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2022 (1) TMI 76 - AT - Income TaxLevy of penalty u/s.271D/271E - transaction by passing a journal entry - proof of reasonable cause u/s 273B - HELD THAT - Assessee has given complete explanation of the transactions before the ld. Addl. CIT by way of detailed explanation together with the purpose of passing a journal entry including relevant journal entry passed in the books of accounts of the assessee company. The same are not reiterated for the sake of brevity herein as they are already forming part of the records. Hence it could be safely concluded that these entries were passed out of business constraints and exigencies and for administrative convenience with no malafide intent to evade payment of tax. In our considered opinion, this business constraint and exigency and administrative convenience itself constitutes reasonable cause within the meaning of section 273B of the Act . Hence no penalty u/s 271D and 271E of the Act could be invoked for the same As in the case of Triumph International . 2012 (6) TMI 358 - BOMBAY HIGH COURT still the observations made by the Hon‟ble Delhi High Court on the genuineness of the transactions in the ordinary course of business and the element of reasonable cause‟ thereon, would still remain applicable and would have more persuasive value. In view of our aforesaid observations and respectfully following the aforesaid judicial precedents relied upon hereinabove, we hold that the ld. CIT(A) had rightly held that no penalty u/s.271D/271E of the Act could be levied in respect of transactions. Accordingly, the grounds raised by the Revenue are dismissed.
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. Issue-wise Analysis: 1. Deletion of Penalty under Section 271D of the Income Tax Act, 1961: The core issue in ITA Nos. 3038/Mum/2019 and 4054/Mum/2019 pertains to whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the penalty levied under Section 271D of the Income Tax Act, 1961. The penalty was imposed due to alleged violations of Section 269SS, which prohibits taking or accepting loans or deposits otherwise than by an account payee cheque or bank draft. The assessee company, engaged in real estate construction and development, explained that the transactions in question were merely journal entries for squaring up transactions or adjusting entries in the ordinary course of business. The Assessing Officer (AO) accepted the genuineness of these transactions during the scrutiny assessment under Section 143(3) and did not make any additions. However, the AO forwarded the case for penalty proceedings under Section 271D, which was subsequently levied by the Additional Commissioner of Income Tax (Addl. CIT). The CIT(A) found that the transactions were acts of assigning receivables or extinguishing mutual liabilities between the assessee and its sister concerns, and did not constitute loans or deposits. The CIT(A) relied on the decision of the Hon’ble Bombay High Court in CIT vs. Triumph International (I) Finance Ltd., which held that journal entries could fall under the ambit of Section 269SS but could constitute reasonable cause under Section 273B, thereby exempting the assessee from penalty. The Tribunal upheld the CIT(A)'s decision, noting that the transactions were genuine, carried out in the normal course of business, and not intended to evade tax. The Tribunal emphasized that the journal entries did not reflect any receipt or repayment of loans and were passed due to business constraints and administrative convenience, which constituted reasonable cause under Section 273B. 2. Deletion of Penalty under Section 271E of the Income Tax Act, 1961: In ITA Nos. 3046/Mum/2019 and 3049/Mum/2019, the issue was whether the CIT(A) was justified in deleting the penalty levied under Section 271E, which pertains to the repayment of loans or deposits otherwise than by an account payee cheque or bank draft, in violation of Section 269T. The assessee explained that the transactions were adjustments made through journal entries for advertisement services provided by vendors, where a portion of the payment was adjusted against down payments made by the assessee or its group companies. The AO accepted the genuineness of these transactions during the scrutiny assessment and allowed the deductions claimed. However, the Addl. CIT levied the penalty under Section 271E, which was later deleted by the CIT(A). The CIT(A) found that the transactions were not loans or deposits but were adjustments of receivables and payables. The CIT(A) reiterated the reasoning used in the deletion of penalty under Section 271D, emphasizing that the transactions were genuine, carried out in the normal course of business, and did not involve any malafide intent to evade tax. The CIT(A) concluded that the assessee had reasonable cause under Section 273B. The Tribunal upheld the CIT(A)'s decision, noting that the journal entries were passed for squaring up transactions or adjustments, and were not intended to introduce unaccounted income. The Tribunal emphasized that these entries did not reflect any receipt or repayment of loans and were passed due to business constraints and administrative convenience, constituting reasonable cause under Section 273B. Conclusion: In all four appeals, the Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decisions to delete the penalties under Sections 271D and 271E. The Tribunal found that the transactions in question were genuine, carried out in the normal course of business, and did not involve any malafide intent to evade tax. The Tribunal concluded that the assessee had reasonable cause under Section 273B, thereby exempting it from the penalties.
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