No penalty u/s 271D when cash loans treated as undisclosed income u/s 68

No penalty u/s 271D can be levied when cash loans were treated as undisclosed income of the assessee u/s 68 of the Income Tax Act – ITAT

ABCAUS Case Law Citation:
ABCAUS 2743 (2019) (01) ITAT

Important Case Laws Cited/relied upon:
Diwan Enterprises vs. CIT
CIT vs. Standard Brands Ltd.

The appellant assessee had filed the present appeal seeking to set aside the impugned order passed by the CIT (Appeals) confirming the penalty levied u/s 271D of the Income-tax Act, 1961 (the Act).

The assessee has availed cash loans. The AO completed the assessment u/s 143(3) treating the cash loan as unexplained credit u/s 68 of the Act and added the same to the income of the assessee holding that the assessee had failed to prove the creditworthiness of the creditors.

Penalty proceedings u/s 271D of the Act were also initiated for violation of provisions contained u/s 269SS of the Act. Declining the contentions raised by the assessee, AO proceeded to levy the penalty u/s 271D of the Act.

Assessee carried the matter before the CIT (A) who confirmed the penalty by dismissing the appeal.

Before the Tribunal, the assessee contended that when the AO had treated the amount of cash loans as unexplained credit u/s 68 of the Act and thereby treated the same as income of the assessee, the same cannot be treated as loan and hence penalty u/s 271D could not be levied.

The Tribunal noted that the quantum addition on the basis of which penalty had been initiated, had been accepted by the assessee.

The Tribunal observed that when, the Revenue had treated the amount of loans obtained in cash as undisclosed income of the assessee u/s 68 of the Act, it could not treat the same as a loan though taken in cash in the same breath so as to initiate the penalty proceedings u/s 271D of the Act.

The Tribunal pointed out that on the one hand, the Revenue cannot treat the cash loans as undisclosed income in the hands of assessee u/s 68 of the Act and at the same time, initiate penalty proceedings u/s 271D against the assessee for violation of provisions contained u/s 269SS of the Act as the same had not remained as loan in the hands of assessee.

Following the decision of the jurisdictional High Court, the Tribunal opined that penalty levied by the AO and confirmed by the CIT (A) was not sustainable in the eyes of law, hence ordered it to be deleted.

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