The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has deleted the penalty imposed under Section 273B of the Income Tax Act holding that the cash payment of defaulted EMI instalment to financier after cheque bounce was a reasonable cause.
Sankaranarayanan R. Sundar Raj, the assessee, was hit with an additional Rs. 5 Lacs as unexplained money throughout the assessment process in accordance with Section 69A of the Income Tax Act. The same amount represented money that the assessee had given to Mahindra& Mahindra Financial Services Ltd. to pay off a car loan.
According to the assessee, the vehicle was sold for Rs. 4.50 Lacs, and the proceeds were used to pay off the aforementioned loan. The AO, however, rejected the same and included the disputed sum in the assessee’s income. The case advanced to the level of the Tribunal, which partially approved the claim and erased an addition of Rs. 4.50 million on 10.03.2023.
In the meanwhile, penalty proceedings were started under Section 271E of the Income Tax Act against the Assessee for violation of Section 269T of the Income Tax Act, and an order was made on February 28, 2022.
The assessee, among other things, objected to the penalty because the financier insisted on receiving payment in cash notwithstanding the fact that the lender’s payment by cheque had been returned. Because the assessee was unable to make regular EMI installments, the repayment had to be made under unusual circumstances. A penalty of Rs. 5 Lacs was nonetheless levied by AO.
According to Section 273B of the Income Tax Act, 1961 , No penalty for failing to deduct tax at source shall be imposed on the person or the assessee, notwithstanding anything provided in Section 271C, if the person or the assessee establishes that there was a reasonable cause for the failure to do so.
P.M. Kathir who appeared on behalf of the assessee drew the attention of the tribunal to the factual matrix and pleaded a case of reasonable cause under Section 273B of the Income Tax Act. On the other hand D. HemaBhupa on behalf of the revenue submitted that the penalty was mandatory in nature.
The two-member Bench of Mahavir Singh, (Vice President) and And Manoj Kumar Aggarwal, (Accountant Member) allowed the appeal filed by the assessee and held 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 was a reasonable cause under Section 273B of the Income Tax Act.
In view of the above, the tribunal bench deleted the penalty imposed.
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