COMMISSIONER OF INCOME TAX - II

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ITTA/109/2003HC TelanganaHBHC01056938200309 September 2014Bench: CHALLA KODANDA RAM,L.NARASIMHA REDDY3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the penalty proceedings under Section 271D were indeed barred by limitation. Section 275 of the Act prescribes a period of six months for initiating penalty proceedings under Section 271D. In this case, the proceedings were initiated nearly four years after the assessment order, far exceeding the stipulated period. The Court noted that the ground of limitation, being a question of law, could be raised at any stage if the facts are not in dispute. Furthermore, on merits, the Court agreed with the Tribunal that the amount of Rs. 3,00,000 could not be treated as a loan or deposit. The Court emphasized that for levying a 100% penalty, the Assessing Officer bears a heavy burden to establish the nature of the receipt and identify the source, which was not done. The Court found no basis to interfere with the ITAT's order. The appeal was dismissed.

What were the facts?

The assessee, a company, received Rs. 3,00,000 in cash for the assessment year 1991-92. The Assessing Officer (AO) treated this as a loan, and the Commissioner upheld this. Subsequently, the AO initiated penalty proceedings under Section 271D of the Income Tax Act on September 30, 1996, levying a penalty of Rs. 3,00,000 for contravention of Section 269SS. The Commissioner (Appeals) upheld the penalty. The assessee appealed to the Income Tax Appellate Tribunal (ITAT), which allowed the appeal on November 20, 2002. The Revenue has filed this further appeal before the High Court under Section 260A of the Act. The assessee did not appear before the High Court.

What were the issues?

1. Whether the penalty proceedings initiated under Section 271D of the Income Tax Act were barred by limitation, as prescribed under Section 275 of the Act? (Question of law) 2. Whether the sum of Rs. 3,00,000 received by the assessee could be treated as a loan or deposit, thereby attracting penalty under Section 271D for contravention of Section 269SS? (Question of mixed law and fact) Assessee's contentions (as understood from the Tribunal's decision and the High Court's discussion): The assessee argued that the penalty proceedings were initiated beyond the prescribed limitation period of six months under Section 275 of the Act. The assessee also contended that the amount received could not be classified as a loan or deposit, and that the tax on this amount had already been paid. Revenue's contentions: The Revenue argued that the penalty was validly imposed as the receipt of Rs. 3,00,000 in cash was in contravention of Section 269SS. The Revenue contended that the ground of limitation was not raised before the Commissioner (Appeals).

Which sections of the Income-tax Act were involved?

Section 271D,Section 269SS,Section 275,Section 260A

AI-generated summary — verify with the full judgment below

THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM

I.T.T.A. No.109 OF 2003

JUDGMENT: (Per Hon’ble Sri Justice L. Narasimha Reddy)

The respondent is a Company and is assessed to tax. For the assessment year 1991-92, it filed returns. In the course of processing of returns, the Assessing Officer pointed out that a sum of Rs.3,00,000/- was received in the form of cash. He proceeded to treat it as loan on the ground that the explanation offered by the respondent is not acceptable. In the appeal preferred before the Commissioner, the order passed by the Assessing Officer was upheld and levied tax thereon.

Four years thereafter, the Assessing Officer passed an order, dated 30.09.1996, exercising the power under Section 271D of the Income Tax Act (for short, ‘the Act’) levying penalty of Rs.3,00,000/-. According to him, the receipt of amount of Rs.3,00,000/- by the respondent was in contravention of Section 269SS of the Act and thereby, the penalty is levied.

The respondent carried the matter before the Commissioner of Appeals and order of the Assessing Officer was upheld. Thereupon, he filed the I.T.A.No.796/H/1997 before the Income Tax Appellate Tribunal, Visakhapatnam. The Tribunal allowed the appeal through order, dated 20.11.2002. Hence, this further appeal by the respondent under Section 260A of the Act.

Heard Sri S.R. Ashok, learned Senior Counsel for the appellant, and the respondent did not enter appearance.

There is no denial of the fact that the respondent received a sum of Rs.3,00,000/- in cash. All the same, the amount was reflected in the returns and it was brought under the purview of tax. The explanation

offered by the respondent was that at the inception of its activity, several amounts have been gathered by the shareholders for the purpose of construction of building and pending finalization of allotment of shares, the amount was released and treated as loan. The Assessing Authority, however, treated the amount as loan. The respondent did not feel any inconvenience on account of that order, since it was otherwise agreeable to pay the tax on that amount also.

Four years later, the Assessing Officer initiated proceedings under Section 271D of the Act proposing to levy 100% penalty and a show cause notice was issued. The explanation offered by the respondent was not accepted and penalty was imposed. The respondent was unsuccessful before the Commissioner, but not before the Tribunal. The Tribunal took note of two aspects. The first is that the initiation of proceedings are barred by limitation and the second is that the amount of Rs.3,00,000/- cannot be treated either as loan or as deposit.

Section 275 of the Act prescribes the limitation in respect of the proceedings initiated for imposing penalty under various provisions of law. As regards the penalty referable to Sections 271D and 271(1)(c ) of the Act stipulates period of six months. Admittedly, in the instant case, the proceedings were initiated long thereafter and nearly four years after the order of assessment. That ground alone is sufficient to set aside the order of the Assessing Officer passed under Section 271D of the Act. The plea of the appellant that the ground of limitation was not urged before the Commissioner is hardly of any use. If the facts in relation to the grounds of limitation are not in dispute, it becomes the one of law and can be raised at any stage.

On merits also, there is nothing on record to support the plea of the appellant that the amount was received towards the loan or deposit. The mere allegation or assertion is not sufficient. When

penalty to the extent of 100% is sought to be levied, that too even after collecting the tax on the amount, heavy burden rested upon the Assessing Officer to establish that the said amount was received from a person either as loan or deposit. In this behalf, identification of the person from whom the amount is received, becomes essential. When law confers extensive powers upon the Assessing Officer either to verify the record or to summon the person or even to reopen the proceedings, which have already become final, it would not be difficult to undertake an exercise in that behalf. As the Tribunal has taken the correct view of the matter, we do not find any basis to interfere with the order under appeal.

The appeal is, accordingly, dismissed. There shall be no order as to costs.

The miscellaneous petition filed in this writ appeal shall also stand disposed of.

____________________ L. NARASIMHA REDDY, J.

______________________ CHALLA KODANDA RAM, J. 09.09.2014 KH

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