2014 (11) TMI 1254 - AT - Income Tax

Levy of penalty u/s. 271E - violation of provision of section 269T in respect of deposit in three different bank accounts of the assessee firm and repayment of the same in cash - Explanation to reasonable cause - whether the amount received by the assessee from Shri K.A. Thomas can be termed as loan or deposit so as to attract the provisions of section 269T? - HELD THAT - The amount taken by the assessee from Shri K.A. Thomas was for custody. There is no evidence to show that there was any stipulation as to the period of custody. It is, therefore, a matter of grave doubt as to whether the receipt of money from Shri K.A. Thomas can be characterised as loan or deposit. In our view, it was recived only for temporary custody. Such temporary custody fall outside the purview of section 269T of the I.T. Act. The facts in the present case show that the monies are not used for the purpose of business and it lied idle with the assessee in the form of fixed deposits and thereafter the same was returned to Shri K.A. Thomas. There was a reasonable cause as provided under section 273B of the Act as the assessee has received the amount as custodian in view of family arrangements. It can be safely held that the bona fide belief constitute all reasonable cause, as provided under section 273B. In these circumstances and also keeping in view of the decision of the Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. vs. State of U.P. 1978 (12) TMI 45 - SUPREME COURT (1979) (118 ITR 326), it was held that there was a reasonable cause within the meaning of section 273B and, therefore, no penalty is leviable under section 271E of the Act. The facts and circumstances of the present case clearly indicate that there was a reasonable cause and, therefore, no penalty is leviable. In the present case, it is noticed that the amount was kept in the form of bank deposit and not used for business purposes and later repayments were made to Shri K.A. Thomas and it is obvious that the assessee entertained a bona fide belief that no contravention of any provisions of Income-tax Act was being made while making the transaction and it cannot be considered as violation of contravention of sec. 269T of the Act. Accordingly, we delete the penalty and the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act.
2. Levy of penalty under Section 271E of the Income Tax Act.

Detailed Analysis:

Issue 1: Disallowance under Section 40(a)(ia) of the Income Tax Act
The common issue in I.T.A. Nos. 192 & 193/Coch/2014 was whether the CIT(A) erred in confirming the disallowance made under Section 40(a)(ia) without considering the amendment to the section. The Jurisdictional High Court in the case of Prudential Logistics and Transports vs. ITO had observed that the mandate to deduct tax at source is not strict if the payee has paid the tax in accordance with Section 201(1) and its proviso. However, this claim was not made by the assessee before the Assessing Officer. The amounts were initially reflected as loans and later explained as freight charges. The amendment giving relief to the payer is effective from 1.4.2013 and not applicable for the assessment year in question (2007-08). Thus, the disallowance was upheld, and the appeals were dismissed.

Issue 2: Levy of Penalty under Section 271E of the Income Tax Act
In I.T.A. No. 191/Coch/2014, the issue was the levy of penalty under Section 271E for the violation of Section 269T regarding the repayment of deposits in cash. The assessee firm, dealing in raw rubber sheets, had deposited Rs. 1,69,20,000 in three different bank accounts and repaid the same in cash, which attracted the penalty.

The Assessing Officer found that the amount was shown as a loan from Shri K.A. Thomas in the books, although it was claimed to be money given for resolving family disputes. The repayments were made through bearer cheques, some drawn in the name of K.A. Thomas and others in the name of third parties, which were not account payee cheques. The CIT(A) confirmed the penalty, and the assessee appealed.

The assessee argued that the amount was not a loan or deposit but was kept for safe custody to avoid court attachment during family disputes. The money was not used for business purposes and was returned to Thomas after the disputes were settled. The assessee relied on several case laws to support the contention that no penalty should be levied for such technical defaults.

The Tribunal observed that the money was not utilized in the business and was kept in fixed deposits. The explanation offered by the assessee was found to be bona fide and reasonable. The Tribunal noted that the provisions of Section 269T were introduced to prevent unaccounted money transactions, and in this case, the money was accounted for and not used in business. The Tribunal held that the penalty provisions could not be applied as there was no unaccounted money involved. The Tribunal also noted that the amount received was for temporary custody and did not fall under the definition of loan or deposit as per Section 269T. The Tribunal concluded that there was a reasonable cause for the transactions, and no penalty was leviable under Section 271E. The appeal was allowed, and the penalty was deleted.

Conclusion:
- The appeals regarding disallowance under Section 40(a)(ia) were dismissed.
- The appeal regarding the penalty under Section 271E was allowed, and the penalty was deleted.