Penalty u/s 271E upheld for cash repayment of loans despite Section 68 addition

Issue

Whether the penalty under Section 271E for repayment of loans in cash (violating Section 269T) is sustainable when the corresponding receipt of such loans was treated as unexplained income under Section 68 by the Assessing Officer.

Facts

Assessee Profile: A trust running educational institutions.
The Transaction: The assessee claimed to have received interest-free cash loans/advances from a Gurudwara’s Golak.
Assessment Findings: The Assessing Officer (AO) rejected the genuineness of these transactions as the assessee failed to prove them. Consequently, the receipts were treated as unexplained income under Section 68.
The Default: It was established that the assessee had repaid these sums in cash to the Mohattmim of the Gurudwara.
Penalty: Since the repayment was in cash and exceeded the statutory limit, the Joint Commissioner imposed a penalty under Section 271E for violation of Section 269T.
Assessee’s Defense: The assessee argued that since the amount was treated as “income” under Section 68 and not accepted as a “loan,” the provisions of Section 269T (which apply to loans/deposits) should not apply. They also claimed the transaction was merely an “accommodating advance.”

Decision

Nature of Transaction: The authorities noted that the assessee itself had recorded and admitted these sums as loans in its books of account. The treatment under Section 68 arose only because the assessee failed to prove the genuineness of the credit, not because the nature of the transaction was different.
Independent Penalty: The Tribunal held that the addition under Section 68 (for the receipt) does not automatically immunize the assessee from penalty under Section 271E for the repayment violation. The two defaults are distinct.
Violation Confirmed: The repayment in cash was an undisputed fact, clearly violating the mandate of Section 269T.
No Reasonable Cause: The plea that these were “accommodating advances” was unsubstantiated. The assessee failed to demonstrate any “reasonable cause” under Section 273B for making the repayment in cash instead of through banking channels.
Ruling: The penalty under Section 271E was held to be justified and was upheld in favor of the Revenue.

Key Takeaways

Books Bound the Assessee: If an assessee records a transaction as a “loan” in their books, they must strictly adhere to Section 269T for repayment. The fact that the Revenue taxed the receipt as unexplained income (due to lack of proof) does not erase the “loan” characterization for the purpose of repayment penalties.

Section 68 vs. 271E: This judgment distinguishes from other precedents where Section 68 additions often save the assessee from Section 271D (taking loans) penalties. Here, the focus was on the repayment act, which remains a punishable contravention if done in cash.

HIGH COURT OF PUNJAB AND HARYANA

Sant Baba Sunder Singh Ji Canadian Charitable Trust

Commissioner of Income-tax^*

Mrs. Lisa Gill and Mrs. MEENAKSHI I. MEHTA, JJ.

IT Appeal No. 111 of 2017 (0 & M)

NOVEMBER 4, 2025

Alok Mittal, Adv. for the Appellant. Saurabh Kapoor, Sr. Standing Counsel and Rana Gurtej Singh, Jr. Standing Counsel for the Respondent.

ORDER

Lisa Gill, J.- Prayer in this appeal is for setting aside order dated 14.06.2016 passed by learned Income Tax Appellate Tribunal, Division Bench, Chandigarh (for short ‘Tribunal’), whereby orders dated 26.12.2013 passed by Commissioner of Income Tax (Appeals) Patiala (for short ‘CIT (Appeals), Patiala’) and penalty order dated 30.06.2011 passed by Joint Commissioner of Income Tax, Sangrur Range, Sangrur, have been upheld.

2. Question of law framed for consideration as reflected in order dated 10.02.2023 passed in this appeal reads as under: –

” Short question for consideration in the present appeal is that once the assessing authority doubts the genuineness of the loan and treat it as an income under Section 68 of the Income Tax Act, for the same loan if it is reflected to have been repaid, can penalty be imposed in the subsequent year.”

