In a case where the taxpayer received an unsecured loan of Rs. 6.38 lakhs from a party and claimed that during the year, they had sold goods amounting to Rs. 6.38 lakhs to the same party, subsequently adjusting the sale proceeds against the amount credited to the party’s account. Since the taxpayer’s explanation was dismissed based solely on suspicion, the imposition of a penalty under section 271E of the Income Tax Act is deemed unjustified and should be set aside.
“Under the Income-tax Act, 1961, particularly sections 271E and 269T, a case arose concerning penalty imposition for non-compliance with section 269T, which pertains to payment adjustments. This was for the assessment year 2017-18. The taxpayer, involved in the manufacturing of knitted cloth, had received Rs. 6.38 lakhs via cheque from a party ‘V’ during the financial year ending 31st March 2015. This amount was recorded in the account books as an unsecured loan. The taxpayer claimed that in the assessment year 2017-18, he sold knitted cloth worth Rs. 6.38 lakhs to ‘V’ and adjusted this sale amount against the credit balance of ‘V’.
The Assessing Officer, however, dismissed this explanation, interpreting the transaction as a cash repayment of the unsecured loan to ‘V’, thereby violating section 269T. The Officer’s stance was that even if the loan was repaid through the supply of goods, it still constituted a breach of section 269T. Consequently, a penalty under section 271E was levied on the taxpayer. The issue in question was whether the repayment of a loan through goods supply constituted a violation under section 269T. The conclusion was affirmative, stating that the taxpayer’s explanation, having been rejected merely on suspicion, did not actually breach section 269T, and thus the penalty imposition was deemed unwarranted. This decision favoured the taxpayer and was supported by the circular No. 387, dated 6th July 1986.”
Facts of the Case –
1. Business Background: The assessee was engaged in the manufacturing of knitted cloth.
2. Financial Transactions: During the financial year ending on 31st March 2015, the assessee received Rs. 6.38 lakhs from a party ‘V’, recorded as an unsecured loan in the account books.
3. Subsequent Sale and Adjustment: In the assessment year 2017-18, the assessee reported the sale of knitted cloth worth Rs. 6.38 lakhs to ‘V’, adjusting this sale against the credit amount of ‘V’.
4. Assessment Officer’s Findings: The Assessing Officer noted that the sum of Rs. 6.38 lakhs was listed as an unsecured loan in the financial year ending 31st March 2016. The auditor’s report indicated that this amount was repaid to ‘V’, but not through a banking channel as required by section 269T.
5. Violation of Section 269T: The Officer interpreted this as a cash repayment of the unsecured loan to ‘V’, constituting a contravention of section 269T. The explanation of a sale to ‘V’ was rejected.
6. Repayment Method Issue: The Officer further stated that even if the assessee’s claim of repayment through goods supply was considered, it would still be a violation of section 269T.
7. Penalty Imposition: Consequently, a penalty under section 271E was imposed on the assessee for these actions.
8. Appeal Outcome: The Commissioner (Appeals) affirmed the decision to uphold the penalty order.
On appeal to Tribunal – HELD THAT :
1. Consideration of Repayment Methods: The issue at hand is whether repayment of loans can be made only through banking channels (like cheques, drafts, ECS) or cash, or if there’s a third method where the assessee repays in kind by selling goods and adjusting against the initial amount received. The decision on the mode of repayment rests with the assessee and the other party, and the law does not restrict this choice.
2. Flexibility in Repayment: Even if transactions are initially loans or deposits, repayment can be mutually decided as in-kind, not limited to fund transfers. Section 269SS restricts accepting loans in cash beyond a threshold, and section 269T applies similarly for cash repayments.
3. Rationale for Sections 269SS and 269T: Section 269SS, introduced to prevent tax evasion by disguising unaccounted cash as loans, mandates receiving loans over Rs. 10,000 through banking channels. The same logic applies to repayments under section 269T.
4. Judicial Perspective: The Madras High Court in CIT v. Rugmini Ram Ragav Spinners held that sections 269SS and 269T aim to prevent laundering of concealed income. The court disagreed with the Assessing Officer’s view that repayment through goods falls under section 269T’s contravention.
