Amount considered as undisclosed income cannot be considered  loan to attract provisions of section 271D 

K.S. Chawla & Sons (HUF) Vs JCIT (ITAT Delhi)

In the case of K.S. Chawla & Sons (HUF) Vs JCIT, the ITAT Delhi held that amounts considered as undisclosed income cannot simultaneously be considered as loans to attract penalties under Section 271D of the Income Tax Act. The appellants had been subjected to penalty proceedings under Section 271D for allegedly violating provisions related to cash loans, but the ITAT ruled in favor of the appellants, citing the settlement offer and acceptance of M/s Spaze Towers Pvt Ltd. The Settlement Commission had accepted an offer of additional income from M/s Spaze Towers Pvt Ltd, acknowledging the telescoping of personal expenses of promoters/directors. The ITAT noted that the same amount cannot be taxed in two different capacities, and therefore cannot be considered as loans. The absence of a lender-borrower relationship was emphasized, as the expenses incurred by M/s Spaze Towers Pvt Ltd were deemed personal expenses of the promoters/directors, not loans. The ITAT also highlighted the lack of recorded satisfaction by the Assessing Officer before initiating penalty proceedings under Section 271D, in accordance with judicial precedent. Consequently, the ITAT directed the Assessing Officer to delete the penalty levied against the appellants for the respective assessment years.

Key Points:

• The search and seizure operation on M/s Spaze Towers Pvt Ltd led to proceedings under Section 153A. During this, M/s Spaze Towers offered an income of Rs. 52.74 crores on account of bogus purchases.

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