Case Law Details

Case Name : Chemfert Traders (Bombay) Pvt. Ltd. Vs ACIT (ITAT Mumbai)
Appeal Number : ITA No. 720 & 721/MUM/2011
Date of Judgement/Order : 18/02/2015
Related Assessment Year :

CA Mayank Parekh


The assessee company was engaged in the business of manufacturing and trading of fertilizers. Fertilizers manufactured by the assessee were sold to farmers and various farmers co-operative societies by salesman appointed by the assessee. On sudden requirement of the business the assessee during Assessment Year (‘AY’) 2003-04 obtained cash loans in excess of Rs 20,000 from various parties including relatives of salesman who were not having bank account. These loans were repaid in cash to the respective relatives of salesman during AY 2004-05.

As the sums were in excess of Rs 20,000 the Assessing Officer (‘AO’) applied provisions of section 269SS & 269T of the Income-tax Act, 1961 (‘the Act’) and levied penalty under section 271D and 271E for AY 2003-04 and 2004-05 respectively. However, the AO failed to appreciate that according to the exceptions laid down in the section, where the loan is accepted and repaid to agriculturist, who did not have bank account no penalty should be levied as the default would be mainly technical in nature.

Being aggrieved the assessee filed an appeal before the Commissioner of Income-tax (Appeals) [‘CIT(A)’]. However, the CIT(A) also confirmed the penalty. Against the order of CIT(A) appeal the assessee filed an appeal before the Income-tax Appellate Tribunal, Mumbai. (‘ITAT Mumbai’)

Reliance placed by the assessee before ITAT Mumbai:

CIT vs. Balaji Traders, 303 ITR 312 (Mad)

CIT vs. Maheshwari Nirman Udyog, (2008) 302 ITR 201 (Raj)

Dy. CIT v. Vignesh Flat Housing Promoters [2007] 105 ITD 359 (Chennai)

CIT vs. Saini Medical Stores, 277 ITR 420 (P&H)

CIT vs. Triumph International Finance (I) Ltd. (2012) ITA 5746/2010 (Bom)


Upon hearing contentions of both the parties ITAT Mumbai held that:

  1. Plea raised by the assessee that persons who had advanced loans were relatives of a salesman who reside in a village and were having no bank account as there was no bank in their village cannot be discarded.
  1. In absence of any finding recorded in the assessment order or in the penalty order to the effect that repayment of loans/ deposit was not under a bonafide transaction and was made with a view to evade tax, the cause shown by the assessee was a reasonable cause and in the view of section 273B no penalty could be imposed.
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