Cash deposited in bank by friend for making DD for tender was not loan or deposits u/s 269SS/269T

Cash deposited in bank by friend for making DD for participating in tender was not loan or deposits u/s 269SS or 269T- ITAT deleted penalty levied u/s 271D and 271E

ABCAUS Case Law Citation:
ABCAUS 2719 (2019) (01) ITAT

Important Case Laws Cited/relied upon:
OMEC Engineers Vs CIT 169 Taxman 158
CIT Vs Bhagwati Prasad Bajoria (HUF) 133 Taxman 426
Chemfert Traders (Bombay) Pvt. Ltd. Vs ACIT 1(1)

The assessee had challenged the orders of CIT(A) in sustaining the penalty imposed by the Assessing Officer (AO) u/s 271D and 271E of the Income Tax Act, 1961 (the Act)

During the course of assessment proceedings, the AO noted that the assessee had made cash deposit in his personal savings bank account.

The assessee has explained the source of cash deposits included a sum belonging to the friend of the assessee who deposited it for making a Demand Draft (D.D.) for participating in the tenders of liquor shops to be auctioned by the Excise Department.

The Assessing Officer accepted the explanation of source of deposit and consequently no addition was made in the income of the assessee. However, the Assessing Officer referred the matter for initiation of the penalty proceedings U/s 271D and 271E of the Act as the assessee received the loan/deposit as well as repayment of the same in cash in violation of provisions of Section 269SS and 269T of the Act respectively.

The Additional CIT levied the penalty U/s 271D as well as 271E of the Act.

The assessee challenged the levy of penalty before the CIT(A) and contended that it was neither a loan taken by the assessee nor the deposits but the amount belonged to the friend of the assessee who deposited in the bank account of the assessee for making the DD for participating in the tenders of the liquor shop. When he did not succeed in the tender, the D.D. were got cancelled and the amount was refunded to the friend.

The CIT(A) did not accept this contention of the assessee for want of any documentary evidence and accordingly, confirmed the levy of penalty U/s 271D and 271E of the Act.  

Aggrieved, the assessee approached the Income Tax Appellate Tribunal (Tribunal/ITAT).

The assessee submitted that the Assessing Officer while completing the assessment U/s 143(3) of the Act, accepted the explanation of the assessee regarding the source of deposit from his friend.

It was submitted once the assessee explained the source as the amount belongs to friend, who got the D.D. from the bank account of the assessee for participating in the tender of the liquor shop then it will not fall in the ambit of the term loan or deposit deceived by the assessee so as to attract the provisions of Section 269SS and 269T of the Act and consequently the penalty levied U/s 271D and 271E of the Act were not justified.

It was further submitted that the depositor was not having any bank account, therefore, the same was taken by way of cash to meet the urgent business requirement of participating in the tender of liquor shops. Further the assessee being the small business man and having rural background, was not aware about the technical provisions of Section 269SS or 269T of the Act. Therefore, the assessee was under bonafide belief that the relevant transaction with his friend was not in violation of any law.

Thus, it was submitted that the said explanation of the assessee was a reasonable cause for failure to comply with the provisions of Section 269SS ad 269T of the Act as provided U/s 273B of the Act. Hence, the penalty levied U/s 271D and 271E of the Act be deleted.

The Tribunal observed that the The Assessing Officer accepted the explanation of the assessee and did not make any addition on account of unexplained cash deposit in the bank account of the assessee.

It was also noted that the order of the Assessing Officer passed U/s 143(3) of the Act was completely silent about the satisfaction of the Assessing Officer regarding the source of cash deposits explained by the assessee.

Thus, the Tribunal opined that once the Assessing Officer had not disputed the explanation of the assessee while framing the assessment U/s 143(3) of the Act and explanation furnished by the assessee regarding the deposit, made it clear that the amount was deposited for making a D.D. in favour of the Excise Department for participating in the tender of the liquor shops by assessee’s friend.

The Tribunal opined that once the Assessing Officer had accepted the explanation as furnished by the assessee during the assessment proceedings and had not given any finding about the nature of the deposit in the bank account then the said explanation could not be out rightly rejected in the penalty proceedings U/s 271D and 271E of the Act.

The Tribunal stated that when the explanation of the assessee that the said amount was deposited by his friend in the bank account of the assessee for the purpose of taking a D.D. in favour of the Excise Department for participating in the tender of liquor shops then it would not fall in the ambit of loan or deposits as contemplated in the provisions of Section 269SS and 269T of the Act.

The Tribunal opined that once it was not a loan taken by the assessee for his requirement but the explanation was accepted by the Assessing Officer that this amount was deposited by his friend for his requirement of participating in the tender of the liquor shops then in absence of any fresh material or contrary record to show that the amount was taken as a loan by the assessee for assessee’s requirement, the penalty levied U/s 271D and 271E were not justified.

Accordingly, the Tribunal deleted the penalty levied u/s 271D and 271E of the Act.

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