2019 (2) TMI 1138 - AT - Income Tax

Penalty u/s 271E - reasonable cause for the repayment of loan in cash by the assessee in violation of section 269T - HELD THAT - As explained by the assessee during the course of appellate proceedings before the CIT(A), the delay in repayment of loan to SREI was due to weak financial position and this was the reason why the assessee could not repay the loan as per the agreed schedule. Had the assessee was in a position to repay the amount of loan in equal monthly instalments as per the agreed schedule, SREI could not have insisted for cash payment and the question of default u/s 269T would not have arisen. The weak financial position of the assessee resulted in default and delay in repayment of loan by the assessee and since this position was duly supported by the fact that the matter was referred to arbitral Tribunal, we are of the view that the insistence of repayment of loan in cash by SREI was natural corollary and the same constituted a reasonable cause for the repayment of loan in cash by the assessee in violation of section 269T. Keeping in view all these facts and circumstances of the case, we are of the view that it is not a fit case to impose penalty u/s 271E and cancelling the said penalty imposed by the AO and confirmed by the CIT(A), we allow this appeal of the assessee.

Summary

Issues:
Penalty imposed under section 271E of the Income Tax Act, 1961 for repayment of loan in cash violating section 269T.

Analysis:
1. The assessee, a partnership firm engaged in contracting, repaid a loan of ?2,95,000 to M/s. SREI Equipment Finance Ltd. in cash during the assessment year 2012-13, violating section 269T of the Income Tax Act, 1961.
2. The AO initiated penalty proceedings under section 271E, rejecting the assessee's explanation that the cash repayment was due to financial constraints and insistence by M/s. SREI.
3. The Ld. CIT(A) upheld the penalty, stating lack of evidence to support the claim of M/s. SREI's insistence on cash repayment, leading to the appeal before the Tribunal.
4. The Tribunal found that the delay in repayment was due to the assessee's weak financial position, which led to M/s. SREI demanding cash payment. The Tribunal disagreed with the Ld. CIT(A)'s view that the delay was unjustified, considering the financial circumstances.
5. The Tribunal concluded that the insistence on cash repayment by M/s. SREI was reasonable due to the weak financial position of the assessee, leading to the default. The matter being referred to an arbitral tribunal further supported the assessee's position.
6. Ultimately, the Tribunal held that it was not appropriate to impose a penalty under section 271E, considering the circumstances, and allowed the appeal of the assessee, cancelling the penalty.

This detailed analysis outlines the key points of the judgment, emphasizing the reasons for the Tribunal's decision to overturn the penalty imposed under section 271E of the Income Tax Act, 1961.