2020 (3) TMI 787 - AT - Income Tax

Penalty u/s 271E - violation of the provision of section 269T - assessee has repaid the loans and advances received from various creditors otherwise than by crossed cheque - sufficient and reasonable cause for repayment of the loan to the directors and shareholders - HELD THAT - In the instant case, there is no dispute that the transactions are between mutually / closely associated with the persons i.e. company, directors and shareholders of the company. The amount was repaid otherwise than by crossed cheque. The transactions are genuine which were duly reflected in the books of accounts. The interest paid was also allowed by the AO in the assessment made u/s 143(3) of the Act. In the case relied upon by the Revenue, penalty was imposed u/s 271D of the Act. In the instant case, the assessee has demonstrated that transactions were genuine with relevant documents. It is a mere technical violation and there is no loss to the revenue. Hence, we are of the view that facts of the present case are distinguishable from the facts of the case relied upon by the revenue. Therefore, we hold that there is sufficient and reasonable cause for repayment of the loan to the directors and shareholders i.e. E.Rajeev, E.Padmapriya, E.Lakshmi and E.V.Sudhakar and hence we set aside the order of the Ld.CIT(A) and cancel the penalty levied by the Addl.CIT. Accordingly, appeal of the assessee on this ground is allowed. Repayment of deposit to A.V.V.Subrahmanyeswara Swamy and 62 persons - AO made the addition though the assessee stated that the deposits were repaid through account payee demand draft, since the assessee failed to produce the copies of demand drafts or counterfoils of the demand drafts - CIT(A) allowed relief to the extent of ₹ 20,000/- on each deposit, thus allowed ₹ 12,60,000/- and the balance penalty was confirmed - HELD THAT - Addl.CIT has levied the penalty for non-producing the evidence for payment through demand drafts. In the instant case, the assessment was completed u/s 143(3) and the AO has completed the assessment after verification of the books of accounts and we find no adverse comment with regard to payment of loan through DDs. The assessee also furnished the demand draft number in the account copy. Therefore, we do not see any reason to disbelieve the submission of the assessee that the repayment was made through demand drafts as furnished in the account copies, hence, we hold that there is no case for levy of penalty u/s 271E with respect to the payments made to the depositors in the case of Sri A.V.V.Subrahmanyeswara Swamy Others and accordingly, we set aside the order of the Ld.CIT(A) and delete the penalty. - Decided in favour of assessee.

Summary

Issues Involved:
1. Penalty under Section 271E for repayment of loans otherwise than by crossed cheque.
2. Penalty for repayment of deposits to A.V.V. Subrahmanyeswara Swamy and others through demand drafts without producing evidence.

Issue-wise Detailed Analysis:

1. Penalty under Section 271E for repayment of loans otherwise than by crossed cheque:

The appeal concerns the penalty sustained by the CIT(A) under Section 271E of the Income Tax Act, 1961, amounting to ?80,64,690/-. The assessee repaid loans and advances from various creditors totaling ?94,04,690/- otherwise than by crossed cheque. Specific instances include repayments to E.Rajeev, E.Padmapriya, E.Lakshmi, and E.V.Sudhakar via self-withdrawal cheques, resulting in cash withdrawals from the company's bank account. The Addl.CIT initiated proceedings under Section 271E for violating Section 269T of the Act, which mandates repayment of loans above ?20,000/- only through crossed cheques or bank drafts.

The assessee argued that the payments were genuine, duly accounted for in the creditors' books, and made on their request. Despite this, the Addl.CIT levied a penalty of ?94,04,690/-. On appeal, the CIT(A) confirmed the penalty for ?80,64,690/-.

During the tribunal hearing, the assessee's representative highlighted that the creditors were directors and shareholders closely associated with the company. The repayments were mostly made by crossed cheques, except on a few occasions due to urgent needs. The repayments were accounted for in the creditors' books, and interest on the borrowings was allowed as a deduction under Section 143(3).

The tribunal noted that the transactions were genuine, duly reflected in the books, and involved closely associated parties. The tribunal referred to precedents where penalties were not imposed for genuine transactions due to business exigencies. Consequently, the tribunal found a reasonable cause for the repayments and set aside the CIT(A)'s order, canceling the penalty levied by the Addl.CIT.

2. Penalty for repayment of deposits to A.V.V. Subrahmanyeswara Swamy and others through demand drafts without producing evidence:

The second issue concerns the repayment of deposits totaling ?36,45,000/- to A.V.V. Subrahmanyeswara Swamy and 62 others. The AO imposed a penalty as the assessee failed to produce evidence of repayment through demand drafts. The CIT(A) granted partial relief, confirming the penalty for the remaining amount.

The assessee contended that all repayments were made through demand drafts and provided account copies with demand draft numbers. The tribunal observed that the assessment was completed under Section 143(3) without adverse comments on the repayments. Given the evidence provided, the tribunal found no reason to disbelieve the assessee's claim and held that there was no case for penalty under Section 271E.

Conclusion:

The tribunal allowed the appeal, setting aside the CIT(A)'s order and canceling the penalties imposed by the Addl.CIT. The judgment emphasized the genuineness of the transactions, the close association between the parties, and the existence of reasonable cause for the repayments.