Law:

Section:

Section 271D of the Income-tax Act, 1961 - Penalty - For failure to comply with section 269SS - Assessment year 1991-92 - Assessee-company purchased goods from time-to-time from creditor company - As it was not able to make payment of outstanding purchase price immediately, it arrived at an understanding with creditor company whereunder outstanding purchase price was to be treated as loan on 'sarafi account' after making part payment of outstanding dues - Assessing Officer, however, treated outstanding amount on 'sarafi account' as acceptance of deposit in violation of section 269SS and imposed penalty upon assessee under section 271D - Tribunal deleted penalty holding that there was no evidence on record to show that infraction of provisions was with knowledge or in defiance of provisions; and that breach, if any, was merely a technical or venial breach - Whether Tribunal was justified in deleting penalty - Held, yes FACTS The assessee-company purchased goods from time-to-time from the creditor company. As it was not in position to make the payment of the outstanding purchase price immediately, the parties arrived at an understanding whereunder the outstanding purchase price was treated as a loan on 'sarafi account' after making part payment of the outstanding dues. During course of assessment proceeding, the Assessing Officer treated the outstanding amount on 'sarafi account' as acceptance of deposit in violation of provisions of section 269SS and, accordingly, he imposed penalty under section 271D upon the assessee. The Commissioner (Appeals) upheld the penalty order. However, on second appeal, the Tribunal cancelled the impugned penalty. On reference : HELD While introducing section 269SS, section 273B was also incorporated in the statute which provides that no penalty shall be imposable on a person or an assessee, as the case may be, for any failure referred to in the said provision if the assessee proves that there was a reasonable cause for such failure. In other words, penalty is not automatic under section 271D on mere violation of provisions of section 269SS. [Para 6] The Tribunal had found that there was no evidence on record to show that infraction…

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