2013 (8) TMI 36 - AT - Income Tax

Penalty u/s 271D - violation of the provisions of section 269SS as loan was taken otherwise than by A/c Payee cheque or A/c Payee Bank Draft - Held that - There was a reasonable cause with the assessee company in requesting its sister concern to immediately make payment to old supplier with whom litigation was going on and also to the supplier of machinery. Thus satisfied that the provisions of section 273B have come to the rescue of the assessee in the present circumstances, thus with the existence of such reasonable cause, there can stand no penalty u/s 271D. In favour of assessee. Penalty u/s 271E - assessee made cash re-payment totaling Rs. 3,70,306/- thus violation of the provisions of sections 269T - Held that - M/s Devang Industry Inc. paid Rs. 1,00,000/- to M/s Prajvi Industrial Supplies and Rs. 4,00,000/- to M/s Ravi Industrial Corporation on behalf of the assessee due to financial crunch on the assessee. In order to repay the said loan, the assessee made certain re-payments in cash over the period form 02.04.2005 to 21.08.2005 which totaled Rs.3.70 lacs. Force in the submissions of the assessee that the sister concern was mounting pressure on the assessee to immediately repay the amount in cash, even if it was to be in small installments. Apart from that, it is further noticed that the assets of the company were attached on 11th August 2006 and such attachment was lifted only on 18.03.2006. All the amounts in question were paid to the sister concern during the period of attachment. These facts and circumstances do go to show that there was a reasonable cause within the meaning of section 273B for making such re-payments otherwise than by way of A/c Payee Cheques or A/c Payee Bank Drafts. Thus penalty u/s 271E was wrongly sustained. In favour of assessee.

Summary

Issues:
1. Penalty under section 271D of the Income-tax Act, 1961 for violation of section 269SS.
2. Penalty under section 271E of the Income-tax Act, 1961 for violation of section 269T.

Issue 1: Penalty under section 271D for violation of section 269SS:
The judgment pertains to two appeals by the assessee related to the assessment year 2006-07, challenging the penalty of Rs. 5,00,000 imposed under section 271D of the Income-tax Act, 1961. The assessee had taken a loan from its sister concern, and the Assessing Officer (AO) noticed a violation of section 269SS as the loan was not taken through A/c Payee cheque or A/c Payee Bank Draft. The assessee explained that the loan was urgently needed to settle disputes and purchase machinery, and the sister concern made direct payments to the parties involved. The AO imposed the penalty, which was confirmed in the first appeal. The Tribunal considered the circumstances, including the urgent need for payments and the resolution of disputes, and invoked section 273B, which allows waiver of penalty if a reasonable cause for non-compliance is proved. The Tribunal found a reasonable cause for the non-compliance with section 269SS and deleted the penalty under section 271D.

Issue 2: Penalty under section 271E for violation of section 269T:
The second appeal challenged the penalty of Rs. 3,70,306 imposed under section 271E for violation of section 269T. The assessee had made cash repayments to its sister concern over a period due to financial constraints. The AO imposed the penalty for non-compliance with section 269T, which was upheld by the Ld. CIT(A). The Tribunal considered the financial difficulties faced by the assessee, the pressure from the sister concern for immediate repayments, and the circumstances of the attachment of the company's assets. It found that there was a reasonable cause within the meaning of section 273B for making cash repayments instead of A/c Payee Cheques or Bank Drafts. Consequently, the Tribunal deleted the penalty under section 271E.

In conclusion, the Tribunal allowed both appeals, setting aside the penalties imposed under sections 271D and 271E of the Income-tax Act, 1961, based on the reasonable causes established by the assessee in each case.