2012 (11) TMI 747 - AT - Income Tax

Revenue's Appeals Dismissed: Penalties Cancelled under IT Act Sections; CIT(A) Ruling Upheld

The appeals by the revenue challenging the cancellation of penalties under sections 271D and 271E of the IT Act for the assessment year 2004-05 were ... Penalty u/s 271D and 271E of the IT Act – alleged that as per details in the tax audit report, the assessee had accepted the loans and repaid the loans otherwise than by a crossed cheques or demand draft, contravening the provisions of Section 269SS and 269T of the IT Act - assessee submitted that all the receipts are through account payee cheques and adjustment rectification entries and later on journal entries have been passed – Held that:- Assessee furnished complete details of the transactions with the sister concern before the authorities below and explained that either the payments are made through account payee cheques or these are rectification journal entries in respect of wrong payments received from customers which pertained to the sister concern - assessee also filed complete entries of the accounts of both the concerns in support of the contentions on which remand report was called for and virtually the AO accepted the claim of the assessee in the remand report regarding journal entries between sister concern and entries of purchases and sales through account payee transactions - penalty is not leviable in the matter – in favor of assessee Issues:Challenging cancellation of penalty u/s 271D and 271E of the IT Act for assessment year 2004-05.Analysis:The appeals by the revenue were directed against the cancellation of penalties under sections 271D and 271E of the IT Act for the assessment year 2004-05. The AO had noted that the assessee accepted loans and repaid them without crossed cheques or demand drafts, allegedly violating Sections 269SS and 269T of the IT Act. The assessee contended that the transactions were not loans but adjustments in current accounts of sister concerns, including rectification entries. The AO imposed penalties for the alleged violations. The CIT(A) called for a remand report, where the AO confirmed the transactions but noted incomplete supporting evidence. The assessee cited precedents to argue against penalties, leading the CIT(A) to delete the penalties based on verified entries and explanations.The AO's penalty imposition was based on the alleged violations of Sections 269SS and 269T due to loan transactions without crossed cheques or demand drafts. The assessee explained the transactions as adjustments in current accounts of sister concerns, supported by entries and explanations. The CIT(A) considered the remand report confirming the transactions but lacking complete supporting evidence. Relying on precedents, the CIT(A) deleted the penalties due to the nature of the transactions and the absence of violations.The appellant argued that the transactions were rectification entries related to wrong payments received by the appellant from sister concerns, not loan transactions violating the law. The AO's contention of incomplete supporting bills was countered by the appellant, citing reasons for discrepancies in dates and amounts. The CIT(A) agreed with the appellant, emphasizing that the transactions did not breach Sections 269SS and 269T, as they were rectification entries between sister concerns. The penalties were deleted based on the explanations and verified entries provided by the assessee.The revenue's appeals were dismissed as the assessee demonstrated that the transactions were not loan-related but adjustments between sister concerns, supported by detailed entries and explanations. The CIT(A) correctly concluded that penalties were unwarranted, considering the nature of the transactions and the absence of violations of Sections 269SS and 269T. The penalties were deleted, affirming the decision of the CIT(A) and dismissing the revenue's appeals.