2021 (5) TMI 341 - AT - Income Tax

Penalty u/s 271D and 271E - creation/ assignment of debt and liabilities vide journal entries - reasonable cause u/s. 273B - HELD THAT - We find that these are genuine business transactions entered in the normal course of business. Hence if the aforesaid transactions are looked into from the perspective of the object and intention behind introduction of provisions of section 269SS and 269T of the Act , then the provisions of section 269SS and 269T of the Act cannot be made applicable to the facts of the instant case. Moreover, from the detailed explanation of the aforesaid transactions together with the purpose for which those journal entries were passed, it could be safely concluded that these entries neither reflect any receipt of loan nor repayment of loan. At the cost of repetition, we find that the journal entries are passed towards amount receivable from BETL towards sale of flats which was adjusted against amount payable to LDPL and SNCML on an understanding that both these companies are liable to pay BETL towards advertisement expenses. Hence it could be safely concluded that these entries were passed out of business constraints and exigencies and for administrative convenience with no malafide intent to evade payment of tax. In our considered opinion, this business constraint and exigency and administrative convenience itself constitutes reasonable cause within the meaning of section 273B of the Act . Hence no penalty u/s 271D and 271E of the Act could be invoked for the same. CIT-A had rightly held that no penalty u/s 271D and 271E of the Act could be levied in respect of transactions with BETL With regard to the other remaining entries where transactions have been passed through journal entries, these journal entries passed represent assignment/transfer of assets/debtors and liabilities/creditors having underlying transactions arising out of business expediencies and exigencies. These entries arise in the normal course of day to day business activities. We find that the argument of the ld AR deserves to be accepted on the bare perusal of the figures involved in the said journal entries as no person would either receive or repay loans in such odd amounts. Going by the frequency of the said transactions and the figures involved therein, it could be safely concluded that all those transactions were entered in the normal course of business of the assessee company by way of assignment of rights / liabilities and assignment of genuine receivables / payables. Moreover, the genuineness of those transactions reflected through journal entries have neither been disputed nor doubted by the revenue. These would certainly constitute reasonable cause within the meaning of section 273B. In the instant case, these journal entries in the name of some parties were passed towards assignment of genuine and bonafide receivables / payables arising out of business expediencies and exigencies in the normal course of business. Hence the same would certainly constitute reasonable cause within the meaning of section 273B of the Act and hence no penalty u/s 271D and 271E of the Act could be levied for the aforesaid sums. Reliance in this regard is placed on the decision of Hon ble Jurisdictional High Court in the case of Triumph International 2012 (6) TMI 358 - BOMBAY HIGH COURT wherein the relevant operative portion is already reproduced hereinabove. No infirmity in the order of the ld CIT-A cancelling the levy of penalty in the aforesaid sums of various parties u/s 271D and 271E of the Act. - Decided in favour of assessee.

Issues Involved:
1. Validity of the levy of penalty under sections 271D and 271E of the Income Tax Act, 1961.
2. Whether journal entries for creation/assignment of debt and liabilities constitute a violation of sections 269SS and 269T of the Act.
3. Consideration of reasonable cause under section 273B for non-compliance with sections 269SS and 269T.

Detailed Analysis:

1. Validity of the Levy of Penalty under Sections 271D and 271E:
The primary issue in the appeals was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the penalties levied under sections 271D and 271E of the Income Tax Act. The penalties were imposed by the Joint Commissioner of Income Tax for alleged violations of sections 269SS and 269T due to certain journal entries passed by the assessee.

2. Journal Entries and Violation of Sections 269SS and 269T:
The assessee, engaged in real estate construction and development, had passed journal entries for the creation/assignment of debt and liabilities. The Assessing Officer (AO) considered these as loan transactions settled otherwise than by cheque, thus violating sections 269SS and 269T. The CIT(A) observed that the transactions were genuine and conducted in the ordinary course of business, and held that the penalties were not justified as the assessee had shown reasonable cause under section 273B.

3. Reasonable Cause under Section 273B:
The Tribunal examined whether the assessee had reasonable cause for the transactions made through journal entries. It was noted that prior to the decision of the Bombay High Court in Triumph International Finance (India) Limited on 12.06.2012, there were consistent judicial decisions holding that journal entries did not violate sections 269SS and 269T. The Tribunal concluded that the assessee had a bona fide belief based on these precedents, constituting a reasonable cause under section 273B.

Journal Entries Before and After 12.06.2012:
The Tribunal differentiated between journal entries passed before and after 12.06.2012. For entries before this date, the Tribunal held that the assessee had reasonable cause due to the prevailing judicial interpretations. For entries after 12.06.2012, the Tribunal examined the specific transactions and found them to be genuine business transactions without any intent to evade tax.

Detailed Transactions Analysis:
- Penalty under Section 271D: The Tribunal found that the journal entries passed on 02.05.2012 for a transaction amounting to ?99,60,29,234 were genuine and conducted in the ordinary course of business. The penalty was deleted as the transaction occurred before the critical date of 12.06.2012.
- Penalty under Section 271E: Similar findings were made for journal entries passed on or before 12.06.2012, amounting to ?99,50,34,184. The Tribunal held that the penalties were not justified due to the reasonable cause shown by the assessee.

Transactions After 12.06.2012:
The Tribunal scrutinized transactions involving Brand Equity Treaties Limited (BETL) and found them to be genuine business transactions. The entries were passed to adjust amounts payable for advertisement expenses against receivables from BETL for the sale of flats. The Tribunal concluded that these transactions did not constitute loans or deposits and were made for business exigencies and administrative convenience, thus constituting reasonable cause under section 273B.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the penalties under sections 271D and 271E, finding that the assessee had reasonable cause for the journal entries made. The appeals by the revenue were dismissed, and the Tribunal emphasized that the transactions were genuine and conducted in the ordinary course of business without any intent to evade tax. The Tribunal's decision was based on a thorough analysis of the facts and prevailing judicial precedents.

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