Case Law Details
DCIT Vs VME Precast Pvt. Ltd. (ITAT Chennai)
ITAT noted that at the first instance, Revenue has added these amounts in violation of provisions of section 40A(3) of the Act i.e., not the entire amount of Rs.1,55,67,210/- but restricted the violation at Rs.79,05,835/-. However, subsequently the JCIT vide order dated 06.02.2015 levied penalty for an amount of Rs.1,05,40,500/- being payments made in cash first through the directors account and subsequently taken to the party account i.e., the assessee’s account. The JCIT also this penalty on the same violation i.e., violation u/s.40A(3) as well as for violation of provisions of section 269SS of the Act. Here in the present case, the Revenue want to impose penalty u/s.271D for violation of provisions of section 269SS of the Act, for the reason that there was a cash loan whereas the AO has given contrary finding that the payments by these two companies in cash i.e., TCS Textile Pvt. Ltd., and Shree Manickam Infrastructure Pvt. Ltd., is on account of construction contract and for that the AO has invoked the provisions of section 40A(3) of the Act. Once, it is established that these payments are for construction contract and particularly the AO has made disallowance by invoking the provisions of section 40A(3) of the Act, no disallowance can be made by invoking the provisions of section 269SS of the Act for levy of penalty u/s.271D of the Act. Hence, we confirm the order of CIT(A) deleting the penalty and dismiss this appeal of Revenue.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-11, Chennai in ITA No.5 1/17-18 dated 01.03.2019. The assessment was framed by the ACIT, Company Circle III(4), Chennai for the assessment year 2011-12 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 13.03.2014. The impugned penalty was levied by the ACIT, Corporate Range 3, Chennai u/s.271D of the Act vide order dated 30.08.2017.
2. The only issue in this appeal of Revenue is as regards to the order of CIT(A) deleting the penalty levied u/s.271D of the Act for violation of provisions of section 269SS of the Act in accepting cash amounting to Rs.1,05,40,500/-.
3. We have heard rival contentions and gone through facts and circumstances of the case. The AO during the course of assessment proceedings noticed that the assessee has made cash payment exceeding Rs.20,000/- to the tune of Rs.1,55,67,210/- in violation of provisions of section 40A(3) of the Act and thereafter, the AO noticed the transactions relating to an amount of Rs.79,08,535/- has paid in violation of provisions of section 40A(3) of the Act and added to the returned income of the assessee by observing as under:-
“1. Disallowance u/s.40A(3)
While examining of the assessee’s submission it is noticed that the assessee company has made cash payment exceeding Rs.20,000/- to the tune of Rs. 1,55,67,210/-. The AR was asked to submit the details and breakup in this regard. The AR vide his letter dt.06.03.2014 submitted the breakup. On verification of the same, it is found that out of the total amount of Rs. 1,55,67,210/- an amount of Rs.41,35,000/- has been deposited into Bank and an amount of Rs.35,26,375/- has been paid as Salaries, Wages and Bonus. The balance of Rs.79,05,835/- has been paid under various categories in cash over Rs.20,000/- which is in clear violation of the provision of the section 40A(3) of the IT, Act 1961. Hence, provision of the section 40A(3) of the IT Act, 1961, is invoked and this sum of Rs.79,05,835/- is disallowed and added to the total income of the assessee.”
4. Subsequently, the assessee filed appeal before CIT(A) and the CIT(A) in ITA No.409/14-15/CIT(A)-11 dated 30/03/2016 held that the cash received from its two customers for the purpose of construction works pertaining to their projects and which was initially accounted as directors cash loan to the appellant cannot be considered as cash loan in violation of section 269SS of the Act. The above finding of the CIT(A) was not disturbed by the Tribunal in its order in ITA No.1918/Mds/2016 dated 25.01.2017 but the matter was remitted back for fresh consideration since there was violation of Rule 46A of the Income Tax Rules, 1962. The CIT(A) after considering that the amount of Rs.1,01,54,900/- from its two directors namely TCS Textile Pvt. Ltd., and Shree Manickam Infrastructure Pvt. Ltd., are for the completion of construction contracts and not a loan or deposit. Hence, the CIT(A) deleted the levy of penalty by observing in para 8 & 9 as under:-
8. The contents of the earlier orders as well as the submission of the assessee are examined. The assessee company had claimed this amount of Rs. 1,01,54,900/- from two of its contractees. The assessee has not been able to submit confirmation from these two persons. However, the issue had reached the police authorities on account of M/s. Chennai Silks/KTM Jewellery Pvt. Ltd. not having paid dues to its vendors. During the course of the said verification, M/s KTM Jewellery Pvt. Ltd/Chennai silks had submitted before Tirunelvelli Police Commissioner that they had given a cash amount of Rs.79,3 1,252/- to the assessee Company towards contractual obligations. To this extent, the vendor has accepted the cash amounts paid by it to the assessee company.
9. The fact remains that the assessee company had accounted the entire receipt of Rs.1,01,54,900/- as its contract revenue for AY 2011-12. The amount had not been shown as a loan in the financials of the company. Even though the amounts had initially being taken to the director’s account, they had subsequently been taken into respective contractee accounts well before the finalization of accounts for the year. To this extent, the cash receipts from contracts had been accounted as such in the books of accounts of the assessee. My predecessor CIT(A) had also given relief to the assessee as contract cash receipt could not have been treated as cash loan received in violation of section 269SS. The said cash received had also been utilized towards business purpose of the assessee in the regular course. The assessee company had also been visited with disallowance u/s 40A(3) towards cash expenses. On account of the facts on record as above, it is held that this is not a fit case for levy of penalty u/s 271D of the IT Act. The Assessing Officer is directed to delete the penalty levied. The grounds of appeal are allowed.
5. We noted that at the first instance, Revenue has added these amounts in violation of provisions of section 40A(3) of the Act i.e., not the entire amount of Rs.1,55,67,210/- but restricted the violation at Rs.79,05,835/-. However, subsequently the JCIT vide order dated 06.02.2015 levied penalty for an amount of Rs.1,05,40,500/- being payments made in cash first through the directors account and subsequently taken to the party account i.e., the assessee’s account. The JCIT also this penalty on the same violation i.e., violation u/s.40A(3) as well as for violation of provisions of section 269SS of the Act. Here in the present case, the Revenue want to impose penalty u/s.271D for violation of provisions of section 269SS of the Act, for the reason that there was a cash loan whereas the AO has given contrary finding that the payments by these two companies in cash i.e., TCS Textile Pvt. Ltd., and Shree Manickam Infrastructure Pvt. Ltd., is on account of construction contract and for that the AO has invoked the provisions of section 40A(3) of the Act. Once, it is established that these payments are for construction contract and particularly the AO has made disallowance by invoking the provisions of section 40A(3) of the Act, no disallowance can be made by invoking the provisions of section 269SS of the Act for levy of penalty u/s.271D of the Act. Hence, we confirm the order of CIT(A) deleting the penalty and dismiss this appeal of Revenue.
6. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 19th October, 2022 at Chennai.
