Penalty – Sections 271D, 271E and 273B – A. Ys. 1996-97 to 1998-99 – Loan or deposit in cash exceeding prescribed limit – Payments from partners in cash – Firm and partner are not different entities – Penalty cannot be imposed u/s. 271D –

The
assessee firm was involved in the business of banking. The Assessing
Officer found that the firm had accepted payments firm the partners,
during the relevant years corresponding to the A. Ys. 1996-97 to 1998-99
in cash. The Assessing Officer imposed penalty u/s. 271D of the
Income-tax Act, 1961. The Tribunal held that the advances made to the
firm by its partners could not be regarded as loans advanced to the
firms and deleted the penalty.

On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:

“i)
The transaction effected could not partake the colour of loan or
deposit and neither section 269SS nor section 271D of the Act would come
into play.

ii) It was an undisputed fact that the money was
brought in by the partners of the assessee firm. The source of money had
also not been doubted by the Revenue. The transactions are bonafide and
not aimed at avoiding any tax liability.

iii) The
creditworthiness of the partners and the genuineness of the transactions
coupled with the relationship between the “two persons” and two
different legal interpretations put forward could constitute a
reasonable cause in a given case for not invoking section 271D and
section 271E of the Act. Section 273B of the Act would come to the aid
and help the assessee. Penalty could not be levied.”