3. Brief facts necessary for adjudication of the matter are that appellant-assessee claims to be a trust registered under Society Registration Act 1860, created on 22.03.1996. It is pleaded that this trust is running a School in the name of Akai Academy, Village Tallewal and a B.Ed. College namely Brakkat College of Education at Village Tallewal. For Assessment Year 2008-2009, order dated 08.11.2010 was passed by the Income Tax Officer, Bamala wherein additions on two accounts was made. It was found that assessee was not entitled to exemption under Section 10(23C) (iiiad) of the Income Tax Act, 1961 (for short ‘the Act’) with genuineness of loans of Rs.3,37,000/- and Rs.79,784/- in favour of Akai Academy and Brakkat College of Education in cash from Golak of the Gurudwara of the Mohattmim not being proved. Said total amount of Rs.36,86,342/- was treated to be income of assessee under Section 68 of the Act. Penalty under Section 27 ID of the Act imposed by treating acceptance of loan as violation of Section 269SS, was set aside by CIT(Appeals), Patiala vide order dated 29.05.2014. Appeal filed by the department challenging order dated 29.05.2014 was however withdrawn on 14.06.2016 in view of Low Tax Effect.

4. Vide impugned order dated 30.06.2011, Joint Commissioner of Income Tax Sangrur Range, Sangrur, levied penalty of Rs.12,49,494/- under Section 271-E of the Act on the ground of violation of the Section 269T of the Act. It was found that assessee in violation of Section 269T of the Act had deposited the amount in question in cash to Mohattmim Gurudwara Sahib Sant Baba Sunder Singh Ji Canadian (Nehar Wale) Village Tallewal, purportedly as repayment of interest free loans/advances. Appeal filed by the appellant challenging said order dated 30.06.2011 was dismissed by CIT(Appeals), Patiala on 26.12.2013. Learned tribunal also dismissed the appeal filed by the assessee vide impugned order dated 14.06.2016 leading to filing of present appeal.

5. Learned counsel for appellant vehemently argued that learned tribunal as well as the authorities have grossly erred in passing the impugned orders. It was strenuously argued that once taking of loan from Sant Baba Sunder Singh Ji was not accepted and was treated to be income of assessee under Section 68 of the Act as per order dated 08.11.2010, there is no question of violation of 269T of the Act because the authorities themselves have discarded this plea and stand of assessee of taking loan or advances in cash from Sant Baba Sunder Singh Ji and the amount had been treated to be income of the assessee under Section 68 of the Act. Therefore, in this situation authorities cannot levy penalty on the amount repaid as it cannot be stated to be the amount of loan or advance which has been repaid. It was thus prayed that present appeal be allowed and impugned orders be set aside.

6. Learned counsel for respondent-Department refuted arguments as raised on behalf of the appellant and submitted that once factum of cash repayment is admitted, violation of Section 269T of the Act is automatic unless assessee proves reasonable cause. It was submitted that question of penalty under Section 27 IE of the Act and addition of income under Section 68 of the Act vide order dated 08.11.2010 are distinct and different from each other. Inter se cash transactions between the assessee-trust and Baba Sunder Singh Ji (Gurudwara) is proved. Merely because a particular sum was included as income of assessee under Section 68 of the Act does not erase the factum of repayment in cash which is duly admitted by assessee. Thus, both the defaults are separate and are liable to be proceeded against independently. It was urged that legislative intent of provisions in question is to deter cash transactions and promote transparency. Transaction in question was admittedly carried out between two separate legal entities and it is not open to the assessee to now take a stand that some of the amount had been treated to be income of the assessee under Section 68 of the Act, therefore the amount in question which as per assessee’s own stand has been repaid in cash cannot be subject to penalty. It was argued that there is no substantial question of law involved for consideration in this matter and appeal should be dismissed being devoid of any merit.

7. We heard learned counsel for the parties at length and have carefully perused the file.

8. It is a matter of record that appellant had taken a plea of unsecured loan of Rs.3,37,000/- in books of Akai Academy and Rs.79,7847-in the books of Brakkat College of Education and claimed the same to be accommodating advances were in cash. Genuineness of the transaction could not be proved and Income Tax Officer, Bamala vide order dated 08.11.2010, Annexure A-l computed the income as under: –

“2.2 in view of above discussion the assessee has failed to prove the genuineness of loans of Rs.3,37,0000/- and Rs.79,784/-, therefore the same are added in the income of assessee under section 68 of the Income Tax Act.

With the above observation income of the assessee is computed as under: –

Income as per para 1 i.e. surplus as per return Rs.32,69,558/-

Addition as discussed in para 2 Rs.4,16,784/-

(337000 +79784)

Total Income Rs.36,86,342/-

Intt. u/s 234B is charged as per ITNS 150. Penalty proceeding u/s 271(1)(C) are being initiated separately for furnishing inaccurate particulars of income.”

