2013 (5) TMI 583 - AT - Income Tax

Penalty u/s 271E - violation of the provisions of sec. 269T - Held that - A careful perusal of the provisions of sec. 269T would show that the said provisions are attracted only if the principal and the interest are paid together and further the aggregate amount of such payment is Rs.20,000/- or more. According to the assessee, he has been paying interest on these two loans at the end of every year. In the year under consideration also, according to him, the interest was paid prior to the payment of principal amount and the principal amount of Rs.18,000/- each was paid subsequently. Thus, the claim of the assessee is that the interest amount and the principal amount were paid in two different occasions. The claim of the assessee, if accepted, would not lead to contravention of the provisions of sec. 269T since the principal amount repaid was less than Rs.20,000/- in both the cases. It is seen that the said claim was not controverted by the tax authorities. Since, it was claimed that he has been paying interest to these creditors at the end of every year there appears to be some veracity in the claim that he paid interest initially. Since the principal amount outstanding was less than Rs.20,000/- in each case, the said explanation also constitutes reasonable cause. With regard to the amount repaid to Sri M. Suryanarayanamurthy, the claim of the assessee that the amount outstanding in his name actually represented his capital amount, when the business concern was run as a partnership firm up to 31.3.2002& Shri M. Suryanarayanamurthy is the brother of the assessee. When the partnership firm was dissolved, the capital balance remained in the business books and the same was repaid during the year under consideration. The fact that the balance outstanding in the name of Sri M. Suryanarayanamurthy represents is capital balance is not disputed. There does not appear to be any difference of opinion with regard to the fact that the repayment of capital balance in cash would not attract the provisions of sec. 269T since it does not constitute loan or deposit. Thus the view entertained by the assessee that the amount outstanding in the name of Sri M. Suryanarayanmurthy does not constitute loan or deposit cannot be considered as an altogether false view - direct AO to delete the penalty levied. In favour of assessee.

Summary

Issues:
Violation of provisions of sec. 269T of the Act - Penalty u/s 271E imposed - Appeal against the decision of Ld CIT(A) - Loans repaid in cash exceeding Rs.20,000 - Reasonable cause for the failure to comply with sec. 269T - Different explanations for loan repayments - Application of sec. 273B - Interpretation of sec. 269SS and sec. 269T - Repayment of loans to various creditors - Capital balance repayment as per partnership dissolution - Characterization of outstanding balance as loan - Justification for cash repayment - Setting aside penalty u/s 271E.

Detailed Analysis:

The appeal before the Appellate Tribunal ITAT Visakhapatnam concerned the penalty imposed under sec. 271E of the Act for the violation of sec. 269T provisions. The assessing officer noted that the assessee repaid loans in cash exceeding Rs.20,000, which led to the penalty. The explanation provided by the assessee was scrutinized by the tribunal to determine if there was a reasonable cause for the failure to adhere to sec. 269T.

The tribunal considered the provisions of sec. 273B, which state that the penalty under sec. 271E is not applicable if a reasonable cause for the failure is proven. The concept of 'reasonable cause' was evaluated from a common man's perspective. The explanations given by the assessee regarding the loan repayments were carefully examined in light of the legal principles involved.

Regarding the loans from two creditors, the tribunal found that the repayment of part of the loan did not absolve the assessee from sec. 269T compliance if the total repayment exceeded Rs.20,000 in a year. The tribunal analyzed the provisions of sec. 269SS and sec. 269T to determine the applicability of the penalty in these cases.

For the loan repayment to another creditor, the tribunal considered the capital balance as per a partnership dissolution agreement. The tax authorities viewed the outstanding amount as a loan due to interest payments made by the assessee. The tribunal assessed whether the repayment of this capital balance fell under the purview of sec. 269T.

After a detailed examination of the explanations and legal provisions, the tribunal concluded that the assessee had provided reasonable cause for the loan repayments. As a result, the penalty imposed under sec. 271E was set aside, and the assessing officer was directed to delete the penalty. The appeal filed by the assessee was allowed based on the tribunal's findings.

In summary, the tribunal's judgment focused on interpreting the relevant sections of the Income Tax Act, evaluating the explanations provided by the assessee, and determining the presence of a reasonable cause for the non-compliance with sec. 269T. The decision highlighted the importance of legal principles and factual circumstances in penalty imposition cases, ultimately leading to the setting aside of the penalty in this instance.