No Penalty u/s 271E on repayment of loan by journal entries of sale bills – ITAT

No Penalty u/s 271E on repayment of loan by journal entries of sale bills – ITAT

In a recent judgment, ITAT Indore has held that penalty u/s 271E was not justified when loan was repaid by adjustment of by way of journal entries of genuine sales.

ABCAUS Case Law Citation:
4196 (2024) (08) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A), NFAC in confirming levy of penalty u/s 271E on account of invocation of provisions of section 269T of the Income Tax Act, 1961 (the Act).

The appellant assessee was an individual and carried on business of Contractor. The case of the assessee was selected for scrutiny and assessment u/s 143(3) of the Act was completed. Subsequently, the AO on going through the assessment record, noticed that there were observations of the auditor that certain loans exceeding Rs. 20,000/- had been repaid otherwise than by account payee cheques/draft.

Since this issue was not examined during the assessment proceedings, AO recorded the reasons and issued notice u/s 148 of the act. In the reassessment proceedings, the AO referred to three parties who were repaid otherwise than by A/c payee cheques/draft by way of journal entries in which the assessee raised sale invoices to these parties and cleared off the outstanding unsecured loan.

However, the AO was not satisfied and he invoked the penalty provisions of Section 271E of the Act for the alleged contravention of Section 269T of the Act as the assessee had made repayment of unsecured loan otherwise than by a/c payee cheques/draft. The income was assessed again on the same amount as was assessed u/s 143(3) of the Act.

Subsequently, the penalty order u/s 271E of the Act was framed levying a hefty penalty.

The CIT(A) held that there has to be a strict compliance to the provisions of section 269T of the Act and if there is any repayment of unsecured loan exceeding the limits prescribed u/s 269T of the Act otherwise than by a/c payee cheques/draft/net banking/debit card/credit card/IMPS/UPI/RTGS/ NEFT/BHIM, then such repayments would be in contravention of provisions of Section 269T of the Act.

Before the Tribunal, the assessee contended that the repayments of loans were cleared off against sale bills and applicable taxes were collected on the sale bills and such sales were forming part of the gross turnover of the assessee.

It was further submitted that the assessee had not made any payment in cash and only the sale bills have been raised to the alleged parties. It would have been completely impracticable if the assessee, first, had raised the sale bills and then received the payment from the parties and then diverted those payments back to the parties to clear off the accounts. Once the said parties were having business transaction with the assessee with regard to the unsecured loans and also to make sales, the assessee in a bona fide belief raised sale bills and cleared off the accounts. The assessee placed reliance on the judgment of the Co-ordinate Bench.

On the other hand, the Income Tax Department contended that Section 269T of the Act calls for a strict compliance and any deviation from the same deserves to levy of penalty u/s 271E of the Act. He submitted that the Hon’ble Supreme Court has admitted the S.L.P. on the very same issue, where repayment of loans took place by way of journal entries.

The Tribunal observed that the assessee rather than making payment through a/c payee cheques/draft/other banking modes had cleared off the unsecured loan by way of journal entries by effecting sales to the parties.

Further, the Revenue Authorities nowhere disputed the genuineness of the sale transaction and it was also an admitted fact that books of accounts of the assessee were duly audited and the sales made to three parties were  forming part of the gross turnover.

The Tribunal also opined that the assessee was under a bona fide belief and also in order to avoid repetitive transactions for firstly making the repayment of outstanding loan and then again taking payment against the sales, adopted this mode of repaying the loan by way of making sales and clearing off the loan account.

The Tribunal also observed that the Departmental Representative referred to the judgement of the Hon’ble Apex Court admitting the SLP of the revenue on the same issue, but there wass no final judgment of the Hon’ble Apex Court till now on this issue and the same will be dealt with by the Hon’ble Court in the time to come. However, as of now plethora of decisions were in favour of the assessee.

The Tribunal held that the case of the assessee is squarely covered by the recent judgment of the Co-ordinate Bench and since in the instant case also assessee had acted under bona fide belief and has entered into genuine transactions of making sales to the parties with the intention to avoid multiplicity of the transaction.

Accordingly, following the judicial precedence, the Tribunal set-aside the finding of the CIT(A) and deleted the penalty levied u/s 271E of the Act.

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