2021 (11) TMI 131 - AT - Income Tax

Penalty u/s 271D/271E - contravention of provisions of sections 269SS/ST - taking or accepting loans otherwise than account payee cheques - book adjustments through journal entries between cross parties - CIT-A deleted the addition on reasonable cause u/s 273B for entering on transaction to transaction basis - Whether CIT(A) is justified in holding that the journal entries should enjoy equal immunity on par with account payee cheques and bank drafts? - HELD THAT - As given a thoughtful consideration and are of the considered view that the issue involved in the present appeal pertains to levy of penalty u/s 271E of the Act as regards the assignment of receivables or extinguishment of mutual liability of paying/receiving the amounts by the assessee and its sister concerns AND rectification of an error. We, thus, going by the reasoning adopted by us for vacating the penalty u/s 271D of the Act, on the same footing uphold the order of the CIT(A) who had rightly set-aside the impugned penalty imposed by the Addl. CIT, for the reason, that the same is simpliciter an assignment of receivables or extinguishment of mutual liability of paying/receiving the amounts by the assessee and its sister concerns AND rectification of an error. Accordingly, finding no infirmity in the view taken by the CIT(A), we uphold his order. - Decided in favour of assessee.

Issues Involved:
1. Deletion of penalty under Section 271D of the Income-tax Act, 1961.
2. Deletion of penalty under Section 271E of the Income-tax Act, 1961.
3. Validity of journal entries and their immunity compared to account payee cheques and bank drafts.
4. Examination of reasonable cause under Section 273B for contravention of provisions of Sections 269SS and 269T.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271D:
The revenue challenged the deletion of the penalty of ?1,99,68,616/- under Section 271D by the CIT(A), who held that there was a reasonable cause under Section 273B for the transactions in question. The assessee company, engaged in land development and real estate construction, had settled certain loan transactions through journal entries rather than account payee cheques or bank drafts. The Additional Commissioner of Income Tax (Addl. CIT) initiated penalty proceedings under Sections 271D and 271E, observing credit entries in the ledger accounts of the assessee's sister concerns. The Addl. CIT argued that the transactions were not demonstrated to be due to business expediency and did not fall within the exception provided by Section 273B. However, the CIT(A), relying on the Tribunal's order in the case of the assessee's group company, concluded that the transactions were genuine and due to business exigency, thus constituting a reasonable cause. The Tribunal upheld the CIT(A)'s decision, referencing similar cases where journal entries for extinguishing mutual liabilities were deemed to constitute reasonable cause, thereby not attracting penalty under Section 271D.

2. Deletion of Penalty under Section 271E:
The revenue also contested the deletion of the penalty of ?8,53,841/- under Section 271E by the CIT(A). The Addl. CIT had noted debit entries in the ledger accounts of the assessee's sister concerns, which were payments made to third parties on behalf of the lender companies. The CIT(A) quashed the penalty, stating that the transactions were either assignments of receivables or rectifications of errors, thus falling under reasonable cause as per Section 273B. The Tribunal, applying the same reasoning as in the Section 271D penalty case, upheld the CIT(A)'s order, emphasizing that the transactions were genuine and executed in the normal course of business without any malafide intent to evade tax.

3. Validity of Journal Entries:
The revenue argued that journal entries should not be treated with the same immunity as account payee cheques and bank drafts. The CIT(A) and the Tribunal disagreed, referencing judicial precedents which held that journal entries for genuine business transactions, such as assignment of receivables or extinguishment of mutual liabilities, constitute reasonable cause under Section 273B. The Tribunal cited the Bombay High Court's decision in CIT vs. Triumph International Finance (I) Ltd., which supported the view that such transactions, if genuine and without malafide intent, should not attract penalties under Sections 271D and 271E.

4. Examination of Reasonable Cause under Section 273B:
The Tribunal examined whether the transactions in question constituted a reasonable cause under Section 273B for contravention of Sections 269SS and 269T. The Tribunal found that the transactions were genuine, carried out in the normal course of business, and did not involve any unaccounted cash. The Tribunal emphasized that the intent behind Sections 269SS and 269T was to prevent unaccounted money transactions, and in the absence of any such intent or malafide action, the penalties under Sections 271D and 271E should not be applied. The Tribunal upheld the CIT(A)'s decision, affirming that the transactions were executed due to business exigencies and administrative convenience, thus constituting reasonable cause.

Conclusion:
The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s orders quashing the penalties under Sections 271D and 271E. The Tribunal recognized the genuineness of the transactions and the reasonable cause for their execution through journal entries, aligning with judicial precedents that support such interpretations under Section 273B.

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