2013 (11) TMI 1246 - HC - Income Tax

Penalty u/s 271E - Violation of section 269T - Held that - The assessee has repaid the loan by way of a debit entry in the form of transfer of shares - No repayment was made by either cash, cheque or demand draft - The Institute of Chartered Accountants of India had clarified that loans created/discharged by means of transfer entries do not constitute acceptance or repayment of deposits of loan in cash and thus do not contravene the provisions of Section 269-SS and 269-T - The Assessing Officer, Appellate Authority as well as Tribunal did not consider the method of transaction, which was by way of discharge of the liability of the loan - The assessee was paying interest on the loan regularly as reflected in his statement of affairs and profit and loss account in the financial years 1992-93 and 1993-94 - The repayment of loan was not made after sale of shares. The assessee appellant had debited the account being cost of shares. The transaction between Karta of HUF and the HUF could not be termed as deposits as provided under Section 269-T at the relevant time. The transactions were made between two taxable entities - The repayment was made, by debit entires - The provisions of Section 269-T providing for deposits to be made over and above Rs. 20, 000/- only by account payee cheque or account payee bank draft, were not attracted - Decided in favour of assessee.

Summary

Issues:
Income Tax Appeal under Section 260-A of the Income Tax Act, 1961 arising from the order of the Income Tax Appellate Tribunal for the assessment year 1994-95.

Analysis:
1. The case involved a Hindu Undivided Family (HUF) composed of Mr. Anirban Nath and his mother Mrs. Sushmita Nath, and another HUF composed of Mr. Arindam Nath and his mother Sushmita Nath. The appellant HUF needed money for share allotment and received loans from the other HUF and an individual. The shares did not yield profits, leading to difficulty in repaying the loans, which were partially repaid by transferring shares to the creditors.

2. The Deputy Commissioner imposed a penalty under Section 271-E for alleged violation of Section 269T, requiring payments above Rs. 20,000 to be made by check or draft. The Tribunal upheld the penalty due to non-compliance with Section 269T, as the loan repayments were not made through the specified modes.

3. The appellant raised grounds questioning the imposition of penalty, arguing that the transactions did not fall under the purview of Section 269T and the loans were not deposits. Citing various judgments, the appellant contended that loans and deposits are distinct, and the penalty provision should not apply to loan repayments.

4. The High Court analyzed precedents emphasizing the distinction between loans and deposits, noting that the amendment in 2002 extended the scope of Section 269T to cover loans as well. However, the transactions in question occurred before this amendment, and the repayment method via share transfer did not breach Section 269T.

5. The Court held that the transactions involving loan repayment by debit entry did not violate Section 269T. The method of repayment and the nature of the transactions between taxable entities did not align with the requirements of Section 269T. The Court ruled in favor of the appellant, overturning the penalty and directing the department to act accordingly.