Penalty under Section 271E deleted as cash loan repayment shown as reasonable cause under Section 273B

The ITAT Ahmedabad allowed the appeal against the penalty under section 271E for repayment of loan in cash. The assessee, having taken a loan from an NBFC, demonstrated that the cash repayment of EMIs was a customary practice demanded by the NBFC upon default. The tribunal held that merely stating the repayment in cash does not negate reasonable cause under section 273B, especially when the assessee provided valid explanations before the AO and CIT(A). Consequently, the penalty imposed under section 271E, which was based on the entire addition, was deleted.

---

---

ISSUES:

Whether penalty under Section 271E can be levied for repayment of loan otherwise than by account payee cheque/account payee bank draft/electronic clearing system through bank account in contravention of Section 269T of the Income Tax Act, 1961.Whether the Assessing Officer erred in not bifurcating the amount of repayment into principal and interest components before levying penalty under Section 271E.Whether the claim of reasonable cause under Section 273B justifies exemption from penalty for repayment of loan in cash.

RULINGS / HOLDINGS:

The penalty under Section 271E was initially levied for repayment of loan otherwise than by account payee cheque/account payee bank draft/electronic clearing system through bank account, contravening Section 269T; however, the penalty was deleted due to "peculiar circumstances" and the assessee's demonstration of reasonable cause for cash repayment.The Assessing Officer's failure to bifurcate the repayment amount into principal and interest before levying penalty was noted, but the penalty was imposed on the entire amount without such bifurcation.The claim of reasonable cause under Section 273B was accepted in the present case, as the repayment in cash was due to a "practice" by NBFC lenders demanding cash component of EMI repayment upon default, which justified deletion of penalty; nevertheless, this decision was explicitly stated not to be a precedent.

RATIONALE:

The Court applied the provisions of Section 269T, which prohibits repayment of loans otherwise than by specified banking instruments, and Section 271E, which prescribes penalty for contravention of Section 269T.Section 273B was considered to assess if "reasonable cause" existed to excuse the penalty; the Court recognized the peculiarity of the case where NBFC lenders customarily demand cash repayment upon default, thereby constituting reasonable cause.The Court emphasized that the penalty deletion was due to "peculiar circumstances" and should not be treated as a binding precedent, reflecting a cautious doctrinal approach to similar future cases.

---