M/S.NILON'S ENTERPRISES,,PUNE vs. JOINT COMMISSIONER OF INCOME TAX, RANGE -2,, PUNE

Briefly stated, the facts of the case are that the AO found the assessee to have indulged in receipt of loans/deposits through modes other than banking channels as reflected in Sl.No.31(1) of Form 3CD, being, the Tax Audit Report of the assessee. On being called upon to explain as to why penalty u/s.271D should not be imposed for violating the provisions of section 269SS, the assessee tendered explanation, which has been reproduced in the penalty order.

Thereafter, the AO observed that the assessee accepted loan or deposit amounting to Rs.53,41,224/- from Mr. Deepak Sanghavi and Rs.8,21,370/- from Ms. Ritu Sanghavi in violation of the provisions of section 269SS. The assessee’s explanation was rejected and the penalty was imposed. The ld. CIT(A) echoed the penalty order.

Having heard the rival submissions and gone through the relevant material on record, it is seen that the trigger of penalty was made because of the alleged qualification in the tax audit report. A copy of the report has been placed on record, which indicates that the qualification has been made in a sweeping manner. Notwithstanding that, the assessee filed written submissions before the AO during penalty proceedings and also the first appellate proceedings, explaining the nature of transactions with complete details, which have not been controverted by the authorities. In any case, the question of imposition or otherwise of the penalty needs to be determined on the basis of actual facts and not how the auditor viewed it in his report.

The AO imposed penalty u/s.271D for violation of section 269SS. The latter section, in turn, provides that no person shall take or accept from any other person any loan or deposit equal to or in excess of Rs.20,000/- otherwise than by an account payee cheque or account payee bank draft etc. Section 271D provides that if a person taken or accepts any loan or deposit in contravention of section 269SS, he shall be liable to pay penalty equal to amount of loan or deposit so taken or accepted. Thus, it is evident that penalty u/s.271D is leviable where loan or deposit is accepted by the assessee in excess of the specified amount otherwise than by an account payee cheque or bank draft etc. provided under section 269SS of the Act. With this understanding of the legal position, we proceed to examine the factual matrix of the case.

The first amount is Rs.8,21,370/- stated to have been taken by the assessee from Ms. Ritu Sanghavi, on which an equal amount of penalty was imposed and confirmed. Copy of account of Ms. Ritu Sanghavi is available on record. The first three items during the year are not relevant. Fourth item dated 30-09-2015, which has been debited by the assessee, is a sum of Rs.8.00 lakh with the narration that it was the amount of self-assessment tax paid on behalf of Mrs. Ritu Deepak Sanghavi. The next item is dated 31-10-2015 which is again payment of self-assessment tax of Rs.21,370/- on her behalf.

The second amount is Rs.53,41,224/- w.r.t. Mr. Deepak Sanghavi. The AO did not provide any breakup of this amount. The assessee has placed on record the extract of the account of Mr. Deepak Sanghavi and also the detail of the items totaling to Rs.53,41,224/- as under :

On an examination of the account of Mr. Deepak Sanghavi in the books of the assessee with reference to the above tabulation, it can be seen that the first amount of Rs.13,51,507/- is debited to his account. The assessee paid this amount on his behalf and debited his account. Similar is the position regarding the second and third amounts of Rs.4,09,625/- and Rs.10,52,682/-, which have been debited to the account of Mr. Deepak Sanghavi. These amounts are in the nature of payments made by the assessee on behalf of Mr. Deepak Sanghavi. Thus, the provisions of section 269SS are not attracted, which apply only on taking or accepting loan and deposit.

We, therefore, hold that the assessee did not take or accept any loan either from Ms. Ritu Sanghavi or Mr. Deepak Sanghavi in violation of provisions of section 269SS of the Act, which could have magnetized penalty u/s.271D of the Act. The impugned order is, therefore, overturned to this extent.

In the result, the appeal is allowed.