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TMI Blog2023 (9) TMI 1610X X X X Extracts X X X X X X X X Extracts X X X X ..... similarly held that the rationale behind provisions of section 269SS and 269T is to prevent tax evasion i.e, laundering of concealed income by the parties in the guise of cash loans or deposits in or outside the accounts. Therefore, we donot agree with the findings of the ACIT that even where the assessee s submissions are considered, the repayment of loan by supplying goods would still fall in the ambit of contravention as so specified in section 269T. The reporting of the transaction in the tax audit report by the tax auditor has to be examined taking into consideration the explanation so furnished by the assessee to determine whether there is any violation of section 269T or not in the instant case. In the instant case, the assessee has produced relevant documentation in support of his sale transactions which are reported in the financial statement and duly offered to tax and has also reported the same as part of its regular VAT filings with the VAT authorities. What further documentation is required from the assessee has not been specified nor has the existence of these documents been denied. There is no adverse findings recorded by the AO in accepting the sale transactions as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show caused by way of notice placed at pages 20 to 21 of the Paper Book, for the purposes of levy of penalty. 3.1 It was submitted that the reply along with annexure was submitted on income tax portal of the assessee to the Add. CIT as per Pages 22 to 25 of the Paper Book and it was stated that, in fact, certain amount of Rs. 6,38,000/- was received for the year ending 31.03.2015, through banking channel and further the amount of Rs. 2 lacs was received through banking channel in Financial year 2015-16 and during the same year, the goods of Rs. 2 lacs were supplied and then in financial year 2016-17, the goods worth Rs. 6,38,000/- were supplied and the advance amount was adjusted. 3.2 It was submitted that the Ld. Addl. CIT has recorded these submissions but has stated that this sum of Rs. 6,38,000/- was shown as unsecured loan in the year 31.03.2016 and also he has referred to page 15 of the Paper Book, which is the Tax Audit report and at page 7 of the penalty order, wherein, he has interpreted that since the amount of Rs. 6,38,000/-was paid by cash and, therefore, has levied the penalty. 3.3 It was further submitted that it was the case of Addl. CIT (Central) that there is no pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T in its explanatory note on the provisions of the Finance Act, 1984 vide Circular No.387 dated 6th July, 1984 clarified that the provisions contained in section 269SS is confined to loans and deposits only and does not extend to purchase/sale transaction. The same is as under: With a view to countering this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Finance Act has inserted a new section 269SS in the Income-tax Act debarring persons from taking or accepting, after 30th June, 1984, from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of such loan or deposit or the aggregate amount of such loan and deposit is Rs. 10,000 or more. This prohibition will also apply in cases where on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), and the amount or the aggregate amount remaining unpaid is Rs. 10,000 or more. The prohibition will also apply in cases where the amount of such loan or deposit, together with the aggregate am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see that return of advance from customers is not prohibited by section 269T was a bonafide belief. Therefore, the levy of penalty u/s. 271E of the Act of Rs. 21,49,943/- cannot be sustained. COMMISSIONER OF INCOME-TAX VS. MADHAV ENTERPRISE (P.) LTD. GUJRAT HIGH COURT reported in [2013] 37 taxmann.com 349 (Gujarat) Section 269T, read with section 271E of the Income-tax Act, 1961 Deposit - Mode of repayment [Earnest money] - Assessment year 2006-07 - Whether, where assessee-company, engaged in construction, repaid earnest money/advances to certain parties in cash, section 269T was not applicable as repayments were not in nature of repayment of loan or deposits - Held, yes -Whether, therefore penalty under section 271E for violation of section 269T, for making payments in excess of Rs. 20,000 in cash, could not be levied - Held, yes [Para 7] [In favour of assessee]. INCOME TAX OFFICER VS SHIV ENTREPRISES ITA No.2911/Ahd/2009 ITAT AHMEDABAD; The Id. AR by referring to balance sheet as on 31st March, 2005 of which copy has been placed at page 150 of the Paper Book, where such advances from customers have been shown under the head current liabilities established that during the year the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to levy of penalty u/s 271E of the Income Tax Act, 1961. The AR in his reply