TMI Blog2012 (6) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... finding that the repayment of loan/deposit was not a bonafide transaction and was made with a view to evade tax, it is held that though the assessee has violated the provisions of Section 269T, the assessee has shown reasonable cause u/s 273B and, therefore, penalty imposed u/s 271E deserves to be deleted - Decided in favor of assessee. - IT APPEAL NO. 5746 OF 2010 - - - Dated:- 12-6-2012 - J.P. Devadhar and A.R. Joshi, JJ. JUDGMENT J.P. Devadhar, J. This appeal was admitted on 13th September 2010 on the following substantial question of law :- "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that transactions effected through journal entries in the books of the assessee would not amount to repayment of any loan or deposit otherwise than by account payee cheque or account payee bank draft within the meaning of Section 269T to attract levy of penalty under Section 271E of the Income Tax Act, 1961 ?" 2. The assessment year involved herein is AY 2003-04. 3. The respondent-assessee, a Public Limited Company, is a member of the National Stock Exchange and is also a Category I Merchant Banker, registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer on the basis of the report of the Joint Parliamentary Committee of Lok Sabha and Rajya Sabha on the Stock Market Scam imposed penalty amounting to Rs. 4,28,99,325/- on the ground that the assessee had repaid the loan/inter-corporate deposit to the extent of Rs. 4,28,99,325/- in contravention of the provisions of Section 269T of the Act. 7. On appeal filed by the assessee, the Commissioner of Income Tax (Appeals) by his order dated 21st December 2006 confirmed the penalty levied upon the assessee. On further appeal filed by the assessee, the Tribunal by the impugned order dated 29th January 2008 allowed the appeal by following its decision in the case of V N Parekh Securities Private Limited and Ketan V Parekh and held that the payment through journal entries do not fall within the ambit of Section 269SS or 269T of the Act and consequently no penalty can be levied either under Section 271D or Section 271E of the Act. Challenging the aforesaid order, the Revenue has filed the present appeal. 8. Mr. Suresh Kumar, learned counsel appearing for the Revenue submitted that the assessee belongs to the Ketan Parekh Group, which is involved in the securities scam. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India and the assessee was liable to receive a sum of Rs. 4,28,99,325/- from the Investment Trust of India. Instead of repaying the amount by account payee cheque/demand draft and receiving back the amount by way of demand draft/cheque, the parties as and by way of commercial prudence have settled the account by netting off the accounts and paid the balance by account payee cheque. Relying on a decision of the Apex Court in the case of J B Boda and Company P Limited v. Central Board of Direct Taxes reported in [1997] 223 ITR 271 (S.C.), counsel for the assessee submitted that the two-way traffic of forwarding bank draft and receiving back more or less same amount by way of bank draft was unnecessary and, therefore, in the facts of the present case, no fault could be found with the repayment of loan through journal entries. 11. Mr. Pardiwala submitted that Section 269T, if plainly read, supports the contention of the Revenue that each and every loan or deposit has to be repaid only by an account payee cheque or draft. However, such literal interpretation, if accepted, would lead to absurdity because, by such interpretation not only mala fide transactions but even the genuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69T, Section 271E and Section 273B of the Act, to the extent relevant for the present case relating to AY 2003-2004 read thus :- "Mode of repayment of certain loans or deposits. 269T.- 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 loan or 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 loan or deposit if - ( a ) the amount of the loan or deposit together with the interest, if any, payable thereon, or ( b ) the aggregate amount of the loans or deposits held by such person with the branch of the banking company or cooperative bank or, as the case may be, the other company or co-operative society or the firm, or other person 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 loans or 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 loan or depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein (which includes a Company like the assessee) shall repay any deposit made with it otherwise than by an account payee cheque/bank draft drawn in the name of the person who had made the deposit, if the amount of the deposit together with the interest, if any, payable thereon, exceeds the amount specified therein. The obligation to repay the deposit by account payee cheque/bank draft for the entities specified in Section 269T would have to be construed as mandatory in view of the negative language used in the Section. Section 269T provides that none of the entities specified therein shall repay deposit otherwise than by the modes set out therein. In other words, the Section provides that irrespective of the fact that there are several modes for repaying the deposit, the entities specified in Section 269T shall repay the deposit only by the modes set out therein. The mandatory requirement of Section 269T is further fortified by Section 276E inserted along with Section 269T on 11th July 1981 which provides that if a person referred to in Section 269T of the Act repays any deposit in contravention of Section 269T then such person shall be punishable with imprisonment for a period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible modes of repayment of loan/deposit, but merely puts an embargo on repayment of loan/deposit except by the modes specified therein. Therefore, in the present case, where loan/deposit has been repaid by debiting the account through journal entries, it must be held that the assessee has contravened the provisions of Section 269T of the Act. 20. Strong reliance was placed by the counsel for the assessee on the decision of the Apex Court in the case of J B Boda Company P. Limited ( supra ). In that case, J B Boda Company P Limited carrying on business as reinsurance brokers were during the course of business required to remit the entire reinsurance premium payable to the foreign reinsurers in foreign currency and then receive commission in foreign currency from the said foreign insure Rs. Instead of remitting the entire amount to the foreign reinsurers and then receiving commission from the said foreign insurers, J B Boda Company with the approval of the Reserve Bank of India retained the foreign currency to the extent of the commission and remitted the balance amount to the foreign reinsure Rs. As deduction under Section 80-O of the Act in respect of the amount retai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that : ( a ) Under Section 269T it is mandatory for the persons specified therein to repay loan/deposit only by account payee cheque/draft if the amount of loan/deposit together with interest, if any, exceeds the limits prescribed therein; ( b ) Non-compliance of the provisions of Section 269T renders the person liable for penalty under Section 271E; and ( c ) Section 273B provides that no penalty under Section 271E shall be imposed if reasonable cause is shown by the concerned person for failure to comply with the provisions of Section 269T of the Act. 22. The argument advanced on behalf of the assessee that if Section 269T is construed literally, it would lead to absurdity cannot be accepted, because, repayment of loan/deposit by account payee cheque/bank draft is the most common mode of repaying the loan/deposit and making such common method as mandatory does not lead to any absurdity. No doubt, that in some cases genuine business constraints may necessitate repayment of loan/deposit by a mode other than the mode prescribed under Section 269T. To cater to the needs of such exigencies, the legislature has enacted Section 273B which provides that no penalty under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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