2013 (8) TMI 1124 - AT - Income Tax

Accepting loans in cash - Section 269SS - Repayment of loans through Journal Entries - Penalty u/s 271D 271E - Concept of Reasonability - Assessee had taken 3 loans exceeding the limits specified in section 269SS - HELD THAT - Reasonable cause differs from case to case. A.O. need to reconsider the matter to check whether reasonable cause was there for such act of assessee. Since there is no material on record to indicate the reasonable cause in respect of these loan transactions - In the converse situation, the Assessing Officer has every right to decide the fate of the assessee as per law.

Summary

Issues Involved:
1. Penalty imposed under sections 271D and 271E of the Income-tax Act, 1961 for the assessment year 2005-2006.

Detailed Analysis:

Issue 1: Penalty u/s 271D
The appellant's appeal was against the penalty imposed under section 271D for violating the provisions of section 269SS by taking loans exceeding specified limits through means other than account payee cheques or bank drafts. The appellant explained that the loans were received through journal entries, citing various transactions with different entities. The Assessing Officer imposed the penalty without finding any reasonable cause as per section 273B. The CIT(A) upheld the penalty. However, the Tribunal noted that penalties in similar cases were deleted when loans were received or repaid through journal entries. The Hon'ble Bombay High Court's judgment in a related case clarified that each case must be assessed for reasonable cause despite journal entries. As the appellant failed to provide material supporting a reasonable cause, the Tribunal set aside the penalty and directed the Assessing Officer to reconsider the penalty based on the demonstration of a reasonable cause.

Issue 2: Penalty u/s 271E
The second appeal concerned the penalty imposed under section 271E for repaying loans through journal entries, contrary to the provisions. The appellant argued that since the transactions were through journal entries, no penalty should be imposed. However, the authorities upheld the penalty. The Tribunal, considering the precedent set by the Hon'ble Bombay High Court, set aside the penalty and instructed the Assessing Officer to determine the existence of a reasonable cause for repaying loans in a manner other than through account payee cheques or drafts. The decision on penalty imposition would depend on the establishment of a reasonable cause by the appellant. If a reasonable cause is proven, no penalty should be imposed; otherwise, the Assessing Officer has the authority to decide the penalty as per the law after providing a reasonable opportunity for the appellant to be heard.

In conclusion, both appeals were allowed for statistical purposes, and the orders were pronounced on August 16, 2013, by the Appellate Tribunal ITAT Mumbai, comprising Shri R.S. Syal and Shri Sanjay Garg, JJ.