2016 (11) TMI 876 - AT - Income Tax

Penalty u/s 271E - Held that - The assessee company has advanced a sum of ₹ 15 lakh in assessment year 2004-2005 in its normal course of business, which could not materialize. Shri R.Bhaskaran repaid this advance, but it was paid in the name of one of the Directors of the company Shri Om Prakash Kanungo through account payee cheque, who in turn returned this amount to the assessee-company through journal voucher entry. Thus the repayment is made by account payee cheque although in the name of one of the Directors of the assessee-company, Shri Om Prakash Kanungo by Shri R.Bhaskaran. We find that there is a reasonable cause rather the payment is through account payee cheque. In our view, there is no violation of provisions of section 269T and consequential penalty u/s 271E is without any basis. We delete the penalty and allow the appeal of the assessee.

Summary

Issues:
Violation of Section 269T - Repayment in cash, Penalty under Section 271E

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai arose from the order of the Commissioner of Income-tax (Appeals)-9, Mumbai regarding penalty proceedings under Section 271E of the Income-tax Act, 1961. The assessment for the year 2005-2006 was conducted by the ACIT, Circle 5(2), Mumbai, and the penalty was imposed by the Addl.CIT, Range 5(2), Mumbai. The core issue revolved around a loan transaction where the assessee-company advanced ?15,00,000 to an individual in an earlier year, and during assessment proceedings, it was observed that the repayment was made through a journal entry debiting the loan account of one director and crediting the advance account of another individual. The Assessing Officer alleged a violation of Section 269T due to the repayment being received in cash, leading to the initiation of penalty proceedings under Section 271E.

During the proceedings, the assessee provided detailed explanations and evidence to support that the advance payment was made for a business deal in a previous year and was subsequently returned through an account payee cheque to one of the directors of the company, who then returned it to the assessee through a journal voucher entry. Both the Revenue and the assessee did not dispute the facts regarding the repayment through the account payee cheque. The Addl.CIT imposed the penalty based on the view that the repayment should be treated as a cash loan repayment due to the journal entry made by the director. This decision was upheld by the CIT(A) on similar grounds.

Upon thorough consideration of the facts, the Appellate Tribunal found that the repayment was indeed made through an account payee cheque, albeit in the name of a director, and concluded that there was a reasonable cause for the transaction. The Tribunal determined that there was no violation of Section 269T as the payment method was through a cheque and not in cash. Consequently, the penalty imposed under Section 271E was deemed to be without a valid basis, leading to the deletion of the penalty and the allowance of the assessee's appeal.

In the final judgment, the Appellate Tribunal ITAT Mumbai allowed the appeal of the assessee, thereby overturning the penalty imposed under Section 271E. The decision was pronounced on the 4th day of October 2016.