5. Tax Audit Report Considerations: The transaction’s reporting in the tax audit report must be examined alongside the assessee’s explanation to ascertain any section 269T violation.
6. Assessee’s Explanation: The assessee explained receiving Rs. 6.38 lakhs via cheque from ‘V’ in 2015 and selling goods of the same value to ‘V’ in 2017, adjusting against ‘V”s credit. This, according to the assessee, doesn’t violate section 269T.
7. Assessing Officer’s Rejection: The Assessing Officer rejected the assessee’s claim for lack of proof of delivery and transportation method, doubting the transaction’s authenticity.
8. Need for Corroborative Evidence: Strong apprehensions need backing evidence. The assessee’s provided documentation supports the sale, which was recorded in financial statements and VAT filings. The absence of contrary findings by the Assessing Officer weakens the argument against the assessee.
9. Conclusion and Penalty Reversal: Considering the facts and circumstances, there’s no violation of section 269T, leading to the setting aside of the penalty under section 271E.
CASE REVIEW
CIT v. Rugmini Ram Ragav Spinners (P.) Ltd. [2008] 304 ITR 417 (Mad.) (para 15) followed.
CASES REFERRED TO
CIT v. Rugmini Ram Ragav Spinners (P.) Ltd. [2008] 304 ITR 417 (Mad.) (para 15).
Sudhir Sehgal, Adv. for the Appellant.Smt. Amanpreet Kaur, Sr. DR for the Respondent.
Vikram Singh Yadav, Accountant Member. –
1. This is an appeal filed by the Assessee against the order of the Ld. CIT(A)-5, Ludhiana dt. 08/02/2023 pertaining to Assessment Year 2017-18.
2. In the present appeal, the Assessee has raised following grounds of appeal:
| 1. | “That the Ld. CIT(A) has erred in confirming the action of the Ld. AO and impose the penalty u/s 271E. | |
| 2. | That the Ld. CIT(A) has failed to appreciate the written submissions filed during the appeal proceedings. | |
| 3. | That the order passed by the Ld. CIT(A)-5 Ludhiana is bad in law therefore the same may please be quashed. | |
| 4. | That the appellant craves leave to add, amend, alter any ground or grounds of appeal during the course of hearing.” |
3. During the course of hearing, the Ld. AR submitted that the assessee is engaged in the business of manufacturing of knitted cloth and the basic raw material for that purpose is yarn as per ‘manufacturing Account’ attached at page 5 of the Paper Book. The return was filed on the basis of audited books of accounts, along with the Tax Audit report, which have been placed at pages 4 to 19 of the Paper Book and the relevant page is page 15 Col. No. 31( c). Based on this, the proceedings u/s 271E were initiated and there was no dispute during the course of assessment proceedings and, the assessee was show caused by way of notice placed at pages 20 to 21 of the Paper Book, for the purposes of levy of penalty.
3.1 It was submitted that the reply along with annexure was submitted on income tax portal of the assessee to the Add. CIT as per Pages 22 to 25 of the Paper Book and it was stated that, in fact, certain amount of Rs. 6,38,000/- was received for the year ending 31-3-2015, through banking channel and further the amount of Rs. 2 lacs was received through banking channel in Financial year 2015-16 and during the same year, the goods of Rs. 2 lacs were supplied and then in financial year 2016-17, the goods worth Rs. 6,38,000/- were supplied and the advance amount was adjusted.
3.2 It was submitted that the Ld. Addl. CIT has recorded these submissions but has stated that this sum of Rs. 6,38,000/- was shown as unsecured loan in the year 31-3-2016 and also he has referred to page 15 of the Paper Book, which is the Tax Audit report and at page 7 of the penalty order, wherein, he has interpreted that since the amount of Rs. 6,38,000/-was paid by cash and, therefore, has levied the penalty.
3.3 It was further submitted that it was the case of Addl. CIT (Central) that there is no proof of delivery of goods by the transporter. The assessee had also submitted the copy of the bills to prove that the sales have been made in earlier year and also it was stated that the goods were transported to the buyer as per Tempo sent by him.
