The Kolkata Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the decision of Commissioner of Income Tax (Appeals),CIT(A), against the appeal filed by Revenue against relieving the penalty under section 271 E for the alleged violation of loan repayment by respondent.
The Revenue Department challenged an order passed by the CIT(A),which had allowed the appeal of a cooperative society and deleted a hefty penalty imposed under Section 271E of the Income Tax Act, 1961.
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The penalty, amounting to One Crore , was initially levied for alleged violation of Section 269T, which restricts repayment of loans or deposits in cash above Rs.20,000. However, after hearing the case, the appellate authority dismissed the Revenue’s appeal, confirming the deletion of the penalty.
The Revenue filed its appeal late, explaining that administrative delays caused the filing to be postponed by 67 days. An application for the condonation of delay was submitted, citing that the appeal scrutiny reports had to go through proper channels for approval from the Principal Commissioner of Income Tax (PCIT) in Asansol, and approval was received only in mid-December. The appeal was finally filed on December 20, 2023, against a deadline of October 13, 2023.
The appellate body, recognizing the delay as due to procedural reasons, condoned the delay and proceeded with the case.
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The primary issue under dispute was whether the penalty, which had been imposed for contravening the provisions of Section 269T by making cash repayments of Rs.20,000 or more in a single transaction, was justified. According to the Revenue’s grounds, the cooperative society had repaid loans or advances in cash in violation of Section 269T, and thus, the penalty under Section 271E was rightly levied.
However, the cooperative society presented a different story. It claimed that the amounts in question were not repayments of loans but rather disbursements of loans to its members in cash. Section 269T specifically governs the repayment of loans in cash, and the society argued that it had merely advanced loans, not repaid them. This distinction was crucial, as penalties under Section 271E apply only in cases of non-compliance with the repayment rules, not when loans are disbursed.
In the assessment order, the assessing officer (AO) had noted that the cooperative society had made payments exceeding Rs.20,000 in cash on various occasions, totaling One Crore. These payments were allegedly made in violation of Section 269T, which led the AO to initiate penalty proceedings under Section 271E. Despite the society’s clarification, the AO proceeded with the penalty, citing the violation of cash repayment limits.
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The CIT(A) ruled in favor of the cooperative society. The appellate authority noted that the AO’s findings appeared inconsistent. On one hand, the AO had added the same amounts to the income of the cooperative society under Section 269SS for receiving loans in cash, and on the other, treated those amounts as loans for the purpose of Section 269T, leading to contradictory conclusions.
The CIT (A) pointed out that once the amount was added to the income of the assessee, it could no longer be treated as a loan, and therefore the penalty under Section 271E could not be justified.
Additionally, the CIT (A) observed that Section 269T imposes obligations on the borrower, not the lender. The cooperative society was acting as the lender in this case, disbursing loans to its members. The penalty under Section 271E could not be imposed on the society since it was not in violation of any provisions related to loan repayment.
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The NFAC confirmed that the penalty proceedings were initiated based on an incorrect interpretation of Section 269T and Section 271E. The cooperative society had not violated the repayment provisions but had merely advanced loans, which did not trigger the penalty provisions. Therefore, the CIT (A) upheld its decision to delete the penalty.
The two member Bench comprised of Sanjay Garg(Judicial Member) and Rakesh Mishra(Accountant Member) firmly upheld the findings of the CIT (A), dismissing the imposition of the One Crore penalty. The case reinforces the importance of correctly interpreting the provisions of the Income Tax Act, particularly when distinguishing between loan repayments and loan disbursements. This ruling serves as a reminder that penalties under tax law should not be imposed without a thorough understanding of the facts and the applicable legal provisions.
In conclusion, the Revenue’s appeal was dismissed.
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