2025 (11) TMI 751 - HC - Income Tax

Penalty under s.271D upheld despite income assessment under s.68; loan not proved, appeal dismissed in Revenue's favor

The HC affirmed imposition of penalty under s.271D despite treating the contested receipt as income under s.68, finding the appellant failed to prove the ... Penalty u/s 271D - acceptance of loan as violation of Section 269SS - amounts were treated as income of the assessee u/s 68. HELD THAT:- Learned counsel for appellant was unable to persuade this Court to cause interference on the ground that such penalty could not have been levied as genuineness of loan to the assessee was not accepted and the amount was treated to be income of the assessee u/s 68 of the Act. Specific details as have been mentioned in the foregoing paras clearly reveal that argument raised by learned counsel for the appellant is completely devoid of any merit. Merely because the amount has not been accepted to be loan received and treated as income u/s 68 of the Act cannot in any manner impinge upon the penalty (qua Brakkat College of Education) stated to have been returned/deposited with in cash to Sant Baba Sunder Singh Ji. Appellant is not entitled to any indulgence whatsoever. Question of law as formulated is thus answered against the appellant and in favour of the department/Revenue. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under Section 271E can be imposed for repayment in cash in contravention of Section 269T where, in an earlier assessment year, the same amounts were treated as income of the assessee under Section 68. 2. Whether an assessee's earlier treatment/admission of amounts as loans in assessment proceedings affects the liability to penalty for subsequent cash repayment under Section 269T/271E. 3. Whether the assessee demonstrated a 'reasonable cause' under Section 273B to excuse repayment in cash and avoid penalty under Section 271E. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of penalty under Section 271E for cash repayment where amounts were earlier treated as income under Section 68 Legal framework: Section 269T prohibits repayment of loans/advances by any person otherwise than by account payee cheque or draft or use of electronic clearing system through a bank account; Section 271E prescribes penalty for contravention of Section 269T. Section 68 empowers treating unexplained cash credits as income where genuineness is not established. Precedent treatment: No binding precedent was applied to negate the independent operation of Sections 68 and 269T; a case cited by the assessee (Sunil Kumar Goel) was considered and distinguished on facts. Interpretation and reasoning: The Court/Tribunal treated the defaults as distinct: inclusion of amounts in income under Section 68 (for failure to prove genuineness) does not erase the factual occurrence of cash repayment. The legislative purpose of Sections 269T/271E to deter cash dealings and promote transparency means that admitted cash repayments can attract penalty even if, separately, the money was treated as income. The Tribunal relied on contemporaneous account copies and admitted entries showing the sums were recorded as loans and subsequently repaid in cash; therefore the repayment contravened Section 269T irrespective of the Section 68 addition. Ratio vs. Obiter: Ratio - Sections 68 and 269T operate independently so that an addition under Section 68 does not preclude imposition of penalty under Section 271E for separate contravention of Section 269T. Obiter - observations on legislative intent to deter cash transactions, while explanatory, support the ratio. Conclusion: Penalty under Section 271E can be validly imposed for cash repayment under Section 269T even where related sums were earlier treated as income under Section 68; the impugned penalty was rightly levied on facts showing cash repayments. Issue 2 - Effect of earlier treatment/admission of amounts as loans in assessment proceedings on penalty liability Legal framework: Principles of evidence and admission in assessment proceedings; statutory scheme distinguishing assessment additions (Section 68) from penal consequences of contravening cash transaction prohibitions (Sections 269T/271E). Precedent treatment: The Tribunal and CIT(A) relied on the assessee's own accounts and admissions in assessment proceedings to conclude the amounts were treated as loans in books, undermining later attempts to re-characterize them as mere accommodating advances without corroboration. Interpretation and reasoning: The Tribunal found that during assessment the assessee filed accounts identifying the impugned sums as 'Loans Account', which constituted an admission adverse to the later contention that they were not loans. The assessee's change of stance in penalty proceedings (calling them accommodating advances) lacked corroborative evidence of circumstances necessitating cash accommodation. As the repayment in cash was proved by receipts/entries, the earlier treatment as loan negated the assessee's ability to deny the loan character for the purpose of defence against Section 269T penalty. Ratio vs. Obiter: Ratio - an assessee's contemporaneous books/entries and admissions in assessment proceedings are material and can estop or undermine later contrary pleas regarding the character of transactions when defending penalty under Section 269T. Obiter - remarks on how an assessee could have demonstrated compelling circumstances if available. Conclusion: The assessee's own earlier characterization of the amounts as loans, together with lack of corroboration for re-characterisation as accommodating advances, justified upholding penalty for cash repayment; earlier treatment does not immunize against penalty where factual evidence shows loan and cash repayment. Issue 3 - Whether 'reasonable cause' under Section 273B was established to negate penalty Legal framework: Section 273B precludes levy of penalty where the assessee proves reasonable cause for failure. Jurisprudence recognizes business exigency or compelling circumstances can constitute reasonable cause if adequately proved and undisputed. Precedent treatment: The decision relied upon by the assessee (Sunil Kumar Goel) was considered: there, reasonable cause was found where business exigency was an undisputed fact. The Tribunal found that precedent distinguishable because the present case lacked such undisputed evidence. Interpretation and reasoning: The Tribunal and CIT(A) examined the appellant's asserted reasonable cause - that neither the trust nor the Gurudwara was liable to tax and that transactions were inter se - and found it insufficient. No documentary evidence demonstrated compelling circumstances necessitating cash repayment, nor was there proof that electronic or banking modes were unavailable or impracticable. The Tribunal applied Section 273B strictly: mere assertion or legal status (tax-exempt entities) does not constitute reasonable cause for contravening mandatory prescribed modes of repayment. Ratio vs. Obiter: Ratio - absence of credible, corroborated evidence of compelling circumstances means Section 273B does not apply to negate penalty under Section 271E; assertions of exemption or inter se transactions without proof are inadequate. Obiter - guidance that business exigency, if proven, may constitute reasonable cause (as distinguished in Sunil Kumar Goel). Conclusion: The assessee failed to establish reasonable cause under Section 273B; penalty under Section 271E was correctly sustained. Cross-references and integrated conclusion All three issues are interlinked: the Tribunal treated the Section 68 addition and the Section 269T penalty as addressing separate legal consequences from the same factual matrix. The assessee's contemporaneous admissions and books confirmed loan entries and cash repayments; lack of corroboration and absence of reasonable cause under Section 273B justified imposition of penalty under Section 271E. The decision distinguishing Sunil Kumar Goel underscores that reasonable cause must be factually proved and not merely asserted. Therefore, the Tribunal's upholding of penalty was held to be free from illegality, irregularity or infirmity.