Section 271D penalty imposable on failure to prove non-contravention of section 269SS

Bookmywish E Commerce Pvt. Ltd. Vs Addl. CIT (ITAT Ahmedabad)

Introduction: In the case of Bookmywish E Commerce Pvt. Ltd. vs. Addl. CIT, the company faces penalties under Section 271D of the Income Tax Act for accepting cash loans from directors. The dispute revolves around the alleged violation of Section 269SS. We delve into the details to understand the legal nuances and consequences.

Detailed Analysis: The Additional CIT imposed a penalty of Rs. 4 lakhs on Bookmywish E Commerce Pvt. Ltd. for accepting cash loans, violating Section 269SS. The loans in question were received in cash from directors Anish Nagpal and Amit Purswani, evident from the ledger accounts. The company argued that these transactions were part of the current account and not subject to penalties.

The appellate proceedings reveal that the company failed to convince authorities that it fell within the exempted list of Section 269SS. Legal references were made to cases like CIT vs. Idhyam Publications and CIT vs. Natwarlal Purshottamdas Parekh. However, the distinguishing factor was the cash nature of transactions in Bookmywish’s case.

Conclusion: Despite citing judicial precedents related to current accounts, the ITAT upheld the penalty, emphasizing the absence of debit transactions and the exclusively cash-based nature of transactions with directors. The company’s failure to demonstrate compliance with Section 269SS resulted in sustaining the penalty under Section 271D. The case underscores the importance of understanding legal nuances in financial transactions to avoid unintended consequences.

Additional CIT has levied penalty u/s. 271D of the act on 27^th March, 2017 of Rs. 4 lacs on account of accepting loan amounting to Rs. 2,30,000/- in cash from Shri Anish Nagpal and Rs. 1,70,000/- from Shri Amit Purswani in violation of provision of section 269SS of the act.

After perusal of the material on record, it is noticed that during the year under consideration directors of the assessee company, Anish Nagpal has given Rs. 2,30,000/-and other director Shri Amit Purswani has also given Rs. 1,70,000/- on different dates as per the copies of ledger account placed in the paper book filed by the assessee.

It is also noticed that in the books of account these two ledger accounts were specifically named as Shri Amit Purswani loan account and Shri Anish Nagpal loan account.

During the course of appellate proceedings before ld. CIT(A) the assessee has submitted that it has current account transaction with its director Shri Anish Nagpal and Shri Amit Purswani and it has not paid any interest amount in the account to its directors.

However, the ld. CIT(A) has sustained the penalty holding that assessee company failed to substantiate that it fall in exempted list of the section 269SS of the act.

We have gone through the judicial pronouncements referred by the ld. counsel. In the case of CIT vs. Idhyam Publications ITD 285 ITR 221 ( Hon’ble Madras High Court) it is held that the deposit and withdrawal of the money from the current account could not be considered as loan or advance. We find that facts of the case of the assessee are entirely different as in both the loan accounts there were only credit transaction on obtaining loan and there was no debit transaction.

In the case of CIT vs. Natwarlal Purshottamdas Parekh 303 ITR 5 (Hon’ble High Court of Gujarat), in this case transaction with the family members on maturity of NSC were based on mere book entry and no cash amount was involved. However, the facts of the case of the assessee are entirely different wherein all the transactions of loan were based on cash basis.

In the case of Hindustan Agencies Pvt. Ltd. Vs. Addl. CIT vide ITA No. 3387/Del/2014 dated 20-10-2016 in this case it was held that no penalty can be imposed u/s. 278D and 278E because the account was in the nature of current account.

However, facts of the case of the assessee are entirely different as there was only cash receipt and was made on different dates from the directors of the assessee company.

We have considered the fact and material on record and noticed from the copy of ledger account submitted by the assessee that on the different dates assessee has obtained cash from the two directors and there was no repayment made by the assessee during the year, the aforesaid accounts cannot be said of the nature of current account as claimed by the assessee.

Further, the assessee has not brought any material to substantiate that assessee has not committed any violation of section 269SS of the act, we do not find any infirmity in the decision of ld. CIT(A) in sustaining the penalty levied u/s. 271D of the act, therefore, this ground of appeal of the assessee is dismissed.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This assessee’s appeal for A.Y. 2014-15, arises from order of the CIT(A)-1, Ahmedabad dated 29-06-2018, in proceedings under section 271D of the Income Tax Act, 1961; in short “the Act”.

2. The assessee has raised following grounds of appeal:-

“1. The order passed by Ld. CIT (A) is bad and illegal as no valid and specific show cause notice was given hence, the same is in violation of law, equity and principle of natural justice.

