Penalty u/s. 271E in absence of any repayment of loan not leviable: ITAT Kolkata

ITO Vs Paharhati O Uttar Memari Co-operative Agricultural Marketing Society Limited (ITAT Kolkata)

ITAT Kolkata held the penalty under section 271E of the Income Tax Act not leviable since in the present case there was no repayment of loan received from the members but it was loan disbursed to members. Accordingly, revenue appeal dismissed.

Facts- Revenue has preferred the present appeal against the deletion of penalty of ₹1,00,40,222/- which had been imposed u/s 271E of the Act for violation of provisions of Section 269T of the Act.

Conclusion- Held that Section 269T is applicable on repayment of loan in cash in case of the borrower and in the assessee’s case it was not the repayment of loan received from the members but was the loan disbursed to the members. No evidence has been filed by the Revenue in support of the claim that the amount was not disbursed as loan to the members in cash but was repayment of loan to the members. As is mentioned in para 7, the Ld. AO on one hand added the amount to the income of the assessee and on the other hand has treated the same amount as loans for the purpose of section 269T, which provision otherwise is not even applicable to the facts of the case. Hence, the initiation of the penalty has been done on incorrect appreciation of the provisions of Section 269T of the Act and no penalty u/s 271E of the Act is leviable and there is no reason to disturb the findings of the Ld. CIT(A).

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This appeal filed by the Revenue is against the order of the National Faceless Appeal Centre, Delhi [hereinafter referred to as “the Ld. CIT (A)”] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2017-18 dated 14.08.2023, which has been passed against the penalty order u/s 271E of the Act, dated 31.05.2022.

2. In this case, there is a delay in filing the appeal and an application for condonation of delay dated 20.12.2023 has been filed. It is stated that appeal scrutiny reports were sent to the PCIT, Asansol through proper channel and the approval was received from the PCIT, Asansol on 17.12.2023, and the application in form no.36 was filed on 20.12.2023 as against the last date of filing of appeal on 13.10.2023 and therefore, there is a delay of 67 days in filing the appeal. Considering the fact of administrative reasons and the officers being stationed at different stations, there is justification for the delay in fling the appeal. Hence, the delay in filing the appeal is hereby condoned and the appeal is admitted for adjudication as there is sufficient cause for the delay.

3. The grounds of appeal raised by the Revenue are reproduced as under:

“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A), NFAC is justified in allowing the appeal of the assessee by deleting the penalty amounting to Rs. 1,00,40,222/- not appreciating the fact that the co-operative assessee during the corresponding Financial Year has repaid the deposit which had been made by the members to it in from of loans in cash of Rs. 20,000/- or more in single transaction in violation of section 269T of Income-tax Act, 1961.

2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A), NFAC is justified in allowing the appeal of the assessee by deleting the penalty amounting to Rs. 1,00,40,222/- not appreciating the fact that the penalty amounting to Rs. 1,00,40,222/- was imposed upon the assessee under section 271E of the Act for the violation of the very provision of section 269T of the Act.

3. The appellant craved leave to make any amend, addition, alteration, modification etc. of the grounds either before the appellate proceedings, or in the course of appellate – proceedings.”

4. Ground no. 3 is general in nature and hence, separate adjudication is not required.

5. Ground nos. 1 and 2 are against the deletion of penalty of ₹1,00,40,222/- which had been imposed u/s 271E of the Act for violation of provisions of Section 269T of the Act.

6. The Ld. Addl./Jt. CIT, Range 1, Burdwan, while imposing the penalty, observed that the assessee made payments on loan or advance given to its members or others in cash of ₹20,000/- or more in a single day and in a single transaction amounting to ₹1,00,40,222/- and made cash payment of loan or advance in contravention of provision of Section 269T of the Income-tax Act, 1961 (the Act), which attracts penalty proceedings u/s 271E of the Act. Since, no compliance was made by the assessee during the penalty proceedings, therefore, the penalty u/s 271E of the Act equivalent to the amount of cash repaid in contravention of provisions of Section 269T of the Act, which worked out to ₹1,00,40,222/-, was imposed. The penalty was initiated on account of findings made in the assessment order dated 24.12.2019 passed u/s 144 of the Act and the relevant extract from Page 2 of the order is as under:-

“In this regard the assessee was asked to explain source of cash deposit, and clarification on Investment, advance, loan and others during the F.Y. 2016-17 relevant to the A.Y. 2017-18. Accordingly notices under section 133(6) were issued to Bank Authorities.

In response, the assessee manually submitted audited Profit & Loss and Balance Sheet as on 31.03.2017 which was audited by Senior Auditor Grade-I, Burdwan-1 Range, Govt. of West Bengal and uploaded the other documents as well provided explanations as asked for. Assessee was asked to furnish the details of Cash Book Register and expenditure incurred by cash alongwith head wise ledger details for the F.Y. 2016-17 relevant to the A.Y. 2017-18.

