Facts of the Case

The assessee, a private limited company, was subjected to search-related assessment proceedings. During examination of financial transactions, it was found that the company had received a substantial amount in cash from its director. The Assessing Officer observed that the receipt constituted a loan/deposit accepted otherwise than through prescribed banking channels, thereby violating Section 269SS of the Income-tax Act, 1961.

Consequently, penalty proceedings were initiated under Section 271D. The Joint Commissioner imposed a penalty equivalent to the amount received in cash. The Commissioner (Appeals) confirmed the penalty, leading the assessee to file an appeal before the Income Tax Appellate Tribunal (ITAT), Allahabad.

Issues Involved

  1. Whether cash received by a company from its director constitutes a “loan or deposit” under Section 269SS.
  2. Whether violation of Section 269SS attracts penalty under Section 271D even when the transaction is between related parties.
  3. Whether a company and its director can be treated as the same person for purposes of Section 269SS compliance.

Petitioner’s Arguments (Assessee)

  • The assessee contended that the amount received from the director should not be treated as a loan or deposit attracting Section 269SS.
  • It was argued that transactions between a company and its director are internal arrangements and should not be penalized.
  • The assessee also attempted to justify the cash receipt on business necessity and circumstances arising from search proceedings.

Respondent’s Arguments (Revenue)

  • The Revenue argued that Section 269SS strictly prohibits acceptance of loans or deposits exceeding the prescribed limit in cash.
  • It was emphasized that a company and its director are separate legal persons under the Act.
  • Therefore, cash received from the director clearly constituted a loan/deposit from another “person,” triggering statutory violation.

Court Order / Findings (ITAT)

  • Section 269SS applies irrespective of the relationship between parties.
  • A private limited company and its director are distinct persons under Section 2(31).
  • Acceptance of cash loan beyond the statutory limit violates the mandatory provisions of the Act.
  • Consequently, penalty under Section 271D was validly imposed and confirmed.

Important Clarification

  • Relationship between parties does not dilute statutory compliance requirements under Section 269SS.
  • Corporate entities must transact through prescribed banking modes even with directors or related parties.
  • Violation results in strict, amount-based penalty under Section 271D.
  • The decision reinforces the principle that tax law treats companies and individuals as separate persons regardless of internal control or ownership.

Link to download the order - https://itat.gov.in/public/files/upload/1670927127-HK%20Infraventure%20PDF.pdf

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