DCIT, NEW DELHI vs. MRS. MAHAGUN INDIA PVT. LTD., NEW DELHI

The only grievance of the Department in this appeal relates to deletion of penalty of Rs.75,40,262/- levied by the AO under section 271E of the Income-tax Act, 1961

Facts of the case in brief are that a search operation under section 132 of the Act was carried out in the case of the assessee and certain documents were found and seized. Page No.40 of Annexure A-20 found during the course of search contained the transaction with one M/s. Akash International amounting to Rs.75,40,262/- in cash. The AO was of the view that the said transaction was in violation of provisions of section 269SS and 269T of the Act. He, therefore, referred the matter for levying the penalty u/s 271D and 271E of the Act to the Addl.CIT, Range 2, New Delhi. The Addl.CIT on the basis of reply furnished by the assessee came to the conclusion that there was no violation of the provisions of section 269SS and, therefore, he dropped the penalty proceedings u/s 271D of the Act. However, he was of the view that the penalty u/s 271E of the Act was leviable and accordingly, he levied the penalty of Rs.75,40,262/-.

Being aggrieved, the assessee carried the matter to ld. CIT (A) and submitted that the AO himself had accepted that the assessee has not taken any loan in cash and not 3 violated the provisions u/s 269SS of the Act as the entire amount was taxed in the hands of the assessee as business receipts and the penalty proceedings u/s 271D of the Act were dropped. Therefore, there was no justification in the levy of penalty u/s 271E of the Act in respect of the same amount which had been taxed by treating the same as business income. Reliance was placed on the judgment of Hon’ble jurisdictional High Court in the case of CIT vs. R.B. Singh & Co. Pvt. Ltd. reported in 340 ITR 217 (Del.). The ld. CIT (A) had incorporated the submissions of the assessee in para 6.2 of the impugned order, for the cost of repetition, the same is not reproduced herein. Ld. CIT (A) also forwarded the submissions of the assessee to the AO for his remand report and the AO in his remand report dated 07.02.2013 stated as under :- “Show cause notice u/s 271 D was issued by the Addl. CIT, Central Range-2, New Delhi on 18.11.2011, accordingly assessee replied on 29.02.2012 stating that AO has treated sum total of receipt in the impugned annexure at Rs.32,82,71,943/- as suppressed sale/receipt of the assessed company which inter alia include the cash amount received as loan/deposit hence no penalty 271D is exigible in this case. I have carefully considered the submission of the assessee which is not tenable because of the reason that the assessee has clearly violated the provision of section 239T read with section 271E of the Income Tax Act, 1961. Before proceeding further, it is considered necessary transactions of repayment of loan as appearing in the pages referred by the Assessing Officer.

It was held that addition has been made by the AO relying upon the seized material and the statement of Director of the company recorded u/s 132(4) of the IT Act and addition was sustained in the Asstt. Year 2005-06 vide appeal No. 75/11-12 for an amount of Rs.9,31,79,939/-. In view of the above receipt of loan have been treated income for re-payment of loan otherwise by way of cross cheque or draft in violation of the provision of section 269T of the IT Act, the logic advanced in respect of 269SS violation is not applicable. Accordingly, the penalty u/s 271 E was imposed. The appeal of the assessed may be decided in merits. "

The ld. CIT (A), after considering the submissions of the assessee and the remand report of the AO, deleted the penalty by observing in paras 6.4 and 6.4.1 of the impugned order which read as under :- “6.4 I have carefully considered the submissions of the ld. AR and perused the order passed by the Addl. CIT Central Range-2. I have also perused the remand report and the rejoinder on the remand report submitted by the appellant. The Addl,CIT has initiated penalty proceedings u/s 271D and 271 E on the ground that 4 pages of Annexures A-20 and A-24 as seized during the search and seizure operation shows that the assessee had entered into transaction in contravention of the provisions of Section 269T and 271 E of the Act. The AO viewed that receipt of cash and repayment thereof attracts penalties as per the provisions of Section 271D and 271 E of the Act. A show cause notice was issued. The assessee submitted that since the AO had taxed the entire receipts whether received as loan / deposit or as unaccounted sale consideration, hence the penalties are not leviable at all. It was submitted that since the AO has treated sum total of receipts in the impugned annexures at Rs.32,82,71,943/- as suppressed sale / receipts of the assessee company which inter alia include the cash amounts received as loan / deposit hence no penalty u/s 271D is leviable. 6.4.1 The Addl.CIT has accepted the explanation of the assessee and dropped the penalty proceedings u/s 271D on the ground that the entries recorded in the diaries have been taxed as income of the appellant. However, he held that the assessee has violated the provisions of Section 269T of the Act by paying the loans / deposits otherwise by way of cross cheque / bank draft. The Addl.CIT himself has recorded the finding that penalty u/s 271D is not leviable as entries recorded in the diaries have been taxed as the income of the appellant. A copy of the seized material A-20/40 which forms the basis for penalty was called for from the AO. I find that the seized paper A-40 of Annexure A-20 does not contain

Now, the Department is in appeal.

The ld. DR for the Department strongly supported the order of the AO and reiterated the observations made in the penalty order dated 28.05.2012. In his rival submissions, the ld. Counsel for the assessee reiterated the submissions made before the authorities below and strongly supported the impugned order passed by the ld. CIT (A). It was further stated that the entire amount was considered by the AO as an income of the assessee, so there was no violation of the provisions of section 269SS and 269T of the Act since neither the amount was received nor there was repayment of loan. Therefore, the ld. CIT (A) rightly deleted the penalty which was arbitrarily levied by the AO. The reliance was placed on the judgments of Hon’ble Delhi High Court in Diwan Enterprises vs. CIT – 246 ITR 571 (Del.) and CIT vs. Standard Brands Ltd. - 285 ITR 295 (Del).

We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is noticed that during the course of 7 search proceedings, certain incriminating documents were found which revealed that the assessee entered into certain transactions in cash and the amount of Rs.75,40,262/- pertaining to the transaction with one M/s. Akash International was treated in violation of the provisions of section 269SS and 269T of the Act. However, the same amount was offered by the assessee for taxation and was included in the sum of Rs.32,82,27,143/- which was the credit side of the annexures. There were certain debit entries amounting to Rs.14,84,41,838/- in the said annexures and the balance amount of Rs.17,97,85,205/- was treated as undisclosed income of the assessee. The AO also considered the receipt of Rs.75,40,262/- as a part of the income disclosed by the assessee, therefore, the penalty proceedings u/s 271D in violation of the provisions of section 269SS were dropped. However, the alleged repayment of the same amount was treated as a violation of the provisions of section 269T of the Act and the penalty u/s 271E was levied. In our opinion, the view taken by the AO was against the settled position of the law because the AO himself treated the amount of Rs.75,40,262/- as an integral part of the income of the assessee. So, there was no question of receipt or repayment of the loans particularly when the AO himself admitted that the amount of 8 Rs.75,40,262/- was not the receipt of the loan rather it was the income of the assessee. Therefore, it is an unbelievable that a person will make the payment of his income to himself. In that view of the matter, we are of the confirmed view that the ld. CIT (A) was fully justified in deleting the penalty levied by the AO and accordingly, we do not see any valid ground to interfere with the findings given by the ld. CIT (A).

In the result, the appeal of the Department is dismissed.