Taxpayer Appeals Dismissed: Penalty Upheld for Violation of Section 269T - Insights into the Recent Tax Dispute

Introduction

• The recent appeals filed by the taxpayer are in response to orders passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 25.10.2022. These orders are based on an earlier decision by the JCIT, Range-3, Raipur, dated 28.12.2018, under Section 271E of the Income-tax Act, 1961 (hereafter referred to as the 'Act'), pertaining to Assessment Years (A.Ys.) 2012-13, 2013-14, and 2015-16. Given that common issues are involved in these appeals, they are being addressed together through this consolidated article.

Background

• The primary issue at hand revolves around the penalty imposed by the Joint Commissioner of Income Tax-Range-3, Raipur, under Section 271E of the Act. This penalty arose due to the taxpayer's repayment of loans to M/s. Tata Finance Corporation in cash, which was deemed a violation of the provisions of Section 269T of the Act.
• Section 269T of the Act lays down strict guidelines for the repayment of loans and deposits. It mandates that such repayments must be made through account payee cheques, account payee bank drafts, electronic clearing systems, or other prescribed electronic modes.

The Taxpayer's Perspective

The taxpayer's argument for their actions stems from two key points:

1. Collection Agent's Demand for Cash: The taxpayer claimed that the collection agents of M/s. Tata Finance Corporation insisted on cash repayment of loan installments due to her abysmal repayment record. In this regard, she argued that she had little choice but to make these payments in cash to ensure the continuity of her financial obligations.

2. Ignorance of the Law: The taxpayer also stated that she was unaware of the provisions of Section 269T of the Act at the time of these transactions. She emphasized that her accounts were audited by a Chartered Accountant, suggesting that her ignorance was not intentional.

The Tax Authorities' Perspective

• The Joint Commissioner of Income Tax (JCIT) took a different view. They argued that the taxpayer should not have followed the instructions of the financers, which were in direct contravention of the provisions of Section 269T of the Act. Additionally, the JCIT contended that even if the financers were unwilling to accept payments by cheque due to the taxpayer's history of dishonored cheques, alternative methods like account payee bank drafts or electronic clearing systems should have been utilized. Furthermore, the JCIT rejected the taxpayer's plea of ignorance, citing her engagement of a Chartered Accountant for audit as evidence that she should have been aware of the law's provisions.

The Appellate Process

• The taxpayer, dissatisfied with the JCIT's decision, appealed to the Commissioner of Income-Tax (Appeals), NFAC. However, the appeal was dismissed. Consequently, the taxpayer escalated the matter to the higher appellate authority.

The Higher Appellate Authority's Decision

Upon hearing the arguments of both parties and examining the relevant legal provisions, the higher appellate authority upheld the penalty imposed by the JCIT under Section 271E of the Act. Their decision rested on the following grounds:

1. Alternative Repayment Methods: The taxpayer had the option to make repayments through account payee bank drafts, electronic clearing systems, or other prescribed electronic modes, as provided by Section 269T of the Act. Therefore, the claim that the financers' insistence on cash was the only viable option did not hold.

2. Ignorance of the Law: The taxpayer's ignorance of the provisions of Section 269T was not a valid defense, given that she had engaged a Chartered Accountant for audit purposes. It is well-established that ignorance of the law cannot excuse non-compliance.

3. Individual Case Evaluation: The fact that a penalty imposed on a relative of the taxpayer had been vacated by the CIT(A), NFAC did not apply directly to this case, as each case is assessed on its own merits.

Conclusion

• In conclusion, the taxpayer's appeals against the penalties imposed under Section 271E of the Income-tax Act have been dismissed by the higher appellate authority. The authority found no merit in the taxpayer's arguments that her actions were justified due to collection agents' demands or her ignorance of the law. The decision reinforces the importance of taxpayers complying with the statutory provisions of the Income-tax Act and seeking professional guidance to ensure adherence to tax laws and regulations.

Topic- KamaLjeet Kaur Gill Versus Joint Commissioner of Income Tax

Court-ITAT-Raipur

Date-06/09/2023

Team Taxonation