PRAYER HOUSING LLP (SUCCESSOR TO PRAYER HOUSING PVT LTD),MUMBAI vs. ADDL CIT 8(2), MUMBAI

The facts relating to the issue under consideration are set out in brief. The assessing officer noticed during the course of assessment proceedings that the assessee has received a loan of Rs.16.00 lakhs by way of cash and the same has violated the provisions of sec. 269SS of the Act. Accordingly he intimated the same to the Addl. Commissioner of Income tax on 31.12.2008. Subsequently, the Addl. CIT initiated penalty proceedings u/s 271D of the Act by issuing notice

The assessee submitted that the amount of Rs.16.00 lakhs was received from its director named Shri Gautam Patel as advance amount towards sale of flat that is going to be constructed in Bhandup area. In support of the same, the assessee submitted a confirmation letter, wherein it was stated 5000 sq.ft. was agreed to be allotted for Rs.1,500/- per sq.ft. The assessee also filed another confirmation letter, wherein it was stated that 5000 sq.ft. was agreed to be allotted for Rs.2000/- Sq.ft. Further, it was contended that the transactions between a director and closely held company should not be treated as loan or deposit covered by sec. 269SS of the Act. The assessee also contended that the proceeding is barred by limitation also.

The Addl. CIT held that the proceedings are not barred by limitation. The Addl. CIT noticed that the above said amount of Rs.16.00 lakhs was shown as “Unsecured loans” in its Balance Sheet. Further the alleged receipt of advance towards sale of flat was in respect of a project, for which neither the land has been purchased nor plan prepared. Further, there was difference in the selling rate shown in the two confirmation letters filed by the assessee. Accordingly he rejected the submissions of the assessee and accordingly held that the assessee has violated the provisions of sec. 269SS of the Act and accordingly levied a penalty of Rs.16.00 lakhs u/s 271D of the Act.

In the appellate proceedings, the Ld CIT(A) held that the proceeding was not barred by limitation. With regard to the contentions urged on merits, the Ld CIT(A) held that the Addl. CIT was justified in levying the penalty u/s 269SS of the Act. Aggrieved, the assessee has filed this appeal before us.

The first issue relates to the limitation. The contention of the assessee is that the assessing officer has intimated the Addl CIT about the violation of provisions of sec. 269SS of the Act on 31.12.2008 and hence the limitation period should be counted from that date. In this regard, the Ld A.R placed reliance on the decision rendered in the case reported in 287 ITR 239. Accordingly, it was contended that the penalty proceedings should have been completed by 30-06-2009. However, the Ld CIT(A) noticed that the Addl. CIT has initiated proceeding only on 11.06.2009 and hence the penalty proceeding was not barred by limitation.

We heard the parties on this issue. A proceeding under the Act can be said to be initiated only when a notice was issued to the assessee by the competent authority. Under the Act, the assessing officer is not entitled to initiate penalty proceedings u/s 271D of the Act. Hence the AO has intimated about the violation of the provisions of sec. 269SS of the Act on 31.12.2008. It is the only Addl. Commissioner, being a competent authority, has issued notice u/s 271D of the Act for the first time on 11-06-2009. The provisions of sec. 275(1)(c) of the Act prescribe the time limit for completion of the penalty proceedings u/s 271D of the Act and the same reads as under:- “275(1) No order imposing a penalty under this Chapter shall be passed-- - (a)…… (b)…….

According to the assessee, the intimation given by the AO to the Addl. CIT about the impugned violation would amount to initiation of action for imposition of penalty. We are unable to agree with the same. The authority prescribed under the Act for imposition of penalty is not the assessing officer. Further the assessing officer has only intimated about the violation to the Addl CIT on 31.12.2008. The Addl. CIT, under the Act, may accept the recommendation of the AO or he may reject the same. Accordingly, we are of the view that the intimation given by the AO cannot be considered to be initiation of penalty proceeding u/s 271D of the Act. Further, as stated earlier, the penalty proceedings can be said to have been initiated only when the notice relating to the same are issued to the assessee. Accordingly we agree with the view of the tax authorities that the penalty was initiated in the instant case only on 11.06.2009. The time limit for completion of the penalty proceedings as per sec. 275(1)(c) shall be either 31.3.2010 or 31.12.2009, whichever expires later. Accordingly, in the instant case, the time limit shall expire on 31.3.2010. In the instant case, the penalty order has been passed on 21.10.2009 and hence we are of the view that the same is not barred by limitation. In the case relied upon by the assessee, we notice that the Hon’ble High Court was referring to the initiation of proceedings by the assessing officer, i.e., the competent authority is referred as AO. Accordingly, we confirm the order passed by Ld CIT(A) on this issue.

With regard to the issue urged on merits, the Ld A.R raised following contentions before us:-

Section 273B provides that the penalty u/s 271D of the Act shall not be imposable if the assessee proves that there was reasonable cause for the said failure. Thus the penalty u/s 271D of the Act shall not be levieble, if the assessee shows that there was a reasonable cause for accepting the loan or deposit by way of cash. We notice that the assessee has only contended before the tax authorities that the impugned amount was received as advance towards sale of flat. Before us, the assessee has raised some more contentions, which were not examined by the tax authorities. With regard to the observation of the tax authorities that the assessee has shown the advance amount as “Unsecured Loans” in the Balance Sheet, the assessee has submitted that the assessee has maintained two separate accounts. This fact also requires examination by the tax authorities, since it is urged before us for the first time.

In view of the fresh contentions raised before us and also in view of the fact that the accounts of the assessee require verification, in the interest of natural justice, we are of the view that this issue requires fresh examination. Accordingly, we set aside the order of Ld CIT(A) and restore the same to the file of the Addl. Commissioner with the direction to examine this issue afresh by considering various contentions that may be raised by the assessee.

In the result, the appeal filed by the assessee is treated as partly allowed for statistical purposes. Order has been pronounced in the Open Court on 1.6.2016.