3.4 It was submitted that before the Ld. CIT(A), written submissions had been filed and which have been placed at pages 28 to 37 along with Annexures, copies of the bills, VAT returns and these VAT returns were also filed before the Assessing Officer to prove that the sales have been made and recorded in the audited books of accounts. Even, the copy of the sale register has been filed and the relevant page is 37.
3.5 It was further submitted that the Ld. CIT(A) had dismissed the appeal of the assessee as per finding made in para 5 and has given a finding that in the garb of trading activity, the unsecured loan has been introduced and the amount has been returned in violation of section 269T.
4. In the aforesaid factual matrix of the case, the ld AR has raised various contentions and which are contained in the written submissions and the same read as under:
| “(i). | It is most importantly to mention here that the provisions of section 269T are not applicable as section 269T is applicable in the case where the assessee repays any loan or deposit otherwise than by account payee cheque or account payee bank draft. Explanation to section 269T defines “the loan or deposit”. The loan or deposit means any loan or deposit of money which is repayable after notice or repayable after a period and in the case of a person other than a company, includes loan or deposit of any nature. | |
| (ii). | In the case under consideration the assessee has furnished the material in support of the fact that the repayment was neither deposit nor loan as the same was sales made of knitted cloth against the advance received in the previous year. The copy of the ledger account of the customer and copies of the sale bills are placed at the pages 32 to 34 of the Paper Book. | |
| (iii). | It is worth here to mention that the Assessee has filed the copy of the Annual Vat Return (Form VAT-15) along with the sale register for the period under consideration where there it has been clearly reflected the assessee has made sale to Vipan Kumar and the same is as per the regular audited financials of the assessee placed at the pages 35 to 37 of the Paper Book. | |
| (iv). | As per the CBDT in its explanatory note on the provisions of the Finance Act, 1984 vide Circular No. 387 dated 6th July, 1984 clarified that the provisions contained in section 269SS is confined to loans and deposits only and does not extend to purchase/sale transaction. The same is as under: |
“With a view to countering this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Finance Act has inserted a new section 269SS in the Income-tax Act debarring persons from taking or accepting, after 30th June, 1984, from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of such loan or deposit or the aggregate amount of such loan and deposit is Rs. 10,000 or more. This prohibition will also apply in cases where on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), and the amount or the aggregate amount remaining unpaid is Rs. 10,000 or more. The prohibition will also apply in cases where the amount of such loan or deposit, together with the aggregate amount remaining unpaid on the date on which such loan or deposit is proposed to be taken, is Rs. 10,000 or more.
Fears have been expressed in certain quarters that the provision will adversely affect the rural sector and farmers who bring produce to mandies for sale. The prohibition contained in section 269SS is confined to loans and deposits only and does not extend to purchase/sale transactions.”
| (v). | Thus, the admitted fact in the case under consideration are that there is no repayment of loan or deposit but the same was sales against the advance received from its customer in earlier years. “Therefore, it is to state that loan or deposit of any nature is required to be read along with earlier wording of the explanation which says loan or deposit of money which is repaid after notice or repayable after a period”. | |
| (vi). | Further, the Assessing Officer has accepted the sales as per trading account and how he can say that it is a loan repayment and actually, he has drawn incorrect meaning of Audit Report. | |
| (vii). | It is submitted that if we read clause 31 (c) of the Audit report, what has been clarified is that since the amount of Rs. 6,38,000/- has been adjusted by way of sales during the year under consideration as per copy of account submitted and also the same is evident from VAT return and, thus, the whole basis of levy of penalty is unjustified and not proper and there is no omission or error by the assessee as in the respective column, only yes or no has been mentioned. These are factual facts and the finding of the Ld. CIT (A) that even if, it is trading transaction, the provisions of section 269T are still to be applicable, which is contrary to the circular. Reliance is being placed on the following judgments:- |
| • | M/S. ORISON TRANSPORT v. DCIT IN THE IT(SS)A NO.51/CTK/2017 of the Hon’ble ITAT Cuttack Bench wherein it has been stated as under: |
“Thus, it is observed that it is not in dispute that what the assessee has repaid in cash in advance received by it from its customers. We find that the Hon’ble CBDT in Circular No. 387 of 6-7-1984 held “receiving advance and repayment of advance is a business transaction. The prohibition contained in section 269SS is confined to loans and deposits only and does not extend to purchase/sale transactions.” In view of above and keeping in view the provisions of section 273B of the Act, we find that the belief of the assessee that return of advance from customers is not prohibited by section 269T was a bona fide belief. Therefore, the levy of penalty u/s.271E of the Act of Rs. 21,49,943/- cannot be sustained.
