Commissioner of Income Tax vs Avet Chemicals P. Ltd.

This judgment will dispose of I.T.A. Nos. 102 and 17 of 1999. The facts have been taken from I.T.A. No. 102 of 1999.

This appeal has been preferred by the Revenue proposing the following substantial question of law:

Whether, on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was right in law in upholding the deletion of penalty u/s 271E by the Commissioner of Income Tax (Appeals) on the ground that the assessee-company was under a bona fide belief that the limit of Rs. 20,000 for accepting a deposit was in force in the year under consideration where the law specifically provided the cut off date as April 1, 1989 ?

The relevant facts are that during the course of assessment proceedings, the Assessing Officer noticed that the assessee-company had repaid deposit/loan of Rs. 10,000 other than by account payee cheques, or accounts payee bank drafts on November 10,1988, to Shri Angad Bir Singh during the year under reference, in contravention of the provisions of Section 269T of the Income Tax Act, 1961 (for short "the Act"). Accordingly, penalty proceedings u/s 271E of the Act were initiated by the then Deputy Commissioner of Income Tax, Range I, Jalandhar, on June 10, 1991, by issue of notice u/s 271E of the Act. Subsequently, penalty u/s 271E was imposed by the then Deputy Commissioner of Income Tax, Range I, Jalandhar at Rs. 10,000 vide order passed by him on October 21, 1991.

On appeal, the Commissioner of Income Tax (Appeals), Jalandhar, deleted the said penalty vide his order passed in Appeal No. 700/91-92/CIT(A)/Jal, on November 16, 1992, holding that its imposition was not justified. The said order was affirmed by the Tribunal.

The Commissioner of Income Tax (Appeals) held that the assessee was under a bona fide belief that the limit for deposit and repayment of loan in cash was Rs. 20,000 for the year under consideration.

It has been held by the hon''ble Supreme Court in Assistant Director of Inspection Investigation Vs. Kum. A.B. Shanthi, , that if cash payment was on account of reasonable belief, penalty will not be justified. It was observed at page 266:

It is important to note that another provision, namely Section 273B was also incorporated which provides that notwithstanding anything contained in the provisions of Section 271D, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision if he proves that there was reasonable cause for such failure and if the assessee proves that there was reasonable cause for failure to take a loan otherwise than by account-payee cheque or account-payee demand draft, then the penalty may not be levied. Therefore, undue hardship is very much mitigated by the inclusion of Section 273B in the Act. If there was a genuine and bona fide transaction and if for any reason the taxpayer could not get a loan or deposit by account-payee cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty has got discretionary power.

In view of the above, we answer the question against the Revenue and in favour of the assessee.