DY CIT, CIRCLE - 2(1),, VIJAYAWADA vs. GOLLA NARAYANA RAO, VIJAYAWADA

This appeal is filed by the revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], Vijayawada in dated 23.03.2017challenging the cancellation of penalty levied by the Addl.Commissioner of Income Tax (Addl.CIT), Range-2, Vijayawada and cross objections are filed by the assessee in support of the order of the Ld.CIT(A)for the Assessment Year (A.Y.) 2012-13.

In the penalty order u/s 271E, the Addl.CIT has levied the penalty in respect of the following amounts paid by the assessee:

Aggrieved by the order of the Ld.Addl.CIT, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) deleted the penalty observing that there was no interest payment and the provisions of section 269T are attracted only in case, the principal and the interest are paid together and CO No.84/Viz/2017, A.Y.2012-13 Golla Narayana Rao, Vijayawada the aggregate amount of such payment exceeds Rs.20,000/-. Since the interest payment does not attract penalty u/s 271E, the Ld.CIT(A) deleted the penalty.

Against the order of the Ld.CIT(A), the revenue filed appeal before the ITAT and the Tribunal in its order dated 05.10.2018 dismissed the appeal of the revenue in respect of repayment of Rs.36,60,000/-. However, there was some confusion in the order with regard to decision in respect of the repayment made to Shri P.Prabhakar Rao. Hence, the department filed Miscellaneous Application requesting to recall the order vide application dated 30.04.2019. Accordingly, the ITAT recalled it’s order dated 05.10.2018 to decide the issue of Rs.2,15,000/- relating to Shri Prabhakar Rao.

During the appeal hearing in respect of the recalled order, the Ld.DR supported the order of the Assessing Officer and requested to confirm the penalty levied by the Addl CIT and to set aside the order of the Ld.CIT(A).

On the other hand, the Ld.AR submitted that the payment made to Shri P.Prabhakar Rao is interest payment and argued that the interest payment does not attract the provisions of section 269T of the Act. Ld.A.R further submitted that on the same reasoning and on identical facts the CO No.84/Viz/2017, A.Y.2012-13 Golla Narayana Rao, Vijayawada Ld.CIT(A) deleted the penalty and the ITAT also confirmed the order of the Ld.CIT(A) in respect of the payment made to Shri S.Rama Prasad amounting to Rs.36,60,000/-. Therefore, argued that on the same analogy penalty cannot survive in respect of the payment of Rs.2,15000/- also and hence, requested to uphold the order of the Ld.CIT(A) and delete the penalty.

We have heard both the parties and perused the material placed on record. It is undisputed fact that the payment of Rs.2,15,000/- was related to interest payment, but not the principal amount. This Tribunal in the assessee’s appeal in Shri S.Rama Prasad held that for payment of interest, the provisions of section 269T are not applicable and the addition required to be made u/s 40A(3) of the Act, but not u/s 269T of the Act. For the sake of clarity and convenience, we extract relevant part of the order of this Tribunal in para No.52.1. which reads as under : “52.1. The assessee has adjusted a sum of Rs.1,35,85,000/- towards sale of flats and paid a sum of Rs.48,80,000/- which is stated to be representing the interest payment. The principal amount of loan was Rs.1,20,00,000/-, and the amount of Rs.1,35,85,000/- was adjusted for sale of flats, hence we accept the contention of the Ld.AR that the payment of Rs.48,80,000/- represents the interest and out of which a sum of Rs.36,60,000/- was paid during the impugned assessment year. The Ld.AR during the course of hearing argued that Section 269T is applicable for repayment of loan but not for payment of expenditure which is required to be allowed as deduction. Payment of interest in cash required to be considered u/s 40A(3) of the Act but not u/s 269T of the Act. As per section 269T, the assessee is not permitted to make the payment of CO No.84/Viz/2017, A.Y.2012-13 Golla Narayana Rao, Vijayawada principal or principal along with the interest, otherwise than crossed cheque. For ready reference, we extract section 269T of the Act which reads as under : Mode of repayment of certain loans or deposits. 269T. No branch of a banking company or a co-operative bank and no other company or co-operative society and no firm or other person shall repay any loan or deposit made with it or any specified advance received by it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the loan or deposit or paid the specified advance, or by use of electronic clearing system through a bank account if— (a) the amount of the loan or deposit or specified advance together with the interest, if any, payable thereon, or (b) the aggregate amount of the loans or deposits held by such person with the branch of the banking company or co-operative bank or, as the case may be, the other company or co-operative society or the firm, or other person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such loans or deposits, or (c) the aggregate amount of the specified advances received by such person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such specified advances, is twenty thousand rupees or more: This view is supported by the decision of the coordinate bench of ITAT in the case of MV Raghavulu Vs. ACIT, Kakinada Range in I.T.A. No.362/Viz/2011. Since the payment of Rs.36,60,000/- represents the interest, respectfully following the decision of coordinate bench in the case cited supra, we hold that the provisions of section 269T are not applicable and consequently the penalty u/s 271E is not leviable. Therefore we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue.” Since the issue with regard to payment of Rs.2,15,000/- is also on identical facts, we hold that provisions of section 269T are not applicable in respect of interest payment and accordingly penalty levied u/s 271E is not sustainable. Hence, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue.

In the result, appeal of the revenue as well as the cross objections of the assessee are dismissed. Order pronounced in the open court on 15th July, 2020.