The provisions of section 269T of the Income-tax Act, 1961, are not applicable to the repayment of loans.

The Order of the Court is as follows:

1. This writ petition is for writ of certiorari to quash the order of the Commissioner, Tamilnadu-II passed in his proceedings No. C. No. 1241-II(9)/1995-96 dated 15-3-1996.

2. The writ petitioner is a partnership firm assessed by the Deputy Commissioner, Special Division, Madras. The assessment of the petitioner for the assessment year 1992-93 under the provisions of the Act was completed on 17-3-1995 on a total income of Rs. 29, 89, 760 and the Assessing Officer noticed during the course of his assessment that the petitioner had repaid two loans in cash, on 8-4-1991 a sum of Rs. 46, 690 and on 15-4-1991 another sum of Rs. 50, 000. The Deputy Commissioner was of the view that there was violation of provisions of section 269T of the Income-tax Act, 1961, ('the Act') and levied penalty of Rs. 96, 690 under section 271E of the Act, after giving the petitioner an opportunity to be heard.

3. The petitioner filed a revision petition before the Commissioner under section 264 of the Act, seeking cancellation of the order of penalty levied under section 271 E. The Commissioner held that the provisions of section 269T speak of mode of repayment of loan, i.e., by account payee cheque or draft and the section has been introduced to prevent the assessee found in possession of unexplained cash at the time of search, etc., explaining away the same as loans received from certain parties by cash. He held that the provisions of section 269T were attracted to the facts of the case and he was also of the view that the mere fact that the loans were treated as genuine loans and accepted as genuine by the department Would not be a material consideration for the non-levy of penalty under section 271 E. According to him, it is for the petitioner to prove the presence of reasonable cause for committing the default under section 269T and the petitioner has not explained the reason for his acceptance of the loans in cash in the first instance from these two lenders and made repayment of the same in cash. The Commissioner did not accept the explanation offered by the petitioner that the parties did not have any bank account and, hence, the loans were repaid in cash. He, therefore, held that the petitioner has committed default under section 269T and confirmed the penalty levied by the Deputy Commissioner.

4. The writ petitioner has challenged the order of the Commissioner, Madras, in the present writ petition on the score that the breach was only technical and not penal in nature and the Assessing Officer has treated the transaction as genuine and there was only a technical breach of provisions of section 269T. It is also stated that the provisions of section 269T deal only with the deposits and it has no application in a case of repayment of loan and the respondents themselves have admitted that transactions are loans and accepted the same as genuine. It is also stated that the provisions of section 269T are not applicable to the transaction in question.

5. The learned counsel for the petitioner has submitted and reiterated the averments made in the affidavit, filed in support of the writ petition that the petitioner has established reasonable cause for repaying the loan in cash and the order of the Commissioner that the petitioner has not established any reasonable cause for repaying the same in cash is not sustainable in law. Learned senior counsel for the Income-tax Department has submitted that the section has been introduced with the object of preventing cash transaction above the limit prescribed in section 269T and if the cash transactions are permitted, it will lead to innumerable complication in the matter of assessment of income, particularly, in cases where search operations are carried out and the cash is found in search and the explanation given by the assessee normally would be that the cash represent the loan. He also submitted that provisions of section 269T are wide enough to cover the loan.