1998 (12) TMI 38 - HC - Income Tax

Summary

Issues Involved:
1. Violation of Section 269T of the Income-tax Act, 1961.
2. Applicability of Section 269T to loan transactions.
3. Reasonable cause for repayment of loans in cash.

Summary:

1. Violation of Section 269T of the Income-tax Act, 1961:
The petitioner, a partnership firm, was assessed for the assessment year 1992-93 and was found to have repaid two loans in cash, violating Section 269T. The Deputy Commissioner of Income-tax levied a penalty of Rs. 96,690 u/s 271E after giving the petitioner an opportunity to be heard.

2. Applicability of Section 269T to Loan Transactions:
The petitioner filed a revision petition u/s 264 seeking cancellation of the penalty, arguing that Section 269T deals only with deposits, not loans. The Commissioner of Income-tax held that Section 269T was applicable and confirmed the penalty. However, the court found that Section 269T pertains to the repayment of deposits, not loans. The court cited distinctions between loans and deposits, referencing earlier decisions and the Delhi High Court's interpretation in Baidya Nath Plastic Industries (P.) Limited v. K. L. Anand, ITO [1998] 230 ITR 522, which held that Section 269T applies to deposits, not loans.

3. Reasonable Cause for Repayment of Loans in Cash:
The petitioner argued that the loans were repaid in cash because the lenders did not have bank accounts. The Commissioner did not accept this explanation, stating that the petitioner failed to establish a reasonable cause for repaying the loans in cash. The court, however, found that the provisions of Section 269T are not applicable to loan transactions and that the penalty levied was not justified in law.

Conclusion:
The court quashed the impugned order passed by the Deputy Commissioner and confirmed by the Commissioner of Income-tax, holding that the penalty for the alleged violation of Section 269T was not justified. The writ petition was allowed, and the rule nisi was made absolute without costs.