2011 (9) TMI 189 - HC - Income Tax

Penalty levied under sections 271D/271E r/w sections 269SS and 269T - Genuineness of transaction - The transactions recorded were genuine and in fact the declaration made by the assessee have been accepted without making any additions in the block assessment order - Held that - While upholding the constitutional validity of sections 269(SS) the Apex Court in the case of Asst. Director of Inspection (Investigation) vs. Kumari A.B. Shanti (2002 -TMI - 6077 - SUPREME Court) has held that the main object of section 269(SS) was to curb the menace of making false entries in the books and later on give explanation for the same. - Moreover s.273B of the Income Tax Act 1961 provides that if there is a genuine and bonafide transaction then the Assessing Officer is vested with a discretionary power not to impose penalty - Therefore the decision of the ITAT in holding that the Assessee has shown reasonable cause for not complying with the provisions of s.267SS and 269T cannot be faulted.

Summary

Issues:
- Justification of deleting penalty under sections 271D/271E r/w sections 269SS and 269T of the Income Tax Act, 1961.
- Assessment Years involved: A.Y. 1996-1997 to 2002-2002.
- Validity of penalty imposed by Assessing Officer.
- CIT(A)'s direction to compute penalty only on the amount exceeding Rs.20,000.
- Decision of ITAT on appeals filed by both Assessee and Revenue.
- ITAT's reliance on Rajasthan High Court's decision.
- Finality of ITAT's decision.
- ITAT's cancellation of penalties and allowance of Assessee's appeals.
- Grounds for deletion of penalty by ITAT.
- Constitutional validity of sections 269SS and 269T.
- Apex Court's decision on the main object of section 269(SS).
- ITAT's finding on genuine transactions and discretionary power of Assessing Officer.
- Conclusion of the judgment.

Analysis:

The High Court of Bombay addressed the issue of whether the ITAT was justified in deleting the penalty levied under sections 271D/271E r/w sections 269SS and 269T of the Income Tax Act, 1961. The Assessment Years in question were A.Y. 1996-1997 to 2002-2002. The Assessee, engaged in money lending, had faced penalty proceedings initiated by the Assessing Officer for violating the provisions of Sections 271D and 271E of the Act by accepting and repaying loans in cash exceeding Rs.20,000. The CIT(A) upheld the penalty but directed the penalty computation only on amounts exceeding Rs.20,000. Both Assessee and Revenue appealed to the ITAT.

The ITAT upheld the CIT(A)'s decision on quantifying the penalty above Rs.20,000, citing the Rajasthan High Court's decision. The Revenue's appeals against ITAT's order were dismissed, establishing finality. Subsequently, the ITAT cancelled the penalties imposed on the Assessee, leading to the Revenue filing further appeals. The Revenue contended that violations of sections 271D and 271E justified penalty imposition once exceeding Rs.20,000 was proven.

However, the ITAT justified penalty deletion based on various grounds: the Assessee's limited education level, reasonable cause for cash transactions with agriculturists, lack of professional management or advice, and genuine nature of transactions post-enquiry. The ITAT deemed technical violations of sections 269SS and 269T due to genuine transactions, supported by the Apex Court's stance on curbing false entries.

The Apex Court's decision emphasized the main objective of section 269(SS) to prevent false entries. In this case, the ITAT found transactions genuine, accepted without additions in block assessment. Section 273B allowed discretionary power for penalty imposition avoidance in genuine transactions. Consequently, the ITAT's decision to delete the penalty was upheld, and all appeals were dismissed.

In conclusion, the High Court found no merit in the appeals and dismissed them accordingly.