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2025 (5) TMI 448 - HC - Income TaxPenalty u/s 271E - contravention of the Section 269T - bona fide within the meaning of Section 273B or not? - whether the reasonable cause shown by the petitioner for having repaid the loan in cash on instruction of the lender to arrest escalation of the interest on loan for want of liquidation whether it can be held to be bona fide quo Section 273B? - HELD THAT - Section 269T 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. Thus the negative language used in Section 269T as also the penal consequences provided in Section 271E for non-compliance of the procedure prescribed u/s 269T leave no manner of doubt that repayment of deposit in the manner prescribed u/s 269T is mandatory. Thus it is mandatory u/s 269T of the Act for the persons specified therein to repay any loan/deposit together with interest if any exceeding the limits prescribed therein by account payee cheque/ bank draft. The word reasonable cause has not been defined in the Act of 1961. Therefore in the context of the penalty provisions the words reasonable cause would mean a cause which is beyond the control of the assessee. Reasonable cause obviously means a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances without negligence or inaction or want of bona fides. In the instant case the assessing authority while completing the assessment of return of income came to the conclusion that the assessee made repayment of loan to M/s. Tata Finance Corporation for the assessment year 2015-16 in cash and proceeded to levy penalty u/s 271E of the Act straightway without noticing the provisions contained in Section 273B of the Act. There is no finding by the assessing authority or the two appellate authorities that the transaction made by the assessee in breach of the provisions contained in Section 269T of the Act was not a genuine transaction. As stated earlier all the three authorities viz. the AO CIT (Appeals) and the ITAT have proceeded on the basis that breach of provisions contained in Section 269SS of the Act shall lead automatically to penal provisions contained in Section 271E of the Act and completely ignored the provisions contained in Section 273B of the Act which requires that on proof of reasonable cause the penalty imposable u/s 271E (1) would not be imposable and further ignored the fact that the imposition of penalty merely on technical mistake committed by the assessee which has not resulted in any loss of revenue would not be sustainable. the cause shown by the assessee that on the insistence of M/s. Tata Finance Corporation to pay the amount of loan in cash vide its letter dated 5-11-2012 would constitute a reasonable cause within the meaning of Section 273B of the Act and also in light of the decision of Kum. A.B. Shanthi s case 2002 (5) TMI 4 - SUPREME COURT reasonable cause has been shown by the assessee for non-compliance with the provisions contained in Section 269T of the Act and the transaction is genuine and bona fide which is not disputed by all the three authorities however all the three authorities ignored the provision contained in Section 273B of the Act and proceeded to levy penalty u/s 271E of the Act rendering the provision contained in Section 273B of the Act otiose as the provision contained in 271E of the Act for imposition of penalty for non-compliance of Section 269T of the Act is subject to Section 273B of the Act. The order imposing penalty passed by the Assessing Officer affirmed by the first appellate authority and further affirmed by the second appellate authority are liable to be and are hereby set aside/ quashed and it is held that since the appellant has shown the reasonable cause within the meaning of Section 273B - Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The Court considered the following core legal questions: (a) Whether the penalty imposed under Section 271E of the Income Tax Act, 1961 (the Act) for alleged contravention of Section 269T of the Act was erroneous, illegal, and uncalled for. (b) Whether the reasonable cause shown by the assessee, specifically repayment of loan in cash on the instruction of the lender to prevent escalation of interest, qualifies as bona fide within the meaning of Section 273B of the Act, thereby exempting the assessee from penalty under Section 271E. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of penalty under Section 271E for non-compliance with Section 269T Relevant Legal Framework and Precedents: Section 269T mandates that repayment of certain loans or deposits exceeding Rs. 20,000 must be made by account payee cheque, bank draft, or electronic mode. Section 271E prescribes a penalty equal to the amount repaid if repayment contravenes Section 269T. Section 271E is a penal provision and must be construed strictly. The Supreme Court in Hindustan Steel Ltd. v. State of Orissa emphasized that penalty imposition is quasi-criminal and should not be imposed unless there is deliberate or contumacious conduct or conscious disregard of statutory obligation. Court's Interpretation and Reasoning: The Court observed that the language of Section 269T