DEVIKABEN DINESHBHAI SHAH,VADODARA vs. THE ITO, WARD-1(3)(1), VADODARA

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ITA 59/AHD/2026Status: DisposedITAT Ahmedabad07 August 2026AY 2010-116 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that a withdrawal by a partner from a firm's capital account does not constitute a loan or deposit as a firm does not have a separate juridical persona distinct from its partners. Therefore, Section 269SS was not violated.

What were the facts?

The assessee, a partner in two firms, withdrew cash from the capital accounts of these firms. The Assessing Officer treated these withdrawals as loans taken by the assessee from the firms, violating Section 269SS, and levied penalty under Section 271D.

What were the issues?

Whether cash withdrawals by a partner from a firm's capital account constitute a loan or deposit, thereby violating Section 269SS and attracting penalty under Section 271D.

Which sections of the Income-tax Act were involved?

Section 271D,Section 269SS

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD

Before: Dr. BRR Kumar

For Appellant: Shri Rushin Patel, A.R
For Respondent: Shri Deependra Kumar, Sr. DR
Hearing: 16/07/2026Pronounced: 07/08/2026

आदेश/O R D E R

This appeal arises from the order of the CIT(A), Vadodara confirming the levy of penalty u/s. 271D of the Income Tax Act by JCIT Range-1(3), Vadodara for assessment year 2010-11.

2.

The assessee has raised following ground of appeal:- “The ld. CIT(Appeals) erred in law and on facts of the case, in levying penalty u/s. 271D of Rs. 27,80,001/- for alleged violation of sec. 269SS of the I.T. Act, 1961.”

3.

There was a delay in filing of appeal before the Tribunal and the appellant has submitted an affidavit explaining the reason of delay. It is stated that the appellant has participated in the proceedings before

ITA No.59/Ahd/2026 Devikaben Dineshbhai Shah vs. ITO Asst.Year 2010-11 2 the JCIT and also filed an appeal before the CIT(A) in physical form. Thereafter, the appeal process had migrated to NFAC and the appellant, being, unfamiliar of the online process and the fact that the appeal had already been disposed, came to know about the dismissal of appeal only when penalty notice was received by the firm in which she is a partner and thereafter she had arranged to file the appeal. Considering the facts of the case, the delay is condoned.

4.

The appellant , an individual, is a partner in two firms, namely, Shankarlal Gordhandas & Sons and M/s. J R Construction Company, for the assessment year under appeal . The appellant filed return declaring total income at Rs. 30,200/- which was accepted in the assessment u/s. 143(3) of the Act. In the course of the assessment, the Assessing Officer observed that the appellant had withdrawn different amounts from the capital account of both the firms. The Assessing Officer held that since the appellant had negative balance in the capital account of the firm, this withdrawal amounted to a loan taken by the appellant from the respective firms and since withdrawal was in cash, this was a violation of section 269SS of the Act and referred the case to the JCIT Range 1(3), Vadodara for examination of violation of section 269SS and levy of penalty u/s. 271D of the Act.

5.

The ld. JCIT noted that the appellant had withdrawn amount of Rs. 20,000 on multiple occasions from M/s. JR Construction Company for household expenses and in addition, transferred a total of Rs 24,30,000/- from this firm to M/s. Shankarlal Gordhandas & Sons as

ITA No.59/Ahd/2026 Devikaben Dineshbhai Shah vs. ITO Asst.Year 2010-11 3 capital account contribution in that firm. The ld. JCIT held that this withdrawal was for the personal purpose of the appellant and not for any business purpose of the firm from which the withdrawal was made. Thus, it was held total amount so withdrawn i.e. Rs. 27,80,001/- was a loan taken by the appellant from the firm, M/s J. R. Construction Company and since this withdrawal was in cash, the appellant had violated section 269SS of the Act making it liable to penalty u/s. 271D of the Act for Rs. 27,80,001/-

6.

The appellant preferred an appeal before the CIT(A) against the penalty order u/s. 271D. The appeal was transferred to the National Faceless Appeal Centre (NFAC). In the course of hearing before the CIT(A)/(NFAC), the appellant did into appear and the appeal was decided ex-parte on merits. The ld. CIT(A) noted that the Assessing Officer and JCIT(A) had held the appellant to be liable for penalty u/s. 271D for violation section 269SS by taking a loan otherwise than by account payee cheque or bank draft. This finding and the consequential levy of penalty was confirmed by the ld. CIT(A).

7.

