2018 (8) TMI 1635 - AT - Income Tax

Levy of penalty u/s.271E - return of advance from customers - bonafide belief - Held that - In view the provisions of section 273B of the Act, we find that the belief of the assessee that return of advance from customers is not prohibited by section 269T was a bonafide belief. Therefore, the levy of penalty u/s.271E cannot be sustained. Hence, we delete the same an allow the appeal of the assessee.

Summary

Issues Involved:
1. Whether the repayment of advance received from customers in cash violates Section 269T of the Income Tax Act, thereby attracting penalty under Section 271E.

Issue-wise Analysis:

1. Violation of Section 269T and Levy of Penalty under Section 271E:

The primary issue in this appeal is whether the assessee's act of repaying advances received from customers in cash, totaling ?21,49,943/-, constitutes a violation of Section 269T of the Income Tax Act, thereby justifying the imposition of penalty under Section 271E.

The Assessing Officer (AO) contended that the assessee violated Section 269T by repaying the advances in cash, leading to a penalty equal to the amount repaid in cash. The CIT(A) upheld this decision.

The assessee's representative argued that Section 269T pertains to the repayment of loans or deposits in cash and does not cover advances received from customers. Therefore, the assessee should not be liable for penalty under Section 271E.

The tribunal examined the facts and noted that the AO observed discrepancies in the assessee's gross receipts during the assessment proceedings. The assessee explained that certain advances from customers were refunded in cash as the transportation work could not be undertaken. The AO proposed a penalty under Section 271E for these cash repayments.

The tribunal referred to Circular No.387 issued by the CBDT, which clarified that receiving and repaying advances is a business transaction, and the prohibition under Section 269SS is limited to loans and deposits, not extending to purchase/sale transactions.

The tribunal also cited the Gujarat High Court's decision in CIT vs. Madhav Enterprise Pvt Ltd., where it was held that advances against booking of shops and offices do not constitute deposits under Section 269SS and 269T, thus not attracting penalty under Section 271E. The court emphasized that such advances are business transactions and do not fall under the definitions of loans or deposits.

In the case of the assessee, the tribunal found that the advances were business transactions and not loans or deposits. The tribunal noted that the assessee's belief that the return of advances was not prohibited by Section 269T was bona fide. Consequently, the penalty under Section 271E was deemed unsustainable.

Conclusion:

In conclusion, the tribunal allowed the appeal, holding that the repayment of advances received from customers in cash did not violate Section 269T, and therefore, the penalty under Section 271E could not be sustained. The tribunal's decision was based on the interpretation that such advances are business transactions, not loans or deposits, and the assessee's belief in this regard was bona fide. The appeal was allowed, and the penalty was deleted.