2018 (9) TMI 2159 - AT - Income Tax

Penalty under Section 271E quashed for cash repayment of hire purchase installments due to reasonable cause under Section 273B

Milind Kumar Rana Versus JCIT, Range-II, Raipur

ITAT Raipur allowed the assessee's appeal against penalty u/s 271E imposed for cash repayment of hire purchase installments to NBFCs. The tribunal held ... Penalty u/s 271E - repayment of hire purchase installments in cash to various non-banking financial companies (NBFCs) - As there was ‘reasonable cause’ u/s 273B to repay in cash and the assessee having a ‘bona fide belief’ that such payments would not come within the mischief of sec.269T. HELD THAT:- The payees are identifiable persons and the genuineness of the payment is not disputed by the AO. There was a bona-fide belief on the part of the assessee that the repayment of hire purchase installment would not come within the mischief of section 269T. There is no allegation by the Revenue Authorities that such payments were made to the above persons with a view to evade tax. Since the genuineness of the payments are not doubted and there is no allegation by the Revenue that such payments were made with a view to evade tax and considering the facts that in the scrutiny assessments and reassessment proceedings in the preceding years, no penalty proceedings were initiated u/s 271E, therefore, we are of the considered opinion that there was a bona-fide belief on the part of the assessee for making such payments in cash. We, therefore, hold that the penalty levied by the Assessing Officer and sustained by the ld. CIT(A) in the instant case is not justified. Appeal filed by the assessee is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this appeal are:Whether the repayment of hire purchase installments in cash by the assessee to various non-banking financial companies (NBFCs) contravenes the provisions of section 269T of the Income Tax Act, 1961;Whether penalty under section 271E is rightly levied for such cash repayments exceeding Rs. 20,000/-;Whether the assessee had a 'reasonable cause' under section 273B to justify repayment of such hire purchase installments in cash;Whether the assessee had a bona fide belief that such payments would not attract the provisions of section 269T and consequently the penalty under section 271E;The applicability of judicial precedents regarding the imposition or deletion of penalty under section 271E in cases involving cash payments to identifiable persons without tax evasion intent.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Violation of Section 269T by Repayment of Hire Purchase Installments in CashRelevant Legal Framework and Precedents: Section 269T prohibits repayment of any loan or deposit in cash exceeding Rs. 20,000/- to prevent tax evasion through unaccounted cash transactions. Section 271E prescribes penalty for contravention of section 269T. The section does not distinguish between types of loans or payees, except for specified entities exempted under provisos.Court's Interpretation and Reasoning: The Tribunal noted the Assessing Officer's observation that the assessee repaid hire purchase installments aggregating Rs. 17,31,408/- in cash to various NBFCs, each payment exceeding Rs. 20,000/-, thereby violating section 269T. The CIT(A) upheld this view, emphasizing that section 269T does not differentiate cash payments made to hire purchase companies from other persons and that the payees were not exempted entities under the proviso.Key Evidence and Findings: Ledger accounts and payment details showed cash repayments to five different financial companies. The payments were in excess of Rs. 20,000/- each. No exemption under section 269T's provisos applied.Application of Law to Facts: The Tribunal agreed that the literal provisions of section 269T were contravened by the assessee's cash repayments exceeding the prescribed limit.Treatment of Competing Arguments: The Revenue relied on the strict statutory mandate of section 269T and the absence of any exemption. The assessee contended that these were hire purchase installments, not loans or deposits, and thus not covered. The Tribunal rejected this distinction, aligning with the literal statutory interpretation.Conclusion: The repayment of hire purchase installments in cash violated section 269T.Issue 2: Levy of Penalty under Section 271E for Violation of Section 269TRelevant Legal Framework and Precedents: Section 271E imposes penalty equal to the amount involved in the transaction where section 269T is contravened, unless the assessee proves reasonable cause under section 273B. Judicial precedents emphasize the need to consider bona fide belief and reasonable cause before imposing penalty.Court's Interpretation and Reasoning: The Assessing Officer levied penalty of Rs. 17,31,408/- under section 271E. The CIT(A) sustained the penalty, holding that the violation was clear and no exemption applied. However, the Tribunal analyzed whether the assessee had reasonable cause under section 273B and bona fide belief to justify the cash payments.Key Evidence and Findings: The assessee demonstrated that similar cash payments were made in earlier years (2008-09 to 2010-11) during scrutiny assessments and reassessments without initiation of penalty proceedings under section 271E. The payees were identifiable NBFCs, and the genuineness of payments was not disputed. The assessee also showed that after receiving notice, payments were made by cheque.Application of Law to Facts: The Tribunal held that the absence of penalty proceedings in earlier years despite similar transactions indicated a bona fide belief on the part of the assessee that such payments did not attract section 269T. The genuineness of transactions and absence of any allegation of tax evasion further supported the existence of reasonable cause under section 273B.Treatment of Competing Arguments: The Revenue argued that violation of section 269T automatically attracted penalty under section 271E. The assessee contended that the bona fide belief and past conduct established reasonable cause. The Tribunal gave weight to the assessee's bona fide belief and past acceptance by the Revenue, overruling the strict application of penalty.Conclusion: The Tribunal concluded that the penalty under section 271E was not justified in the facts and circumstances of the case due to reasonable cause and bona fide belief under section 273B.Issue 3: Applicability of Judicial Precedents Regarding Penalty under Section 271ERelevant Legal Framework and Precedents: The assessee relied on a decision of the Bilaspur Bench of the Tribunal in ACIT vs. M/s GDR Education Society, which held that technicalities of law should not be applied routinely when the source of payment is established, the payee is identifiable, and there is no attempt to camouflage or siphon off funds.Court's Interpretation and Reasoning: The Tribunal found merit in this precedent and other cited decisions, which support deletion of penalty under section 271E where bona fide transactions are involved without tax evasion intent.Key Evidence and Findings: The genuineness of payments and identifiable payees were not disputed. There was no allegation or evidence of tax evasion or concealment.Application of Law to Facts: The Tribunal applied these principles, emphasizing the need to consider bona fide belief and reasonable cause before imposing penalty under section 271E.Treatment of Competing Arguments: The Revenue's strict interpretation was balanced against the principle that penalty provisions are to be applied judiciously and not mechanically.Conclusion: The Tribunal aligned with the precedents favoring deletion of penalty in bona fide cases without evasion.3. SIGNIFICANT HOLDINGSThe Tribunal held that:'There was a bona-fide belief on the part of the assessee that the repayment of hire purchase installment would not come within the mischief of section 269T of the I.T. Act. There is no allegation by the Revenue Authorities that such payments were made to the above persons with a view to evade tax. Since the genuineness of the payments are not doubted and there is no allegation by the Revenue that such payments were made with a view to evade tax and considering the facts that in the scrutiny assessments and reassessment proceedings in the preceding years, no penalty proceedings were initiated u/s 271E, therefore, we are of the considered opinion that there was a bona-fide belief on the part of the assessee for making such payments in cash.'Core principles established include:Section 269T prohibits cash repayments exceeding Rs. 20,000/- but does not differentiate between types of loans or payees unless exempted.Penalty under section 271E is leviable for contravention of section 269T unless the assessee proves reasonable cause under section 273B.Bona fide belief and past acceptance of similar transactions without penalty can constitute reasonable cause.Penalty provisions should not be applied mechanically or routinely where genuineness and absence of tax evasion are established.Final determination on each issue was that while the cash repayments violated section 269T, the penalty under section 271E was not justified due to the assessee's bona fide belief and reasonable cause, leading to deletion of the penalty and allowing the appeal.