2. Assessment order is time- barred as no tax payable was determined by the officer who passed the penalty order.

3. The Ld. CIT(A) has erred in law and on facts in upholding the penalty u/s 271D of the Act of Rs. 4,00,000/-.”

3. The fact in brief is that additional CIT has passed order u/s. 271D of the Act on 27^th March, 2017 and levied penalty of Rs. 4 lacs on the assessee u/s. 271D on loan amount obtained in cash in violation of provision of section 269SS of the act. During the course of assessment, the Assessing Officer noticed that assessee had accepted certain loan amounting to Rs. 2,30,000/- in cash from Shri Anish Nagpal and Rs. 1,70,000/- from Shri Amit Purswani which was found to be in violation of provisions of section 269SS of the act. After drawing satisfaction the additional CIT has issued show cause notice which was returned un-served. Thereafter, the Assessing Officer has referred provision of section 269SS indicating that the assessee should not have accepted the loans or deposits, otherwise than by a account payee cheque or by account payee bank draft drawn in the name of the assessee, if the aggregate amount of such loan or deposit amount to Rs. 20,000/- or more therefore levied penalty u/s. 271D of the act of Rs. 4 lacs for accepting the aforesaid loan amount in cash.

4. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. The relevant part of the decision of ld. CIT(A) is reproduced as under:-

“3.4. I have carefully considered the entire facts of the case and it is observed that during the course of assessment proceedings u/s. 143(3) of the Act in the case of the above mentioned company, it is found that following loans exceeding Rs.20,000/- have been accepted in cash by the assessee company in contravention of provisions of section 269SS of the I.T. Act, from the following persons:-

(A) Anish Nagpal

(B) Amit Purswani

In view of the section 269SS, it is held that the assessee had accepted certain loans amounting to Rs.2,30,000/- in cash from Shri Anish Nagpal and Rs.1,70,000/-from Shri Amit Purswani. The appellant Company has submitted that any amount received from the director in the case, the company would not fall with the preview of deposit for levy of penalty for violation of Sec. 269SS of the Act is not found to be correct, as in the section 269SS it is clearly mentioned that the body which is government or government undertaking is exempted from this and such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette is exempted. Hence, this company does not fall in exempted list of the section 269SS of the Act. In view of the above discussion and section 269SS of the Act, Assessing Officer was justified in levying penalty of Rs.4,00,000/- u/s. 271D of the Act for failure to comply with the provision of section 269SS of the Act. Hence, the penalty levied of Rs.4,00,000/- for the default is confirmed. The ground of appeal is dismissed.”

5. During the course of appellate proceedings before us, the ld. counsel contended that the amount was required in emergency therefore same was obtained from the directors of the company and submitted that there was no violation of the provisions of section 269SS of the act. The ld. counsel has referred various decisions placed in the paper book submitted during the course of appellate proceedings before us. On the other hand, the ld. Departmental Representative submitted that from the ledger account of the parties it is clear that cash transactions were pertained to the loan account and there is nothing on record to substantiate that it was not loan transaction.

6. Heard both the sides and perused the material on record. Assessment u/s. 143(3) of the act was finalized on 21^st December, 2016. Thereafter additional CIT has levied penalty u/s. 271D of the act on 27^th March, 2017 of Rs. 4 lacs on account of accepting loan amounting to Rs. 2,30,000/- in cash from Shri Anish Nagpal and Rs. 1,70,000/- from Shri Amit Purswani in violation of provision of section 269SS of the act. After perusal of the material on record, it is noticed that during the year under consideration directors of the assessee company, Anish Nagpal has given Rs. 2,30,000/-and other director Shri Amit Purswani has also given Rs. 1,70,000/- on different dates as per the copies of ledger account placed in the paper book filed by the assessee. It is also noticed that in the books of account these two ledger accounts were specifically named as Shri Amit Purswani loan account and Shri Anish Nagpal loan account. During the course of appellate proceedings before ld. CIT(A) the assessee has submitted that it has current account transaction with its director Shri Anish Nagpal and Shri Amit Purswani and it has not paid any interest amount in the account to its directors. However, the ld. CIT(A) has sustained the penalty holding that assessee company failed to substantiate that it fall in exempted list of the section 269SS of the act. We have gone through the judicial pronouncements referred by the ld. counsel. In the case of CIT vs. Idhyam Publications ITD 285 ITR 221 ( Hon’ble Madras High Court) it is held that the deposit and withdrawal of the money from the current account could not be considered as loan or advance. We find that facts of the case of the assessee are entirely different as in both the loan accounts there were only credit transaction on obtaining loan and there was no debit transaction. In the case of CIT vs. Natwarlal Purshottamdas Parekh 303 ITR 5 (Hon’ble High Court of Gujarat), in this case transaction with the family members on maturity of NSC were based on mere book entry and no cash amount was involved. However, the facts of the case of the assessee are entirely different wherein all the transactions of loan were based on cash basis. In the case of Hindustan Agencies Pvt. Ltd. Vs. Addl. CIT vide ITA No. 3387/Del/2014 dated 20-10-2016 in this case it was held that no penalty can be imposed u/s. 278D and 278E because the account was in the nature of current account. However, facts of the case of the assessee are entirely different as there was only cash receipt and was made on different dates from the directors of the assessee company. We have considered the fact and material on record and noticed from the copy of ledger account submitted by the assessee that on the different dates assessee has obtained cash from the two directors and there was no repayment made by the assessee during the year, the aforesaid accounts cannot be said of the nature of current account as claimed by the assessee. Further, the assessee has not brought any material to substantiate that assessee has not committed any violation of section 269SS of the act, we do not find any infirmity in the decision of ld. CIT(A) in sustaining the penalty levied u/s. 271D of the act, therefore, this ground of appeal of the assessee is dismissed.

In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 18-11-2021