2018 (10) TMI 1927 - AT - Income Tax

Penalty u/s 271D/271E - genuineness of the transaction journal entries - Contravention of provisions of section 269SS as assessee failed to establish the compelling reasons or genuine business constraints or reasonable cause for having transactions in respect of each and every journal entry with its group concerns - CIT-A deleted the addition - HELD THAT - The decision of this Court in Triumph International Finance 2012 (6) TMI 358 - BOMBAY HIGH COURT has only clarified / stated the position as always existing in law the receiving of deposits / loans through journal entries would certainly be hit by Section 269SS of the Act. Nevertheless prior to the decision of this Court in Triumph International Finance (supra) there was reasonable cause for respondents to receive deposit / loan through journal entries. This noncompliance with Section 269SS of the Act would certainly be a reasonable cause under Section 273B of the Act for non-imposition of penalty under Section 271D. In the instant case the period during which the journal entries were made by the assessee was in the previous year 2011-12 relevant to the assessment year 2012-13. The decision in the case of Triumph International Finance (I) Ltd.(supra) was rendered by the Hon ble Bombay High Court on 12.06.2012. Appeal dismissed.

Summary

Issues Involved:
1. Penalty under Section 271D for contravention of Section 269SS of the Income Tax Act.
2. Penalty under Section 271E for contravention of Section 269T of the Income Tax Act.

Detailed Analysis:

Issue 1: Penalty under Section 271D for contravention of Section 269SS

The primary issue is whether the assessee violated Section 269SS by accepting loans/deposits through journal entries instead of account payee cheques/drafts, and if so, whether the penalty under Section 271D is justified.

The AO noticed that the assessee accepted loans from sister concerns via journal entries, violating Section 269SS. The total amount involved was Rs. 49,03,36,357. Despite the assessee's explanation, the AO imposed a penalty based on the Bombay High Court's ruling in Triumph International Finance (India) Ltd. and the ITAT's decision in M/s V.N. Parekh Securities v. ACIT.

The CIT(A) acknowledged the violation but referenced the ITAT's decision in Lodha Builders Pvt. Ltd. v. ACIT, which found reasonable cause for such transactions under Section 273B, thereby invalidating the penalty. The CIT(A) noted that the transactions were not intended to evade tax, leading to the deletion of the penalty.

The Tribunal upheld the CIT(A)'s decision, citing the Bombay High Court's judgment in Ajitnath Hi-Tech Builders Pvt. Ltd., which supported the view that journal entries, absent any tax evasion intent, constituted reasonable cause under Section 273B, thus negating the penalty under Section 271D.

Issue 2: Penalty under Section 271E for contravention of Section 269T

The second issue pertains to whether the assessee violated Section 269T by repaying loans/deposits through journal entries instead of account payee cheques/drafts, and if so, whether the penalty under Section 271E is justified.

The AO observed that the assessee repaid loans to sister concerns via journal entries, violating Section 269T, with the total amount being Rs. 27,32,00,000. Similar to the penalty under Section 271D, the AO imposed a penalty under Section 271E.

The CIT(A) again referred to the ITAT's decision in Lodha Builders Pvt. Ltd. and concluded that the assessee had shown reasonable cause under Section 273B, thus invalidating the penalty. The CIT(A) found no evidence that the transactions were intended to evade tax, leading to the deletion of the penalty.

The Tribunal upheld the CIT(A)'s decision, referencing the same Bombay High Court judgment in Ajitnath Hi-Tech Builders Pvt. Ltd., which supported the view that journal entries, absent any tax evasion intent, constituted reasonable cause under Section 273B, thus negating the penalty under Section 271E.

Conclusion:

The Tribunal dismissed the appeals, affirming the CIT(A)'s decisions to delete the penalties under Sections 271D and 271E. The Tribunal's decision was based on the Bombay High Court's judgment in Ajitnath Hi-Tech Builders Pvt. Ltd., which established that journal entries, when not intended for tax evasion, constitute reasonable cause under Section 273B, thereby invalidating the penalties under Sections 271D and 271E. The Tribunal pronounced the order in open court on 23/10/2018.