Background:
- The taxpayer[1] had filed its return of income for financial year 2012-13 declaring an income of Rs. 4,76,290.
- During the course of assessment proceedings, it was observed that the taxpayer had made repayment of loans to M/s. Tata Finance Corporation (Tata Finance) for financing of buses amounting to 14,59,688/-. The said loan was repaid by the taxpayer in cash.
- The Assessing Officer (AO) intimated the Joint Commissioner of Income-tax (JCIT) against violation of provisions of Section 269T of the Income-tax Act, 1961 (“Act”).
- Based on the information received from the AO, the Joint Commissioner of Income-tax (JCIT) initiated penalty proceedings under section 271E of the Act.
- At the time of hearing, the taxpayer provided the JCIT with the reason stating that it was on request of Tata Finance that the loan was paid in cash. The taxpayer also made a letter available which was duly confirmed by Tata Finance.
- The JCIT rejected the taxpayers claim and stated that there were alternatives available to the taxpayer apart from cash payment. The taxpayer could have chosen to make payment by way of demand draft or electronic transfer and rejected the reason provide by the taxpayer.
- On appeal before the Commissioner of Income-Tax (Appeal) [CIT(A)] the CIT officer rejected the appeal and confirmed the penalty imposed by the lower authorities.
- Aggrieved by the order, the taxpayer filed an appeal before the Income-tax Appellate Tribunal (ITAT) bench in Raipur.
Relevant provision in brief:
269T “No branch of a banking company or a co-operative bank and no other company or co-operative society and no firm or other person shall repay any loan or deposit made with it or any specified advance received by 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 or paid the specified advance, or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed if—
(a) the amount of the loan or deposit or specified advance 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, or
(c) the aggregate amount of the specified advances received by such 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 specified advances,
is twenty thousand rupees or more:”
“271E. (1) If a person repays any loan or deposit or specified advance referred to in section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified advance so repaid.
(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.
Also Read : Section 43B (H) Of The Income Tax Act | Timely payments to MSMEs
Decision of ITAT
- The ITAT acknowledged the fact that similar issue was covered in case of a relative of the taxpayer i.e., Sandeep Kaur Gill v JCIT(Range-3) Raipur (C.G.).[2]
- The ITAT observed that the taxpayer had come with two reasons for having repaid the loan other than manner provided under Section 269T of the Act. The reasons were: the cheques issued in the past were not honoured on several occasion and that she was ignorant about the provisions of Section 269T of the Act.
- The ITAT held that taxpayer could have securely executed the repayments using account payee bank drafts or electronic clearing systems through her bank account. Alternatively, the taxpayer could have opted for any other authorized electronic mode specified in rule 6ABBA of the Income-tax Rules, 1962 and held that the explanation provided by the taxpayer was not pursuable and that the ITAT does not find any substance in taxpayer’s claim.
- The ITAT held that the taxpayer cannot be allowed to plead ignorance of law and that there was no substance and merit in claim of the taxpayer.
- Accordingly, the penalty under section 271E was upheld.
Our Comments
It would be pertinent to for taxpayers specially the small taxpayers to ensure that the payment against loans is made in the manner as prescribed under the Act. Stating reasons such as history of dishonour of cheque or the financer has request for cash payment will not be acceptable as valid reasons as seen in the case above. When there are various alternatives available to the taxpayer it would be prudent for the taxpayer to exercise the other options available rather that to resort to cash as mode of payment to repay the loan.
[1] Kamaljeet Kaur Gill v The Join Commissioner of Income-tax, Range-3, Raipur (C.G.) ITA Nos. 251,252 & 253/RPR/2022
[2] ITA No. 63/RPR/2022 dated 28.04.2023.
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