Income Tax Act | Bona Fide Belief With Genuineness Of Transaction Constitutes Reasonable Cause U/S 273B; No Penalty Imposable U/S 271E: Chhattisgarh HC

The Division Bench of Justices Sanjay K. Agrawal and Deepak Kumar Tiwari referring to Section 273B of the Income Tax Act stated that the word 'reasonable cause' has not been defined in the Income Tax Act, 1961. Therefore, in the context of the penalty provisions, the words 'reasonable cause' would mean a cause which is beyond the control of the assessee.

Section 273B of Income Tax Act, 1961 provides if the assessee shows reasonable cause for the failure to comply with any provision referred thereto, the penalty for its violation of Section 269T of the Act shall not be imposable on the assessee.

Section 271E (1) of Income Tax Act, 1961 provides that 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.

Section 269T of Income Tax Act, 1961 deals with mode of repayment of certain loans or deposits. It mandates that no company including a banking company, co-operative society or firm shall repay to any person any deposit made with it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who had made the deposit if the amount of deposit together with interest is more than ₹ 20,000/-.

In this case, the assessee's assessment under Section 143(3) read with Section 147 of the Income Tax Act, 1961 was completed. In the assessment proceeding, the Assessing Officer held that the assessee has made repayment of loan to M/s. Tata Finance Corporation in that financial year to the extent of 6,71,939/- in cash against ₹ the loan taken for commercial vehicle.

The assessing officer proceeded to initiate penalty proceeding under Section 271E of the Act on the ground that repayment of loan to the extent of more than twenty thousand rupees by the assessee is in violation of provisions contained in Section 269T of the Act.

The assessee replied stating that due to failure on her part to pay installments in time, the financer 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.

The Assessing Officer did not accept the explanation of the assessee and order imposing penalty under Section 271E of the Act was passed.

The assessee filed an appeal before the Commissioner of Income Tax (Appeals), NFAC, which was dismissed. The assessee filed an appeal before the ITAT. ITAT by its impugned order dismissed the appeal.

Bona fide belief coupled with the genuineness of the transactions would constitute a reasonable cause. Furthermore, the transaction which was bona fide and not aimed to avoid any tax liability would constitute a reasonable cause within the meaning of Section 273B of the Act for not invoking Section 271E of the Act, stated the bench.

The bench opined that “all the three authorities viz., the Assessing Officer, the CIT (Appeals) and the ITAT have proceeded on the basis that breach of provisions contained in Section 269SS of the Act shall lead automatically to penal provisions contained in Section 271E of the Act and completely ignored the provisions contained in Section 273B of the Act which requires that on proof of reasonable cause, the penalty imposable under Section 271E(1) would not be imposable and further ignored the fact that the imposition of penalty merely on technical mistake committed by the assessee, which has not resulted in any loss of revenue, would not be sustainable.”

In view of the above, the bench allowed the appeal.

Case Title: Sandeep Kaur Gill v. Union of India

Case Number: TAXC No. 98 of 2023

Counsel for Appellant/ Assessee: Arjit Tiwari

Counsel for Respondent/ Department: Ajay Kumrani

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