2019 (3) TMI 1719 - AT - Income Tax

Penalty u/s 271D and 271E - genuineness of the transaction made through journal entries - Bonafide belief - HELD THAT - As the assessee had remained under a bonafide belief that the acceptance and repayment of loans by journal entries did not involve any contravention of the provisions of Sec. 269SS and Sec. 269T of the I.T Act therefore we are in agreement with the view taken by the CIT(A) that in the backdrop of the said reasonable cause within the meaning of Sec. 273B of the I.T Act no penalty under Sec. 271D and Sec. 271E could have been imposed on the assessee. We thus finding no infirmity in the order of the CIT(A) who had in terms of his aforesaid observations vacated the penalty levied - Decided in favour of assessee

Issues Involved:
1. Deletion of penalty under Section 271D of the Income Tax Act, 1961.
2. Deletion of penalty under Section 271E of the Income Tax Act, 1961.
3. Jurisdiction of the Assessing Officer (A.O) to initiate penalty proceedings under Sections 271D and 271E during reassessment.
4. Reasonable cause under Section 273B for non-compliance with Sections 269SS and 269T.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271D:
The revenue contested the deletion of a penalty amounting to ?38,09,55,274/- imposed under Section 271D. The CIT(A) deleted the penalty on the grounds that the transactions made through journal entries were genuine and did not involve any unaccounted income. The CIT(A) concluded that the transactions were undertaken under a bona fide belief, supported by judicial precedents, that they would not be hit by the provisions of Section 269SS. The Tribunal upheld this view, agreeing that there was a reasonable cause under Section 273B, and thus, no penalty under Section 271D was warranted.

2. Deletion of Penalty under Section 271E:
Similarly, the revenue challenged the deletion of a penalty amounting to ?35,52,90,732/- imposed under Section 271E. The CIT(A) found that the repayment of loans through journal entries was backed by a reasonable cause. The Tribunal supported this finding, noting that the transactions were genuine, and there was no intention to evade tax. The Tribunal confirmed that the CIT(A) rightly vacated the penalty under Section 271E due to the existence of a reasonable cause.

3. Jurisdiction of the A.O to Initiate Penalty Proceedings:
The assessee argued that the A.O lacked jurisdiction to initiate penalty proceedings under Sections 271D and 271E during reassessment as these penalties were unrelated to the alleged escaped assessment of income. The CIT(A) rejected this contention, stating that the A.O had the authority to refer the matter to the Joint Commissioner of Income-tax for penalty proceedings. The Tribunal did not find any infirmity in this aspect of the CIT(A)'s order.

4. Reasonable Cause under Section 273B:
The CIT(A) and the Tribunal extensively discussed the concept of "reasonable cause" under Section 273B. The CIT(A) observed that the transactions were undertaken under a bona fide belief, supported by judicial decisions, that such transactions would not contravene Sections 269SS and 269T. The Tribunal agreed, noting that the assessee had a reasonable cause for accepting and repaying loans through journal entries, which included commercial reasons like operational efficiency and ease of consolidation of accounts. The Tribunal cited various judicial precedents, including the Bombay High Court's judgment in CIT vs. Triumph International Finance (India) Ltd., to support the existence of a reasonable cause.

Conclusion:
The Tribunal upheld the CIT(A)'s order, confirming that the penalties under Sections 271D and 271E were rightly deleted due to the existence of a reasonable cause under Section 273B. The appeals filed by the revenue were dismissed.

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