In the reply, Rupam Ghoshal, accountant cum cashier of the assessee Co­operative society appeared and produced the Cash Book/Day Book and submit the Xerox copy of same for the F.Y. 2016-17 relevant to the A.Y. 2017­18. From its Cash Book/Day Book, it appears that the assessee had received/accepted or payment made in cash in Rs. 20,000/- or more in a single day or single transaction from/to its members against repayment of KCC Loan, Advance or others loan as also payment and expenses made to his members by cash of Rs. 20,000/- or more in a single day also in single transaction during the F.Y. 2016-17 relevant to the A.Y. 2017-18.

In this regard the assessee was show caused vide dtd.19.12.2019 which is reproduced as under:-

“Your Accountant cum cashier Rupam Ghoshal, has appeared undersigned office on 16.12.2019 and produce Cash Book/Day Book manually against notice u/s 142(1) of the I.T. Act’1961 dtd. 20.11.2019. From your Cash Book/Day Book it appears that you have received/accepted as also payment and expenses made in cash of Rs. 20,000/- or more in a signal day also in single transaction which is mention as below :-

(i) Particular of transactions relating to Rs. 20,000/- or more in a single day also in single transaction:-

(ii) Expenses incurred of Rs. 20,000/- or more in a single day also in single transaction:-

1. From above mentioned chart (i) which was collected from your Cash Book/Day Book for the F.Y. 2016-17 relevant to the A.Y. 2017-18, it is seen that total advance or loan received in cash in Rs. 20,000/- or more in a single day or single transaction from your members or other amounting of Rs.64,33,313/- and payment made on loan or advance given to your members or others in cash of Rs. 20,000/- or more in a single day and in single transaction amounting of Rs. 1,00,40,222/-during the F.Y. 2016-17 relevant to the A.Y. 2017-18.

In this regard you are show caused why such cash loan or advance received of Rs. 64,33,313/- should not be disallowed and added to your total income u/s 269SS for the F.Y. 2016-17 relevant to the A.Y. 2017-18 and you are also show caused why cash loan or advance given/payment made to your members amounting of Rs. 1,00,40,222/- should not be disallowed and added to your total income u/s 269T of the I.T. Act’61 for the F.Y. 2016-17 relevant to the A.Y. 2017-18.

2. From above mentioned chart (ii) which was collected from your Cash Book/Day Book for the F.Y. 2016-17 relevant to the A.Y. 2017-18, it is seen that above mentioned expenditure was made in cash in Rs. 20,000/- or more in a single day or single transaction to totaling of Rs.28,67,011/- during the F.Y. 2016-17 relevant to the A.Y. 2017-18.

In this regard you are also show caused why such expenditure of Rs. 28,67,011/- should not be disallowed and added to your total income u/s 40 A (3) of the I.T. Act’1961 for the F.Y. 2016-17 relevant to the A.Y. 2017-18.”

6.1 The Ld. AO continues thereafter as under:

“After considering all other documents and submission of the assessee uploaded in Efiles Portal during the course of proceeding and explanation offered on various issues as asked for from time to time; Co-operative society is not falling such exception as provided by u/s 269SS of the I.T. Act’61 i.e. u/s 269SS shall apply to this Cooperative society. Hence, the following addition has been made:-

18. The assessee had received/accepted in cash of Rs. 20,000/- or above in single transaction against repayment of KCC Loan or other loan and advance of totalling of Rs. 64,33,313/- for the F.Y. 2016-17 relevant to the A.Y. 2017­18. Hence Rs. 64,33,313/- is added to the total income of the assessee u/s 269SS of the I.T. Act for the F.Y. 2016-17 relevant to the A.Y. 2017-18. The assessee had accepted or received the loan or advance of Rs. 64,33,313/- in contravention of the provision of Section 269SS of the I.T. Act, penalty u/s 271D of the I.T. Act’61 is attracted and intimation is being sent to the Addl/Jt. CIT, Burdwan who is the competent authority for purpose of the Penalty u/s u/s 271D of the I.T. Act’61 accordingly.

ii. The Assessee had made payment on loan or advance given to its members or others in cash of Rs. 20,000/- or more in a single day and in single transaction amounting of Rs. 1,00,40,222/-during the F.Y. 2016-17 relevant to the A.Y. 2017-18. Hence Rs. 1,00,40,222/- is added to the total income u/s 269SS of the I.T. Act for the F.Y. 2016­17 relevant to the A.Y. 2017-18. The assessee had made payment loan or advance of Rs. 1,00,40,222/- in contravention of the provision of Section 269T of the I.T. Act, penalty u/s 271E of the I.T. Act’61 is attracted and intimation is being sent to the Addl/Jt. CIT, Burdwan who is the competent authority for purpose of the Penalty u/s 271E of the I.T. Act’61 accordingly.”

{emphasis supplied}

7. Thus, prima facie the findings of the ld. AO appears to be contradictory as on one hand the amount has been added as the income of the assessee and while deciding the penalty proceedings u/s 271E of the Act, the amount has been considered as a cash loan. Once the, amount has been added to the income of the assessee, it loses its characteristic as a loan and becomes the income of the assessee. Therefore, on this ground alone the penalty u/s 271E of the Act was not leviable. Further, as per the table reproduced above, the amount is not in a single transaction but in three different categories of transactions.

