The Income Tax Appellate Tribunal (ITAT) Chennai Bench uphled the penalty imposed for violating the provision of Section 269SS of Income Tax Act 1961 due to accepting loan from companies managing director.
Sai Balaji Gas Cylinder Pvt., a company involved in the manufacturing of LPG cylinders, underwent scrutiny of its case after filing tax returns. Subsequently, the assessment was carried out under Section 143(3) of the Income Tax Act, resulting in the determination of the total income for the assessee.
During the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee company has accepted loans from M.Muruganandam, Managing Director of the company in contravention of Section 269SS of the Income Tax Act. Therefore, the AO initiated penalty proceedings under section 271D of Income Tax Act.
K.Subramaniam, CA, appeared for hearing on 04.09.2018, and contended that the assessee has accepted cash loans from Mr. M.Muruganandam, Managing Director of the company for urgent commitments of cash such as payments for purchases, labour, freight administrative expenses, and deposits to bank to reduce credit limits and honour cheques given for business.
Without considering the contentions of the parties, the AO levied a penalty under Section 271D of the Income Tax Act, for contravention of provisions of Section 269SS of the Income Tax Act.
Aggrieved by the penalty order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], who dismissed the appeal of the assessee. Then, the assessee filed a second appeal before the tribunal.
Dinesh, the assessee-representative before the tribunal argued that the order passed by the AO is barred by limitation in terms of provisions of Section 275(1)(c) of the Income Tax Act,
Further, the transactions between the assessee company and its Managing Director could not be treated as loans and advances in terms of provisions of Section 269SS and 269TT of the Income Tax Act.
The business of assessee was located in Cheyyar Town, Tiruvannamalai District, which is not well connected by banking facilities.
The assessee has received cash for urgent requirement of business needs and also re-paid cash received from the Managing Director as and when the cash available with the assessee. Therefore, the transactions between the assessee company and its Managing Director could not be treated as loans and advances under Section 269SS Income Tax Act.
Department representative V. Sreenivasan argued that the orders passed by the AO imposing penalties under Section 271D of the Income Tax Act are not time barred and upheld the decision of the lower authorities.
After examining the facts and arguments presented by the both parties, the tribunal observed that the assessee has accepted loans and advances from its Managing Director in cash in contravention of provisions of Section 269SS income Tax Act.
Upon scrutinizing the ledger extract of Mr. M. Muruganandam in the assessee’s accounting records, it became evident that substantial cash amounts were received from the Managing Director on multiple occasions. Similarly, significant cash repayments were also made without any accompanying explanation regarding the rationale behind receiving loans and advances in cash.
The tribunal further noted that the assessee failed to provide a justifiable reason for accepting loans and advances in cash, thereby violating the provisions specified in Section 269SS of the Income Tax Act. The argument put forth by the assessee regarding limited access to banking facilities was rejected by the tribunal, as it found that the area where the assessee’s factory was situated had a substantial presence of 30 bank branches.
Therefore, the bench, consisting of Manjunatha G (Accountant Member) and Manomohan Das (Judicial Member), acknowledged that the assessee had received loans from its Managing Director, which constituted a violation of the provisions outlined in Section 269SS of the Income Tax Act.
Additionally, the bench noted that the repayment of loans and advances to the Managing Director in cash also contravened the aforementioned provisions. Consequently, the tribunal deemed it appropriate to impose a penalty under Section 271D of the Income Tax Act.
As a result, the appeal filed by the assessee was dismissed.
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