Whether repayment of loan in case attracts penalty u/s 271E of IT Act 1961

AUTO FUEL CENTRE Vs. JCIT
ITAT KOLKATA
Dated: 16/03/2020

QUESTION

Whether the repayment of loan in cash in contravention of the provisions of section 269T of the Income Tax Act 1961 will attracts Penalty u/s 271E of the Income Tax Act, 1961?"

BRIEF FACTS

1. The assessee filed its return of income for the A.Y. 2013-14 on 19-09-2013 disclosing total income of Rs. 1,79,515.

2. An assessment u/s 143(3) of Income Tax Act, 2016 (I.T. Act, 1961) has been made on 21/03/2016 on a total income of Rs. 2,72,280.

3. The assessing officer noticed that the assessee had repaid cash loan of Rs. 1,40,000 and 4,40,000 in aggregate to loan creditors Sri Bijay Guha and Sri Samarendra Sinha Babu respectively, on different dates.

4. The assessing officer observed that total repayment of loan in cash to the tune of Rs. 5,80,000 (Rs. 1,40,000 + and 4,40,000) was made by assessee during A.Y. 2013-14 which is in contravention of the provisions of section 269T of the I.T. Act, 1961,which attracts Penalty u/s 271E of the I.T. Act, 1961.

5. Therefore, AO issued notice to the assessee u/s 271E of the I.T. Act 1961.

6. The assessee replied that entire round of transactions took place within the relatives and friends of the family, and he had made repayment of the money to the persons who were in dire need of funds on those days, in order to enable them to carry on their business.

7. Further, the transactions of repayment of loan in question in the instant case are genuine and bona fide, therefore the penal proceedings u/s 271E of the I.T. Act, 1961 should not be initiated.

8. However, the assessing officer rejected the contention of the assessee and imposed the penalty of Rs. 5,80,000 u/s 271E of the I.T. Act 1961 for violation of provisions of section 269T of the I.T. Act 1961.

JUDGEMENT

9. The Income Tax Appellate Tribunal (ITAT) held that the provisions of section 271E of the Income Tax Act, 1961 lays down conditions for imposition of penalty for repayments of loans and deposits in cash, where the amount exceeds Rs. 20,000 in violation of section 269SS of the Act.

10. Considering the fact that this provision is brought in for identification of source for repayment, there should not be any levy of penalty where the persons are otherwise properly identified and the transactions are genuine, because there can be no attempt to evade tax, where the identities of the persons dealt with are known.

11. In the instant case, the repayment of advances from regular parties are identifiable and the assessee has explained the circumstances in which it was constrained to make the repayment of the loans in question in cash.

12. That being so, the penalty imposed in the sum of Rs. 5,80,000 on repayment of advances from two persons should be deleted, hence the penalty of Rs. 5,80,000 is deleted.

DISCLAIMER: The case law presented here is only for sharing information with the readers. The views are personal ,shall not be considered as professional advice. In case of necessity do consult with professionals.

Footnotes

SECTION 269SS

No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, if,—

(a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or

(b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or

(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more:

The provisions of this section shall not apply to any loan or deposit, or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by,

(i) Government
(ii) Any banking company, post office saving bank or cooperative bank
(iii) Any corporation established by a central, state or provincial act.
(iv) Any Government company as defined in clause (45) of section 2 of the Companies Act, 2013
(v) Such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette.

Provided further that the provisions of this section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act.

SECTION 269T IN THE INCOME- TAX ACT, 1995
Mode of repayment of certain deposits'

(1) No company (including a banking company), co-operative society or firm shall repay to any person any deposit other-wise than by an account payee cheque or account payee bank draft where the amount of the deposit, or where the amount of the deposit is to be repaid together with any interest, the aggregate of the amount of the deposit and such interest, is ten thousand rupees or more:

Provided that where the repayment is by a banking company or cooperative bank, such repayment may also be made by crediting the amount of such deposit to the account (if any) with such company or bank of the person to whom such deposit has to be repaid:

Provided further that nothing in this sub-section shall apply to or in relation to the repayment of any deposit on or after the date on which the Income-tax (Second Amendment) Act, 1981 , receives the assent of the President.

(2) No branch of a banking company or a co-operative bank and no other company or co- operative society and no firm or other person shall repay any deposit made with it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the deposit if-

(a) the amount of the deposit together with interest, if any, payable thereon, or

(b) the aggregate amount of the deposits held by such person with the branch of the banking company or co- operative bank or, as the case may be, the other company or co- operative society or the firm, either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such deposits, is twenty thousand rupees or more:

Provided that where the repayment is by a branch of a banking company or co-operative bank, such repayment may also be made by crediting the amount of such deposit to the savings bank account or the current account (if any) with such branch of the person to whom such deposit has to be repaid:

Provided further that nothing in this sub-section shall apply to or in relation to the repayment of any deposit before the date on which the Income- tax (Second Amendment) Act, 1981 , receives the assent of the President.

Explanation.- For the purposes of this section,-

(i) " banking company" shall have the meaning assigned to it in clause (i) of the Explanation to section 269SS.
(ia) " cooperative bank" shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949 ).
(ii) " deposit" means any deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes deposit of any nature.

SECTION 271 E

(1) If a person repays any loan or deposit or specified advance referred to in section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified advance so repaid.

(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.