Section 269T of the Income –Tax Act – Whether repayment of capital to partners in the guise of uncrossed cheque would tantamount to invite penalty under section 269 T?

Section 269T of the Income –Tax Act – Whether repayment of capital to partners in the guise of uncrossed cheque would tantamount to invite penalty under section 269 T?

Case : ITO Vs M/s Universal Associates (ITAT Ahmadabad)

Issue : Whether repayment of capital to partners in the guise of uncrossed cheque would tantamount to invite penalty under section 269 T?

Facts of the Case:

Section 269T of the Income –Tax Act stipulates that no company (including a banking company), co-operative society or firm shall repay to any person any deposit otherwise than by an account payee cheque or account payee bank draft where the amount of the deposit, or where the amount of the deposit is to be repaid together with any interest, the aggregate of the amount of the deposit and such interest, is ten thousand rupees or more.

In this case , IT Appellate Tribunal was of the view that the assessee has been able to explain reasonable cause for failure to observe with the provisions of law under section section 269 T. The defendant firm repaid the partner’s capital along with interest at the time of their retirement through uncrossed cheques and it able to prove that it had reasonable cause for failure to comply with the provisions of law.

In this case , CIT was of the view that assessee made payments bona fide and the default was highly technical in nature and  hence, the learned CIT(A) found justification in defendant’s claim and thus in canceled the penalty.

The Appellate Tribunal in this case , was of the view that penalty levied by the Assessing Officer merely on technical mistake if any committed by the assessee which has not resulted in any loss of revenue, the levy of penalty was harsh and could not have been sustained in law.