Whether advances given by partner of a partnership firm to the firm violates the provisions of section 269SS and liable to penalty u/s 271-D?
Held: No.
The assessee is a partnership firms involved in the business of banking and registered under the Kerala Money Lending Act. During the course of the assessment proceedings, it was found that the firm had accepted payments from the partners, in cash. The AO held that interest was given to the partners on the amount advanced, which conclusively proved that transactions are between different persons whereby the firm has accepted and repaid loans in cash, and accordingly, imposed penalty under Section 271-D of the Act.
Held:
The transactions between the partner and the firm do not partake the character of a loan or deposit and therefore, there is no applicability of the provisions of Section 269-SS of the Act. There is no separate legal entity for the partnership firm and the partner is entitled to use the funds of the firm. Hence Penalty u/s 271D of the Income tax Act, 1961 is not attracted. The present appeals filed by the revenue are devoid of any merit.
Ref:- CIT V M/s Muthoot Finance I.T.A No. 336, 338 & 341 of 2002, Date of Decision: 03.02.2015, High Court of Delhi
