2019 (6) TMI 704 - AT - Income Tax

Penalty u/s.271E - violation of provision of section 269T - HELD THAT - There is the violation of section 269TT in repaying the loan of ₹ 1 lakh, otherwise than account payee cheque and account payee draft and accordingly the assessee company is liable to pay penalty u/s 271E . We note that during the course of hearing, the ld. Counsel explained the Bench that the cash amount of ₹ 1 lakh by mistake has been deposited in the bank account of Shri Raju Bharat, Managing Director of the company. The assessee has not explained the reason why the said amount of ₹ 1 lakh has been deposited in the bank account of Shri Raju Bharat what is the urgency or immediate need for the company s business to deposit the same amount in the bank account of the shareholder. Since the assessee has not explained the reasonable cause as per section 273B, which talks about penalty not to be imposed in certain cases we confirm the penalty imposed by the Assessing Officer. - Decided against assessee.

Summary

Issues:
Violation of Section 269T of the Income Tax Act - Imposition of penalty under Section 271E for repayment of loan in cash.

Analysis:
The appeal pertains to the Assessment Year 2009-10, challenging the penalty imposed under Section 271E of the Income Tax Act by the Assessing Officer for violating Section 269T. The issue arose when the assessee repaid a loan amount of ?1,00,000 in cash to the Managing Director of the company, contrary to the requirement of repayment through an account payee cheque or draft as per Section 269T. The Assessing Officer held that this violation warranted the penalty under Section 271E.

The assessee contended that the repayment was made to the Managing Director, who was a majority shareholder, and argued that the company and the Managing Director were essentially one entity due to the lifting of the corporate veil. The assessee claimed that since the transaction was properly recorded and the cash was deposited in the Managing Director's bank account, it did not constitute a cash transaction as envisioned by the Act. However, the Assessing Officer rejected this argument, emphasizing the violation of Section 269T and upheld the penalty.

On appeal, the CIT(A) affirmed the penalty, rejecting the argument that the Managing Director and the company were one entity. The CIT(A) emphasized that as per the Income Tax Act, an individual and a company are distinct legal entities, and the payment in cash to the Managing Director did not fall within the exceptions under Section 269T. Therefore, the penalty under Section 271E was upheld.

The Tribunal considered the submissions of both parties and noted the violation of Section 269T by repaying the loan in cash. The Tribunal highlighted that the assessee failed to provide a reasonable cause for the violation, as required under Section 273B to avoid penalty imposition. As the assessee did not explain the urgency or necessity for depositing the cash in the Managing Director's account, the penalty imposed by the Assessing Officer was confirmed, and the appeal was dismissed.

In conclusion, the Tribunal upheld the penalty under Section 271E due to the violation of Section 269T, emphasizing the failure to provide a reasonable cause for the non-compliance. The decision reaffirmed the distinction between the individual and the company under the Income Tax Act, leading to the dismissal of the assessee's appeal.