2018 (7) TMI 2090 - AT - Income Tax

Penalty u/s 271D or 271E - assessee has accepted loan/deposit from sister concern through journal entries i.e., otherwise then account payee cheque /draft - violation of provisions of section 269SS and/ or 269T - HELD THAT - Considering the decision of Hon ble Jurisdictional High Court in assessee group case in Ajinath Hi Tech Builder Pvt Ltd 2018 (2) TMI 603 - BOMBAY HIGH COURT , Triumph International Finance(I) Ltd 2012 (6) TMI 358 - BOMBAY HIGH COURT and in Assessee s group case in DCIT vs. Aashthavinayak Estate Company Ltd. 2018 (5) TMI 1745 - ITAT MUMBAI that there was reasonable cause for the assessee to receive deposits of loan or repayment of loans through journal entries. Therefore, in our view the assessees case is squarely falls under a reasonable cause within the meaning of section 273B. - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of penalty under Section 271D and 271E of the Income Tax Act.
2. Applicability of Section 269SS and 269T regarding transactions through journal entries.
3. Reasonable cause under Section 273B for non-compliance with Section 269SS and 269T.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271D and 271E:
The Revenue challenged the deletion of penalties under Sections 271D and 271E, which were imposed for accepting loans/deposits through journal entries instead of account payee cheques/drafts, thereby allegedly violating Sections 269SS and 269T. The CIT(A) deleted the penalties, reasoning that the transactions were genuine and not intended to evade tax. The Tribunal upheld the CIT(A)'s decision, noting that the transactions were made for business exigencies and operational efficiency, and there was no cash transaction involved.

2. Applicability of Section 269SS and 269T:
The Tribunal examined whether the transactions through journal entries contravened Sections 269SS and 269T. The Assessing Officer had imposed penalties based on the Bombay High Court's decision in Trump International Finance (I) Ltd., which held that journal entries could violate Section 269SS. However, the Tribunal noted that the transactions in question were made before this decision and were intended for business purposes, not to evade tax. The Tribunal also referenced the Bombay High Court's decision in CIT vs. Ajinath Hitech Builders Private Ltd., which supported the view that journal entries made for genuine business purposes did not attract penalties under Sections 271D and 271E.

3. Reasonable Cause under Section 273B:
The Tribunal considered whether there was a reasonable cause for the assessee's non-compliance with Sections 269SS and 269T under Section 273B. The Tribunal found that the assessee had a reasonable cause, as the transactions were genuine, made for business exigencies, and there was no intention to evade tax. The Tribunal cited the Bombay High Court's decision in CIT vs. Ajinath Hitech Builders Private Ltd., which held that reasonable cause existed when transactions were made for genuine business purposes and not to evade tax. The Tribunal also noted that prior to the Trump International Finance decision, there were several Tribunal decisions holding that journal entries did not violate Section 269SS, providing a reasonable cause for the assessee's actions.

Conclusion:
The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s deletion of penalties under Sections 271D and 271E. The Tribunal found that the assessee had a reasonable cause for the transactions through journal entries, which were made for genuine business purposes and not to evade tax. The Tribunal's decision was consistent with the Bombay High Court's rulings in similar cases.