No penalty u/s 271E where persons are properly identified and transactions are genuine as there can be no attempt to evade tax – ITAT
ABCAUS Case Law Citation:
ABCAUS 3318 (2020) (06) ITAT
Important case law relied upon by the parties:
Industrial Enterprises vs. DCIT [2000] 73 ITD 252
ADIT vs. Kumari A. B. Shanti (2002) 255 ITR 487 (SC)
CIT vs. Lakshmi Trust Co. [2008] 303 ITR 99
In the instant case, the appeal was filed by the assessee firm against the order passed by the Commissioner of Income Tax (Appeals) upholding penalty u/s 271E of the Income Tax Act, 1961 (the ‘Act’).
During the course of the assessment proceedings u/s 143(2) of the Act, the Assessing Officer (AO) noticed that the assessee had repaid cash loans to two loan creditors on different dates each transaction amounting to Rs. 20000/-.
The assessing officer observed that total repayment of loan in cash was in contravention of the provisions of section 269T of the Act which attracted Penalty u/s 271E. Therefore, AO issued notice to the assessee u/s 271E of the Act.
In response to the notice, the assessee vide letter stated that the entire round of transactions took place within the relatives and friends of the family and he had made repayment of the money to the persons who were in dire need of funds on those days, in order to enable them to carry on their business.
The assessee also submitted that the transactions of repayment of loan in question in the instant case were genuine and bona fide, therefore the penal proceedings u/s 271E should not be initiated.
However, the AO rejected the contention of the assessee and imposed the penalty u/s 271E for violation of provisions of section 269T of the Act.
Aggrieved by the order of the AO, the assessee carried the matter in appeal before CIT(A), who has confirmed the penalty imposed by the AO. Aggrieved, the assessee was in second appeal before ITAT.
Before the Tribunal, the assessee submitted that persons to whom such amounts were repaid were very close of the partners of the firm, who do not come within the scope of the expression ‘any other person’ as envisaged in sections 269SS and 269T of the Act. The
It was contended that these payments were genuine and as such, the mischief of section 271E of the Act was inapplicable. It was also explained that both these persons were in dire need of funds on those days; since they provide financial assistance to the assessee as and when needed, the assessee was under obligation to repay the same.
It was, also, apprised that these transactions did not come within the scope of the provisions of section 271E read with section 269T of the Act, since the assessee was unaware of such provision which led to the instant levy.
The Tribunal observed that the object of the provisions of section 271E read with section 269T of the Act are to be considered in light of the intention of the Legislature enacting such provision. It is settled that the object of introduction of section 269SS and 269T of the Income Tax Act, 1961 is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money and if he has made some false entries in his accounts, he shall not escape by giving false explanation for the same.
No penalty u/s 271E if persons are identified & transactions genuine
The Tribunal stated that the essence of this philosophy was embodied through the introduction of section 269SS and 269T of the Act in the statute which was to eradicate the evil practice of making false entries in account books and later manufacturing explanations in support thereof.
The Tribunal, in the light of a judgment of the Hon`ble Supreme Court noted that in assessee`s case there is no question of violating the legislative intent behind the introduction of section 269T of the Act inasmuch as these transactions have been properly recorded in the books of accounts of the assessee and also in the books of accounts of loan creditors, who confirmed such transactions, leaving no room for doubt as regards the sources from which it had refunded such loans which were duly corroborated from the books.
The Tribunal also referred to the CBDT Circular No.387 dated 06-07-1984 on the provisions of Section 269SS and noted that provision of section 269T of the Act, which is in seriatim to section 269SS of the Act, was introduced to eliminate the proliferation of black money in the society at large and not otherwise.
According to the said CBDT circular the assessee should explain the reasonable cause. The Tribunal noted that in the instant case, the assessee had explained the reasonable cause stating that the entire transactions took place within the relatives and friends of the family and he had made repayment of the money to the persons who were in dire need of funds on those days, in order to enable them to carry on their business. These transactions had been recorded in the books of the assessee as well as in the books of the person to whom the payment was made. This was bona fide and genuine transaction to help the relatives and friends in needy hours and there was no intention to deceive the Revenue.
The Tribunal further noted that the Hon’ble High Court upheld the cancellation of the penalty, when, as in the instant case, the transactions were genuine and the identity of the lenders were established and there was no intention found to evade tax.
The Tribunal noted that the provisions of Section 273B of the Act provide that notwithstanding anything contained in the provisions of 271E of the Act, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision if he proves that there was reasonable cause for such failure and if the assessee proves that there was reasonable cause for failure to take a loan otherwise than by account-payee cheque or account-payee demand draft, then the penalty may not be levied. If there was a genuine and bona fide transaction and if for any reason the tax payer could not get a loan or deposit by account- payee cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty has got discretionary power.
It was also noted that the coordinate bench of the Tribunal had held that where both the parties have disclosed the transactions to the same assessing authority and the genuineness of the transactions are not in dispute, the provisions of section 269T of the Act are not applicable.
The Tribunal further noted that as held by the Hon’ble Supreme Court, an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi- criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so.
Considering the fact that relevant provisions were brought in for identification of source for repayment, there should not be any levy of penalty where the persons are otherwise properly identified and the transactions are genuine, because there can be no attempt to evade tax, where the identities of the persons dealt with are known.
The Tribunal opined that in the instant case, the repayment of advances from regular parties are identifiable and the assessee had explained the circumstances in which it was constrained to make the repayment of the loans in question in cash.
Accordingly, the Tribunal deleted the penalty.
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