Section 271E

Section 271E — the law in short

What the courts have decided on section 271E, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Jai Laxmi Rice Mills Supreme CourtHelps taxpayer
  The assessment in which the s.271E satisfaction was recorded has been set aside. Can the penalty stand?
  No. The Supreme Court held that once the original assessment order was set aside, the satisfaction recorded in it for initiating penalty under s.271E did not survive, and a penalty imposed on the basis of that order could not be sustained.
• Sandeep Kaur Gill v Union of India High CourtHelps taxpayerValidity unconfirmed
  The financier insisted on cash. Can they penalise me under 271E for repaying the loan in cash?
  Not where reasonable cause is shown. Section 269T is mandatory, but bona fide belief coupled with the genuineness of the transaction is reasonable cause under s.273B, and once that is shown no penalty under s.271E is attracted.
• Pr. Commissioner of Income Tax v Shree Madhi Surali Vibhag Nagarik Sahakari Dhiran Mandli Ltd High CourtHelps taxpayer
  Our credit society takes and repays members' money in cash across the counter like a bank. The officer has levied penalty under sections 271D and 271E on the whole turnover. Can it stand?
  No, on these facts. The Gujarat High Court upheld the deletion of penalties of Rs 28,66,93,898 under section 271D and Rs 27,12,01,825 under section 271E. Section 273B says no penalty is imposable if the person proves reasonable cause, and that gives the authority a discretion to be exercised justly on the record. The Commissioner (Appeals) and the Tribunal found on the facts that the society, whose members' accounts work like savings accounts repayable on demand, acted on a bona fide belief that sections 269SS and 269T did not apply, that the deposits were accepted as genuine with no addition made, and that its auditor had never reported a contravention. The Court found no legal infirmity and dismissed the Revenue's appeal, holding that no substantial question of law arose.
• PCIT v JKD Capital & Finlease Ltd High CourtHelps taxpayer
  The assessing officer directed penalty under section 271E in my assessment order, but the Additional Commissioner only issued the show cause notice years later. Is that penalty time barred?
  Yes. The Delhi High Court held that under section 275(1)(c) time runs from when the Assessing Officer initiated the action - here December 2007, in the assessment order - not from the Additional Commissioner's show cause notice issued five years later. The penalty order therefore had to be passed by 30 June 2008, the later of the two limits in the clause. An order of 20 March 2012 was out of time. The Court also held that penalty for breach of section 269T is independent of the quantum proceedings, so an appeal against the assessment does not extend time. Appeal dismissed.
• CIT v Triumph International Finance (I) Ltd High CourtCuts both waysValidity unconfirmed
  We settled a loan against an amount the same party owed us, by journal entry, and paid only the small balance by cheque — can penalty under section 271E be levied?
  It depends, and on this record no. The Bombay High Court held on 12 June 2012 that repaying a loan or deposit by journal entry does contravene section 269T: the section draws no line between bona fide and other transactions, and does not speak of an outflow of funds, it simply bars every mode except an account payee cheque or draft. But section 273B saves the assessee where reasonable cause is shown, and that expression is wider than sufficient cause and is construed liberally. Here the same party owed the assessee almost the identical sum for shares, the genuineness of both legs was never doubted, and the penalty of Rs.4,28,99,325 was rightly deleted.
• CIT v Sunil Kumar Goel High CourtHelps taxpayerValidity unconfirmed
  I took and repaid small cash loans from my family's sister concern, all recorded in the books. Must penalty follow automatically under sections 271D and 271E?
  No. The Punjab and Haryana High Court held that section 273B opens with a non obstante clause and overrides sections 271D and 271E, so an assessee who proves reasonable cause escapes penalty even though section 269SS or 269T has been contravened. On these facts the Tribunal had found the cash loans were between family members and a sister concern, taken for business exigency, entered in cash books produced to the Revenue, with no tax avoidance or evasion and no prejudice to the Revenue. That is reasonable cause, and whether it exists is a finding of fact giving rise to no substantial question of law.
• DCIT v Umiya Co-operative Credit Society Ltd ITATHelps taxpayerValidity unconfirmed
  Our credit society takes deposits and repays loans in cash to members. Can the department levy 271D and 271E on the whole amount?
  Not where the transactions are genuine dealings with members in the ordinary course. The Tribunal upheld the deletion of penalties under s.271D and s.271E on cash deposits and repayments of roughly Rs 28 crore and Rs 27 crore, treating a co-operative credit society's dealings with its own limited membership as attracting the reasonable cause protection in s.273B, particularly where no addition was made in the assessment and the genuineness of the transactions was not in dispute.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.