2003 (7) TMI 66 - HC - Income Tax

Penalty imposed on the respondent under section 271D - The element of mens rea is not brone out from the nature and the manner in which the transaction was carried out - we do not find any justification or reasonable cause to remand the matter for adjudication afresh by the Commissioner of Income-tax for consideration of reasonableness with-in the meaning of section 273B of the Act. In the facts and circumstances of the case we hold that the Tribunal was justified and correct in law in upholding the judgment of the Commissioner of Income-tax in deleting the penalty of Rs. 4, 50, 000 imposed on the assessee under section 271D - The appeal stands dismissed.

Summary

Issues:
- Whether the Tribunal was correct in upholding the deletion of penalty under section 271D of the Income-tax Act?
- Whether the appellate authority and the Tribunal erred in deleting the penalty imposed on the respondent under section 271D of the Act?

Analysis:
1. Issue 1 - Tribunal's Decision on Penalty Deletion:
The case involved the imposition of a penalty under section 271D of the Income-tax Act on the respondent for not complying with the provisions of section 269SS. The Assessing Officer found a contravention and imposed a penalty of Rs. 4,50,000. The Commissioner of Income-tax and the Tribunal, however, held that penalty proceedings could not be taken due to the declared ultra vires nature of section 269SS. The Tribunal emphasized that section 269SS aimed to punish tax evaders and not genuine transactions. As the transaction in question was genuine, they saw no need for a penalty, despite the legal requirement. The Tribunal's decision was based on the genuineness of the transaction and the purpose of section 269SS.

2. Issue 2 - Constitutional Validity and Discretion of Authorities:
The Revenue challenged the Tribunal's decision, arguing that previous judgments upheld the constitutional validity of section 269SS. They contended that the authorities erred in relying on a judgment that declared section 269SS ultra vires. The Revenue also claimed that the authorities did not provide reasons for not imposing the penalty. However, section 273B of the Income-tax Act allows for the non-imposition of penalties if there is a reasonable cause for failure under section 269SS. The Supreme Court clarified the objective of section 269SS was to prevent false explanations for unaccounted money. The Legislature granted discretion to levy penalties under section 271D based on reasonable causes. In this case, the transaction was genuine, reflected in the books of both parties, and did not indicate any intent to evade taxes. Therefore, the Tribunal's decision to uphold the deletion of the penalty was justified under section 273B.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the appeal by the Revenue. The judgment emphasized the genuineness of the transaction, the lack of mens rea to evade taxes, and the discretion granted under section 273B to not levy penalties in certain circumstances. The court found no justification to remand the matter for further consideration, affirming the correctness of the Tribunal's decision in deleting the penalty imposed on the respondent under section 271D of the Income-tax Act.