed that the assessee is well served by commercial bank in their place of business, and thus, the arguments of the assessee that it has received cash loans from Managing Director for urgent requirement of business is devoid of merits. Further, even though, the assessee is having banking facility why it could not avail the facility for transfer of funds between assessee company and Managing Director, was not explained. Therefore, rejected arguments of the assessee and by following the decision of the Hon'ble Madras High Court in the case of CIT v. Idhayam Publications Ltd., and also in the case of Vasan Healthcare (P) Ltd. v. ACIT reported in [2019] 103 taxmann.com 26 (Madras) sustained penalty levied by the AO u/s. 271D & 271E of the Act. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us. 7. The Ld.Counsel for the assessee submitted that the Ld.CIT(A) is erred in law and fact in upholding the order levying penalty, even though, order passed by the AO is barred by....
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....payment of salaries, purchase of raw materials, transportation charges and cash deposit into bank account to reduce over draft limit or to clear cheques issued in the course of business. Unless the assessee received cash, the business of the assessee would hamper. Therefore, the assessee has received cash for urgent requirement of business needs and also repaid cash received from the Managing Director as and when the cash available with the assessee. Therefore, the transactions between the assessee company and its Managing Director, cannot be treated as loans & advances u/s. 269SS & 269TT of the Act. In this regard, he relied upon the decision of the Hon'ble Madras High Court in the case of CIT v. Idhayam Publications Ltd., (supra). The Ld.Counsel for the assessee had also distinguished the decision of the Hon'ble Madras High Court in the case of Vasan Healthcare (P) Ltd. v. ACIT, and argued that in Vasan Healthcare (P) Ltd. v. ACIT, the Director has received cash loans from financials and had given loans to company and under those facts, the Hon'ble Madras High Court came to conclusion that there is a clear violation of provisions of Sec. 269SS of the Act. In the present case, it ....
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....u/s. 274 r.w.s.271D & 271E of the Act, dated 04.03.2019 that the notice has been issued after the date of the order imposing penalty. We find that the notice referred to by the Ld.Counsel for the assessee is only system generated notice while uploading the order imposing penalty u/s. 271D & 271E of the Act, in ITBA portal as required under the law, which is clearly evident from the records that the ITBA portal has generated notice u/s. 274 r.w.s.271D & 271E of the Act, on 04.03.2019 and also order imposing penalty u/s. 271D & 271E of the Act, also dated 04.03.2019. From the above, it is clear that it is only a system generated notice when the orders have been uploaded in ITBA portal only. On the other hand, from the orders imposing penalty u/s. 271D & 271E of the Act, it is very clear that the AO initiated penalty proceedings by issuance of notice u/s. 271D & 271E of the Act, on 03.08.2018 and passed order imposing penalty on 26.02.2019. Therefore, we are of the considered view that there is no merit in objection raised by the assessee, and thus, the same is rejected. 11. In so far as limitation issue raised by the Ld.Counsel for the assessee in light of provisions of Sec. 275(1....
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.... view that there is no merits in the arguments of the Ld.Counsel for the assessee that the limitation as provide u/s. 275(1)(c) of the Act, commence the moment, the AO sent a proposal to the Joint / Addl. CIT for imposition of penalty. We further noted that the AO who is competent to initiate and levy penalty u/s. 271D & 271E of the Act, is the Joint / Addl. CIT is concerned range, but not the AO. Therefore, the date of proposal sent by the AO to the Joint / Addl. CIT for initiation of penalty proceedings is not relevant, because, the satisfaction of the AO who is competent to initiate penalty proceedings u/s. 271D & 271E of the Act, is necessary and important to decide whether penalty proceedings can be initiated or not. Therefore, the actual date that needs to be reckoned for the purpose of limitation as prescribed u/s. 275(1)(c) of the Act, is the date of notice issued u/s. 274 r.w.s.271D & 271E of the Act, but not the date of proposal sent by the AO. In this case, if you consider the date of notice issued u/s. 274 r.w.s.271D & 271E of the Act, i.e. 03.08.2018, the limitation prescribed u/s. 275(1)(c) of the Act runs up to 28.02.2019 since the AO passed order imposing penalty u/....
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....TT of the Act. The arguments of the assessee that amount received and paid to its Managing Director is not loans & advances within the meaning of Sec. 269SS & 269TT of the Act, is unsubstantiated, because, the assessee claims to have received cash from its Managing Director in the ordinary course of business for urgent requirement of day to day running of business, including purchase of raw materials, payment of salaries, transportation charges, and to deposit to bank to clear cheques issued in the course of business. But, on perusal of ledger extract of Mr.M.Muruganandam, in the books of accounts of the assessee, it is very clear that the assessee has received cash from its Managing Director on various dates in huge amounts and also repaid in cash in huge amount without there being any explanation 'as to why' loans & advances have been received in cash. We further noted that the claim of the assessee that it has received cash for urgent requirement for making payment for various expenditure, is also not correct, because, the assessee received a sum of Rs. 18 lakhs from Mr.M.Muruganandam on 14.09.2011, even though, the assessee had more than Rs. 11 lakhs cash in hand as on that dat....