Cash Loan Repayment at Lender’s Request Valid Reason Under Section 273B | HC

Case Details: Kamaljeet Kaur Gill vs. Joint Commissioner of Income-tax - [2025] 174 taxmann.com 17 (Chhattisgarh)

Judiciary and Counsel Details

• Sanjay K. Agarwal & Deepak Kumar Tiwari, JJ.
• Siddharth Dubey, Adv., for the Appellant.
• Ajay Kumrani, Adv., for the Respondent.

Facts of the Case

The assessee repaid a loan in cash, contravening the modes prescribed under section 269T. The assessee contended that she made a cash payment because the financer had insisted on cash repayment of loan instalments. Therefore, she was constrained to make payments in cash. AO imposed a penalty on the assessee under section 271E for repaying the loans in contravention of the mode prescribed under section 269T.

On appeal, CIT(A) and the Tribunal confirmed the penalty. The aggrieved assessee filed the instant appeal before the High Court.

High Court Held

The High Court held that the provision of section 271E included in Chapter XXI of the Act deals with penalties for failure to comply with the provisions of section 269T. It speaks of the levy of a penalty equal to the deposit amount repaid in contravention of section 269T. Section 271E is a penal provision, as the assessee’s failure to comply with the provisions contained in section 269T would attract a penalty as a sum equal to the amount of the loan or deposit. This penal provision has to be construed strictly.

Further, section 273B is a provision that contemplates certain exigencies in which, though the assessee is liable to suffer a penalty, the penalty is not to be imposed in certain cases. Section 273B also includes reference of Section 271E.

Section 273B says that no penalty shall be imposed for any failure referred to in the said provisions if the assessee proves that there was reasonable cause for the said failure. However, the word ‘reasonable cause’ has not been defined. Therefore, in the context of the penalty provisions, the words ‘reasonable cause’ would mean a cause beyond the assessee’s control.

‘Reasonable cause’ obviously means a cause which prevents a reasonable man of ordinary prudence from acting under normal circumstances without negligence or inaction or want of bona fides. Bona fide belief coupled with the genuineness of the transactions would constitute a reasonable cause.

Furthermore, the bona fide transaction that did not aim to avoid any tax liability would constitute a reasonable cause within the meaning of section 273B for not invoking section 271E.

In the instant case, the finance company insisted upon the assessee’s repayment of the loan in cash, which persuaded the assessee to make the payment of the loan amount in cash. This would constitute a reasonable cause within the meaning of section 273B. Therefore, the assessee was not liable to pay penalty under section 271E for non-compliance with section 269T.

List of Cases Reviewed

• Hindustan Steel Ltd. v. State of Orissa (1969) 2 SCC 627 (Para 13)
• Assistant Director of Inspection v. Kum. A.B. Shanthi [2002] 122 Taxman 574 (SC) (Para 16)
• Azadi Bachao Andolan v. Union of India 2001 SCC OnLine Del 293 (Para 18) followed.
• Order passed by Tribunal, Raipur Bench, Raipur, in ITA No.251/RPR/2022 dated 6-9-2023 (Para 22) reversed.

List of Cases Referred to

• Hindustan Steel Ltd. v. State of Orissa (1969) 2 SCC 627 (para 13)
• Asstt. Director of Inspection v. Kum. A.B. Shanthi [2002] 122 Taxman 574/255 ITR 258 (SC) (para 16)
• Azadi Bachao Andolan v. Union of India 2001 SCC OnLine Del 293 (para 18).