Disallowance under Section 40(a)(ia) upheld, penalty under Section 271E deleted. Money held not a loan/deposit.

The appeals regarding disallowance under Section 40(a)(ia) of the Income Tax Act were dismissed as the amendment giving relief to the payer was not applicable for the assessment year in question. However, the appeal regarding the penalty under Section 271E was allowed, and the penalty was deleted. The Tribunal found that the money involved was not unaccounted for and was kept for safe custody during family disputes, thus not falling under the definition of loan or deposit as per Section 269T.

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Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act.
2. Levy of penalty under Section 271E of the Income Tax Act.

Detailed Analysis:

Issue 1: Disallowance under Section 40(a)(ia) of the Income Tax Act
The common issue in I.T.A. Nos. 192 & 193/Coch/2014 was whether the CIT(A) erred in confirming the disallowance made under Section 40(a)(ia) without considering the amendment to the section. The Jurisdictional High Court in the case of Prudential Logistics and Transports vs. ITO had observed that the mandate to deduct tax at source is not strict if the payee has paid the tax in accordance with Section 201(1) and its proviso. However, this claim was not made by the assessee before the Assessing Officer. The amounts were initially reflected as loans and later explained as freight charges. The amendment giving relief to the payer is effective from 1.4.2013 and not applicable for the assessment year in question (2007-08). Thus, the disallowance was upheld, and the appeals were dismissed.

Issue 2: Levy of Penalty under Section 271E of the Income Tax Act
In I.T.A. No. 191/Coch/2014, the issue was the levy of penalty under Section 271E for the violation of Section 269T regarding the repayment of deposits in cash. The assessee firm, dealing in raw rubber sheets, had deposited Rs. 1,69,20,000 in three different bank accounts and repaid the same in cash, which attracted the penalty.

The Assessing Officer found that the amount was shown as a loan from Shri K.A. Thomas in the books, although it was claimed to be money given for resolving family disputes. The repayments were made through bearer cheques, some drawn in the name of K.A. Thomas and others in the name of third parties, which were not account payee cheques. The CIT(A) confirmed the penalty, and the assessee appealed.

The assessee argued that the amount was not a loan or deposit but was kept for safe custody to avoid court attachment during family disputes. The money was not used for business purposes and was returned to Thomas after the disputes were settled. The assessee relied on several case laws to support the contention that no penalty should be levied for such technical defaults.

The Tribunal observed that the money was not utilized in the business and was kept in fixed deposits. The explanation offered by the assessee was found to be bona fide and reasonable. The Tribunal noted that the provisions of Section 269T were introduced to prevent unaccounted money transactions, and in this case, the money was accounted for and not used in business. The Tribunal held that the penalty provisions could not be applied as there was no unaccounted money involved. The Tribunal also noted that the amount received was for temporary custody and did not fall under the definition of loan or deposit as per Section 269T. The Tribunal concluded that there was a reasonable cause for the transactions, and no penalty was leviable under Section 271E. The appeal was allowed, and the penalty was deleted.

Conclusion:
- The appeals regarding disallowance under Section 40(a)(ia) were dismissed.
- The appeal regarding the penalty under Section 271E was allowed, and the penalty was deleted.

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