Against this appeal order, the appellant is in appeal before the Tribunal. In course of the hearing, the appellant contended that the transaction of withdrawal of money by the partner from a firm does not amount to a loan because the partnership firm has no separate juridical persona of its own and it is not a person distinct from the partner. Therefore, it was contended, the amount withdrawn from a firm by a partner or vice versa cannot be regarded as loan or deposit

ITA No.59/Ahd/2026 Devikaben Dineshbhai Shah vs. ITO Asst.Year 2010-11 4 which necessarily involves two persons. In support of this contention, the appellant has placed reliance upon decision of the ITAT Ahmedabad Bench in the case of Shrepak Enterprises vs. DCIT (1998) 64 ITD 300 (Ahd) and Hon’ble Delhi High Court in the case of CIT vs. Muthoot Financers (2015) 371 ITR 408 (Del).

8.

The ld. Sr. D.R., Mr. Deependra Kumar, placed reliance on the order of the JCIT and emphasized that under the Income Tax Act a firm is treated as a ‘person’ and therefore a transaction between the firm and a partner can be regarded as that between two persons.

9.

I have gone through the facts of the case and the decisions cited by the assessee and the decision of Hon’ble Delhi High Court in the case of Nagpur Golden Transport Com. (1998) 233 ITR 389 relied upon by the ld. JCIT in penalty order u/s. 271D. I note that the Hon’ble Delhi High Court in the case of CIT vs. Muthoot Financers (supra) had considered their decision in the case of Nagpur Golden Transport Co. (supra) and had distinguished the same on facts as well as on the issue under consideration. In the case of case of Nagpar Golden Transport Company, there was a payment of interest by one firm to another and one person was common partner in both the firms. The Assessing Officer had invoked section 40(b) of the Act to disallow the interest as a business expenditure. The Hon’ble Delhi High Court found that this provision 40(b) to disallow payment in certain circumstances has overriding effect on the provisions of section 36 of the Act and in some cases an expenditure otherwise allowable u/s. 36 may be disallowed,

ITA No.59/Ahd/2026 Devikaben Dineshbhai Shah vs. ITO Asst.Year 2010-11 5 if it is covered u/s. 40(b) of the Act. In the facts of Muthoot Financers (supra), the Hon’ble High Court was dealing with the contention that there was no separate juridical persona between the firm and partner and withdrawal of payment of any money between the two could not be regarded as a transaction between two persons so as to be considered as a loan or deposit. On this issue, the Hon’ble Delhi High Court agreed with the assessee’s contention and answered the question of law in favour of the assessee in that case.

9.1 In the case of Shrepak Enterprises vs. DCIT (supra), the Ahmedabad Bench of the Tribunal held, after considering the facts and various case laws and legal propositions, as under:- “We are, therefore, of the opinion that the payment of the amount was made by a partner to a firm is the payment itself to self and does not partake the character of loan or deposit in general law. Therefore, the provisions of section 269SS are not applicable to the facts of the case, and no penalty is imposable under section 271D. We also feel that the assessee could be under genuine impression that advancing of loan by a partner to firm is not a transfer from one person to the another and hence, there is no violation of provisions of section 269SS. In view of the above, we cancel the penalty imposed and allow the assessee's appeal. "

9.2 On the facts of the present case, respectfully following the aforesaid decisions of the Ahmedabad Bench and the decision of the Delhi High Court, I am inclined to agree with the arguments of the appellant and delete the levy of penalty u/s. 271D of the Act.

ITA No.59/Ahd/2026 Devikaben Dineshbhai Shah vs. ITO Asst.Year 2010-11 6

10.

In the result, the appeal filed by the assessee is allowed.

Order pronounced in the Open Court on 07/08/2026.

Sd/- . (DR. BRR KUMAR) VICE PRESIDENT

अहमदाबाद/Ahmedabad, %दनांक/Dated 07/08/2025 *a.k. TRUE COPY आदेश क� '�त(ल)प अ*े)षत/Copy of the Order forwarded to : 1. अपीलाथM/ The Appellant 2. 'QयथM/ The Respondent. संबंHधत आयकर आयुSत/ Concerned CIT 3. 4. आयकर आयुSत ( अपील ) / The CIT(A)-(NFAC) 5. )वभागीय '�त�नHध, आयकर अपील�य अHधकरण ,अहमदाबाद/DR,ITAT, Ahmedabad. 6. गाड� फाईल/ Guard file.

आदेशानुसार/ BY ORDER, True Copy सहायकपंजीकार (Asstt. Registrar) आयकर अपील�य अHधकरण, ITAT, Ahmedabad

Date of dictation (dictation pad is attached with the file)) : 1. 03.08.2026 Date on which the typed draft is placed before the Dictating Member. : 2. 04.08.2026 Date on which the approved draft comes to the Sr.P.S./P.S : 3. : 4. Date on which the fair order is placed before the Dictating Member for .08.2026 pronouncement. : 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the Sr.P.S./P.S. .08.2026 : 7. Date on which the file goes to the Bench Clerk. .08.2026 : 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant Registrar for signature on the order. : 10. Date of Despatch of the Order

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