MODESTY GARMENTS,NEW DELHI V. JCIT, RANGE-28(1), NEW DELHI

ITA 2574/DEL/2022

AI Insights

Modesty Garments appealed against the penalty imposed by the Assessing Officer under section 271E for alleged violations of section 269T, which pertains to the modes of repayment of loans or deposits. The Assessing Officer had presumed the repayments of INR 2,31,51,640 to be in cash, violating section 269T, which requires such transactions to be conducted through account payee cheques or drafts. The Tribunal, referencing various judicial precedents, concluded that the repayments made through journal entries by a partnership firm to its partners do not fall under the ambit of section 269T. Consequently, the Tribunal set aside the penalty, emphasizing that the transactions were not in cash and thus did not violate the statutory provisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 34183 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2016-2017
• Other Referred Cases: Shrepak Enterprises vs DCIT, CIT vs Noida Toll Bridge Co. Ltd., CIT-VI vs Worldwide Township Projects Ltd., CIT vs Govind Kumar
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANSHUL
• Assessee Lawyers: MOHIT GUPTA
• Keywords: Set aside; Reasonable cause; Bonafide belief
• Section: 250; 64; 271D; 273B; 271E; 271B

Judgement Text

"ITA No.2574/Del/2022 Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “E” BENCH: NEW DELHI BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI YOGESH KUMAR US, JUDICIAL MEMBER ITA No.2574/Del/2022 [Assessment Year : 2016-17] Modesty Garments B-304, New Friends Colony New Delhi-110025. PAN-AAAFM1598F vs JCIT Range-28(1) New Delhi APPELLANT RESPONDENT Appellant by Shri Mohit Gupta, CA Shri Nitin Sharma, CA & Shri Neeraj Singh, CA Respondent by Shri Anshul, Sr. DR Date of Hearing 07.10.2024 Date of Pronouncement 03.01.2025 ORDER PER PRADIP KUMAR KEDIA, AM : The captioned appeal has been filed at the instance of the assessee against the first appellate order dated 25.08.2022 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld.CIT(A)”] u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the penalty order dated 30.09.2019 passed under s. 271E of the Act pertaining to Assessment Year 2016-17. 2. As per grounds of appeal, the assessee has challenged the imposition of penalty by invoking the provision of s. 271E of the Act on account of alleged default of s. 269T of the Act while making repayment of loans by journal entries /book entries to the partners. 3. Briefly stated, the Assessing Officer (“AO”) noticed from the Tax Audit Report that the assessee has made repayments of loans/deposits of INR 2,31,51,640/- in modes other than account payee cheque or account payee draft or other specified modes which the AO presumed to be repayment in cash in violation of s.269T of the Act. In response to the show cause notice ITA No.2574/Del/2022 Page | 2 issued towards proposed levy of penalty under s. 271E for alleged violation of provision of s. 269T, the assessee submitted before the AO that repayments were made to the partners of the partnership firm by way of book entries i.e. journal entries and not by way of cash. The assessee also contended that the repayments to the partners is nothing but transaction its own self and not with a third person. Accordingly, the assessee contended that since the provision of s. 269T have not been contravened, penalty under s. 271E is not leviable. The AO however, did not accept the contention of the assessee and held that there is a clear violation of provision of s.269T of the Act. The penalty amounting to INR 2,31,51,640/- was accordingly imposed under s. 271E for violation of section 269T of the Act. 4. Aggrieved, the assessee preferred appeal before the Ld.CIT(A) and restated its plea that the transaction is by way of journal entries and not by way of cash. Secondly, repayment is made by the partnership firm to the partners who are regarded as one and the same under the Partnership Act and thus such repayment do not fall with the ambit of s. 269T of the Act. The Ld.CIT(A) however declined but grant relief claimed to the assessee. 5. Further aggrieved, the assessee appeared before the Tribunal and placed similar arguments once again. 6. The imposition of penalty under s. 271E of the Act is in controversy. A perusal of provision of s. 271E gives an impression that the Legislature has given discretion to the Assessing Authority under s. 271B of the Act in the matter of levy penalty as provided under s. 271E of the Act. Under s. 273B where an authority or Court finds that there was a reasonable and sufficient cause for not imposing penalty on the assessee in the given facts and circumstances of the case, penalty shall not be levied as an automatic incidence. Therefore, the levy of penalty under s. 271E is not mandatory but directory in nature. 6.1. The Co-ordinate Bench of Tribunal in Shrepak Enterprises vs DCIT (1998) 64 ITD 300 (AHD) order dated 20.05.1997 has observed that payment by partner to firm is a payment to self is not a loan or deposit contemplated under ITA No.2574/Del/2022 Page | 3 s. 269SS of the Act and consequently, penalty under s. 271D is not attracted. By the same token, repayment of the outstanding by the partnership firm to the partner would not attract s.269T of the Act and consequently penalty under s. 271E would not be attracted. 6.2. The Hon’ble Delhi High Court in the case of CIT vs Noida Toll Bridge Co. Ltd. (2003) 262 ITR 260 (Del) order dated 28.01.2003; CIT-VI vs Worldwide Township Projects Ltd. (2014) 367 ITR 433 (Del), have held that when no payment is made in cash but the same is effected by journal entry in the books of accounts of the assessee, there is no violation of s. 269SS or s.269T so as to warrant imposition of penalty under s. 271D or s. 271E of the Act. Similar view has been taken in CIT vs Govind Kumar (2002) 253 ITR 103 (Rajasthan). 7. Under these circumstances, where the repayment has been made by the partnership firm to its partners, such transactions are not covered within the fold of s. 269SS/269T of the Act for the reason that under general laws, partnership firm is no different from partners constituting it and a firm is only a compendious name for partners who carry on business etc. Secondly, it is the case of the assessee that the repayment has been made by journal entry and a small part amounting to INR 25,00,000/- paid through banking channel. Thus, the facts available on record would show that no actual payment has been made in cash but has been merely effected by journal entry in the books of the assessee. The Hon’ble Delhi High Court in the case of CIT vs Noida Toll Bridge Co. Ltd. (supra) and other judgements had taken judicial view that such repayment of loan by way of journal entry falls outside the ambit of s. 269T of the Act. In any case, such transactions are entitled to immunity available under s. 273B of the Act which stipulates that penalty under s. 271E is not to be imposed on a person for any failure, if he proves that there was reasonable cause for such failure in accepting/repaying the loan/deposits in modes other than the ones prescribed. The journal entries in the instant case appear to have been made with the partner of the firm under the bonafide belief that such transactions would not be hit by the provision of s. 269T in light of various judicial decisions on the issue including the judgement of the Jurisdictional High Court. ITA No.2574/Del/2022 Page | 4 8. Besides, there is no finding in the orders of the lower authorities that such transactions by way journal entry were undertaken to evade any tax in any manner. 8.1. Thus, when the facts are seen holistically, there does not appear to be any justification to sustain the action of the Ld.CIT(A). The order of the Ld.CIT(A) is thus set aside and the AO is directed to cancel the penalty imposed under s.271E of the Act to the assessee. 9. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 03rd January, 2025. Sd/- Sd/- (YOGESH KUMAR US) JUDICIAL MEMBER (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER * Amit Kumar * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "