2024 (5) TMI 962 - HC - Income Tax

Penalty u/s 271D - undisclosed income found during search - disclosed profit on the undisclosed turnover as found to be on account of Pawning business - appellant submits that the undisclosed income was declared during search therefore no proceedings u/s 158BFA(2) were required to be initiated as the undisclosed income would not fall within the meaning of Section 269SS and consequently no penalty could have been imposed in term of Section 271D - whether the amount which has been mentioned in the book of accounts of which the profit has been earned is a business wherein the amount has been received by way of loan or otherwise? HELD THAT - The word Pawn as been defined in Black s Law Dictionary means pledging of old jewellery to a pawn broker as a security for loan would come within the meaning of Section 269SS of the Act. Thus we are satisfied that the AO has correctly treated the amount disclosed through search and seizure by way of additional income through pawning as being such loan was deposited inconformity with Section 269SS of the Act and the provisions of Section 269SS were not complied with as Section 269SS specifically bar such accepting or giving loans or allowing deposit otherwise than by account payee cheque or bank draft for the amount of Rs. 20, 000/- or more. The logical corollary from above automatically invites action u/s 271D of the Act. The question of law as determined hereinabove is therefore answered in favour of the Revenue.

Summary

Issues:
Interpretation of Section 269(SS) and Section 271D of the Income Tax Act, 1961 in relation to undisclosed income found during search.

Detailed Analysis:

1. The appeals were filed to challenge part of the order passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar, where the appeal filed by the CIT was allowed.

2. The High Court framed questions of law related to the application of Section 158BFA(2) and Section 271D of the Income Tax Act, 1961. The first question questioned the imposition of penalty under Section 271D in absence of violation of Section 269SS, while the second question was dependent on the first.

3. The respondents argued for imposing a penalty under Section 271D for undisclosed income found during search. The appellant contended that since the undisclosed income was declared during search, no penalty under Section 271D could be imposed as it did not fall under Section 269(SS) of the Act.

4. The Court noted that the interpretation of the second question was contingent on the resolution of the first question regarding the applicability of Section 271D.

5. A search operation revealed undisclosed income related to a pawning business. The appellant's argument hinged on the interpretation of Section 269(SS) and Section 271D as they existed at the relevant time.

6. The Court deemed it necessary to delve into the facts of the case to address the questions raised.

7. The Court quoted Section 269SS which prohibits accepting loans or deposits in certain forms and Section 271D which imposes penalties for contravention of Section 269SS.

8. The Court referred to the definition of "Pawn" from Black's Law Dictionary to determine if the disclosed income from the pawning business fell within the purview of Section 269(SS).

9. The Court concluded that pledging old jewelry to a pawnbroker constituted a loan under Section 269(SS) of the Act.

10. The Assessing Officer correctly treated the disclosed income from the pawning business as additional income, as it was received in a manner not compliant with Section 269(SS), inviting penalty under Section 271D.

11. Consequently, the Court upheld the orders in favor of the Revenue and dismissed the appeals.

12. Any pending applications were disposed of accordingly.