2002 (7) TMI 749 - AT - Income Tax

Penalties under IT Act sections 271D & 269T cancelled for non-transfer of funds; no intentional violation found.

The Appellate Tribunal ITAT Lucknow dismissed the Revenue's appeal and upheld the decision of the ld. CIT(A) to delete penalties imposed under sections ... Penalty for violation of section 269SS/269T - Requirement of actual receipt/introduction of money for contravention - Transfer entries in books distinct from deposit/receipt of cash - Reasonable cause and bona fide belief as defence to penalty - Imposition of penalty under section 271D/271EPenalty for violation of section 269SS/269T - Transfer entries in books distinct from deposit/receipt of cash - Whether the transactions recorded as transfer entries in the assessee's books amounted to receipt/introduction of money in contravention of sections 269SS/269T so as to sustain the penalties imposed. - HELD THAT: - The Tribunal accepted the finding that the entries in question were transfer entries in the books and did not involve any actual receipt or introduction of cash or money in any form. Relying on circulars of the CBDT and precedents of ITAT Benches, the Tribunal held that contravention of the provisions requires involvement of transfer of money (actual receipt/deposit) and cannot be established merely by book entries characterized as transfers. Since there was no deposit or receipt in the prescribed mode, the contention of violation of sections 269SS/269T could not be upheld on the materials before the assessing authority and CIT(A). [Paras 3, 4]Penalties founded on an alleged breach of sections 269SS/269T could not be sustained because the entries were transfer entries and there was no actual receipt/deposit of money.Reasonable cause and bona fide belief as defence to penalty - Imposition of penalty under section 271D/271E - Whether, even if there were a technical breach, penalty under the relevant penal provision could be sustained in the absence of knowledge or deliberate defiance by the assessee. - HELD THAT: - The Tribunal agreed with the CIT(A)'s conclusion that the assessee acted under a bona fide belief that sections 269SS and 269T were not attracted to the transfer entries and therefore had reasonable cause. The Tribunal further observed that, even assuming a contravention, the penalty could not be maintained where there was no material to show that the assessee knowingly or deliberately violated the provisions. Applying the cited circulars and judicial decisions, the Tribunal concluded that cancellation of the penalty by the CIT(A) was justified. [Paras 3, 4]Penalty was rightly deleted since the assessee had a bona fide belief and reasonable cause, and there was no evidence of knowing or deliberate contravention to justify imposition of penalty.Final Conclusion: The Revenue's appeal is dismissed and the CIT(A)'s deletion of the penalties is upheld: the entries were transfer entries not involving receipt/deposit of money and, in any event, the assessee had reasonable cause and bona fide belief so as to negate imposition of the penalty for Assessment Year 1992-93. Issues involved: Violation of sections 269SS and 269T regarding credit entries without account payee cheques or bank drafts, imposition of penalties under sections 271D and 269T, deletion of penalties by CIT(A), appeal by Revenue and Cross Objection by assessee.Summary:The Appellate Tribunal ITAT Lucknow, in the case involving violations of sections 269SS and 269T due to credit entries without account payee cheques or bank drafts, addressed the appeal of the Revenue and the Cross Objection of the assessee arising from the order of the ld. CIT(A)-II, Kanpur, dated 12-9-1994. During the assessment proceedings, it was found that there were credit entries on 31-3-1992, not through account payee cheques or bank drafts, amounting to Rs. 79,11,204. The Assessing Officer imposed penalties under sections 271D and 269T, which were later deleted by the ld. CIT(A) for the assessment year 1992-93. The Tribunal considered the contention that for a violation of section 269SS, there must be an involvement of transfer of money, which was not the case here. The Tribunal agreed with the decision of other benches and held that since there was no deposit as per the prescribed mode under section 269SS, the violation of provisions could not be accepted. It was also noted that there was no evidence to show that the violation was done knowingly or in defiance of the provisions. Therefore, the imposition of penalties was cancelled by the ld. CIT(A), a decision upheld by the Tribunal, resulting in the dismissal of the Revenue's appeal and the disposal of the assessee's Cross Objection accordingly.