2012 (6) TMI 358 - HC - Income Tax

Penalty u/s 271E - contravention of Section 269T - repayment of loan by making journal entries in the books of account - Held that - Reading Section 269T, 271E and 273B together it becomes clear that Section 269T puts an embargo on repayment of loan/deposit except by the modes specified therein, non-compliance of which renders the person liable for penalty u/s 271E. However, Section 273B provides that no penalty u/s 271E shall be imposed if reasonable cause is shown by the concerned person for failure to comply with the provisions of Section 269T In present case, repayment by journal entries was on account of the fact that the assessee was liable to receive amount towards the sale price of the shares sold by the assessee to the person from whom loan/deposit was received by the assessee. Neither the genuineness of the receipt of loan/deposit nor the transaction of repayment of loan by way of adjustment through book entries carried out in the ordinary course of business has been doubted in the regular assessment. In the absence of any finding that the repayment of loan/deposit was not a bonafide transaction and was made with a view to evade tax, it is held that though the assessee has violated the provisions of Section 269T, the assessee has shown reasonable cause u/s 273B and, therefore, penalty imposed u/s 271E deserves to be deleted - Decided in favor of assessee.

Issues Involved:
1. Whether transactions through journal entries in the books of the assessee amount to repayment of loans or deposits otherwise than by account payee cheque or bank draft within the meaning of Section 269T to attract penalty under Section 271E of the Income Tax Act, 1961.

Detailed Analysis:

1. Background and Facts:
The assessee, a Public Limited Company engaged in stock broking and trading, had accepted a loan/inter-corporate deposit of Rs. 4,29,04,722/- from the Investment Trust of India. During the assessment year 2003-2004, the assessee transferred shares worth Rs. 4,28,99,325/- to the Investment Trust of India. Instead of repaying the loan and receiving the sale price through account payee cheques, both parties agreed to settle the amounts through journal entries, with the balance of Rs. 5,397/- paid by cheque.

2. Show-Cause Notice and Penalty:
The assessing officer issued a show-cause notice based on the audit report's objections regarding the repayment method, and subsequently imposed a penalty of Rs. 4,28,99,325/- under Section 271E for violating Section 269T, which mandates repayment through account payee cheque or bank draft.

3. Tribunal's Decision:
The Tribunal allowed the assessee's appeal, holding that transactions through journal entries do not fall within the ambit of Section 269T, thereby negating the penalty under Section 271E.

4. Revenue's Argument:
The Revenue argued that the assessee, part of the Ketan Parekh Group involved in a securities scam, violated Section 269T by not using account payee cheques or drafts for repayment, justifying the penalty under Section 271E.

5. Assessee's Argument:
The assessee contended that Section 269T aims to curb unaccounted money, and bona fide transactions settled through book entries in the ordinary course of business should not attract penalty. They argued that the genuine nature of the transactions was not disputed, and literal interpretation of Section 269T would lead to absurdity, affecting genuine transactions.

6. Court's Analysis:
The court examined Section 269T, which mandates repayment of loans or deposits exceeding Rs. 20,000/- by account payee cheque or draft. The court noted that the section's language does not distinguish between bona fide and non-bona fide transactions, nor does it mention repayment by outflow of funds. Therefore, repayment through journal entries contravenes Section 269T.

7. Reasonable Cause and Section 273B:
The court highlighted Section 273B, which provides relief from penalties if reasonable cause for non-compliance is shown. The court emphasized that 'reasonable cause' should be construed liberally, considering the facts of each case.

8. Conclusion:
The court concluded that although the assessee violated Section 269T by repaying through journal entries, the cause shown was reasonable. The transactions were bona fide, carried out in the ordinary course of business, and not aimed at tax evasion. Therefore, under Section 273B, no penalty under Section 271E was justified.

Final Judgment:
The Tribunal's decision to delete the penalty was upheld. The court held that while repayment through journal entries violated Section 269T, the reasonable cause shown by the assessee exempted them from penalty under Section 271E. The appeal was disposed of with no order as to costs.

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