2015 (5) TMI 470 - AT - Income Tax

Tribunal Cancels Income Tax Penalties for Journal Entry Transactions

The Tribunal allowed the assessee's appeals, deleting penalties under Sections 271D and 271E of the Income Tax Act. Transactions conducted through journal ... Penalty levied under section 271D & 271E - Repayment of loan by any other mode except by way of account payee cheque/draft - transfer of amount by way of Journal entries. - Held that:- In the case in hand, the transactions were carried out between the director of the assessee company and the company itself. All the loans were originally received by the assessee company through account payee cheque but due to the reasons explained by the assessee, some amounts were transferred to the account of Mr. R.R. Chaturvedi, which were passed on to the assessee’s account by way of journal entries. It is not the case of the Revenue that the impugned transactions constitute unaccounted money or that the same were not bonafide or not genuine. The lower authorities have not controverted the explanations given by the assessee. The Revenue has not suffered any loss and there was no attempt of any money laundering or evasion of tax or concealment of income. Respectfully following the finding of the Tribunal given in almost similar circumstances in Lodha Builders Pvt. Ltd. vs. ACIT [2014 (8) TMI 872 - ITAT MUMBAI], we hold that in the case in hand, the explanation put forth by the assessee-company, falls within the scope of phrase 'reasonable cause' as provided under Section 273B of the Income Tax Act, 1961. So, in view of our observations made above, the penalty imposed upon the assessee by the AO and further confirmed by the CIT(A) is hereby ordered to be deleted. - Decided in favour of assessee. Issues Involved:1. Penalty levied under Section 271D of the Income Tax Act for violation of Section 269SS.2. Penalty levied under Section 271E of the Income Tax Act for violation of Section 269T.Detailed Analysis:Penalty under Section 271D for Violation of Section 269SS:Facts:The assessee, a developer and builder, was penalized by the Assessing Officer (AO) for accepting loans other than by way of account payee cheques or drafts, violating Section 269SS of the Income Tax Act. The AO imposed a penalty of Rs. 15,23,37,169 under Section 271D.Assessee's Argument:The assessee argued that the loans were accepted by way of adjustments through journal entries due to valid reasons. They provided evidence that the loans were originally received by account payee cheques and later transferred through journal entries. They also submitted a rectified certificate from the auditor, correcting an earlier mistake in the tax audit report.CIT(A) Decision:The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, relying on the Bombay High Court's decision in 'M/s. Triumph International Finance (I) Ltd.' CIT(A) held that the repayment of loans by any mode other than account payee cheque/draft attracts penalty unless reasonable cause is shown.Tribunal's Decision:The Tribunal noted that Section 273B provides that no penalty shall be imposed if the assessee shows reasonable cause for the failure. The Tribunal referred to several precedents, including 'Lodha Builders Pvt. Ltd. vs. ACIT,' which held that journal entries for genuine transactions constitute reasonable cause under Section 273B. The Tribunal found that the transactions were bona fide, genuine, and did not involve unaccounted money. Therefore, the penalty under Section 271D was not sustainable and was ordered to be deleted.Penalty under Section 271E for Violation of Section 269T:Facts:The AO imposed a penalty for the repayment of loans other than by way of account payee cheques or drafts, violating Section 269T. The assessee provided similar explanations for these transactions as for those under Section 271D.Assessee's Argument:The assessee detailed the transactions with Mr. R.R. Chaturvedi and Mrs. Veena Chaturvedi, explaining that the repayments were made through journal entries due to operational needs. They also provided evidence that the loans were originally received by account payee cheques and that only a small amount was repaid in cash due to specific circumstances, such as the need to pay stamp duty in a remote area lacking banking facilities.Tribunal's Decision:The Tribunal found that the assessee had adequately explained the necessity for the journal entries and that the transactions were genuine. There was no evidence of malafide intent, money laundering, tax evasion, or income concealment. The Tribunal, following the precedent set in 'Lodha Builders Pvt. Ltd.,' held that the penalty under Section 271E was also not sustainable and ordered it to be deleted.Conclusion:Both appeals by the assessee were allowed, and the penalties under Sections 271D and 271E were deleted. The Tribunal emphasized that genuine transactions carried out through journal entries, which do not involve unaccounted money or malafide intent, constitute reasonable cause under Section 273B, thereby exempting the assessee from penalties under Sections 271D and 271E.