HC Deletes Penalty As No Cash Involved If Lender Repaid Loan by Paying to Third Party As Per Assessee’s Instructions

Case Details: Anamallais Bus Transports (P.) Ltd. vs. Principal Commissioner of Income-Tax - [2024] 158 taxmann.com 245 (Madras)

Judiciary and Counsel Details

• • Krishnan Ramasamy, J.
  • A.S. Sriraman for the Appellant.
  • R.S. Balaji & S. Premalatha for the Respondent.

Facts of the Case

Assessee-company had advanced a sum to a company ‘S’, which, in turn, made repayment to three entities on instructions of assessee. Suitable entries had been made in the books of ‘S’ and the assessee’s books with regard to the reduction of liabilities of ‘S’.

The Assessing Officer (AO) held that there was cash transaction and, therefore, construed the entire repayment of the loan by ‘S’ as income of the assessee and passed the assessment order imposing the penalty under section 271E.

Assessee filed writ petition before the Madras High Court.

High Court Held

The High Court held that the grant of loan by the assessee to ‘S’ and repayment of the same made by ‘S’ to three different entities was based on the instructions of the assessee. Suitable entries were made both in the books of account of the assessee as well as ‘S’ to discharge liabilities. Also, the same was reflected in the audited books of account.

Further, the liability of ‘S’ was reduced to an extent on payment made to clear the liabilities of the assessee, which appeared to be in accordance with the law and was permissible. Hence, the question of dealing with cash transactions did not arise.

In the instant case, the initiation of proceedings against the assessee appeared to have been made under the wrong assumption that there was a cash transaction. Therefore, the penalty proceedings passed under section 271E were to be set aside.