2021 (8) TMI 1332 - HC - Income Tax

Penalty issued u/s 271D and 271E - Amounts were received and paid by the assessee otherwise than through account payee cheques - Tribunal decided to remand the cases to the assessing authority, after finding that the First Appellate Authority had accepted evidence without receiving a remand report from the assessing officer as per Rule 46A of the Income Tax Rules - HELD THAT - In an appreciation of the circumstances of the case and the purpose for which the matter is remanded, we find force in the contention of the learned Senior Counsel. The observations of the Tribunal, especially those extracted in the earlier paragraph may have the effect of serving as a guiding factor or as a controlling observation over the discretion of the assessing authority while it comes to the conclusion regarding the nature of transactions. The assessee apprehends that the observations may denude the assessing officer of any discretion, especially since at this distance of time, making the cheques physically available for examination may be next to impossible especially since the cheques had been handed over to the Banks. The apprehension is not unfounded. For the purpose of entering into a conclusion on the veracity of the claim of the assessee that the transactions in question were through Bank accounts, different modes of proof would be available. Physical examination of the cheque alone is not the only method. Direct, indirect or circumstantial evidence can be adduced to satisfy the assessing authority while coming to the conclusion on the issue remanded to it. In the aforesaid circumstances, we are of the firm view that the observations of the Tribunal restricting the option of the assessing authority to physical examination of the cheques in question can cause prejudice to the assessee. While we affirm the order of remand in all these cases to the assessing authority, we clarify that the assessing authority will consider and pass orders untrammelled by the observations in the order of the Tribunal and will be free to accept evidence of any legally acceptable nature produced by the assessee in support of its claim.

Summary

Issues Involved:
Challenging a common order of remand passed by the Income Tax Appellate Tribunal regarding penalties imposed under sections 271D and 271E of the Income Tax Act.

Analysis:

1. Penalty Imposed under Section 271D:
The assessing officer imposed penalties under Section 271D based on findings that certain amounts were received by the assessee without account payee cheques. The First Appellate Authority allowed the appeal against part of the penalty after considering evidence like bank confirmation certificates. The Tribunal remanded the case back to the assessing officer due to procedural irregularities and directed necessary inquiries and evidence production by the assessee.

2. Penalty Imposed under Section 271E:
Similarly, penalties were imposed under Section 271E for amounts paid without account payee cheques. The Tribunal remanded these cases as well, citing procedural issues and the need for further evidence and inquiries. The Tribunal's decision was based on the failure to follow Rule 46A of the Income Tax Rules and the necessity to allow the assessee to present additional evidence.

3. Observations by the Tribunal:
While remanding the cases, the Tribunal made observations that were deemed prejudicial to the assessee by the Senior Counsel. The Tribunal's focus on physical examination of cheques as the sole method of verification was criticized for potentially limiting the assessing officer's discretion. The High Court agreed that such observations could prejudice the assessee and clarified that the assessing authority should not be bound by these restrictions and should consider all legally acceptable evidence.

4. Final Judgment:
The High Court affirmed the order of remand to the assessing authority but clarified that the assessing officer should not be constrained by the Tribunal's observations. The High Court ruled against the assessee on the first question and in favor of the assessee on the second question. The third question was deemed irrelevant as the appeals were fully remitted to the assessing officer. Consequently, the appeals were allowed based on the above analysis.