2016 (9) TMI 298 - HC - Income Tax

Violation of the provisions of Section 269T - Held that - Worldwide Township has propounded an appropriate interpretation to the provision consistent with appropriate business targets in the commercial world. Undoubtedly Section 269T is meant to discourage cash transactions and has penal consequences - evident from Section 271E. Whilst, strict construction is the norm, at the same time, we are not persuaded that the interpretation in Worldwide Township in any manner deviated from the text of the Statute.

Summary

Issues:
Violation of Section 269T of the Income Tax Act - Repayment not through crossed cheque/bank draft - Adjustment of amounts received with deposits - Interpretation of Section 269T - Applicability of penalty under Section 271E.

Violation of Section 269T:
The case involved a dispute regarding the violation of Section 269T of the Income Tax Act, where the Assessing Officer had brought to tax an amount for AY 2006-07, holding that it was repaid otherwise than by crossed cheque/bank draft. The appellant had entered into agreements for land sale, receiving amounts treated as deposits, which were later adjusted with the amounts payable. The ITAT affirmed the CIT (A)'s decision, emphasizing that the transactions were genuine and not aimed at tax evasion. The Tribunal held that Section 269T was not attracted in this case, based on the nature of the transactions and explanations provided by the assessee.

Interpretation of Section 269T:
The Revenue contended that a question of law arose, citing a judgment from the Bombay High Court adopting a strict interpretation of Section 269T. However, the Delhi High Court disagreed, stating that the interpretation in a previous case provided a more appropriate understanding of the provision in line with commercial practices. While acknowledging the penal consequences of Section 271E, the court held that the interpretation in the previous case did not deviate from the statutory text. The court emphasized that Section 269T aims to discourage cash transactions, but the adjustment through book entries in this case did not violate the provision.

Applicability of Penalty under Section 271E:
The Revenue argued for the applicability of penalty under Section 271E based on the alleged violation of Section 269T. However, the High Court dismissed the appeal, stating that no question of law arose in this case. The court upheld the decision that the provisions of Section 269T were not attracted to the facts of the case, as the transactions were genuine and not intended to evade tax. The court highlighted that while strict construction is important, the interpretation provided in a previous case was consistent with business practices and did not go against the statutory provisions.

In conclusion, the High Court dismissed the appeal, affirming that the transactions in question did not violate Section 269T, and no penalty under Section 271E was applicable. The court emphasized the importance of interpreting tax provisions in a manner that aligns with commercial realities while also upholding the legislative intent to discourage cash transactions.