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Income Tax Appellate Tribunal, DELHI “E” BENCH: NEW DELHI
Before: SHRI PRADIP KUMAR KEDIA & SHRI YOGESH KUMAR US
ORDER
PER PRADIP KUMAR KEDIA, AM :
The captioned appeal has been filed at the instance of the assessee against the first appellate order dated 25.08.2022 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld.CIT(A)”] u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the penalty order dated 30.09.2019 passed under s. 271E of the Act pertaining to Assessment Year 2016-17.
As per grounds of appeal
, the assessee has challenged the imposition of penalty by invoking the provision of s. 271E of the Act on account of alleged default of s. 269T of the Act while making repayment of loans by journal entries /book entries to the partners.
3. Briefly stated, the Assessing Officer (“AO”) noticed from the Tax Audit Report that the assessee has made repayments of loans/deposits of INR 2,31,51,640/- in modes other than account payee cheque or account payee draft or other specified modes which the AO presumed to be repayment in cash in violation of s.269T of the Act. In response to the show cause notice Page | 1 issued towards proposed levy of penalty under s. 271E for alleged violation of provision of s. 269T, the assessee submitted before the AO that repayments were made to the partners of the partnership firm by way of book entries i.e. journal entries and not by way of cash. The assessee also contended that the repayments to the partners is nothing but transaction its own self and not with a third person. Accordingly, the assessee contended that since the provision of s. 269T have not been contravened, penalty under s. 271E is not leviable. The AO however, did not accept the contention of the assessee and held that there is a clear violation of provision of s.269T of the Act. The penalty amounting to INR 2,31,51,640/- was accordingly imposed under s. 271E for violation of section 269T of the Act.
4. Aggrieved, the assessee preferred appeal before the Ld.CIT(A) and restated its plea that the transaction is by way of journal entries and not by way of cash. Secondly, repayment is made by the partnership firm to the partners who are regarded as one and the same under the Partnership Act and thus such repayment do not fall with the ambit of s. 269T of the Act. The Ld.CIT(A) however declined but grant relief claimed to the assessee.
Further aggrieved, the assessee appeared before the Tribunal and placed similar arguments once again.
The imposition of penalty under s. 271E of the Act is in controversy. A perusal of provision of s. 271E gives an impression that the Legislature has given discretion to the Assessing Authority under s. 271B of the Act in the matter of levy penalty as provided under s. 271E of the Act. Under s. 273B where an authority or Court finds that there was a reasonable and sufficient cause for not imposing penalty on the assessee in the given facts and circumstances of the case, penalty shall not be levied as an automatic incidence. Therefore, the levy of penalty under s. 271E is not mandatory but directory in nature. 6.1. The Co-ordinate Bench of Tribunal in Shrepak Enterprises vs DCIT (1998) 64 ITD 300 (AHD) order dated 20.05.1997 has observed that payment by partner to firm is a payment to self is not a loan or deposit contemplated under Page | 2 s. 269SS of the Act and consequently, penalty under s. 271D is not attracted. By the same token, repayment of the outstanding by the partnership firm to the partner would not attract s.269T of the Act and consequently penalty under s. 271E would not be attracted. 6.2. The Hon’ble Delhi High Court in the case of CIT vs Noida Toll Bridge Co. Ltd. (2003) 262 ITR 260 (Del) order dated 28.01.2003; CIT-VI vs Worldwide Township Projects Ltd. (2014) 367 ITR 433 (Del), have held that when no payment is made in cash but the same is effected by journal entry in the books of accounts of the assessee, there is no violation of s. 269SS or s.269T so as to warrant imposition of penalty under s. 271D or s. 271E of the Act. Similar view has been taken in CIT vs Govind Kumar (2002) 253 ITR 103 (Rajasthan).
Under these circumstances, where the repayment has been made by the partnership firm to its partners, such transactions are not covered within the fold of s. 269SS/269T of the Act for the reason that under general laws, partnership firm is no different from partners constituting it and a firm is only a compendious name for partners who carry on business etc. Secondly, it is the case of the assessee that the repayment has been made by journal entry and a small part amounting to INR 25,00,000/- paid through banking channel. Thus, the facts available on record would show that no actual payment has been made in cash but has been merely effected by journal entry in the books of the assessee. The Hon’ble Delhi High Court in the case of CIT vs Noida Toll Bridge Co. Ltd. (supra) and other judgements had taken judicial view that such repayment of loan by way of journal entry falls outside the ambit of s. 269T of the Act. In any case, such transactions are entitled to immunity available under s. 273B of the Act which stipulates that penalty under s. 271E is not to be imposed on a person for any failure, if he proves that there was reasonable cause for such failure in accepting/repaying the loan/deposits in modes other than the ones prescribed. The journal entries in the instant case appear to have been made with the partner of the firm under the bonafide belief that such transactions would not be hit by the provision of s. 269T in light of various judicial decisions on the issue including the judgement of the Jurisdictional High Court. Page | 3 8. Besides, there is no finding in the orders of the lower authorities that such transactions by way journal entry were undertaken to evade any tax in any manner. 8.1. Thus, when the facts are seen holistically, there does not appear to be any justification to sustain the action of the Ld.CIT(A). The order of the Ld.CIT(A) is thus set aside and the AO is directed to cancel the penalty imposed under s.271E of the Act to the assessee.