“Section 269T, read with section 271E of the Income-tax Act, 1961 – Deposit – Mode of repayment [Earnest money] – Assessment year 2006-07 -Whether, where assessee-company, engaged in construction, repaid earnest money/advances to certain parties in cash, section 269T was not applicable as repayments were not in nature of repayment of loan or deposits – Held, yes -Whether, therefore penalty under section 271E for violation of section 269T, for making payments in excess of Rs. 20,000 in cash, could not be levied – Held, yes [Para 7] [In favour of assessee].
“The Id. AR by referring to balance sheet as on 31st March, 2005 of which copy has been placed at page 150 of the Paper Book, where such advances from customers have been shown under the head “current liabilities” established that during the year the payments made were out of that advance from customers. The Id. AR demonstrated this fact by referring the relevant schedule of financial statements of which copies have been placed at pages 155 & 156 of the Paper Book. The assessee has also furnished copies of account and confirmations from the parties which have been placed at pages 162 to 189 of the Paper Book. In the confirmations the concerned parties clearly confirmed that the amount was refunded on cancellation of booking of flats etc. which were given as advance in earlier years. Receiving advance and repayment of advances is a business transaction and such transaction is not covered by section 269T of the Act read with section 273B is not leviable. There is no material or evidence or any compelling reasons produced by the Revenue to prove that the money received is a deposit or loan. In the light of above discussion, we do not find any infirmity in the order of Id. CIT(A). The order of Id. CIT(A) is confirmed. The appeal filed by the Revenue is dismissed.
In view of above said facts and case, the penalty as levied by the Addl.CIT (Central), may please be deleted.”
5. The Ld. DR is heard who has relied on the orders of the authorities below and has drawn our reference to the findings of the Ld. CIT(A) which are contained in para 5.3. and 5.4 of the impugned order and contents thereof read as under:
“5.3 Grounds of Appeal Nos. 2, 3 & 5: In brief, the Additional CIT, Range Central, Ludhiana imposed penalty of Rs. 6,38,000/- u/s 271E of the Income-tax Act, 1961 in light of contravention of provisions of Section 269T of the Income-tax Act, 1961. The Addl. CIT while passing the order u/s 271E has made the following observations:
| a. | The assessee has received an unsecured loan of Rs. 6.38 lacs from Sh. Vipan Kumar. | |
| b. | The said fact has been clearly recorded by the Auditor in para 31(a) of Form 3CB dated 31-8-2015 and has been duly signed by the Auditor. | |
| c. | That the assessee had repaid the sum of Rs. 6.38 lacs to Sh. Vipan Kumar and the said payment was not made through banking channel as mandated u/s 269T of the Income-tax Act, 1961. | |
| d. | The said fact has been duly recorded in para 31(c) of the report dated 21-9-2017 signed by the Auditor Sh. Madhur Gupta. | |
| e. | That the repayment of loan of Rs. 6.38 lacs via mode other than through banking channel was in violation of Section 269T of the Income-tax Act, 1961 which led to levy of penalty u/s 271E of the Income-tax Act, 1961. |
The AR in his reply before the Addl. CIT and during the appellate proceedings submitted that the assessee had received advance amounting to Rs. 6.38 lacs in the year 2015 and the same was for sale of knitted cloth which was supplied during the year 2017, As an evidence for the same, the AR submitted copies of bills, copies of VAT return etc. The AR has further contended that the advance received has been treated as unsecured loan by the Addl. CIT and the penalty levied is uncalled for.
