2022 (7) TMI 326 - AT - Income Tax

Penalty imposed u/s 271D 271E - default u/s 269SS 269T - Assessing Officer had levied the Penalty on the grounds that the loans had been repaid and received by modes other than by account payee or any other mode provided in section 269SS 269T - CIT(A) deleted the penalty holding that general entries leading to assignment of debt does not attract penalty under section 271D and 271 - HELD THAT - In the case, we find that assessee is neither before us by way of appeal or cross-objection or even under Rule 27 of the ITAT Rules to support existence of reasonable cause. The Department has challenged the finding of the Ld. CIT(A) wherein it is held that receipt/payment of loan by way of general entry is not in contravention of 269SS or 269T provisions. Therefore, we are restricted to decide the ground of the Department only. The finding of the Ld. CIT(A) is contrary to the decision of the Hon ble Jurisdictional High Court TRIUMPH INTERNATIONAL FINANCE (I) LTD. 2012 (6) TMI 358 - BOMBAY HIGH COURT and therefore liable to set aside. Decided in favour of revenue.

Issues Involved:
1. Deletion of Penalty under Sections 271D and 271E of the Income Tax Act.
2. Applicability of Sections 269SS and 269T concerning journal entries.
3. Existence of reasonable cause under Section 273B for non-compliance with Sections 269SS and 269T.
4. Timeliness of the appeal considering the extended period due to the Supreme Court's order.

Detailed Analysis:

1. Deletion of Penalty under Sections 271D and 271E:
The primary issue was whether the Commissioner of Income-tax (Appeals) [CIT(A)] erred in deleting the penalty imposed under Sections 271D and 271E of the Income Tax Act. The Assessing Officer (AO) had levied the penalty on the grounds that loans were repaid and received by modes other than account payee cheque or any other mode provided in Sections 269SS and 269T. The Joint Commissioner of Income-Tax (JCIT) found that the assessee had repaid a loan and accepted a new loan through journal entries, which was in violation of Sections 269SS and 269T. The JCIT imposed penalties under Sections 271D and 271E, amounting to ?6,84,43,885/-. However, the CIT(A) deleted the penalty, stating that journal entries leading to the assignment of debt do not attract penalties under Sections 271D and 271E, as there was no exchange of money.

2. Applicability of Sections 269SS and 269T Concerning Journal Entries:
The Tribunal examined whether journal entries for repayment and acceptance of loans contravened Sections 269SS and 269T. The Bombay High Court in Triumph International Finance India Ltd. ruled that repayment of loans through journal entries falls under the contravention of Section 269T. The Tribunal noted that the CIT(A)'s finding was contrary to this ruling. The Tribunal emphasized that the negative language in Section 269T mandates repayment by account payee cheque or bank draft, and journal entries do not meet this requirement. Consequently, the Tribunal held that the CIT(A)'s decision to delete the penalty was incorrect.

3. Existence of Reasonable Cause under Section 273B:
The Tribunal also considered whether there was a reasonable cause for the assessee's non-compliance with Sections 269SS and 269T, which could exempt them from penalties under Section 273B. The JCIT had rejected the assessee's plea of reasonable cause, stating that the documents provided were self-serving and did not establish a genuine reason for the contravention. The Tribunal noted that the CIT(A) did not conclusively address whether a reasonable cause existed. The Tribunal referred to previous judgments, including the Bombay High Court's decision in Triumph International Finance India Ltd., which allowed for reasonable cause to exempt penalties. However, the Tribunal found that in this case, the assessee did not provide sufficient evidence of a reasonable cause.

4. Timeliness of the Appeal Considering the Extended Period Due to the Supreme Court's Order:
The Tribunal addressed the delay in filing the appeal, which was 520 days late. The delay was attributed to the extended period granted by the Supreme Court's order in Miscellaneous Application No. 21 of 2022, which excluded the period from 15.03.2020 to 28.02.2022 for the purposes of limitation in judicial proceedings. The Tribunal accepted the appeal as being within the extended period and admitted it for adjudication.

Conclusion:
The Tribunal concluded that the CIT(A)'s decision to delete the penalty was incorrect, as it was contrary to the Bombay High Court's ruling in Triumph International Finance India Ltd. The Tribunal allowed the Revenue's appeal, setting aside the CIT(A)'s order and reinstating the penalties under Sections 271D and 271E. The Tribunal also highlighted the need for a conclusive finding on the existence of reasonable cause, which was not adequately addressed by the CIT(A). The order was pronounced on 05/07/2022.

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