Penalty under Income Tax not Imposable for Cash Repayment of Loan on Lender’s Instruction to Curb Interest Escalation: Chhattisgarh HC [Read Order]

The Chhattisgarh High Court has held that the penalty under section 273B of the Income Tax Act, 1961  cannot be imposed for cash repayment of a loan on the lender’s instruction to curb interest escalation.

The division bench of Justice Sanjay K. Agrawal and Justice Deepak Kumar Tiwari has observed that all the three authorities ignored the provision contained in Section 273B of the Act and proceeded to levy a penalty under Section 271E of the Act rendering the provision contained in Section 273B of the Income Tax Act even after there was  reasonable cause for non-compliance with the provisions contained in Section 269T of the Act.

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Sandeep Kaur Gill, the appellant’s assessment under Section 143(3) read with Section 147 of the Income Tax Act, 1961, for the assessment year 2015-16 was completed on 23-12-2017. However, in the assessment proceeding, the Assessing Officer held that the assessee has made repayment of the loan to M/s. Tata Finance Corporation in that financial year to the extent of  Rs. 6,71,939 in cash against the loan taken for commercial vehicle.

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Accordingly proceeded to initiate penalty proceeding under Section 271E of the Income Tax Act on the ground that repayment of loan to the extent of more than Rs. 20,000 by the assessee violates provisions contained in Section 269T of the Income Tax Act, which the assessee replied stating that due to failure on her part to pay installments in time, the financer by letter insisted upon her to make cash payment, which the assessee also, in turn, filed copy of the financer’s letter issued by M/s. Tata Finance Corporation, however, the Assessing Officer did not accept the explanation of the assessee and an order imposing a penalty under Section 271E of the Income Tax Act was passed.

Feeling aggrieved and dissatisfied with the order of penalty under Section 271E for non-compliance of Section 269T, the assessee has filed an appeal before the Commissioner of Income Tax (Appeals), NFAC, which dismissed the appeal, leading tothe  filing of a further appeal before the ITAT.

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The ITAT dismissed the appeal, holding that non-compliance of the provisions contained in Section 269T would invite a penalty under Section 271E of the Act which the Assessing Officer has rightly levied and the appellate authority i.e. the CIT (Appeals) has dismissed the appeal filed by the appellant.

The appellant / assessee submitted  that the Assessing Officer has accepted the transaction of repayment of loan to M/s. Tata Finance Corporation and the transaction was duly reflected in the books of account i.e. the ledger maintained by the assessee.  He would further submit that return of the assessee was also accepted during the assessment proceeding under Section 143(3) of the

Act and none of the three authorities have recorded a finding that the transaction was not genuine. 

Also argued that all the three authorities have concurrently committed a grave legal error in holding that non-compliance of Section 269T of the Act would straightway result in imposition of penalty under Section 271E of the Act overlooking the provisions contained in 273B of the Act which clearly provides that no penalty shall be imposable on the person or the assessee for any failure referred to in the said provisions. 

Admittedly and undisputedly, assessment under Section 143(3) read with Section 147 of the Act for the assessment year 2015-16 was completed and the transaction entered into by the appellant was accepted as genuine transaction duly reflected in the books of account, return of income of the assessee for the assessment year 2015-16 was also accepted, and none of the three authorities have recorded a finding that same was not genuine and bona fide transaction. 

The court held that since the appellant has shown the reasonable cause within the meaning of Section 273B of the Income Tax Act, the appellant is not liable to pay penalty under Section 271E of the Income Act for non-compliance with Section 269T of the Income Tax Act.

To Read the full text of the Order CLICK HERE

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