A perusal of para 4.2 of the penalty order reveals that the penalty has been levied on the basis of clear findings recorded in the audit report. As per the penalty order, para 31(a) of Form 3CB dated 31-8-2015 signed by the Shaifali Dhawan, CA shows that the assessee has accepted a sum of Rs. 6.38 lacs from Sh. Vipan Kumar as unsecured loan in excess of the limit prescribed under section 269SS of the Income-tax Act, 1961.
Further, as per para 4.2 of the penalty order, the said amount of Rs. 6.38 lacs has been shown in the column of unsecured loan received as on 31-3-2016. As per para 4.4 of the penalty order, during the year ending 2016-2017, the assessee has repaid a sum of Rs. 6.38 lacs to Sh. Vipan Kumar and this fact has been duly recorded by the Auditor Sh. Madhur Gupta in para 31(c) of report dated 21-9-2017 wherein, the Auditor has clearly mentioned that the repayment was not done as per procedure mandated u/s 269T of the Income-tax Act, 1961.
Further, the Addl. CIT (Central), in the penalty order has highlighted the fact that if the claim of the assessee is considered then the advance for sale of knitted cloth was received two years before the actual sale was made which is not an acceptable proposition. Moreover, the Addl. CIT (Central) has pointed out that the movement of goods on account of alleged sales, if made, could not be proved by the assessee.
The facts regarding the violations of section 269T of the Income-tax Act, 1961 have been duly mentioned by the Auditor in the Audit Report. The assessee has also recorded the transactions with Sh. Vipan Kumar as unsecured loans in its books of accounts. Subsequently, the assessee has tried to put a garb of trade activity to the said transaction. Had the said amount been received in the nature of advance, then the same should not have been reflected as an unsecured loan in the balance sheet. Moreover, the said transactions in violation of Section 269T have been duly recorded by the Auditor in its Audit Report. The Addl. CIT has further held in para 5.3 of his order that even if, for academic purpose, it is considered that the said transaction was a trade transaction, the provisions of Section 269T would still be applicable to the facts of the case.
The assessee has not been able to controvert the fact that the Auditor recorded the observation regarding violation of Section 269T clearly in the audit report. In view of above facts and discussion, it is seen that the Addl. CIT (Central) has rightly levied the penalty u/s 271E of the Income-tax Act, 1961 and the same is confirmed. Accordingly, these grounds of appeal are dismissed.”
6. We have heard the rival contentions and pursued the material available on record. The penalty has been levied on the assessee u/s 271E for contravention of provisions of section 269T of the Act. As per the ld Additional CIT, it is a case of repayment of unsecured loan of an amount of Rs. 6,38,000/- in cash to Shri Vipan Kumar which is beyond the limits specified u/s 269T as well as the fact that the repayment has been made in a mode other than through cheque, draft or use of electronic clearing system through a bank account and hence, there is contravention of provisions of section 269T of the Act.
7. As we have noticed from the records and material before us, the genesis of the show-cause as well as subsequent findings in the penalty order as well as the appellate order is the tax audit report wherein the transaction with Shri Vipan Kumar has been reported by the tax auditor.
8. In the tax audit report for the financial year ended 31/03/2017, it has been reported by the tax auditor in negative wherein he has been asked to state whether the repayment was made by cheque or bank draft or use of electronic clearing system through a bank account. Basis the same, the Additional CIT has held that it is a case of repayment of loan in cash and hence, the violation of section 269T of the Act.
9. The ld. Additional CIT has further examined and looked at the tax audit report for the earlier financial year ended 31/03/2015 wherein the tax auditor has reported a sum of Rs. 6,38,000/- received from Shri Vipan Kumar while reporting the transactions u/s 269SS, tax audit report for the financial year ended 31/03/2016 wherein the tax auditor has reported another sum of Rs. 2,00,000/-received from Shri Vipan Kumar while reporting the transactions u/s 269SS and details of unsecured loan in balance sheet for the year ended 31/03/2016 wherein an amount of Rs. 6,38,000/- has been shown against the name of Shri Vipan Kumar. Basis the same, it was held that by the Additional CIT that the assessee had initially accepted a sum of Rs. 6,38,000/- as unsecured loan in financial year 2014-15 and another sum of unsecured loan of Rs. 2,00,000/-during the financial year 2015-16 and thereafter, during the year under consideration, a sum of Rs. 6,38,000/- has been repaid in cash otherwise than through the cross cheque or bank draft or ECS in contravention of provisions of section 269T of the Act.
