Penalties under Income Tax Act sections 271D and 271E deleted by Tribunal for business transactions.

The penalties imposed under sections 271D and 271E of the Income Tax Act on an assessee engaged in the business of development and building were deleted by the Tribunal. Transactions with family members were considered as "reasonable cause" under section 273B, leading to the conclusion that penalties should not apply. Additionally, the Tribunal directed further verification regarding transactions with non-family members to determine if they were business transactions or loans. In a separate judgment, penalties under section 271D were also subject to verification based on the nature of the transactions. The orders in favor of the assessee were pronounced on October 21, 2020.

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Issues Involved:
1. Justification of penalty under section 271D of the I.T. Act.
2. Justification of penalty under section 271E of the I.T. Act.
3. Application of section 269SS and 269T of the I.T. Act.
4. Determination of whether transactions between family members constitute "reasonable cause" under section 273B of the I.T. Act.
5. Classification of transactions as loans or business transactions.

Detailed Analysis:

1. Justification of Penalty under Section 271D of the I.T. Act:
The primary issue was whether the CIT(A) was justified in confirming the penalty imposed under section 271D of the I.T. Act. The assessee, engaged in the business of development and building, had taken loans in cash, violating section 269SS. The ITAT had previously remanded the case to the CIT(A) to determine if the penalties were time-barred and to reconsider the merits. The CIT(A) concluded that the penalties were not time-barred and upheld the penalties, rejecting the argument that transactions with family members constituted "reasonable cause" under section 273B.

2. Justification of Penalty under Section 271E of the I.T. Act:
Similarly, the issue of whether the CIT(A) was justified in confirming the penalty under section 271E for repayments made in cash was considered. The penalties were imposed for the violation of section 269T. The CIT(A) upheld these penalties as well, rejecting the argument of "reasonable cause."

3. Application of Section 269SS and 269T of the I.T. Act:
The assessee argued that the provisions of sections 269SS and 269T did not apply to transactions between family members. The Tribunal referenced several cases, including Smt. Deepika v. Addl. CIT and Shri Sanmathi Ambanna v. JCIT, where it was held that transactions between family members do not attract penalties under section 271D, considering them as "reasonable cause" under section 273B. The Tribunal concluded that transactions between the assessee and his wife, son, and daughters should not attract penalties under sections 271D and 271E.

4. Determination of Reasonable Cause under Section 273B of the I.T. Act:
The Tribunal analyzed whether the transactions between the assessee and his relatives constituted "reasonable cause" under section 273B. It was established that a majority of the transactions were with family members, and referencing various judicial pronouncements, the Tribunal held that such transactions do not attract penalties. Consequently, penalties amounting to Rs. 40,22,000 under section 271D and Rs. 14,06,761 under section 271E were deleted.

5. Classification of Transactions as Loans or Business Transactions:
For transactions with non-family members, specifically with Sri. Hiren Kumar Patel, the assessee contended these were business transactions and not loans. The Tribunal restored this matter to the A.O. for verification, instructing the A.O. to examine if the transactions were indeed business-related and not loans, as claimed by the assessee.

Separate Judgments:
In the case of Smt. Rajeshwari Pandith, the issue was whether the penalty of Rs. 2,93,900 under section 271D was justified. The Tribunal restored this issue to the A.O. to verify if the transactions were journal entries and not actual cash receipts, referencing the Delhi High Court's judgment in CIT v. Noida Toll Bridge Co. Ltd., which held that journal entries do not attract section 269SS.

Conclusion:
(i) ITA Nos. 480, 482, 487, 488, and 489/Bang/2020 (Sri. Gopal S. Pandith) were allowed.
(ii) ITA Nos. 481, 483, 484, 485, and 486/Bang/2020 (Sri. Gopal S. Pandith) were partly allowed for statistical purposes.
(iii) ITA No. 496/Bang/2020 (Smt. Rajeshwari Pandith) was allowed for statistical purposes.

Order Pronounced:
The order was pronounced on the 21st of October, 2020.

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