Partners capital not loan or deposit within the meaning of section 269SS – ITAT confirms deletion of penalty u/s 271D

Partners capital not loan or deposit within the meaning of section 269SS – ITAT confirms deletion of penalty u/s 271D for capital contributed by partner in cash.

The Revenue had filed this appeal against the order of the Commissioner of Income Tax (Appeals) whereby he deleted the penalty u/s 271D of the Income Tax Act, 1961 (the Act) for alleged violation of section 269SS.

ABCAUS Case Law Citation
ABCAUS 2349 ( 2018) 05 ITAT

The respondent assessee was a partnership firm. During the relevant year, the firm had received capital contribution in cash from its partner on various dates.

The Assessing Officer (AO) made an observation that the receipt of capital contribution from the partner by the assessee firm amounted to loan or deposit and since the same was received in cash, it had violated the provisions of section 269SS of the Act. Accordingly, he imposed a penalty u/s 271D of the Act being 100% of the capital contributed in cash.

The CIT(A) observed that introduction of capital contributed by a partner in the partnership firm does not fall under the ambit of loan or deposit within the meaning of section 269SS of the Act. Moreover, he observed that the partner had duly reflected this introduction of capital in the partnership firm in his individual balance sheet. The CIT(A) also observed that the assessee firm also had treated the receipt from the partner as capital introduced by the said partner. Accordingly he deleted the penalty levied u/s 271D of the Act.

The Tribunal observed that the capital contributed by the partner in the partnership firm does not tantamount to loan or deposit within the meaning of section 269SS of the Act.

Accordingly it opined that there was no infirmity in the order of the CIT(A) cancelling the penalty. Therefore the appeal of the revenue was dismissed.

Download Full Judgment Click Here >>