10. The ld. Additional CIT has not accepted the assessee’s explanation that it is a case of sale of knitted cloth to Shri Vipan Kumar for the reason that the assessee has failed to prove the delivery and mode of transportation and secondly, it is not a case of any rare or scare item for which any customer will make advance payment and wait for good two years for the items to be supplied. The Additional CIT has held that there has been no such transaction of sale of knitted cloth as claimed by the assessee.
11. It has been further held by the ld. Additional CIT that even where the assessee’s submissions are considered, the repayment of loan by supplying goods would still fall in the ambit of contravention as so specified in section 269T and he has accordingly levied the penalty u/s 271E of the Act.
12. The ld CIT(A) has confirmed the findings of the ld Additional CIT holding that the assessee has not been able to controvert the fact that auditor has clearly recorded the violation of section 269T in the audit report.
13. Before us, it has been contended by the ld AR that if we read clause 31(c) of the Tax Audit report, only “yes” or “no” has to be mentioned in response to whether the repayment was made by cheque or bank draft or use of electronic clearing system through a bank account. It was submitted that in the instant case, the tax auditor has stated “no” in the said column and the Additional CIT has construed the said reporting as a case of repayment of loan in cash and hence, the violation of section 269T of the Act which is factually not correct. It was submitted that it is a case where there is no repayment in cash and it is a case where the amount of advance of Rs. 6,38,000/- has been adjusted against sales made during the year and which has been duly reported in the trading account and necessary documentation has been placed on record.
14. It is not in dispute that the transaction undertaken by the assessee with Shri Vipan kumar has been reported by the tax auditor in the tax audit report as part of reporting of transactions specified u/s 269SS for the financial year ended 31/03/2015 wherein Rs. 6,38,000/- has been received through cheques on various dates and thereafter, another transaction of Rs. 2,00,000/- which has been received by the assessee through cheque and which has been reported as part of reporting of transactions specified u/s 269SS audit report for the financial year ended 31/03/2016. Thereafter, the tax auditor has reported the transaction by way of repayment of Rs. 6,38,000/- as part of reporting of transactions specified u/s 269T of the Act for the financial year ended 31/03/2017.
15. The question that arises for consideration is whether the repayment of loans and deposits can be made only through any of the mode of transfer through the banking channel in terms of cheque, draft, ECS, etc or through cash or there could be a third mode of repayment whereby the assessee repays the amount in kind by selling the goods manufactured by him and adjusting the same against the amount received initially. In our understanding, the decision solely rest on the assessee and the other party and repayment could take one or more form of repayment and there is nothing in law that stops the assessee. Even where the transactions are initially construed and treated as loans or deposits, the repayment thereof could be mutually decided by way of repayment in kind and not necessarily through transfer of funds. The restrictions imposed u/s 269SS in terms of initial receipt of loans and deposits are in situations where the acceptance of loans and deposits is in cash beyond the prescribed threshold and restrictions imposed u/s 269T in terms of repayment of loans and deposits applies where the repayment is in cash beyond the prescribed threshold. The said rationale behind introduction of section 269SS has been explained by the CBDT in its explanatory circular no. 387 dated 6/07/1984 on the provisions of the Finance Act, 1984 whereby section 269SS was brought on the statue books and wherein it was stated that the unaccounted cash found in the course of search carried out by the Income-tax department is often explained by the tax payers as representing loans taken from or deposits made by various persons and with a view to counter this device, a new section 269SS is inserted debarring persons from taking or accepting any loan or deposit otherwise than by an account payee cheque or account payee demand draft aggregating to Rs. 10,000 or more. Similar rationale thus applies in the context of repayment as provided u/s 269T of the Act. The Hon’ble Madras High Court in case of CIT v. Rugmini Ram Ragav Spinners (P.) Ltd. [2008] 304 ITR 417 has similarly held that the rationale behind provisions of section 269SS and 269T is to prevent tax evasion i.e, laundering of concealed income by the parties in the guise of cash loans or deposits in or outside the accounts. Therefore, we donot agree with the findings of the ld. Additional CIT that even where the assessee’s submissions are considered, the repayment of loan by supplying goods would still fall in the ambit of contravention as so specified in section 269T of the Act.
