Question And Answer
Subject: Section 271E- Penalty for failure to comply with the provisions of section 269T -Mode of repayment of loans or deposits
Querist: Manali
Answered by:
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Date: February 17, 2023
Query asked by Manali

The assessee is a company wherein in the assessment completed u/s 143(3) of the Act for A.Y 2021-22, addition of Rs. 70,00,000/- was made u/s 68 of the Act on account of unaccounted cash loan repayments on the basis of noting on seize papers found during the course of search conducted in the year 2021-2022.

The director of the company has accepted the above referred seize paper noting in his personal capacity.

However, AO has made an addition of Rs. 70,00,000/- as undisclosed income in the hands of assessee company and similar addition has been made on the protective basis in the hands of the director of the company.

The assessee company has received notice u/s 271E for alleged repayment of loans of Rs. 70,00,000/-.

Whether the action of the AO of initiating penalty proceedings u/s 271E is justified in law even though there is no mention of such initiation in the assessment order.

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The proceedings under section 271E of the Income-tax Act, 1961 (Act) are independent of assessment proceedings. However, the Hon’ble Gujarat High Court in the case of CIT v. Sanatan Seva Mandal [2013] 40 397 (Gujarat) wherein it was held that Where pursuant to search proceedings, certain addition was made to the assessee’s income on a protective basis and in case of one ‘K’ on a substantive basis, in view of the fact that substantive additions were already subjected to penalty, no penalty could be levied in respect of said additions protectively made against the assessee.

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