2023 (1) TMI 125 - AT - Income Tax

Penalty levied u/s. 271D - exigency of contravention of provisions of 269SS as the fact of each transaction need independent verification - assessee has not shown the reasonable cause w/s. 273B for entering into such transactions through journal entries - HELD THAT - We note that the CIT(A) has granted relief to the Assessee by following the judgment of the Hon ble Bombay High Court 2018 (2) TMI 603 - BOMBAY HIGH COURT rendered in identical facts and circumstances and deciding identical issue in favour of the Assessee. Following the judgment of the Hon ble Bombay High Court, we uphold the order of CIT(A) deleting penalty u/s 271D of the Act in respect of loans/advances received by the Assessee through journal entry. The deposits/loans received by the Assessee through journal entries though hit by Section 269SS would not result in levy of penalty since the transactions were undertaken by the assessee prior to the decision in the case of Triumph International Finance 2012 (6) TMI 358 - BOMBAY HIGH COURT as the assessee shall be deemed to have had reasonable cause to receive the deposits/loans through journal entries on account of various judgments/orders holding that journal entries in the book of accounts indicating deposit/loans did not fall foul of Section 269SS of the Act, which would also be a reasonable cause under Section 273B of the Act for non-imposition of penalty under Section 271D of the Act. Accordingly, all the grounds raised by revenue are rejected.

Summary

Issues Involved:
1. Deletion of penalty under Section 271D of the Income Tax Act, 1961.
2. Reasonable cause under Section 273B for transactions through journal entries.
3. Applicability of judicial precedents and case laws.
4. Verification of transactions on a case-by-case basis.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271D:
The Revenue challenged the CIT(A)'s order, which partly allowed the Assessee's appeal against the penalty imposed under Section 271D for violating Section 269SS by accepting loans/deposits through journal entries. The CIT(A) deleted the penalty for journal entries but upheld it for cash transactions. The Tribunal upheld CIT(A)'s decision, referencing the Bombay High Court's judgment in the Assessee's group cases, which established that journal entries prior to the 2012 decision in Triumph International Finance did not attract penalties under Section 271D due to reasonable cause under Section 273B.

2. Reasonable Cause under Section 273B:
The Assessee argued that journal entries were made for business exigencies, avoiding procedural delays and temporary fund arrangements. The CIT(A) and Tribunal agreed, citing the Bombay High Court's ruling that prior to the 2012 Triumph International Finance decision, it was reasonable to believe journal entries did not violate Section 269SS. Hence, penalties under Section 271D were not applicable due to reasonable cause under Section 273B.

3. Applicability of Judicial Precedents and Case Laws:
The CIT(A) and Tribunal relied on several precedents, including CIT vs. Triumph International Finance, Goldstar Electricals Pvt. Ltd. vs. ACIT, and Delhi High Court's ruling in Noida Toll Bridge Co. Ltd., which collectively held that journal entries did not contravene Section 269SS. The Tribunal noted that the Supreme Court dismissed SLPs against the Bombay High Court's decisions favoring the Assessee's group, reinforcing the non-applicability of penalties for journal entries made before 2012.

4. Verification of Transactions on a Case-by-Case Basis:
The CIT(A) directed the Assessing Officer to verify transactions individually, especially those involving cash deposits, which did not qualify as journal entries. The Tribunal upheld this directive, emphasizing the need for factual verification to ensure accurate penalty imposition under Sections 271D and 271E for cash transactions.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order that deleted penalties for journal entries due to reasonable cause under Section 273B, while maintaining penalties for cash transactions pending verification. The Tribunal's decision was based on consistent judicial precedents and the Supreme Court's dismissal of related SLPs, ensuring the Assessee's compliance with the law as interpreted before the 2012 Triumph International Finance ruling.