16. In light of above, the reporting of the transaction in the tax audit report by the tax auditor has to be examined taking into consideration the explanation so furnished by the assessee to determine whether there is any violation of section 269T or not in the instant case.
17. It has been explained by the assessee that an amount of Rs. 6,38,000/- was received through cheque during the financial year ended 31/03/2015 and another sum of Rs. 2,00,000/- through cheque during the financial year ended 31/03/2016 from Shri Vipan kumar. It has been further submitted that the assessee has sold knitted cloth worth Rs. 2,00,000 to Shri Vipan Kumar during the financial year ended 31/03/2016 and knitted cloth worth Rs. 6,38,000/- to Shri Vipan Kumar during the financial year ended 31/03/2017 which is the year under consideration. It has been accordingly submitted that there is no repayment in cash rather the assessee has sold goods worth Rs. 6,38,000/- and which has been adjusted against the amount standing to the credit of Shri Vipan Kumar and there is thus no violation of section 269T of the Act. In support of his explanation, the assessee has produced the ledger account of Shri Vipan kumar, copy of sale bills raised on Shri Vipan Kumar, copy of the VAT return, copy of sale register where the transactions with Shri Vipan Kumar are reported and the fact that the sales have been duly reported in the financial statements and accepted by the Revenue authorities without any adverse findings. The ld. Additional CIT has not accepted the assessee’s explanation that it is a case of sale of knitted cloth to Shri Vipan Kumar for the reason that the assessee has failed to prove the delivery and mode of transportation ignoring the explanation of the assessee that goods were transported through the vehicle sent by Shri Vipan Kumar, and secondly, it is not a case of any rare or scare item for which any customer will make advance payment and wait for good two years for the items to be supplied. The Additional CIT has held that there has been no such transaction of sale of knitted cloth as claimed by the assessee.
18. To our mind, the apprehension howsoever strong need to be supported by certain corroborative evidence and in absence thereof, the denial of existence of the transaction as so claimed by the assessee cannot be upheld. In the instant case, the assessee has produced relevant documentation in support of his sale transactions which are reported in the financial statement and duly offered to tax and has also reported the same as part of its regular VAT filings with the VAT authorities. What further documentation is required from the assessee has not been specified nor has the existence of these documents been denied. There is no adverse findings recorded by the AO in accepting the sale transactions as part of the return of income and therefore, where the Additional CIT is disputing the same transaction while deciding the penalty matter, the same carries an additional burden which has not been discharged in the instant case. There was nothing which stops the Additional CIT in calling Shri Vipan Kumar and recording his statement in order to verify the authencity of the explanation so submitted by the assessee. There was nothing which stops the Additional CIT in calling for the books of accounts which includes the cash book, sale register and other ledgers and examining the claim of the assessee that there was no cash payment and sales were made to Shri Vipan Kumar. However, nothing has been done in the instant case and merely basis the apprehension, the explanation of the assessee has been rejected.
19. In light of aforesaid discussion and in the entirety of facts and circumstances of the case, we are of the considered view that there is no violation of section 269T in the instant case and levy of penalty u/s 271E is accordingly set-aside.
[2024] 158 taxmann.com 155 (Chandigarh – Trib.)
IN THE ITAT CHANDIGARH BENCH ‘B’
Gurinder Makkar
v.
Deputy Commissioner of Income-tax*
AAKASH DEEP JAIN, VICE PRESIDENT
AND VIKRAM SINGH YADAV, ACCOUNTANT MEMBER
IT APPEAL NO. 201 (CHD.) OF 2023
[ASSESSMENT YEAR 2017-18]
SEPTEMBER 27, 2023
