Appeal upheld: Penalty under Section 271E deleted due to repayment via cheque, not cash

The Appellate Tribunal ITAT Mumbai allowed the appeal of the assessee, overturning the penalty imposed under Section 271E. The Tribunal found that the repayment was made through an account payee cheque, not in cash, and deemed there was a reasonable cause for the transaction. Consequently, the penalty was deleted, and the assessee's appeal was upheld.

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Issues:
Violation of Section 269T - Repayment in cash, Penalty under Section 271E

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai arose from the order of the Commissioner of Income-tax (Appeals)-9, Mumbai regarding penalty proceedings under Section 271E of the Income-tax Act, 1961. The assessment for the year 2005-2006 was conducted by the ACIT, Circle 5(2), Mumbai, and the penalty was imposed by the Addl.CIT, Range 5(2), Mumbai. The core issue revolved around a loan transaction where the assessee-company advanced Rs. 15,00,000 to an individual in an earlier year, and during assessment proceedings, it was observed that the repayment was made through a journal entry debiting the loan account of one director and crediting the advance account of another individual. The Assessing Officer alleged a violation of Section 269T due to the repayment being received in cash, leading to the initiation of penalty proceedings under Section 271E.

During the proceedings, the assessee provided detailed explanations and evidence to support that the advance payment was made for a business deal in a previous year and was subsequently returned through an account payee cheque to one of the directors of the company, who then returned it to the assessee through a journal voucher entry. Both the Revenue and the assessee did not dispute the facts regarding the repayment through the account payee cheque. The Addl.CIT imposed the penalty based on the view that the repayment should be treated as a cash loan repayment due to the journal entry made by the director. This decision was upheld by the CIT(A) on similar grounds.

Upon thorough consideration of the facts, the Appellate Tribunal found that the repayment was indeed made through an account payee cheque, albeit in the name of a director, and concluded that there was a reasonable cause for the transaction. The Tribunal determined that there was no violation of Section 269T as the payment method was through a cheque and not in cash. Consequently, the penalty imposed under Section 271E was deemed to be without a valid basis, leading to the deletion of the penalty and the allowance of the assessee's appeal.

In the final judgment, the Appellate Tribunal ITAT Mumbai allowed the appeal of the assessee, thereby overturning the penalty imposed under Section 271E. The decision was pronounced on the 4th day of October 2016.

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