In a noteworthy verdict, the Income Tax Appellate Tribunal (ITAT) Chennai has overturned a penalty imposed under Section 271E on Sankaranarayanan R. Sundar Raj. The assessee’s cash payment towards a defaulted EMI instalment, following a cheque bounce, was deemed a ‘reasonable cause’ under Section 273B, thereby leading to the deletion of the penalty.
Analysis:- The case revolved around an addition of Rs. 5 Lacs as unexplained money under Section 69A, representing cash paid by the assessee towards the settlement of a vehicle loan with M/s Mahindra & Mahindra Financial Services Ltd. However, the ITAT partly accepted the assessee’s claim and deleted the addition of Rs. 4.50 Lacs. Despite this, penalty proceedings were initiated against the assessee under Section 271 E for violating Section 269T, culminating in the imposition of a Rs. 5 Lacs penalty.
Interestingly, the ITAT acknowledged that the assessee, facing a financial crisis and defaulting on EMI payments, had paid the loan in cash due to the financier’s insistence, following a bounced cheque. This circumstance was seen as a ‘reasonable cause’ under Section 273B, leading to the deletion of the penalty.
Conclusion:- This ruling by the ITAT Chennai provides significant insights into the interpretation of ‘reasonable cause’ under Section 273B in the context of cash payments for defaulted EMIs. It serves as a precedent for similar cases, where defaulters opt for cash settlements due to financial difficulties and insistence from financiers, reinforcing the nuanced understanding required in penalty proceedings related to the violation of tax laws.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
1. Aggrieved by confirmation of penalty u/s 271 E for Rs.5.00 Lacs for Assessment Year (AY) 2013-1 4, the assessee is in further appeal before us. The impugned order has been passed by learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] on 11-10-2022 confirming impugned penalty levied by Ld. AO vide order dated 28-02-2022. The Ld. AR, drawing attention to the factual matrix, pleaded a case of reasonable cause U/S 273B. The Ld. Sr. DR submitted that penalty is mandatory in nature. Having heard rival submissions and after perusal of case records, the appeal is disposed-off as under.
2. During assessment proceedings, the assessee was saddled with addition of Rs.5 Lacs as unexplained money u/s 69A. The same represent cash paid by the assessee to M/s Mahindra & Mahindra Financial Services Ltd. towards settlement of a vehicle loan. The assessee submitted that the vehicle was sold for Rs.4.50 Lacs which was used to pay the aforesaid loan. However, rejecting the same, Ld. AO added the impugned amount to the income of the assessee vide order dated 20.09.2021. The matter reached up-to the level of Tribunal vide ITA No.237/Chny/2023 dated 10.03.2023 wherein the Tribunal accepted the claim partly and deleted addition of Rs.4.50 Lacs.
3. In the meantime, penalty proceedings were initiated against the assessee u/s 271 E for violation of the provisions of Sec.269T and an order was passed on 28.02.2022. The assessee, inter-alia, opposed the penalty on the ground that the cheque payment to the lender got returned and the financier insisted on payment in cash. The repayment was made in exceptional circumstances since the assessee was not able to make the EMI payments regularly. However, Ld. AO imposed impugned penalty of Rs.5 Lacs. The Ld. CIT(A) confirmed the same vide impugned order dated 11.10.2022 against which the assessee is in further appeal before us.
4. From the fact, it emerges that the impugned penalty has been levied against addition made u/s 69A on the allegation that the loan was repaid out of unexplained sources. However, the Tribunal accepted the source to the extent of Rs.4.50 Lacs and has confirmed the addition of Rs.0.50 Lacs as made by Ld. AO u/s 69A. It could also be seen that the assessee procured vehicle loan and regularly paid the initial installments through banking channels only. Later on, the assessee faced financial crisis and defaulted the EMI payments. Finally, the vehicle was sold and the loan was settled during January, 2013 wherein the assessee repaid the loan in cash against which impugned penalty has been levied. However, it is reasonable to hold that once the assessee defaulted in EMI payment, the financier would insist on cash payment only and would refuse to accept the cheques from the assessee. Therefore, the explanation of the assessee, in our considered opinion, was a reasonable cause u/s 273B and impugned penalty was not justified. We order so.
5. The appeal stand allowed in terms of our above order.
Order pronounced on 17th May, 2023.