2019 (9) TMI 1623 - AT - Income Tax

Penalty levied u/s 271E - assessee has contravened the provisions of section 269T - assessee has repaid loans to various sister concerns through journal entries - HELD THAT - We observe that in this case the assessee has done the repayment of loans by way of journal entries within the group concerns. As per the assessee the said entries were made out of business considerations and in order to carry on the business of the assessee efficiently and more efficaciously. This is also undisputed that there was no tax evasion by way of repayment of these loans by journal entries. The case of the assessee is squarely covered by the decision of the co-ordinate bench of the Tribunal in assessee s own case 2018 (7) TMI 2241 - ITAT MUMBAI as held that issue decided in favour of the assessee by holding that no penalty can be imposed under section 271D of the Act for having accepted loans/deposits through journal entries as there was a reasonable cause. Also see LODHA PROPERTIES DEVELOPMENT PVT. LTD. 2018 (12) TMI 1774 - SC ORDER Thus as there exited reasonable cause for accepting the loans by way of journal entries and thus do not find any infirmity in the order of ld. CIT(A). Since the case of the assessee is fully covered as discussed above, we are inclined to uphold the order of Ld. CIT(A) by dismissing the appeal of the revenue.

Summary

Issues Involved:
- Deletion of penalty under Section 271E of the Income Tax Act, 1961 for contravention of Section 269T.
- Whether the transactions through journal entries between sister concerns constitute a reasonable cause under Section 273B.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271E:
The primary issue raised by the Revenue was against the deletion of the penalty amounting to ?173,56,50,689/- levied by the Assessing Officer (AO) under Section 271E of the Income Tax Act, 1961. The AO had observed that the assessee repaid loans to various sister concerns through journal entries, which is a mode of repayment not compliant with Section 269T, which mandates repayment through account payee cheque/draft. The Additional CIT upheld the penalty, rejecting the assessee's argument that the transactions were genuine and conducted in the regular course of business.

2. Transactions through Journal Entries:
The CIT(A) accepted the assessee's contention that the journal entries were made in the regular course of business with sister concerns and did not aim at tax evasion. The CIT(A) held that although the assessee violated Section 269T, it showed reasonable cause, thus penalty under Section 271E was not leviable. This decision was based on the absence of any adverse findings regarding the commercial nature of the transactions.

3. Reasonable Cause under Section 273B:
The Tribunal observed that the issue was covered by its own previous decisions and the decisions of the Hon'ble Bombay High Court, which held that journal entries between sister concerns, made for genuine business reasons, constituted a reasonable cause under Section 273B. The Tribunal noted that the transactions were aimed at business efficiency and did not result in tax evasion. The Tribunal cited several cases, including CIT vs. Ajitnath Hi-Tech Builders Pvt. Ltd., where similar penalties were deleted on the grounds of reasonable cause.

4. Judicial Precedents:
The Tribunal referred to the Hon'ble Bombay High Court's decision in CIT vs. Lodha Properties Development Pvt. Ltd. & others, which held that no penalty under Section 271D can be imposed for loan transactions through journal entries if there is a reasonable cause. The Court emphasized that the genuineness of the transactions and the absence of tax evasion were critical factors.

5. Dismissal of Revenue's Appeal:
The Tribunal, relying on the aforementioned precedents and its own prior rulings, dismissed the Revenue's appeal. It upheld the CIT(A)'s decision, confirming that the assessee had shown reasonable cause for the transactions through journal entries, thus no penalty under Section 271E was warranted.

6. Cross Objections:
The cross objections filed by the assessee were deemed academic and not adjudicated upon, as the primary issue was resolved in favor of the assessee.

7. Application to Other Appeals:
The findings and conclusions in ITA No.7123/M/2016 for A.Y. 2011-12 were applied mutatis mutandis to other similar appeals, leading to their dismissal as well.

Conclusion:
The Tribunal dismissed all the appeals of the Revenue and the cross objections of the assessee, affirming that the transactions through journal entries between sister concerns, conducted for genuine business reasons and without tax evasion, constituted a reasonable cause under Section 273B, thereby invalidating the penalty under Section 271E. The judgment emphasized adherence to judicial precedents and the importance of the commercial nature and genuineness of transactions.