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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 ..... th and the basic raw material for that purpose is yarn as per 'manufacturing Account' attached at page 5 of the Paper Book. The return was filed on the basis of audited books of accounts, along with the Tax Audit report, which have been placed at pages 4 to 19 of the Paper Book and the relevant page is page 15 Col. No.31(c). Based on this, the proceedings u/s 271E were initiated and there was no dispute during the course of assessment proceedings and, the assessee was 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the customer and copies of the sale bills are placed at the pages 32 to 34 of the Paper Book. iii). It is worth here to mention that the Assessee has filed the copy of the Annual Vat Return (Form VAT-15) along with the sale register for the period under consideration where there it has been clearly reflected the assessee has made sale to Vipan Kumar and the same is as per the regular audited financials of the assessee placed at the pages 35 to 37 of the Paper Book. iv). As per the CBDT 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 aggreg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is observed that it is not in dispute that what the assessee has repaid in cash in advance received by it from its customers. We find that the Hon'ble CBDT in Circular No.387 of 6.7.1984 held "receiving advance and repayment of advance is a business transaction. The prohibition contained in section 269SS is confined to loans and deposits only and does not extend to purchase/sale transactions." In view of above and keeping in view the provisions of section 273B of the Act, we find that the belief of the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n para 31(a) of Form 3CB dated 31.08.2015 and has been duly signed by the Auditor. c. That the assessee had repaid the sum of Rs. 6.38 lacs to Sh. Vipan Kumar and the said payment was not made through banking channel as mandated u/s 269T of the Income Tax Act, 1961. d. The said fact has been duly recorded in para 31(c) of the report dated 21.09.2017 signed by the Auditor Sh. Madhur Gupta. e. That the repayment of loan of Rs. 6.38 lacs via mode other than through banking channel was in violation of Section 269T of the Income Tax Act, 1961 which led 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral) has rightly levied the penalty u/s 271E of the Income Tax Act, 1961 and the same is confirmed. Accordingly, these grounds of appeal are dismissed." 6. We have heard the rival contentions and pursued the material available on record. The penalty has been levied on the assessee u/s 271E for contravention of provisions of section 269T of the Act. As per the ld Additional CIT, it is a case of repayment of unsecured loan of an amount of Rs 6,38,000/- in cash to Shri Vipan Kumar which is beyond the limits specified u/s 269T as well as the fact that the repayment has 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 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us, it has been contended by the ld AR that if we read clause 31(c) of the Tax Audit report, only "yes" or "no" has to be mentioned in response to whether the repayment was made by cheque or bank draft or use of electronic clearing system through a bank account. It was submitted that in the instant case, the tax auditor has stated "no" in the said column and the Additional CIT has construed the said reporting as a case of repayment of loan in cash and hence, the violation of section 269T of the Act which is factually not correct. It was submitted that it is a case where there 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 transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in case of CIT vs Rugmini Ram Ragav Spinners (P) Ltd reported in (2008) 304 ITR 417 has 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 ld. Additional CIT 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 of the Act. 16. In light 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 2,00,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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