2022 (6) TMI 1233 - AT - Income Tax

Penalty u/s 271D - entries through journal entries - Violation of provisions of section 269SS - undisclosed transactions by the group, in one of the allegations against the group is of resorting to round tripping of funds to evade taxes - proof of reasonable cause u/s 273B - HELD THAT - As decided in own case we find from the aforesaid factual 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. We find that 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. - Decided in favour of assessee.

Summary

Issues:
Appeal against order dated 05.03.2019 of Ld. CIT(A) for the assessment year 2015-16 - Violation of section 269SS of the Income Tax Act, 1961 - Penalty u/s 271D imposed by AO - Explanation by assessee regarding transactions - Co-ordinate Bench decision in favor of assessee in the preceding assessment year - Grounds of appeal raised by revenue - Observations and submissions during the hearing - Judicial precedents cited - Dismissal of appeal by ITAT Mumbai.

Analysis:

Issue 1: Violation of section 269SS and penalty u/s 271D
The AO imposed a penalty of Rs. 1,18,00,608/- u/s 271D of the Act for alleged violation of section 269SS by the assessee. The assessee explained that certain transactions were adjustments made within related entities and were not intended to evade taxes. Ld. CIT(A) allowed the appeal based on a co-ordinate Bench decision in the assessee's favor in the previous assessment year. The ITAT Mumbai noted that the transactions were genuine, made in the normal course of business, and did not involve any malafide intent to evade tax. Citing judicial precedents, including the decision in CIT vs Triumph International Finance, it was concluded that the transactions did not warrant a penalty under section 271D.

Issue 2: Grounds of appeal raised by revenue
The revenue raised specific grounds of appeal questioning the justification for deleting the penalty u/s 271D by Ld. CIT(A). The grounds included arguments on reasonable cause under section 273B, the equivalence of journal entries with account payee cheques, and the perpetual legitimacy granted to transactions deemed illegal. During the hearing, it was acknowledged that the issue favored the assessee, and even the Ld. DR agreed with the facts on record. The ITAT Mumbai, relying on previous decisions and the explanations provided by the assessee, dismissed the revenue's grounds of appeal.

Conclusion:
The ITAT Mumbai dismissed the appeal filed by the revenue, upholding the decision of Ld. CIT(A) to delete the penalty u/s 271D imposed on the assessee for alleged violations of section 269SS. The judgment highlighted the genuineness of the transactions, the absence of malafide intent, and the applicability of reasonable cause under section 273B. Citing relevant judicial precedents, the ITAT Mumbai concluded that the transactions in question did not warrant the imposition of a penalty.