2013 (5) TMI 845 - AT - Income Tax

1. ISSUES PRESENTED and CONSIDERED

The legal judgment from the Appellate Tribunal ITAT Chennai involves the following core legal questions:

Whether the penalty under section 271D of the Income Tax Act was rightly deleted by the CIT(A) for the assessment year 2005-06, considering the deposits were received through journal entries and not in cash, thereby not violating section 269SS.
Whether the CIT(A) was correct in allowing the deduction under section 80IB(10) of the Income Tax Act for the assessment year 2006-07, despite the housing project not meeting the condition that each residential unit should not exceed a built-up area of 1500 sq ft.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Penalty under Section 271D

Relevant legal framework and precedents: Section 269SS prohibits accepting loans or deposits above a specified amount otherwise than by an account payee cheque or bank draft. Section 271D imposes penalties for violations. The Tribunal referenced previous decisions, including ACIT vs Shri N. Krishnamoorthy, which held that penalties under sections 271D and 271E cannot be levied for journal entries where no actual cash transaction occurs.
Court's interpretation and reasoning: The Tribunal agreed with the CIT(A) that the transactions were journal entries within group companies and did not involve actual cash transfers, thus not violating section 269SS.
Key evidence and findings: The deposits were transferred through journal entries from M/s Well Shine Investment and Finance Services Ltd, a group company, and not received in cash.
Application of law to facts: The Tribunal applied the principle that sections 269SS and 271D apply only to actual cash transactions, not to journal entries.
Treatment of competing arguments: The Revenue argued for penalty imposition based on the Assessing Officer's findings. The Tribunal, however, favored the CIT(A)'s interpretation supported by precedent.
Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the penalty for Rs. 2,87,000/- as there was no violation of section 269SS.

Issue 2: Deduction under Section 80IB(10)

Relevant legal framework and precedents: Section 80IB(10) allows deductions for profits from housing projects meeting specific criteria, including a maximum built-up area per unit. The CIT(A) relied on the decision of the Calcutta High Court in Bengal Ambuja Housing Development Ltd. and the Madras High Court in CIT vs M/s Sanghvi and Doshi Enterprise, which allowed proportionate deductions.
Court's interpretation and reasoning: The Tribunal noted that the CIT(A)'s decision was consistent with the prevailing judicial interpretation that allows proportionate deductions for compliant units within a larger project.
Key evidence and findings: The assessee constructed a total built-up area of 52,099 sq ft, with 18,129 sq ft comprising units below 1500 sq ft, claiming proportionate deductions.
Application of law to facts: The Tribunal applied the principle of proportionate deduction, aligning with the Madras High Court's decision that section 80IB(10) deductions focus on project compliance.
Treatment of competing arguments: The Revenue's argument against proportionate deduction was countered by the CIT(A) and Tribunal's reliance on higher court rulings favoring such deductions.
Conclusions: The Tribunal upheld the CIT(A)'s decision to allow the deduction, confirming the application of section 80IB(10) to the compliant portion of the project.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "Penalties under sections 271D and 271E cannot be levied on adjustments made in the personal accounts through journal entries as no actual payment or receipt of money is involved."
Core principles established: The judgment reinforces that penalties under sections 271D and 271E require actual cash transactions, and section 80IB(10) allows for proportionate deductions based on compliant units within a project.
Final determinations on each issue: The Tribunal dismissed the Revenue's appeals, confirming the CIT(A)'s decisions to delete the penalty under section 271D and allow the deduction under section 80IB(10).

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