2021 (12) TMI 1174 - AT - Income Tax

Penalty u/s.271D 271E - Accepting and repayment of loan / deposits through journal entries - Period of limitation for imposing penalty u/s 275(1)(c) - assessee has accepted loans / deposits from various sister concerns through journal entries and had repaid loans to various sister concerns through journal entries as according to ld. DCIT, the same were in violation of provisions of Section 269SS and 269T - proof of reasonable cause‟ in Section 273B for non-imposition of penalty under section 271E - HELD THAT - Journal entries which had been passed by the assessee company in its books for mutual extinguishment of liabilities between various entities and assignment of debts / receivables from one entity to another entity would not be hit by the provisions of Section 269SS and 269T of the Act as there is sufficient reasonable cause for the same within the meaning of section 273B of the Act. We find that the ledger accounts produced by the assessee before the ld. AO in the quantum assessment proceedings and before the ld. Addl. CIT during the penalty proceedings had not raised any doubt in respect of genuineness of the transactions and the transactions being entered into in the normal course of business of the assessee. Hence, it could be safely concluded that those entries were passed out of business exigencies with bonafide belief that they are not in contravention of provisions of Section 269SS and 269T of the Act. It is a well known fact that concealment should always be established and could never be presumed. Assessee was under a bonafide belief that passing of journal entries do not violate provisions of law. This is established by the fact that (i) the plea was taken before the ld. AO in the first instance itself ; (ii) this has not been disbelieved by the ld. AO ; and (iii) the assessee group has a common set of accountants, chartered accountants and advisors. In the group cases, the Tribunal and Hon'ble High Court has accepted the explanation of bonafide belief of the assessee. With common set of people, it has to be held that the assessee was also under the same belief Thus we hold that the assessee had proper reasonable cause within the meaning of section 273B of the Act and hence the transactions passed through journal entries though would be hit by the provisions of sections 269SS and 269T of the Act, since reasonable cause is established in the instant case, the assessee company would get immunity from levy of penalty thereon. Accordingly, the grounds raised by the revenue are dismissed. Period of limitation for imposing penalty u/s 275(1)(c) - HELD THAT - the discussion by the AO in the assessment order and making reference to the Addl. CIT for imposition of penalty under section 271D or 271E of the Act, constitutes initiation for action for imposition of penalty and that is the date which should be reckoned for the purpose of limitation as specified in clause (c) of section 275(1) of the Act. - a reference made by the AO to the Addl. CIT for initiation of penalty proceedings in the assessment order, by a preliminary act, constitutes action for imposition of penalty as contemplated in the provisions of section 275(1)(c) of the Act. Hence, the penalty orders passed by the Addl. CIT in all these cross objections are barred by limitation and accordingly, quashed.

Issues Involved:
1. Imposition of penalty under Section 271D and 271E of the Income Tax Act, 1961.
2. Whether the transactions through journal entries violate Sections 269SS and 269T.
3. Whether there was a reasonable cause under Section 273B to avoid penalties.
4. Jurisdictional issue regarding the limitation period for imposing penalties.

Detailed Analysis:

1. Imposition of Penalty under Section 271D and 271E:
The appeals involve the imposition of penalty under Sections 271D and 271E of the Income Tax Act, 1961, for accepting and repaying loans or deposits through journal entries instead of by account payee cheque or draft, as required by Sections 269SS and 269T. The penalties were levied by the Additional Commissioner of Income Tax (Addl. CIT) based on transactions involving various group entities.

2. Transactions through Journal Entries:
The assessee argued that the transactions through journal entries were genuine, made for business exigencies, and did not involve any unaccounted cash flow. The transactions were for mutual extinguishment of liabilities, assignment of debts, and operational efficiencies. The assessee relied on several judicial precedents and CBDT Circular No. 387 dated 06/07/1984, which explained the purpose behind Sections 269SS and 269T.

The Revenue argued that the transactions violated the provisions of Sections 269SS and 269T, and the penalties were justified. The Revenue relied on the decision of the Hon'ble Bombay High Court in CIT vs. Triumph International Finance India Ltd., which held that repayment of loans through journal entries contravened Section 269T.

3. Reasonable Cause under Section 273B:
The assessee contended that there was a reasonable cause under Section 273B for not complying with Sections 269SS and 269T. The assessee believed that journal entries did not attract these provisions, supported by judicial precedents and the Hon'ble Delhi High Court's decision in CIT vs. Noida Toll Bridge Co. Ltd. The assessee also pointed out that the transactions were genuine, with no unaccounted money involved, and were accepted by the Assessing Officer (AO) in quantum assessment proceedings.

The Tribunal found that the assessee had a reasonable cause for the transactions through journal entries. The Tribunal noted that the transactions were genuine, made in the normal course of business, and for business exigencies. The Tribunal relied on the Hon'ble Bombay High Court's decision in Triumph International Finance, which provided relief based on reasonable cause.

4. Jurisdictional Issue:
The assessee raised a jurisdictional issue regarding the limitation period for imposing penalties under Sections 271D and 271E. The assessee argued that the penalties were barred by limitation as per Section 275(1)(c). The Tribunal agreed with the assessee, noting that the limitation period should be counted from the date of the assessment order or the date of reference made by the AO to the Addl. CIT.

Conclusion:
The Tribunal upheld the deletion of penalties under Sections 271D and 271E, finding that the assessee had reasonable cause under Section 273B. The Tribunal also concluded that the penalties were barred by limitation. The Tribunal dismissed the Revenue's appeals and allowed the assessee's cross-objections.

Summary of Judgments Delivered:
The Tribunal delivered a consolidated judgment for multiple appeals and cross-objections, covering various assessment years and group entities. The Tribunal consistently found in favor of the assessee, upholding the deletion of penalties and addressing the jurisdictional issue regarding the limitation period. The Tribunal's decision was based on the genuineness of the transactions, business exigencies, and reasonable cause under Section 273B.

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