Penalty u/s 271E can not be imposed on cash repayment of advances treated as unexplained cash credits.
In a recent judgment, the ITAT Nagpur has held Penalty u/s 271E can not be imposed on cash repayment of advances treated as unexplained cash credits. Any repayment of such alleged advance is nothing but withdrawal of income already offered for tax.
ABCAUS Case Law Citation:
ABCAUS 4167 (2024) (07) ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming penalty imposed u/s 271E of the Income Tax Act, 1961 (the Act).
The appellant asessee had taken a loan of Rs.15,00,000 apparently for the purpose of sand business. This loan was repaid to three parties. These re-payments were allegedly made through bearer cheque.
As the said repayments of loan exceeded Rs. 20,000/- and not paid through the mode of payment prescribed in the Section 269T of the Act, the appellant was found liable to pay penalty as per Section 271E of the Act.
The Tribunal observed that as per the Assessment Order a sum of Rs. 2,05,00,000/- was added u/s 68 towards unexplained cash credits which already included these advances. Now, the department was trying to levying penalty when a part of such advances amounting to Rs.15,00,000/- have been repaid by the assessee.
The Tribunal opined that once such advances is treated as an unexplained cash credits and considered as part of income, penalty proceedings cannot be initiated. Even otherwise, the impugned transaction is in nature of advance and cannot be brought under the ambit of “loan or deposit”.
The Tribunal further stated that when it was the stand of the department that the advances were nothing but undisclosed income, any repayment of such alleged advance is nothing but withdrawal of income already offered for tax. By any means, the penalty proceedings cannot be initiated on such withdrawals which was nothing but drawings.
The Tribunal further noted the judgments of Delhi ITAT and Gujarat High Court in support of the view that the penalty u/s 271E is not leviable on undisclosed income.
The Tribunal held that there was no merit in levying penalty and AO was directed to delete penalty.
Accordingly, the appeal of the assessee was allowed.
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