2020 (2) TMI 1221 - AT - Income Tax

Penalty u/s. 271D/271E - contravention of provisions of section 269SS/269T - Penalty barred by limitation provided in clause (c) of section 275(1) - assessee recorded journal entries in its books of accounts accepting and repaying loans/deposits otherwise than account payee cheque or draft more than ₹.20,000/- from various group concerns of the assessee - whether there is a reasonable cause within the meaning of the provisions of section 273B of the Act on the loans/deposits taken and repaid through journal entries by the assessee within its group concerns? - HELD THAT - We hold that there is a reasonable cause within the meaning of the provisions of section 273B of the Act in passing the journal entries for the loans/deposits taken and repaid by the assessee, as all these entries were made prior to 12.06.2012 and the ratio of the decision of the Hon'ble Bombay High Court in the case of CIT v. Ajinath Hitech Builders Private Ltd and Others 2018 (2) TMI 603 - BOMBAY HIGH COURT is squarely applicable. Thus, we do not see any infirmity in the order passed by the Ld.CIT(A) in deleting the penalty. In so far as the request of the Ld. Senior Standing counsel to refer the matter to the Special Bench is concerned, this Bench is of the view that, since the issue in all these appeals is decided by the Hon'ble Jurisdictional High Court and SLPs were also dismissed by the Hon'ble Supreme Court no purpose would be served even if the issue is referred for Special Bench, as we are bound by the decision of the Hon'ble Jurisdictional High Court particularly when the issue was decided in assessee s own case by the Hon'ble Jurisdictional High Court. Thus, the request made by the Ld. Senior standing counsel for referring the matter to the Special Bench has no merit and accordingly rejected. Whether the order u/s. 271D/271E of the Act was illegal and bad in law as it was passed beyond the period of limitation provided in clause(c) of section 275(1)? - We observed that the tribunal in assessee s own case and group cases after considering various decisions on the issue held that the discussion by the Assessing Officer in the Assessment Order and making referral to the Addl. CIT for imposition of penalty constitutes initiation for action for imposition of the penalty and that is the date which should be reckoned for the purpose of limitation as specified in clause(c) of section 275(1) of the Act. Assessing Officer in the course of the assessment proceedings made reference in the Assessment Order to the loans accepted and repaid other than by way of Account Payee Cheque/Drafts. We also observed that the assessee was asked to explain why the loans were accepted other than by Account Payee Cheque and in response to the query raised by the Assessing Officer in the course of assessment assessee submitted its reply. The Assessing Officer records a finding that the contentions of the assessee are not accepted as it is not falling under any exemption categories where loan/deposit can be accepted other than by Account Payee Cheque/draft. Therefore, the Assessing Officer concluded that the assessee by not accepting the loan/deposit by Account Payee Cheque or bank drafts violated the provisions of section 269SS/269T of the Act and accordingly reference for initiation of penalty proceedings u/s. 271D/271E of the Act was made to Addl. CIT, Circle-6, Mumbai in the Assessment Order. After completion of assessments the Assessing Officer by letters dated 11.12.2012 and 26.06.2013 made a reference to the Addl. CIT for initiation of penalty proceedings. Therefore we hold that, as the Assessing Officer in the course of the assessment proceedings called for explanation of the assessee in respect of loans accepted and repaid otherwise than by way of Account payee cheque/drafts, considered the reply of the Assessee and rejected the reply by the Assessing Officer holding that the assessee has violated the provisions of section 269SS/269T and also made a reference to the Addl. CIT for initiation of penalty proceedings in the assessment order, these preliminary acts constitute action for imposition of the penalty as contemplated in the provisions of section clause (c) of section 275(1) of the Act. Thus, the penalty orders passed u/s. 271D/271E of the Act by the Addl. CIT beyond a period of six months from the initiation of penalty proceedings from the date of Assessment Order and the date of reference mad to Addl. CIT in these cases, are barred by limitation and accordingly the said penalty orders are quashed. - Decided in favour of assessee

Summary

Issues Involved:
1. Whether penalty u/s 271D/271E of the Income Tax Act is attracted for contravening the provisions of section 269SS/269T when journal entries are passed in the books of accounts for loans/deposits received and repaid.
2. Whether there is a reasonable cause within the meaning of section 273B for not levying penalties u/s 271D/271E.
3. Whether the penalty orders passed u/s 271D/271E are barred by limitation as per clause (c) of section 275(1).

Issue-wise Detailed Analysis:

1. Penalty u/s 271D/271E for Contravention of Provisions of Section 269SS/269T:
The Assessing Officer (AO) noticed that the assessee recorded journal entries in its books of accounts accepting and repaying loans/deposits exceeding ?20,000 from various group concerns otherwise than by account payee cheque or draft, which was viewed as a contravention of sections 269SS and 269T, leading to penalty orders u/s 271D/271E.

2. Reasonable Cause under Section 273B:
The Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)] deleted the penalties, observing that the transactions covered by journal entries were made in the regular course of business with sister concerns. It was noted that there was no adverse finding from the AO indicating that the transactions were for non-commercial reasons or outside normal business operations. The Ld. CIT(A) concluded that though the provisions of section 269T were violated, the assessee showed reasonable cause, thus penalty under section 271E was not leviable.

3. Limitation under Section 275(1)(c):
The assessee argued that the penalty orders were barred by limitation as per clause (c) of section 275(1), which provides that penalty orders should be passed within six months from the end of the month in which action for imposition of penalty is initiated. The Tribunal noted that the AO discussed the violations in the assessment order, and the reference to the Addl. CIT for penalty initiation constituted "action for imposition of penalty." Therefore, the penalty orders passed beyond the six-month period from the date of the assessment order were held to be barred by limitation and quashed.

Judgment Summary:
The Tribunal upheld the deletion of penalties by the Ld. CIT(A), emphasizing that the transactions were genuine, made in the regular course of business, and there was reasonable cause for the assessee to believe that journal entries did not violate sections 269SS/269T. The Tribunal also held that the penalties were time-barred as per section 275(1)(c), as the penalty orders were passed beyond the stipulated six-month period from the date of the assessment order's reference to the Addl. CIT. Consequently, the appeals filed by the Revenue were dismissed, and the cross objections by the assessee were allowed. The request to refer the matter to the Special Bench was rejected, as the issue was already decided by the Hon'ble Jurisdictional High Court and the Supreme Court.