Chhattisgarh High Court: In a tax appeal filed by an assessee against a penalty order for violation of Section 269T of the Income Tax Act, 1961 (‘the Act’), the Division Bench of Sanjay K. Agrawal* and Deepak Kumar Tiwari, JJ., allowed the appeal, holding that though a reasonable cause was shown by the assessee for non-compliance with Section 269-T of the Act and the transaction was undisputedly genuine and bona fide, all the three tax authorities ignored Section 273B, and levied a penalty under Section 271E.
Background
The appellant’s (‘assessee’) assessment under Section 143(3) read with Section 147 of the Act for the assessment year (‘AY’) 2015-16 was completed. However, in the assessment proceeding, the Assessing Officer held that the assessee repaid a loan to Tata Finance Corporation(‘Tata’) in that financial year (‘FY’) amounting to Rs. 6,71,939 in cash. Accordingly, the Assessing Officer proceeded to initiate penalty proceedings under Section 271-E of the Act on the ground that repayment of loan to the extent of more than Rs 20,000 by the assessee violated Section 269-T of the Act.
The assessee responded that since she was unable to pay installments in time, Tata insisted that she make a cash payment, which she did, and filed a copy of the letter sent by Tata. However, the Assessing Officer did not accept her explanation and imposed a penalty under Section 271-E of the Act.
Aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (‘the CIT’), but her appeal was dismissed. The assessee then filed another appeal before the Income Tax Appellate Tribunal (‘the Tribunal’). The Tribunal vide the impugned order dismissed the appeal holding that non-compliance with Section 269-T of the Act would invite a penalty under Section 271-E of the Act, which was rightly levied by the Assessing Officer. The Tribunal thus concurred with the appellate authority, i.e., the CIT.
Hence, this appeal.
Issues
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Whether or not the assessing officer, while levying the penalty under Section 271-E of the Act, has erred in law, as the said penalty for the alleged contravention of Section 269-T of the Act was made with a myopic view and is uncalled and illegal.
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Whether the reasonable cause shown by the assessee, for having repaid the loan in cash on the instruction of Tata, can be held to be bona fide, qua Section 273-B of the Act.
Analysis and Decision
At the outset, the Court stated that Section 269T provides that, irrespective of the fact that there are several modes for repaying the deposit, the entities specified in Section 269T shall repay the deposit only by the modes set out therein. Thus, the negative language used in Section 269T, as also the penal consequences provided in Section 271E for non-compliance with the procedure prescribed under Section 269T, left no manner of doubt that repayment of deposit in the manner prescribed under Section 269T was mandatory. Thus, it is mandatory under Section 269-T of the Act for the persons specified therein to repay any loan/deposit together with interest, if any, exceeding Rs. 20,000, by account payee cheque/ bank draft.
The Court added that Section 271E provides for a penalty equal to the deposit amount so repaid in contravention of Section 269-T of the Act. In this regard, the Court referred to Hindustan Steel Ltd. v. State of Orissa (1969) 2 SCC 627, wherein it was held that an order imposing a penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding. 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, and penalty will not also be imposed merely because it is lawful to do so.
While referring to Section 273-B of the Act which contemplates certain exigencies in which though the assessee is liable to suffer penalty, it is not to be imposed, the Court noted that Section 271E was included thereunder, thus imposition of penalty under Section 271E was subject Section 273B and no penalty shall be imposable on the assessee under Section 271E if the assessee proves that there was reasonable cause for the said failure.
Since the word ‘reasonable cause’ has not been defined in the Act, the Court stated that in the context of the penalty provisions, the words ‘reasonable cause’ would mean a cause which was beyond the control of the assessee. It meant a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence, inaction, or want of bona fides. The Court further opined that bona fide belief, coupled with the genuineness of the transactions, would constitute a reasonable cause. Furthermore, the transaction, which was bona fide and not aimed at avoiding any tax liability, would constitute a reasonable cause within the meaning of Section 273 B.
The Court noted that admittedly and undisputedly, assessment under Section 143(3) read with Section 147 of the Act for the AY 2015-16 was completed, and the transaction entered into by the assessee was accepted as a genuine transaction duly reflected in the books of account. Additionally, the return of income of the assessee for the AY 2015-16 was also accepted, and none of the three authorities recorded a finding that the same was not a genuine and bona fide transaction. The Court further noted that, however, the assessing authority, while accepting the return of the assessee for the AY 2015-16, found that a loan had been repaid for the same AY and straightway initiated a proceeding under Section 271E, leading to the imposition of the penalty without considering Section 273 B.
Noting the aforesaid, the Court stated that there was no finding by the assessing authority or the two appellate authorities that the transaction made by the assessee in breach of Section 269T was not genuine. On the other hand, the return of the assessee was accepted as it is, and none of the authorities have recorded a finding that the transaction reflected in the books of account during the AY under Section 143(3) was not a genuine and bona fide transaction. The Court noted that there was no finding of the two appellate authorities that the transaction in breach of the aforesaid provisions made by the assessee was a mala fide transaction with an object to evade the tax and aimed to avoid any tax liability.
Thus, the Court held that all the three authorities, i.e., the Assessing Officer, CIT and Tribunal proceeded on the basis that breach of Section 269SS shall automatically lead to penal provisions under Section 271E and completely ignored Section 273B, which required that on proof of reasonable cause, the penalty imposable under Section 271E(1) would not be imposable. They further ignored the fact that the imposition of a penalty merely on a technical mistake committed by the assessee, which has not resulted in any loss of revenue, would not be sustainable. However, it has been noticed by the CIT that as per the letter issued by Tata, Tata insisted upon the assessee to make repayment of loan in cash which persuaded the assessee to do so and this was duly reflected in the books of account which were accepted by the Assessing Officer during the assessment proceedings and while filing return for that AY.
The Court opined that the cause shown by the assessee of payment due to the insistence of Tata would constitute a reasonable cause within the meaning of Section 273-B of the Act and also considering the decision in Asstt. Director of Inspection Investigation v. A.B. Shanthi, (2002) 6 SCC 259. The Court held that though a reasonable cause was shown by the assessee for non-compliance with Section 269-T of the Act and the transaction was undisputedly genuine and bona fide, all three authorities ignored Section 273B and proceeded to levy penalty under Section 271E, rendering Section 273B otiose.
Thus, the Court held that the orders imposing penalty, affirming the penalty by the CIT, and further affirming the same by the Tribunal, were liable to be and were set aside/quashed.
Accordingly, the appeal was allowed.
[Sandeep Kaur Gill v. Union of India, TAXC No. 98 of 2023, decided on 01-05-2025]
*Order authored by: Justice Sanjay K. Agrawal
Advocates who appeared in this case :
For the appellant: Advocate Arjit Tiwari
For the respondent: Advocate Ajay Kumrani
