2015 (1) TMI 601 - AT - Income Tax

Penalty levied under section 271E - penalty order challenged as barred by limitation - repayment of loan or advance in contravention of the provisions of section 271E - Held that - In the absence of any date of reference by the AO to the JCIT for initiating action for imposing penalty under section 271E of the Act, the notice issued by the JCIT is to be taken as the date for initiation of action for imposing penalty under section 271E of the Act. On a reference of the Assessing Officer, the Joint Commissioner of Income-tax has to take a decision with regard to the imposition of penalty under section 271E of the Act and thereafter he has to issue a notice to the assessee to initiate proceedings for imposition of penalty under section 271E of the Act. It is also apparent from the penalty order that the Joint Commissioner of Income-tax has issued a notice under section 274 of the Act for imposing penalty under section 271E of the Act on 15.4.2011. Therefore, in the real sense action for imposing penalty was initiated by issuance of notice by the Joint Commissioner of Income-tax. If that date is taken, then the penalty order is passed within the period of limitation. - Decided against assessee. Cash Receipt in violation of section 269T - repayment of loan or advance in cash - Held that - The provisions of section 269T of the Act were invoked on the basis of certain entries found on certain seized documents. Unless and until it is proved that the seized documents relate to the assessee-company, the repayment of loan or advance in cash to different parties cannot be held to be done in violation of the provisions of section 269T of the Act, for which penalty under section 271E of the Act can be invoked. Even the ld. CIT(A) does not deliberate on the issue and having made reference to various pronouncements on this aspect, he confirmed the penalty. Under the given facts and circumstances of the case, we find no merit in the penalty levied under section 271E of the Act. We accordingly set aside the order of the ld. CIT(A) and delete the penalty. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the penalty order under section 271E of the Income-tax Act, 1961, was barred by limitation.
2. Whether the transactions in question constituted a violation of section 269T of the Act.
3. Whether the penalty under section 271E was justified on the merits of the case.

Issue-wise Detailed Analysis:

1. Limitation Period for Penalty Order:
The assessee argued that the penalty order was barred by limitation as it was not passed within the prescribed period under section 275(1)(c) of the Act. The assessment was completed on 13.12.2010, and the penalty order was passed on 25.10.2011. The assessee contended that the limitation period started from 31.12.2010 and should have ended on 31.6.2011. The Tribunal, however, held that the limitation period starts from the date the Joint Commissioner of Income-tax issues a notice for imposing the penalty, which in this case was 15.4.2011. Therefore, the penalty order passed on 25.10.2011 was within the limitation period.

2. Violation of Section 269T:
The assessee contended that the transactions in question did not involve any repayment in cash and were merely book entries. The Tribunal found that the transactions were adjustments in the books of accounts and did not involve any cash movement. The Tribunal referred to various judicial pronouncements, including the Hon'ble Delhi High Court in CIT vs. Worldwide Township Projects Ltd., which held that book entries do not fall under the ambit of section 269T as they do not involve actual cash transactions. Consequently, the Tribunal concluded that there was no violation of section 269T.

3. Justification of Penalty under Section 271E:
On the merits, the Tribunal examined whether the transactions constituted a genuine repayment of loans or deposits. The assessee provided evidence that the transactions were adjustments between the current accounts of the directors and did not involve any cash repayment. The Tribunal noted that the Assessing Officer had accepted these transactions during the assessment proceedings. The Tribunal also referred to the Hon'ble Bombay High Court in CIT vs. Triumph International Finance (I) Ltd., which stated that journal entries are a recognized mode of repaying loans or deposits and do not attract penalties under section 271E. The Tribunal concluded that since the transactions were book entries and not cash repayments, the penalty under section 271E was not justified.

Conclusion:
The Tribunal allowed the appeals of the assessee, setting aside the orders of the CIT(A) and deleting the penalties levied under section 271E of the Act. The judgment emphasized that book entries do not fall under the purview of section 269T and, therefore, do not attract penalties under section 271E. The penalty orders were also found to be within the limitation period as per the correct interpretation of section 275(1)(c).