8. In this regard, the order of the ld. CIT (A) is extracted and reproduced as under:-

“5.3. In Page 4 of the said assessment order the AO observes as under:-

“The Assessee had made payment on loan or advance given to its members or others in cash of Rs. 20,000/- or more in a single day and in single transaction amounting of Rs. 1,00,40,222/- during the F.Y. 2016-17 relevant to the A.Y. 2017-18. Hence Rs. 1,00,40,222/- is added to the total income u/s 269SS of the I.T. Act for the F.Y. 2016-17 relevant to the A.Y. 2017-18. The assessee had made payment loan or advance of Rs. 1,00,40,222/- in contravention of the provision of Section 269T of the I.T. Act, penalty u/s 271E of the I.T. Act’61 is attracted and intimation is being sent to the Addl/Jt. CIT, Burdwan who is the competent authority for purpose of the Penalty u/s 271E of the I.T. Act’61 accordingly.

5.4. From the combined reading of the assessment order and the penalty order, it is evident that the Appellant society has paid loans/advances in excess of Rs.20,000/- which has induced the AO to refer the matter to the Range Head for initiation of penal proceedings u/s.271E of the Act.

5.5. It would also be relevant here to reproduce the Sections 269T on the strength of which penalty u/s.271E is levied on the appellant.

5.6. Section 269T reads as under:-

‘269T. Mode of repayment of certain loans or deposits.—No branch of a banking company or a co-operative bank and no other company or cooperative society and no firm or other person shall repay any loan or deposit made with it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the loan or deposit if—

(a) the amount of the loan or deposit together with the interest, if any, payable thereon, or

(b) the aggregate amount of the loans or deposits held by such person with the branch of the banking company or co-operative bank or, as the case may be, the other company or co-operative society or the firm, or other person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such loans or deposits, is twenty thousand rupees or more:

Provided that where the repayment is by a branch of a banking company or co-operative bank, such repayment may also be made by crediting the amount of such loan or deposit to the savings bank account or the current account (if any) with such branch of the person to whom such loan or deposit has to be repaid.

Explanation.—For the purposes of this section,—

(i) “banking company” shall have the meaning assigned to it in clause (i) of the Explanation to section 269SS;

(ii ) “co-operative bank” shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);

(iii ) “loan or deposit” means any loan or deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes loan or deposit of any nature.’.

6. In the light of the above discussions, it is clear that the amounts involved to the tune of Rs.1,00,40,222/- are loan amounts or other sums advanced to the members by the Appellant Society. When Section 269T can be said to have been contravened only in regard to repayment of loans or deposits, it is not clear as to how in the instant case, the penalty proceedings were initiated and subsequently levied for disbursement of loans.

7. It needs to be observed here that Section 269T imposes obligation on the persons repaying loans/deposits. Nowhere it has placed any restriction on the lender. It is a mandate to the borrowers and there was no corresponding mandate in respect of the lenders as far as Section 269T is concerned. So, if the borrower breaches the Section, the borrower is liable to penalty as provided in the Income-tax Act. Therefore, the penalties laid down in Section 271E cannot be imposed on persons when they are acting as lenders.

8. Under the circumstances, it is to be held that the penalty provisions u/s.271E have been routinely invoked and levied in the appellant’s case. Therefore, the penalty levied u/s.271E of the Income tax Act, 1961 amounting to Rs.1,00,40,222/- is deleted.”

9. We have perused the documents available on record and also gone through the findings of the Ld. CIT(A). It was stated before the Ld. CIT(A) that the amount in question was not the repayment of loan per se to the members but was the loan advanced to the members in cash. The ld. AO in the assessment order has only mentioned that the assessee has made loan or advance given to its members or others in cash of ₹20,000/- amount in a single day and single transaction amounting to ₹1,40,00,222/- and the same amount was added u/s 269SS of the Act to the income of the assessee and subsequently it is mentioned that the assessee has made payment of loan or advance of ₹1,40,00,222/- in contravention of Provision of Section 269T of the Act. It was stated before the Ld. CIT(A) that the amount was disbursed to the members as loan in cash and it was not the repayment of loan received from the members so as to attract the provisions of Section 271E of the Act. Section 269T is applicable on repayment of loan in cash in case of the borrower and in the assessee’s case it was not the repayment of loan received from the members but was the loan disbursed to the members. No evidence has been filed by the Revenue in support of the claim that the amount was not disbursed as loan to the members in cash but was repayment of loan to the members. As is mentioned in para 7, the Ld. AO on one hand added the amount to the income of the assessee and on the other hand has treated the same amount as loans for the purpose of section 269T, which provision otherwise is not even applicable to the facts of the case. Hence, the initiation of the penalty has been done on incorrect appreciation of the provisions of Section 269T of the Act and no penalty u/s 271E of the Act is leviable and there is no reason to disturb the findings of the Ld. CIT(A). Hence, Ground Nos. 1 & 2 are liable to be dismissed and are hereby dismissed and the order of the ld. CIT (A) is confirmed.

10. In the result, the appeal of the Revenue is dismissed.

Order pronounced in the Court on 18t^h November, 2024 at Kolkata.