2011 (5) TMI 982 - AT - Income Tax

Summary

Issues Involved:
1. Violation of Section 269SS and Section 269T.
2. Exclusion of journal entry transactions from penalties u/s 271D and 271E.
3. Applicability of Section 273B regarding reasonable cause for failure.

Summary:

Violation of Section 269SS and Section 269T:
The assessee was found to have accepted and repaid loans in cash exceeding the prescribed limit, violating Sections 269SS and 269T of the Income-tax Act, 1961. Penalties were levied u/s 271D and 271E for the assessment years 2004-05 and 2005-06.

Exclusion of Journal Entry Transactions from Penalties u/s 271D and 271E:
The Commissioner of Income-tax (Appeals) found that a portion of the transactions were recorded through journal entries and not in cash. He held that only actual cash transactions should be considered for penalties u/s 271D and 271E. Consequently, penalties were reduced to the amounts of actual cash transactions: Rs. 87,70,000/- and Rs. 1,04,37,986/- for 2004-05 and 2005-06 respectively, under Section 271D, and Rs. 72,25,000/- and Rs. 23,39,000/- for 2004-05 and 2005-06 respectively, under Section 271E.

Applicability of Section 273B Regarding Reasonable Cause for Failure:
The assessee argued that the Commissioner of Income-tax (Appeals) did not consider Section 273B, which provides that no penalty shall be imposed if there was a reasonable cause for the failure. The assessee cited judgments from the Hon'ble Madras High Court, arguing that transactions were genuine, made under exigent business circumstances, and should not attract penalties.

Tribunal's Decision:
The Tribunal upheld the exclusion of journal entry transactions from penalties, agreeing with the Commissioner of Income-tax (Appeals) that Sections 269SS and 269T apply only to actual cash transactions. The Revenue's appeals were dismissed.

However, the Tribunal found that the Commissioner of Income-tax (Appeals) did not adequately address the assessee's arguments regarding the fiduciary nature of transactions, bona fide reasons, and applicability of Section 273B. The Tribunal remanded the assessee's appeals back to the Commissioner of Income-tax (Appeals) for a detailed re-examination of these issues.

Conclusion:
The appeals filed by the Revenue were dismissed. The appeals filed by the assessee were allowed for statistical purposes, with the matters remanded back to the Commissioner of Income-tax (Appeals) for reconsideration in accordance with law.