is mandatory and negative, requiring repayment only by specified modes. Non-compliance triggers penalty under Section 271E. However, the Court stressed that penalty is discretionary and must be imposed judicially, considering all relevant facts and circumstances. Key Evidence and Findings: The assessing authority accepted the genuineness of the loan repayment transaction, which was reflected in the assessee's books of account. The return of income was accepted under Section 143(3). None of the authorities found the transaction to be mala fide or aimed at tax evasion. Application of Law to Facts: Despite acceptance of the transaction's genuineness, the Assessing Officer imposed penalty under Section 271E solely on the ground of technical non-compliance with Section 269T. The appellate authorities affirmed this without applying judicial discretion or considering exceptions under Section 273B. Treatment of Competing Arguments: The Revenue contended that non-compliance with Section 269T automatically attracts penalty under Section 271E. The assessee argued that the penalty was imposed mechanically and that reasonable cause existed to exempt penalty under Section 273B. The Court sided with the assessee, emphasizing the need for judicial discretion and consideration of reasonable cause. Conclusions: The Court held that while Section 269T's compliance is mandatory, penalty under Section 271E is discretionary and must be imposed only after considering reasonable cause and bona fide nature of the transaction. Issue 2: Applicability of Section 273B exemption for reasonable cause Relevant Legal Framework and Precedents: Section 273B exempts imposition of penalty under various provisions including Section 271E if the assessee proves reasonable cause for failure. The Supreme Court in Assistant Director of Inspection v. Kum. A.B. Shanthi upheld the constitutional validity of similar provisions and held that reasonable cause exempts penalty. The Delhi High Court in Azadi Bachao Andolan defined "reasonable cause" as a cause that would constrain a person of average intelligence and ordinary prudence, acting without negligence or mala fide. Court's Interpretation and Reasoning: The Court reiterated that "reasonable cause" is not defined in the Act but means a cause beyond the control of the assessee, involving bona fide belief and genuineness of the transaction. The Court noted that bona fide belief coupled with genuine transactions constitutes reasonable cause. The Court emphasized that penalty should not be imposed merely for technical or venial breaches without resulting loss of revenue. Key Evidence and Findings: The assessee produced a letter from the lender (M/s Tata Finance Corporation) instructing repayment in cash to arrest escalation of interest. This letter was accepted by the Assessing Officer during assessment proceedings. The transaction was reflected in the books of account and accepted as genuine by all authorities. No finding of mala fide intent or tax evasion was recorded. Application of Law to Facts: The Court held that the assessee's compliance failure was due to lender's insistence and was bona fide. This constituted reasonable cause within the meaning of Section 273B. The authorities erred in ignoring Section 273B and imposing penalty mechanically. Treatment of Competing Arguments: The Revenue's argument that penalty is automatic on breach of Section 269T was rejected. The Court held that Section 273B provides an exception which must be considered before imposing penalty under Section 271E. Conclusions: The Court concluded that the assessee demonstrated reasonable cause for non-compliance with Section 269T and thus was not liable to penalty under Section 271E. 3. SIGNIFICANT HOLDINGS The Court held: "The assessing authority... proceeded to levy penalty under Section 271E of the Act straightway without noticing the provisions contained in Section 273B of the Act." "The word 'reasonable cause' obviously means a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides." "Bona fide belief coupled with the genuineness of the transactions would constitute a reasonable cause." "The cause shown by the assessee that on the insistence of M/s. Tata Finance Corporation to pay the amount of loan in cash... would constitute a reasonable cause within the meaning of Section 273B of the Act." "All the three authorities... ignored the provision contained in Section 273B of the Act and proceeded to levy penalty under Section 271E of the Act rendering the provision contained in Section 273B of the Act otiose." "Since the appellant has shown the reasonable cause within the meaning of Section 273B of the Act, the appellant is not liable to pay penalty under Section 271E of the Act for non-compliance of Section 269T of the Act." Core principles established include:
Final determinations: The penalty imposed under Section 271E for non-compliance with Section 269T was quashed as the assessee demonstrated reasonable cause under Section 273B. The appeal was allowed in favor of the assessee, and the substantial questions of law were answered against the Revenue.
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