2018 (7) TMI 2243 - AT - Income Tax

Penalty imposed u/s 271E and 271D - Accepting and repayment of loan / deposits through journal entries - genuineness of the transactions were not established by the assessee - Undisclosed receipt on account of sale of car parking in the housing projects, cash loans/deposits, etc - assessee violated the provisions of section 269SS - stand of the assessee is that the journal entries passed for transaction assigning debts and liabilities among sister concern and reimbursement of expenses do not constitute acceptance of loan or deposit of money as per the provisions of section 269S - HELD THAT - As decided in VIMAL ENTERPRISES VERSUS JOINT, CIT, RANGE 31 (3) MUMBAI 2017 (8) TMI 447 - ITAT MUMBAI in view of provision of section 273B and penalty under section 271D for contravention of section 269SS cannot be held to be justified and the Ld. Assessing Officer was directed to delete the penalty. Also see AJITNATH HI-TECH BUILDERS PVT. LTD 2018 (2) TMI 603 - BOMBAY HIGH COURT - Decided against revenue.

Summary

Issues Involved:
1. Legality of penalties under sections 271E and 271D of the Income Tax Act, 1961.
2. Interpretation of "reasonable cause" under section 273B in the context of penalties.
3. Validity of journal entries as a mode of repayment or acceptance of loans/deposits under section 269SS and 269T.
4. Limitation period for imposing penalties under section 275(1)(c).

Detailed Analysis:

1. Legality of Penalties under Sections 271E and 271D:
The Revenue appealed against the deletion of penalties imposed under sections 271E and 271D by the First Appellate Authority. The penalties were imposed due to the alleged violation of sections 269SS and 269T, which mandate that loans or deposits must be repaid or accepted through account payee cheques or drafts. The Tribunal considered various precedents, including the Hon'ble Delhi High Court's decision in Commissioner of Income-tax v. Noida Toll Bridge Co. Ltd. and the jurisdictional High Court's decision in CIT vs Ajinath Hi-Tech Builders Pvt. Ltd., which supported the assessee's stance that journal entries do not violate these provisions.

2. Interpretation of "Reasonable Cause" under Section 273B:
The Tribunal examined whether the assessee had a "reasonable cause" for not complying with sections 269SS and 269T. The Tribunal noted that the transactions were genuine and carried out in the ordinary course of business. The Tribunal relied on the Hon'ble Bombay High Court's decision in Triumph International Finance India Ltd., which held that if the transactions are bona fide and there is no intention to evade tax, then the cause shown by the assessee could be considered reasonable under section 273B. The Tribunal concluded that the penalties should not be imposed as the assessee had demonstrated reasonable cause.

3. Validity of Journal Entries as a Mode of Repayment or Acceptance of Loans/Deposits:
The Tribunal analyzed whether journal entries could be considered a valid mode of repayment or acceptance of loans/deposits under sections 269SS and 269T. The Tribunal referred to the Hon'ble Bombay High Court's decision in Triumph International Finance India Ltd., which held that journal entries do not fall within the ambit of these sections. The Tribunal also considered the Hon'ble Delhi High Court's decision in Noida Toll Bridge Co. Ltd., which supported the view that journal entries do not constitute a violation of sections 269SS and 269T. The Tribunal concluded that the use of journal entries did not warrant the imposition of penalties.

4. Limitation Period for Imposing Penalties under Section 275(1)(c):
The Tribunal examined whether the penalties were imposed within the limitation period prescribed under section 275(1)(c). The Tribunal referred to the Hon'ble Rajasthan High Court's decision in CIT vs. Hissaria Bros, which clarified that the limitation period should be counted from the date of the assessment order where the Assessing Officer decided to refer the matter for penalty. The Tribunal found that the penalties were imposed beyond the prescribed period and were therefore barred by limitation.

Conclusion:
The Tribunal dismissed the Revenue's appeals, upholding the deletion of penalties under sections 271E and 271D. The Tribunal concluded that the assessee had demonstrated reasonable cause for not complying with sections 269SS and 269T, and that journal entries did not constitute a violation of these provisions. Additionally, the penalties were found to be barred by limitation. The Tribunal's decision was consistent with various precedents, including decisions from the Hon'ble Bombay High Court and the Hon'ble Delhi High Court.