No Disallowance u/s 269SS when disallowance already made on Payments for Construction Contract, Penalty u/s 271 D not leviable: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that No disallowance u/s 269SS when disallowance has already been made on payments for construction contract and Penalty u/s 271 D of the Income Tax Act,1961 is not leviable.

Shri AR.V.Sreenivasan appeared for the appellant and Shri T. Pramod Kumar Chopda, Advocate appeared for the respondent.

The Revenue challenged the order of Commissioner of Income Tax (Appeals)-11, Chennai 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 (‘Act’) vide order dated 13.03.2014.  The impugned penalty was levied by the ACIT under section 271D of the Income Tax Act vide order dated 30.08.2017.

The AO during the course of assessment proceedings noticed that M/s. VME Precast Pvt. Ltd, 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 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 Income Tax Act and added to the returned income of the assessee

On appeal, the CIT(A) held that the cash received from its two customers for construction works on their projects and which was initially accounted as directors cash loan to the appellant cannot be considered a cash loan in violation of section 269SS of the Act.

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.

The assessee company had accounted for 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 been taken to the director's account, they had subsequently been taken into respective contractee accounts well before the finalization of accounts for the year.

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 the levy of penalty u/s 271D of the Income Tax Act. The Assessing Officer is directed to delete the penalty levied. The grounds of appeal are allowed.

 A Coram of Shri Mahavir Singh, Vice President and Shri Manoj Kumar Aggarwal, AM observed that the 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/-.

 The Revenue wants to impose a penalty u/s.271D for violation of provisions of section 269SS of the Income Tax Act, for the reason that there was a cash loan whereas the AO has given a 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 contracts and particularly the AO has made disallowance by invoking the provisions of section 40A(3) of Income Tax Act the no disallowance can be made by invoking the provisions of section 269SS of the Act for levy of penalty u/s.271D of the Income Tax Act.  The Tribunal upheld the order of CIT(A) deleting the penalty and dismissed the appeal of Revenue.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates