2018 (5) TMI 1745 - AT - Income Tax

Penalty imposed u/s.271D - violation of the provisions of Section 269SS/269T - Held that - From the record we found that AO has levied penalty u/s.271D for accepting loan by way of Journal entries. The Assessing Officer had placed reliance on the judgment of the Hon ble jurisdictional High Court in the case of CIT v. Triumph International Finance (I) Ltd. (2012 (6) TMI 358 - BOMBAY HIGH COURT). It is not disputed that in this judgment it was held that there was violation of the provisions of S. 269T of the Act in a case where the loan was repaid by way of a journal entry entailing levy of penalty u/s. 271E. However at the same time it was also held that levy of penalty could be avoided on showing reasonable cause. In the premises levy of penalty u/ss. 271D of the Act is not automatic but the genuineness or otherwise of the reasons due to which repayment was made by journal entry has to be considered judiciously. Hon ble jurisdictions High Court in their judgment and order dated 06.02.2018 in the case of CIT v. Ajinath Hi-Tech Builders Pvt Ltd. and others 2018 (2) TMI 603 - BOMBAY HIGH COURT as also held that prior to the judgment in CIT v. Triumph International Finance (I) Ltd. there were series of orders on this point holding that journal entry would not fall foul of S. 269SS of the Act. Since the judgment in CIT v. Triumph International Finance (I) Ltd. was rendered on 12.06.2012 it was held that the assessee could have had a bonafide belief prior to that date that there was no violation of S. 269SS of the Act in accepting loan by journal entry. - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of Penalty under Section 271D for contravention of Section 269SS of the Income Tax Act.
2. Genuineness of transactions made through journal entries.
3. Reasonable cause for the contravention of Section 269SS.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271D for contravention of Section 269SS:
The Revenue appealed against the CIT(A)'s order which deleted the penalty of Rs. 2,18,00,667/- imposed under Section 271D of the Income Tax Act for the assessment year 2009-10. The Revenue contended that the CIT(A) erred in deleting the penalty despite the assessee's contravention of Section 269SS by accepting loans/deposits through journal entries, which were not made via account payee cheque or bank draft.

2. Genuineness of Transactions Made Through Journal Entries:
The CIT(A) observed that the transactions recorded through journal entries were genuine and made for commercial reasons such as assigning receivables, reimbursement of expenses, and operational efficiency. The CIT(A) noted that there was no evidence suggesting that these transactions involved unaccounted income or were undertaken to evade tax. The CIT(A) relied on the Bombay High Court's decision in the case of Triumph International Finance (I) Ltd., which held that journal entries for settling liabilities do not necessarily violate Section 269SS if they are genuine and undertaken in the ordinary course of business.

3. Reasonable Cause for the Contravention of Section 269SS:
The CIT(A) found that the assessee had reasonable cause for the contravention of Section 269SS. The assessee believed, based on various judicial decisions, that transactions through journal entries did not violate Section 269SS. The CIT(A) also noted that the decision of the Bombay High Court in Triumph International Finance (I) Ltd. was rendered after the financial year in question, which supported the assessee's belief that journal entries were permissible. The CIT(A) concluded that the transactions were undertaken for legitimate commercial reasons and not to evade tax, thus constituting reasonable cause under Section 273B of the Act.

Conclusion:
The ITAT upheld the CIT(A)'s decision to delete the penalty imposed under Section 271D, except for a minor amount of Rs. 5000/- which was taken in cash, thereby contravening Section 269SS. The ITAT agreed with the CIT(A) that the transactions made through journal entries were genuine and undertaken for commercial reasons. The ITAT also acknowledged that the assessee had reasonable cause for the contravention, as the belief that journal entries did not violate Section 269SS was supported by judicial precedents existing before the relevant High Court decision. Consequently, the appeal of the Revenue was dismissed.