2011 (8) TMI 1380 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of penalty of Rs. 1,00,000/- levied under Section 271E of the Income Tax Act, 1961.
2. Legality and validity of the penalty under Section 271E of the Income Tax Act, 1961.
3. Reasonable cause for repayment of loan in cash.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty of Rs. 1,00,000/- Levied Under Section 271E of the Income Tax Act, 1961:

The assessee appealed against the order confirming the penalty of Rs. 1,00,000/- levied by the Assessing Officer under Section 271E for repaying a loan of Rs. 1,00,000/- to Smt. Meenaben P Shah in cash, which violated Section 269T of the Act. The Additional Commissioner of Income-tax issued a show cause notice, and despite the assessee's explanation citing social pressure and a bona fide belief, the penalty was upheld. The CIT(A) found that the assessee did not satisfactorily explain why such a large amount was repaid in cash and confirmed the penalty.

2. Legality and Validity of the Penalty Under Section 271E of the Income Tax Act, 1961:

The CIT(A) clarified that penalties under Section 271E do not need to be initiated during the assessment proceedings, unlike penalties under Section 271(1). The CIT(A) emphasized that Section 269T applies whenever a loan or deposit exceeding Rs. 20,000/- is repaid by any means other than an account payee cheque. The CIT(A) cited various case laws, including ITO v. Narsingh Ram Ashok Kumar, which upheld the levy of penalty even if the loan was genuine but repaid in cash without satisfactory explanation.

3. Reasonable Cause for Repayment of Loan in Cash:

The assessee argued that the repayment in cash was due to the insistence of Smt. Meenaben P Shah, a housewife and relative. However, the CIT(A) found no evidence to substantiate this claim and noted that no compelling situation forced the repayment in cash. The CIT(A) distinguished the case from others where transactions between sister concerns were considered venial. The CIT(A) cited Madanlal Mahaveer Prasad v/s. Income-tax Appellate Tribunal & Others, where penalty was upheld for violation of Section 269T without reasonable cause.

The Tribunal reviewed the facts and found that the repayment of Rs. 1,00,000/- in cash, even in installments below Rs. 20,000/-, violated Section 269T. The Tribunal noted that the genuineness of the transaction is irrelevant for the applicability of Section 269T, as held in Chaubey Overseas Corporation vs. CIT. The Tribunal also emphasized that Section 273B provides relief from penalty only if reasonable cause is proven, which the assessee failed to do. The Tribunal upheld the CIT(A)'s decision, finding no material to take a different view and confirming the penalty.

Conclusion:

The Tribunal dismissed the appeal, confirming the penalty of Rs. 1,00,000/- under Section 271E for repaying a loan in cash in violation of Section 269T. The assessee's arguments regarding the genuineness of the transaction and reasonable cause were found unsubstantiated. The Tribunal emphasized the clear statutory requirement and the lack of evidence for any compelling reason to repay the loan in cash.