Income Tax Appellate Tribunal Overturns Penalty Decision in Tapadiya Construction Ltd. Case for Assessment Year 2019-20

Income Tax Appellate Tribunal Overturns Penalty Decision in Tapadiya Construction Ltd. Case for Assessment Year 2019-20

Tapadiya Construction Ltd. Wins ITAT Appeal Against Section 271D Penalty, Clarifying Income Tax Act Provisions for Real Estate Developers

In a significant ruling, the Pune bench of the Income Tax Appellate Tribunal (ITAT) recently dismissed an appeal filed by the Deputy Commissioner of Income Tax (DCIT), Aurangabad, against an order by the Commissioner of Income Tax (Appeals) [CIT (A)], Pune. The case pertains to the assessment year 2019-20 and involves the penalty levied under Section 271D of the Income Tax Act, 1961, on Tapadiya Construction Ltd., a real estate developer.

Background of the Case

The matter arose when the Assessing Officer (AO) imposed a penalty under Section 271D of the Income Tax Act for allegedly violating Section 269SS. The charge was based on an amount of Rs. 1,37,73,000/- purportedly received by Tapadiya Construction Ltd. in cash, which the Revenue claimed was in violation of the provisions of Section 269SS. According to this provision, any loans or deposits above Rs. 20,000/- should be received by an account payee cheque or bank draft to avoid potential penalties. Tapadiya Construction Ltd. disputed this claim, asserting that the transaction was legitimate and in compliance with all applicable regulations. The company argued that the amount received was tied to the sale of houses under the project “Flora Phase-I” and was not subject to the provisions of Section 269SS.

CIT (A)’s Ruling

Initially, the matter was heard by CIT (A), Pune, who concluded that the provisions of Section 269SS were not applicable to Tapadiya Construction Ltd. The CIT (A) ruled that the penalty under Section 271D, which can be levied when a taxpayer fails to comply with the requirements of Section 269SS, should be deleted. According to the CIT (A), the company did not violate any of the provisions related to the receipt of money.

Key Points of CIT (A)’s Judgment:

Transaction Nature: The sum of Rs. 1,37,73,000/- was received by Tapadiya Construction Ltd. for additional amenities related to its real estate project, “Flora Phase-I,” and not as loans or deposits as defined under Section 269SS.

Legitimate Sales Transactions: The amount received was corroborated by documentation supporting the sale of houses to 12 customers. This evidence demonstrated the transactions were part of the business operations and not loans or deposits.

Revenue's Appeal to ITAT

Dissatisfied with the CIT (A)’s decision, the Revenue filed an appeal with the Pune bench of the ITAT. Represented by Ganesh B. Budruk, Additional Commissioner of Income Tax (Addl. CIT), the Revenue contended that the CIT (A) had erred both in law and in fact by deleting the penalty. They argued that the alleged receipt should clearly fall under the purview of Section 269SS and that the evidence provided by Tapadiya Construction Ltd. was insufficient to support the deletion of the penalty. The Revenue also maintained that the diary found during a search under Section 132 of the Income Tax Act contained entries indicating that the alleged sum had been received, and the company should have provided more credible evidence to substantiate its claim.

ITAT's Findings and Ruling

The ITAT bench, consisting of Judicial Member Vinay Bhamore and Accountant Member Manish Borad, meticulously examined the appeal. In its judgment, the ITAT found that the Assessing Officer had failed to provide any concrete evidence or material to support the claim that the alleged sum of Rs. 1,37,73,000/- was indeed received during the assessment year 2019-20. The bench further noted that the AO could not prove beyond a reasonable doubt that the diary entry found during the search contained accurate information regarding the receipt of the amount in question.

The tribunal emphasized the fact that Tapadiya Construction Ltd. had presented detailed records related to the sale of properties in the "Flora Phase-I" project. Vipul Joshi, the representative of the assessee, provided a comprehensive breakdown of the transactions, demonstrating that the amount received was part of the legitimate business activities of selling houses to 12 different customers. The ITAT noted that this documentation served to validate the company's claim and showed that the receipt of funds was in line with normal business operations rather than violating the cash transaction provisions under Section 269SS.

ITAT’s Conclusion:

No Violation of Section 269SS: The tribunal confirmed that there was no violation of Section 269SS, which deals with the acceptance of loans or deposits. The sum in question was related to the sale of real estate properties, not loans or deposits.

No Grounds for Penalty: The ITAT concluded that the penalty under Section 271D could not be levied in this case, as there was no substantial evidence to support the Revenue’s claim. Consequently, the tribunal upheld the CIT (A)’s decision to delete the penalty.

Implications of the ITAT’s Ruling

This ruling reinforces the importance of presenting clear and credible evidence in cases involving penalties under the Income Tax Act. The decision also clarifies that the provisions under Section 269SS, which regulate the acceptance of loans or deposits, are not applicable to transactions that are part of the normal course of business. For taxpayers, this ruling serves as a reminder that legitimate business transactions, properly documented, cannot be penalized under provisions intended to prevent money laundering or unaccounted cash dealings. The judgment also highlights the critical role of the Assessing Officer in proving violations beyond reasonable doubt, especially when the taxpayer presents substantial evidence in their favour.

The ITAT’s dismissal of the Revenue’s appeal in the case of Tapadiya Construction Ltd. marks an important step in clarifying the application of Section 269SS and Section 271D. It underscores the need for both tax authorities and taxpayers to ensure that penalties are only levied when clear violations occur, and that credible evidence is presented by both parties. This decision serves as a guide for future cases involving penalties under the Income Tax Act, particularly in the real estate and construction sectors. Tax professionals and businesses must take note of this ruling to ensure that similar transactions are properly documented and compliant with the regulations under the Income Tax Act.