TaxTMI 
TaxTMI 
2013 (1) TMI 210
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....lized u/s 143(3) of the Act at an income of Rs.3,84,698. During the assessment, the AO observed that the assessee company has made a repayment of loan of Rs.2 lakh in cash to one of the directors of assessee company Shri Varun Agarwal, in contravention of the provisions of Section 269T of the Act. Consequently, the AO initiated penalty proceedings u/s 271E of the Act. A show cause notice was issued to the assessee by the AO to furnish explanation regarding cash payment of Rs.2 lakh and the assessee furnished its reply and submitted that: "There is no loan given by the Company to Varun Sarup Agarwal. During the year repayment of unsecured loan to Sh. Varun Agarwal for RS.2 lacs in cash. There is Current A/c in the name of Shri Varun Agarwal who from time to time made payment for and behalf of the assessee company as the assessee did not have its Bank Alc which was opened on February 2007. Payment of RS.2 lacs was part reimbursement of expenses incurred by Shri Varun Agarwal for and on behalf of the Company. It was submitted that the same cannot be treated as loan with the meaning of Section 269SS and 269T. The assessing Officer erred in treating reimbursement o....
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....rned this amount to its director, the return would constitute return of loan given by the director to the appellant company. The expenses incurred by the director on behalf of the appellant cannot be termed as transactions in the current account of the appellant with the director, as contended. It is also observed that the appellant company was incorporated in September,2006 and it took five months to open its bank account in February,2007. Not only this, it has been submitted that the bank account was opened on February,2007 with HDFC Bank while cash was deposited in the bank account of Shri Yarun Agarwal, Director on 9th February, 2007 to enable cheque towards rent payable by the appellant company to be cleared on 10th February, 2007. It is not clear as to why, once the account of the company was opened on 7th February,2007, cash was not deposited in this account and cheque for rent issued from the account of the company, instead of giving cash to the director who then made payment on behalf of the appellant company. Therefore, it would not be correct to say that the payment of cash of Rs.2,00,000/- by the appellant company to its director was necessitated by any urgent requireme....
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....dismissed." Hence, this second appeal by the assessee before this Tribunal. 6. We have heard rival submissions of both the parties in the light of material on record before us and carefully considered the same. 7. The assessee's representative submitted that the company did not have a bank account till 7.2.2007 and on 1.2.2007 the director of the company Shri Varun Sarup Agarwal issued cheque of Rs.1,50,000 for payment of rent to M/s Gahoi Buildwell on behalf of assessee company from his bank account with ICICI Bank but there was not sufficient balance in the account, therefore, the appellant company withdrew cash of Rs.2 lakh out of cash in hand and deposited in the bank account of Shri Varun Sarup Agarwal on 9.2.2007. After that, the cheque of Rs.1,50,000 dated 1.2.2007 issued for payment of rent to M/s Gahoi Buildwell Ltd. was cleared on 1.2.2007 and then the remaining amount of Rs.50,000 was transferred to company's bank account on 10.2.2007. He further submitted that the payment of rent was made by Shri Varun Sarup Agarwal (director of the assessee company) by issuing a cheque from his bank account and if cash amount could not be deposited, the cheque could be dishono....
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....g penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute." 11. In the case in hand, it is not in dispute that Shri Varun Sarup Agarwal is a director of assessee company who made payment of rent through cheque from his bank account with ICICI Bank. His bank statement from 1.10.2006 to 1.3.2007 available on paper book....
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....actions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the AO the circumstances under which the payment in the manner prescribed in s. 40A(3) was not practicable or would have caused genuine difficulty to the payee." (Emphasis, italicized in print, supplied) In the light of the principle laid down by the apex Court supra, merely because the transaction is genuine, it cannot be taken out of the sweep of s. 269T/271E of the Act." 14. In the case of Vinman Finance (supra), the facts were that the assessee was a financial leasing company. During the relevant assessment year, it accepted certain deposits in cash and also repaid certain amounts in cash in excess of Rs.20,000. The Assessing Officer opined that out of total repayments, a part of amount could be said to have been paid in cash due to exceptional circumstances with but regard to the balance amount, the Assessing Officer viewed that the depositors resided in urban areas where banking facilities were available and therefore there was no reasonable cause for violation of the provisions of Section 269T of the Act. Accordingly, the Assessing O....
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....arty (the Vice President), has held that there is no exemption from s. 269T even if the parties are connected with each other or they are sister concerns. In the case of Supreme Investments vs Jt.CIT in ITA NO.76/Bang/2006 dt. 3rd Aug. 2007, for the asstt.yr. 2001-02, the Bangalore Bench did not record a definite conclusion that transactions between sister concerns are not hit by s. 269T, though the penalty was cancelled on other grounds. For the limited purpose of imposing penalty under s. 271E, it is perhaps enough to see whether the assessee could have bona fide belief that transactions with sister concerns involving cash were not hit by s. 269T. Since there is a difference of opinion on this point between two orders of the Tribunal, the assessee was perhaps justified in believing that it is stated that the assessee's bona fide belief constitutes reasonable cause for the violation of s. 269T r/w s. 273B. Similarly, if the assessee had bona fide belief that cash transactions in a current account are not hit by s. 269T, which belief is vindicated by the judgment of the Madras High Court, cited supra, even that can be considered as reasonable cause under s. 273B and on that ground ....
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....n Sarup Agarwal issued a cheque on 1.2.2007 on behalf of the assessee company for payment of rent and assessee company opened its account after issuance of this cheque. The amount of Rs. 2 lakh was deposited in the bank account of Mr. Varun Sarup Agarwal with a bona fide intention to prevent dishonoring of the cheque issued to the landlord of the assessee company and the remaining amount was returned back to the assessee company's bank account. In the facts and circumstances of the case, it is doubtful whether the amount received by director with an intention to deposit it to the bank account with a bona fide belief that this would save the prestige of the company can be characterized as a loan or a deposit within the meaning of Section 269T of the Act. Although Section 269T of the Act does not expressly confer any exemption from transaction between connected parties or sister concern but a perusal of the decided cases on this point shows that there is a cleavage of judicial opinion. For the limited purpose of imposing penalty u/s 271E of the Act, it is perhaps enough to see whether the assessee could have bona fide belief that the transaction with connected parties or sister conce....