Nilons Enterprises Pvt. Ltd. Vs ITO (ITAT Pune)
Conclusion: Penalty under Section 271E was not leviable as there was a reasonable cause for adjustment of security deposits against outstanding’s receivable on the part of the assessee for violation, of sections 269SS and 269T.
Held: Assessee-company was engaged in the business of manufacturing and selling food products had filed its income tax returns (ITR) for the for the AY 2016-17, declaring the income as nil. During the assessment proceedings, AO observed that assessee made repayment of loans/deposits through a mode other than account payee cheques/drafts, for which AO referred the matter to the JCIT for the initiation of penalty proceedings for violating the provisions of Sec. 269T. During the penalty proceedings, it was submitted by assessee that provisions of Sections 269SS and 269T could not be invoked merely on the basis of journal entities. JCIT levied a penalty of Rs. 57,27,410 under Section 271E for violation of provisions of Section 269T. Although, assessee appealed before CIT(A), the latter upheld action of the JCIT by noting that no evidence was filed by assessee to show that there was any bonafide reasonable cause due to which the repayment was not made through the modes provided in Section 269T. Assessee contended that there was no violation of provisions of sec.269T since the security deposits were obtained through banking channels and were only adjusted towards the outstanding dues. It was held that although it has been held that receipts/deposits/loans received through journal entries was in breach of sec.269SS, however, the adjustment of such security deposits against outstanding’s receivable would constitute a ‘reasonable cause’ so as not to attract levy of penalty u/sec.269T. Similar was the case with the transactions with related parties.