9. Order dated 29.05.2014, passed by CIT(Appeals), Patiala, holding that penalty under Section 271-D of the Act cannot be levied on the added and confirmed under Section 62 of the Act attained finality with appeal filed by the department being dismissed as withdrawn on 14.06.2016 due to Low Tax Effect.

10. It is to be noticed that penalty order under Section 271E of the Act was passed on 30.06.2011 in respect to repayment of interest free loans/advances in cash, details of which find mention in said order dated 30.06.2011 as under: –

Sr. No.	Date of repayment of advances/loans/ deposit	Amount of advances/loans/ deposit/repaid	Mode of repayment of advances/loans/ deposit
1.	Opening balance as on 01.04.2007	5965380/-
2.	Repayment of loans/advances/deposit during the year
	(a)27.11.2007	2700/-	Cash
	(b)13.12.2007	165394/-	Cash
	(c)25.03.2008	68500/-	Cash
	(d)Total	23594/-

B. IN BOOKS OF BARKAT GIRLS COLLEGE OF EDUCATION TALLEWAL (BARNALA)

1.	Opening balance as on 01.04.2007	953116/-
2.	Repayment of loans during the year
	(a) 30.08.2007	79000/-	Cash
	(b) 07.03.2008	933900/-	Cash
	(c) Total	10,12,900/-

11. Joint Commissioner of Income Tax while passing order dated 30.06.2011, Annexure A-4 has duly noted the discrepancies in the two copies of accounts furnished before the Income Tax Officer, Bamala and has specifically held that there is a clear cut contravention of provisions of Section 269T of the Act and the penalty of Rs.12,49,494/-(10,12,900+23594) was accordingly imposed. In the appeal filed by assessee before CIT(Appeals), Patiala, the grounds taken and as reproduced in para 3 of order dated 26.12.2013 read as under:-

“03. In the memorandum of appeal the appellant has filed grounds of appeal as under: –

1. That the order of penalty, as it stands, is bad in law and against the fact of the case.

2. That the Ld. A.O. failed to appreciate that the provisions of section 269SS are not applicable in this case.

3. That the Ld. A.O. was not justified in levying the impugned as no satisfaction regarding commission of the offence was recorded in the order of assessment.

4. That the Ld. Assessing Officer was not justified in imposing penalty of Rs. 12,49,494/- u/s 271-E by arbitrarily rejecting the explanation of the appellant in this regard by treating, accommodating advances as loans.

5. That the case laws upon by the appellant was not properly appreciated by the Ld. A.O. & the case law relied upon by him goes in favour of the appellant

6. That without prejudice to above, the provisions of Sec.269TT are not applicable in the case of appellant as its income is otherwise exempt from income tax u/s 10(23C) of the Income Tax Act, 1961 & the income of the ‘Gurudwara’ is also exempt.

7. That without prejudice to above the penalty imposed is highly excessive.”

12. Further arguments raised by the assessee were noted as under:-

“4.1 During the course of assessment proceedings, the appellant submitted that “1. That the trust was created for carrying out educational activities on 22.03.1996 by its Founder S. Kmail Singh ‘Mohattmim’ Gurudwara Sahib Sant Baba Sunder Singh Canadia V. Tallewal as per copy of the trust deed enclosed herewith separately. That the institution has never raised any loans and advances from any outsider since the date of its creation. However, accommodating advances were received by the Academy from Founder S.Kamainl Singh ‘Mohattmin’ Gurudwara Sahib Sant Baba Sunder Singh Canadian V. Tallewal. Similarly, no advances were made by the institution to any other person. The advances were made out of ‘Golak’ maintained by the Gurudwara for daily cash offering by the devotees. Incidentally the trust was created out of cash offerings of the devotees. The accommodating advances so received in cash were returned back on the availability That the cash entries of liquid funds with the Academy, earmarked by you in the penalty notices were on this account only. No penalty can be imposed in respect of transactions inter seas held in the case CIT V. Lokhpat Film Exchangge (Cinema) (2007) 304 ITR 172 & in the case of Income Tax Officer v. Shree Mahavir Industries 82 TTJ 549.”

