2016 (3) TMI 860 - AT - Income Tax

Penalty proceedings u/s 271E - Company has directly repaid the loan taken from Director to Dakor Nagarik Sahakari Bank - violation of section 269T - Held that - The assessee has demonstrated that under the compulsion the payment was directly credited in the bank account of the Director. Strictly it was not paid in cash. On due consideration of these facts in the light of case of Mahmood Associates (P) Ltd. vs. Joint Commissioner of Income-tax 2015 (4) TMI 1077 - ITAT KOLKATA we are of the view that the assessee has demonstrated a reasonable cause for not visiting it with penalty. Therefore, we allow the appeal of the assessee and delete the penalty. - Decided in favour of assessee

Summary

Issues:
Appeal against penalty imposed under section 271E of the Income-tax Act for alleged violation of Section 269T by making cash repayment of a loan.

Analysis:
1. The appellant contested the penalty imposed under section 271E by the Commissioner of Income-tax (Appeals) for allegedly violating Section 269T of the Income-tax Act. The loan in question was borrowed from a Director and subsequently repaid in cash to a Cooperative Bank. The Assessing Officer initiated penalty proceedings based on this repayment.

2. The appellant argued that the loan was taken under compelling circumstances and was not paid in cash but deposited in the Director's account with a Cooperative Bank. The appellant relied on the scheme of the Act and previous case law, citing the ITAT Kolkata Bench decision in Mahmood Associates (P) Ltd. vs. Joint Commissioner of Income-tax. This case established that loans from Directors did not constitute a violation of Section 269SS, and thus, the repayment should not be penalized under Section 269T.

3. The ITAT, Kolkata Bench's decision was crucial in this matter, where it was held that cash loans from Directors did not fall under the definition of "deposit," as per Section 269SS. The appellant also referenced decisions from the Madhya Pradesh High Court, Madras High Court, and Gujarat High Court, which further supported the argument that such transactions did not violate the relevant sections of the Income-tax Act.

4. The Tribunal, after considering the arguments and precedents cited, concluded that the penalty imposed by the JCIT and confirmed by the CIT(A) should be quashed. No contradictory decisions were presented, and the appellant's reasoning, along with the legal precedents, led to the deletion of the penalty. The Tribunal emphasized that the repayment was not in cash but through a bank transaction, aligning with the previous interpretations of the law.

5. Ultimately, the Tribunal allowed the appeal, noting that the appellant had demonstrated a reasonable cause for the repayment method and should not be penalized under Section 271E. The penalty was deleted, and the appeal was allowed based on the legal arguments and precedents presented.

This comprehensive analysis of the legal judgment highlights the issues involved, the arguments presented, and the Tribunal's decision based on legal interpretations and precedents cited during the proceedings.