The Chhattisgarh High Court has held that a transaction, which was bona fide and not aimed to avoid any tax liability, would constitute a reasonable cause within the meaning of Section 273B of the Income Tax Act for not invoking Section 271E dealing with imposition of penalty.

The Chhattisgarh High Court was considering a Tax Appeal filed under Section 260A of the Income Tax Act, 1961.

The Division Bench of Justice Sanjay K. Agrawal and Justice Deepak Kumar Tiwari observed, “In our considered opinion, 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 to avoid any tax liability would constitute a reasonable cause within the meaning of Section 273B of the Act for not invoking Section 271E of the Act.”

Advocate Arjit Tiwari represented the Appellant, while Advocate Ajay Kumrani represented the Respondent.

Factual Background

The appellant's assessment under Section 143(3) read with Section 147 of the Income Tax Act, 1961, for the assessment year 2015-16 was completed on December 23, 2017. However, in the assessment proceeding, the Assessing Officer held that the assessee had made repayment of the loan to M/s. Tata Finance Corporation in that financial year to the extent of 6,71,939 in cash against the loan taken for a commercial vehicle. Penalty proceeding was initiated under Section 271E on the ground that repayment of loan to the extent of more than twenty thousand rupees by the assessee was in violation of the provisions contained in Section 269T.

Feeling aggrieved and dissatisfied with the order of penalty under Section 271E for non-compliance with Section 269T, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), NFAC which was dismissed. The ITAT, by its impugned order, also dismissed the appeal. Aggrieved thereby, the appellant approached the High Court.

Reasoning

The Bench noted that the assessing authority, while accepting the return of the assessee for the assessment year 2015-16 found that for the same assessment year Rs 6,71,939 loan had been repaid in cash to M/s. Tata Finance Corporation and straightway proceeded to initiate proceedings under Section 271E of the Act. This led to the imposition of a penalty without noticing the provisions contained in Section 273B.

Reference was made to Section 269T which deals with the mode of repayment of certain loans or deposits. It mandates that no company including a banking company, co-operative society or firm shall repay to any person any deposit made with it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who had made the deposit if the amount of deposit together with interest is more than 20,000. “Thus, the negative language used in Section 269T as also the penal consequences provided in Section 271E for non-compliance of the procedure prescribed under Section 269T leave no manner of doubt that repayment of deposit in the manner prescribed under Section 269T is mandatory. Thus, it is mandatory under Section 269T of the Act for the persons specified therein to repay any loan/deposit together with interest if any, exceeding the limits prescribed therein, by account payee cheque/ bank draft”, it said.

The Bench also held, “Therefore, a combined reading of the provisions contained in Section 271E of the Act [which provides penalty for failure to comply with the provisions of Section 269T] and Section 273B of the Act makes it abundantly clear that if the assessee shows reasonable cause for the failure to comply with any provision referred thereto, the penalty for its violation of Section 269T of the Act shall not be imposable on the assessee.”

Coming to the facts of the case, the Bench mentioned that the cause shown by the assessee was that there was insistence from the side of M/s. Tata Finance Corporation to pay the amount of the loan in cash, and the same constituted a reasonable cause within the meaning of Section 273B. As per the Bench, the transaction was genuine and bona fide, and the same was not disputed by all three authorities. However, all the three authorities ignored the provision contained in Section 273B of the Act and proceeded to levy penalty under Section 271E of the Act rendering the provision contained in Section 273B of the Act otiose, as the provision contained in 271E of the Act for imposition of penalty for non-compliance of Section 269T of the Act is subject to Section 273B of the Act.

Thus, setting aside the order imposing penalty passed by the Assessing Officer, affirmed by the first appellate authority and further affirmed by the second appellate authority, the Bench allowed the appeal.

Cause Title: Sandeep Kaur Gill v. Union of India & Ors. (Case No.: Tax Case No.98/2023)

Appearance:

Petitioner: Advocate Arjit Tiwari

Respondent: Advocate Ajay Kumrani, Advocate Amit Chaudhari

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Justice Sanjay K AgrawalJustice Deepak Kumar Tiwari

Tulip Kanth

Assistant Editor

Tulip Kanth is an Assistant Editor at Verdictum having over 5 years of experience in the field of legal journalism and editing. She extensively covers judgments of the Supreme Court, High Courts as well as Tribunals. She has previously worked with a legal publishing website where she oversaw the work of other editors and has also created updates on notifications of different Government Ministries. She holds an English Honours Degree from SGTB Khalsa College, Delhi University and has completed her LLB course with specialisation in Corporate Law from Amity University.