13. After considering all facts and circumstances, CIT(Appeals), Patiala, dismissed the appeal while holding as under:-

“4.4. I have considered the submission made. The issue in the present appeal is limited to repayment of certain amount in cash to the trust. There appears no reasonable cause for repayment of the amount in cash to the trust. It is further noted that from the report of the A.O. that during the assessment proceeding, the appellant admitted the advance to be in the nature of loan. Therefore, I agree with the A.O. that repayment made in the garb of accommodating advances cannot absolve the appellant of the liability envisaged u/s 269 without a valid reasonable cause. The contention of the appellant in this regard is not acceptable. Therefore, the penalty levied by the A.O is upheld.”

14. Similar grounds of challenge were raised before the learned tribunal by the assessee as detailed in the 1^st para of order dated 14.06.2016 which is not being reproduced for the sake of brevity. Learned tribunal on considering the entire facts and circumstances found no merit in the appeal filed by assessee and held as under:-

“8. In the present case we find that admittedly during assessment proceedings the assessee filed copies of accounts of the impugned sums taken stating them as ‘Loans Account’. The same are reproduced in the assessment order at para no. 11. Thus during assessment proceedings the assessee itself stated that the impugned sums were in the nature of loan. During penalty proceedings the assessee has characterized the same as accommodating advances’ and we find that neither has the same been substantiated before the lower authorities nor before us. The assessee we find has simply made a bald statement without evidencing as to how the nature of the same is ‘accommodating advance’. The assessee could have brought out the compelling circumstances in which the cash advances were supposedly made by the Mohattmin to accommodate the assessee. But nothing of the sort was brought either before the lower authorities or before us. Therefore we hold that the assessee having accepted the nature of the money received as being loan, he cannot now change his stand without any corroborating evidence. The impugned sum received by the assessee therefore is in the nature of loan.

Undeniably the assessee has repaid the same is cash violating the provision of section 269T and therefore penalty u/s 271E ought to be levied. But having come up with the argument of reasonable cause the same needs to be examined in the light of section 273B. Section 2738 states that where assessee has a reasonable cause for the failure committed, no penalty shall be levied.

9. In the present case the reasonable cause of the assessee for making the payment in cash, is that it is not liable to pay taxes nor is the Gurudwara whose Mohattmin gave the loan. This in our considered opinion is neither here nor there, nor does it justify the committing of the default. We therefore concur with the findings of the Ld CIT(A) that there is no reasonable cause for the default committed. The decision relied upon by the Ld. AR in the case of Sunil Kumar Goel (supra) we find does not support the case of the assessee since the same is distinguishable on facts. In the case of Sunil Kumar Goel (supra) it has been nored by the Hon’ble High that the cash transaction made by the assessee was due to business exigency which was an undisputed fact and therefore it was held that there existed reasonable cause for violating the provision of section 269T thereby deleting the penalty levied u/s 27IE. In the present case as we have noted above, the assessee has failed to demonstrate any reasonable cause for committing the default. 10. In view of the above we therefore hold that the assessee has violated the provision of section 269T of the Act by repaying loan in cash and penalty of Rs. 12,49,494/- has been rightly levied.

11. The appeal of the assessee is dismissed.”

15. In the given factual circumstances, learned counsel for appellant was unable to persuade this Court to cause interference on the ground that such penalty could not have been levied as vide order dated 08.11.2010 genuineness of loan to the assessee was not accepted and the amount was treated to be income of the assessee under Section 68 of the Act. Specific details as have been mentioned in the foregoing paras clearly reveal that argument raised by learned counsel for the appellant is completely devoid of any merit. Merely because the amount of Rs.4,16,784/- (Rs.3,37,000/- and Rs.79,784/-) has not been accepted to be loan received and treated as income under Section 68 of the Act cannot in any manner impinge upon the penalty imposed upon the amount of Rs.2,36,594/- (qua Akai Academy) and Rs.10,12,900/- (qua Brakkat College of Education) stated to have been retumed/deposited with in cash to Sant Baba Sunder Singh Ji.

16. In the given factual circumstances, appellant is not entitled to any indulgence whatsoever. Question of law as formulated is thus answered against the appellant and in favour of the department/Revenue. Impugned orders dated 14.06.2016, 26.12.2013 and 30.06.2011 do not suffer from any illegality, irregularity or infirmity and are accordingly upheld.

17. No other argument was raised.

18. Appeal is accordingly dismissed. Pending application(s), if any, stand(s), disposed of accordingly.