Penalty u/s 271E for repayment of loan in cash was deleted as the NBFC had insisted on cash payment due to weak financial position and default in loan repayment
ABCAUS Case Law Citation:
ABCAUS 2819 (2019) (03) ITAT
The appeal involved was filed by the assessee against the order of CIT(A) whereby he confirmed the penalty imposed by the Assessing Officer (AO) u/s 271E of the Income tax Act, 1961 (the Act).
The assessee was a partnership firm which was engaged in the business of contracting. During the course of assessment proceedings u/s 143(3) for the relevant assessment year, it was found by the AO that the assessee had repaid loan to a NBFC in cash violating the provisions of section 269T of the Income tax Act, 1961.
The AO, therefore, initiated penalty proceedings u/s 271E of the Act.
In reply to the show-cause notice issued by the AO during the course of the said proceedings, the assessee submitted that the firm had purchased an excavator and entered into an agreement to pay the amount financed by the NBFC by EMI.
It was explained that the firm failed to pay repay as per agreed schedule during the relevant financial year due to weak financial position of firm. In the meantime field officer of the Finance Company met the partners of the firm and pressed hard for lump sum payment otherwise the NBFC would take repossession of the financial machinery due to default by the assessee firm in repayment of loan as per agreed schedule.
It was submitted that inspite of repeated request to pay the amount demanded by account payee cheque, the NBFC did not agree & collected the amount in cash.
The assessee further submitted that as per terms of agreement the NBFC could have repossessed the machinery till the complete recovery of the loan. Therefore, the firm had to pay the part repayment of the finance by way of cash on bonafide belief that no future complication would be, arisen in his case.
It was also brought to the knowledge of the AO that the finance company had even gone in arbitral tribunal for recovery of the financed amount.
Accordingly the assessee requested to drop the penalty proceedings u/s 271E of the Act as there was a reasonable cause for non complying with the requirement of section 269T and the default was not wilful but was committed due to adamant attitude of the finance company.
However, the explanation offered by the assessee was not found acceptable by the AO. According to him, the assessee had enough time to repay the amount of loan in equal monthly instalments but he failed to do so and made one time repayment of loan. He, therefore, held that there was a clear infringement of provision of section 269T by the assessee and proceeded to impose a penalty u/s 271E of the Act.
The penalty was challenged by the assessee in the appeal filed before the CIT(A). The CIT(A) however did not accept the same in the absence of any evidence produced by the assessee to substantiate its claim that the NBFC had insisted on repayment in cash which compelled the assessee to repay the loan in cash.
The CIT(A), accordingly confirmed the penalty imposed by the AO u/s 271E of the Act.
Aggrieved by the order of the CIT(A), the assessee had preferred the appeal in question before the Tribunal.
The Tribunal observed that the delay in repayment of loan to NBFC was due to weak financial position and this was the reason why the assessee could not repay the loan as per the agreed schedule. Had the assessee was in a position to repay the amount of loan in equal monthly instalments as per the agreed schedule, the finance company could not have insisted for cash payment and the question of default u/s 269T would not have arisen.
The Tribunal noted that the weak financial position of the assessee resulted in default and delay in repayment of loan by the assessee and this position was duly supported by the fact that the matter was referred to arbitral Tribunal.
The Tribunal opined that the insistence of repayment of loan in cash was natural corollary and the same constituted a reasonable cause for the repayment of loan in cash by the assessee in violation of section 269T.
The Tribunal, in view of facts and circumstances of the case, opined that it was not a fit case to impose penalty u/s 271E and cancelled the said penalty.