before the Addl. CIT and during the appellate proceedings submitted that the assessee had received advance amounting to Rs. 6.38 lacs in the year 2015 and the same was for sale of knitted cloth which was supplied during the year 2017, As an evidence for the same, the AR submitted copies of bills, copies of VAT return etc. The AR has further contended that the advance received has been treated as unsecured loan by the Addl. CIT and the penalty levied is uncalled for. A perusal of para 4.2 of the penalty order reveals that the penalty has been levied on the basis of clear findings recorded in the audit report. As per the penalty order, para 31(a) of Form 3CB dated 31.08.2015 signed by the Shaifali Dhawan, CA shows that the assessee has accepted a sum of Rs. 6.38 lacs from Sh. Vipan Kumar as unsecured loan in excess of the limit prescribed under Section 269SS of the Income Tax Act, 1961. Further, as per para 4.2 of the penalty order, the said amount of Rs. 6.38 lacs has been shown in the column of unsecured loan received as on 31.03.2016. As per para 4.4 of the penalty order, during the year ending 2016-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been made in a mode other than through cheque, draft or use of electronic clearing system through a bank account and hence, there is contravention of provisions of section 269T of the Act. 7. As we have noticed from the records and material before us, the genesis of the show-cause as well as subsequent findings in the penalty order as well as the appellate order is the tax audit report wherein the transaction with Shri Vipan Kumar has been reported by the tax auditor. 8. In the tax audit report for the financial year ended 31/03/2017, it has been reported by the tax auditor in negative wherein he has been asked to state whether the repayment was made by cheque or bank draft or use of electronic clearing system through a bank account. Basis the same, the Additional CIT has held that it is a case of repayment of loan in cash and hence, the violation of section 269T of the Act. 9. The ld. Additional CIT has further examined and looked at the tax audit report for the earlier financial year ended 31/03/2015 wherein the tax auditor has reported a sum of Rs 6,38,000/- received from Shri Vipan Kumar while reporting the transactions u/s 269SS, tax audit report for the financial year ende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no repayment in cash and it is a case where the amount of advance of Rs 6,38,000/- has been adjusted against sales made during the year and which has been duly reported in the trading account and necessary documentation has been placed on record. 14. It is not in dispute that the transaction undertaken by the assessee with Shri Vipan kumar has been reported by the tax auditor in the tax audit report as part of reporting of transactions specified u/s 269SS for the financial year ended 31/03/2015 wherein Rs 6,38,000/- has been received through cheques on various dates and thereafter, another transaction of Rs 2,00,000/- which has been received by the assessee through cheque and which has been reported as part of reporting of transactions specified u/s 269SS audit report for the financial year ended 31/03/2016. Thereafter, the tax auditor has reported the transaction by way of repayment of Rs 6,38,000/- as part of reporting of transactions specified u/s 269T of the Act for the financial year ended 31/03/2017. 15. The question that arises for consideration is whether the repayment of loans and deposits can be made only through any of the mode of transfer through the banking cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of above, the reporting of the transaction in the tax audit report by the tax auditor has to be examined taking into consideration the explanation so furnished by the assessee to determine whether there is any violation of section 269T or not in the instant case. 17. It has been explained by the assessee that an amount of Rs 6,38,000/- was received through cheque during the financial year ended 31/03/2015 and another sum of Rs 2,00,000/- through cheque during the financial year ended 31/03/2016 from Shri Vipan kumar. It has been further submitted that the assessee has sold knitted cloth worth Rs 2,00,000 to Shri Vipan Kumar during the financial year ended 31/03/2016 and knitted cloth worth Rs 6,38,000/- to Shri Vipan Kumar during the financial year ended 31/03/2017 which is the year under consideration. It has been accordingly submitted that there is no repayment in cash rather the assessee has sold goods worth Rs 6,38,000/- and which has been adjusted against the amount standing to the credit of Shri Vipan Kumar and there is thus no violation of section 269T of the Act. In support of his explanation, the assessee has produced the ledger account of Shri Vipan kumar, copy of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X
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