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2022 (3) TMI 1191 - AT - Income TaxPenalty u/s 271D - contravention of provisions of Sections 269SS - assessee has accepted loans and deposits from various sister concerns through journal entries, as such, loans were not taken through an account payee cheque or account payee bank drafts - whether behaviour of the assessee would constitute reasonable cause u/s 273B? - HELD THAT - As decided in M/S. MACROTECH DEVELOPERS LTD., (SUCCESSOR TO M/S. BELLISSIMO CROWN BUILDMART PVT. LTD. 2022 (1) TMI 76 - ITAT MUMBAI actual narration and the basis of passing journal entries by the assessee in its books that these entries are merely passed for squaring up of transactions or adjustment of entries. This categorical finding given by the ld. CIT(A) in his order has not been controverted by the Revenue before us. Yet another categorical finding recorded by the ld. CIT(A) which remain uncontroverted by the Revenue before us is that these transactions were not made by the assessee with a malafide intent to evade tax and that there is no evidence brought on record to even remotely suggest that the assessee company by passing the aforesaid journal entries had sought to introduce its unaccounted income into the system. These are genuine transactions carried out in the normal course of the business of the assessee. Hence, if the aforesaid transactions are looked into from the perspective of the object and intention behind introduction of provisions of section 269SS and 269T of the Act , then the provisions of section 269SS and 269T of the Act cannot be made applicable to the facts of the instant case. Moreover, from the detailed explanation of the aforesaid transactions together with the purpose for which those journal entries were passed, it could be safely concluded that these entries neither reflect any receipt of loan nor repayment of loan. Assessee has given complete explanation of the transactions 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 could be invoked for the same can be invoked - Decided in favour of assessee.
Issues Involved:
1. Deletion of penalty under Section 271D for Assessment Year 2013-14. 2. Deletion of penalty under Section 271D for Assessment Year 2014-15. 3. Reasonable cause under Section 273B for contravention of Sections 269SS/ST. 4. Equating journal entries with account payee cheques and bank drafts. 5. Reliance on High Court order without examining individual instances of default. Detailed Analysis: 1. Deletion of Penalty Under Section 271D for Assessment Year 2013-14: The Dy. Commissioner of Income-tax, Central Circle 7(3), Mumbai, levied a penalty of ?1,05,36,585/- under Section 271D of the Income-tax Act, 1961, for the assessment year 2013-14. The penalty was imposed due to the assessee accepting loans and deposits from various sister concerns through journal entries, violating Section 269SS of the Act. The Commissioner of Income-tax (Appeals)-49, Mumbai, deleted this penalty, citing reasonable cause under Section 273B. The learned CIT(A) relied on judicial precedents, including the case of the assessee’s sister concern, and concluded that passing journal entries does not constitute a violation of Section 269SS. The Appellate Tribunal upheld this decision, confirming that the transactions were genuine and conducted in the normal course of business without any malafide intent to evade tax. 2. Deletion of Penalty Under Section 271D for Assessment Year 2014-15: Similarly, for the assessment year 2014-15, the Dy. Commissioner of Income-tax levied a penalty of ?1,17,23,991/- under Section 271D. This penalty was also deleted by the CIT(A)-49, Mumbai, on the grounds of reasonable cause under Section 273B. The Tribunal confirmed this deletion, noting that the facts and circumstances were identical to those of the previous year. The Tribunal emphasized that the transactions were carried out for operational efficiencies and administrative convenience, constituting reasonable cause under Section 273B. 3. Reasonable Cause Under Section 273B for Contravention of Sections 269SS/ST: The Tribunal examined whether the journal entries made by the assessee constituted a reasonable cause under Section 273B for the contravention of Sections 269SS/ST. The Tribunal referred to the decision of the Hon’ble Jurisdictional High Court in CIT vs. Triumph International (I) Finance Ltd., which held that journal entries, although falling within the ambit of Sections 269SS and 269T, could constitute reasonable cause if made under a bonafide belief based on consistent judicial decisions. The Tribunal found that the assessee’s transactions were genuine, carried out in the normal course of business, and did not involve any malafide intent to evade tax. 4. Equating Journal Entries with Account Payee Cheques and Bank Drafts: The Tribunal addressed whether journal entries should enjoy equal immunity as account payee cheques and bank drafts. The CIT(A) had held that journal entries, being a recognized mode of settling claims, should not attract penalties under Section 271D. The Tribunal agreed, noting that the transactions were genuine and conducted for legitimate business purposes. The Tribunal emphasized that the provisions of Section 269SS were intended to prevent unaccounted cash transactions, not to penalize genuine business transactions recorded through journal entries. 5. Reliance on High Court Order Without Examining Individual Instances of Default: The Tribunal considered the Assessing Officer’s contention that the CIT(A) relied on a High Court order without examining the cause behind each instance of default. The Tribunal found that the CIT(A) had indeed examined the facts and circumstances of each case, concluding that the journal entries were made for legitimate business purposes and constituted reasonable cause under Section 273B. The Tribunal upheld the CIT(A)’s decision, confirming that the penalties under Section 271D were rightly deleted. Conclusion: The Tribunal dismissed the appeals filed by the Assessing Officer for both assessment years, confirming the deletion of penalties under Section 271D. The Tribunal upheld the CIT(A)’s findings that the journal entries were made for genuine business purposes, constituted reasonable cause under Section 273B, and did not violate the provisions of Sections 269SS/ST. The Tribunal’s decision was based on consistent judicial precedents and a thorough examination of the facts and circumstances of each case.
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