2014 (6) TMI 140 - AT - Income Tax

Deletion of penalty u/s 271E - Violation of section 269T of the Act transfer of loan by journal entry - period of limitation Held that - When there is any acceptance/ repayment of loan in violation of section 269SS/269T, it is the AO who has to prima facie satisfy himself whether there is a violation of section 269SS/269T and if there is a violation then he may initiate the penalty proceedings u/s. 271D/271E and thereafter should refer the matter to the Joint Commissioner of Income Tax who will finally decide and if satisfied, will levy the penalty u/s 271D/271E - The AO when noticed the transfer of loan by journal entry, he prima facie formed an opinion of violation of section 269T. The assessment order is followed by the penalty notice issued on the same date - the period of limitation is to be counted from the date of the initiation of the penalty proceedings by the AO - the penalty proceedings was initiated in the course of assessment proceedings in the financial year 2011-12, such financial year expired on 31.3.2012 - Six months from the initiation of penalty proceedings also expired on 30.6.2012 - The penalty order has been passed on 14.9.2012 which was certainly after the period of limitation prescribed u/s. 275(1)(c) - CIT(A) rightly held that the penalty order to be barred by limitation. U/s 269T no person shall repay the loan otherwise, than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the loan - the assessee has transferred the loan by way of journal entry to his wife - When the assessee has transferred the loan from himself to his wife by way of journal entry, it is only the substitution of one debtor by another debtor - creditors has not received any amount and since the creditors has not received any amount, it cannot be said that there is a repayment of loan - Section 269 would come into play only when there is actual repayment of loan - Merely because loan is assigned by the assessee to his wife by way of journal entry, it cannot be said that there is a repayment of loan, otherwise, than by account payee cheque or account payee bank draft, so as to penalize the assessee u/s 271E CIT(A) was of the view that the assessee is not liable to be penalised u/s. 271E thus, there was no justification to interfere with the order of the CIT(A) Decided against Revenue.

Summary

Issues:
Penalty under section 271E for repayment of loan not made through account payee cheque or bank draft.

Analysis:

Issue 1: Initiation of Penalty Proceedings
The Revenue argued that the penalty under section 271E was rightly levied as the loan repayment was not made through account payee cheque or bank draft, violating section 269T. The Revenue contended that only the Joint Commissioner had the power to levy such penalty and that the notice issued by the Assessing Officer was not valid for initiating penalty proceedings. However, the assessee's counsel argued that the AO had the authority to initiate penalty proceedings and had followed the correct procedure. The AO had issued a notice to the assessee based on the violation of section 269T, which led to the initiation of penalty proceedings. The Tribunal observed that there was no bar on the AO, other than the Joint Commissioner, to initiate penalty proceedings under section 271E. The AO had prima facie satisfied himself of the violation and had correctly initiated the penalty proceedings. Therefore, the period of limitation for the penalty was to be counted from the date of initiation by the AO, which was within the prescribed time limit.

Issue 2: Merits of Penalty Imposition
Regarding the merit of the penalty imposition, the Tribunal examined whether there was a violation of section 269T warranting penalty under section 271E. The AO had noted that the loan was transferred through a journal entry to the assessee's wife, but no actual repayment was made to the creditor. The Tribunal agreed that since the creditor did not receive any amount, there was no actual repayment of the loan. The transfer of the loan to another debtor by journal entry did not constitute a violation of section 269T, as there was no repayment made outside the prescribed methods. Therefore, the Tribunal concurred with the CIT(A) that there was no basis for imposing a penalty under section 271E on the assessee.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the penalty of Rs. 2,75,32,000 imposed under section 271E. The Tribunal found that the penalty was barred by limitation and that there was no violation of section 269T warranting the penalty. The order was pronounced on 16-05-2014.