SLP
dismissed as withdrawn against High Court’s ruling that where assessee failed
to discharge its burden in proving that there was a reasonable cause in
accepting cash deposits from staff members in its bank account penalty order
passed under section 271D was to be confirmed
During
relevant year, assessee accepted deposits from staff members in cash in
violation of provisions of section 269SS. Assessing Officer thus passed a
penalty order under section 271D. High Court by impugned order held that since
assessee failed to discharge its burden in proving that there was a reasonable
cause in accepting deposits from staff members, mere fact that deposits were
directly received in bank account and refunds were also made in bank account of
staff members, would not offer any mitigation under section 273B and therefore,
impugned penalty order was to be confirmed. Special leave petition filed
against impugned order was to be dismissed as withdrawn, as the petitioner proposes
to avail the benefit under the Direct Tax Vivad Se Vishwas Act, 2020. - [In
favour of revenue] (Related Assessment year : 2005-06) - [Al Ameen Educational
Trust v. CIT (2021) 283 Taxman 285 : 131 taxmann.com 127
(SC)]
SLP
dismissed against High Court ruling that where director of assessee-company
obtained cash in excess of Rs. 20,000 as loan from a financier and deposited
same in cash in bank account of company, merely because director took cash
loans from financier and deposited it in current account of assessee-company on
very same day and assessee utilized it to pay salaries, rent and EMI
commitments, same could not be a ground to be taken as a mitigating factor to
escape from rigour of levy of penalty under section
271
Director of assessee-company obtained loan/cash exceeding Rs. 20,000 from
financier JD. Loans so obtained were deposited by him in cash in bank account
of assessee-company. In response to notice issued by Assessing Officer
regarding violation of provisions of section 269SS, assessee explained
that amount so received by director was deposited in company's bank account on
very same day and same was utilized to pay salaries, rents and EMI commitments,
thus, there was reasonable cause for having availed loan transactions. Assessing
Officer having rejected assessee's explanation, passed penalty order
under section
271D. High Court by impugned order held that merely because director deposited
cash obtained by it from JD in current account of assessee-company on very same
day and assessee utilized it to pay salaries, rent and EMI commitments, same
could not be a ground to be taken as a mitigating factor to escape from rigour
of levy of penalty under section 271D. Special leave petition filed against impugned order was to be dismissed.
[In favour of revenue] (Related Assessment year : 2015-16) – [Vasan Healthcare (P) Ltd. v. Addl. CIT,
Chennai (2021) 278 Taxman 273 : 125 taxmann.com 266 (SC)]
Sum received from husband
with no intention to repay is not loan; no violation of Section 269SS - Assessee received substantial amount of cash from her husband
which was used to purchase property for residence of family members, since
amount was used for benefit of family not for business purpose and assessee provided
reasonable explanation justifying cash transactions, no penalty could be levied
under section 271D for voilation of section 269SS
The JCIT has raised a demand of Rs. 3,00,000/- by levying penalty under
section 271D of the Income Tax Act, 1961 as the assessee was received Rs.
3,00,000/- in cash from her husband. In instant case, where the family of the
assessee was guided by its internal family requirement and at the same time,
pooling in the family funds especially where the assessee did not have any known
sources of income, the explanation of the assessee deserved to be appreciated
and the approach of the revenue needs to be flexible for appreciating the
reasonability of the explanation so submitted by the assessee. Further, the
assessee had explained the payment of construction expenses which were required
to be incurred in cash towards the purchase of construction material and
payment to labourers. The transaction was not loan as no interest element was involved and
there was no promise to return amount with or without interest. we are of the
considered view that the assessee does not deserve to be punished by way of
levy of penalty under section 271D for receiving money from her husband for
purchase of family property and hence, the same is directed to be deleted. [In
favour of assessee] (Related Assessment Year ; 2009-10) – [Smt. Meera Devi
Kumawat v. JCIT, Jaipur (2021) 132 taxmann.com 21 (ITAT Jaipur)]
Penalty proceedings under section 271D or 271E were
independent proceedings and had nothing to do with assessment proceedings or
its outcome. Therefore, CIT(A) was not justified in cancelling the orders
imposing penalty on the ground that the assessment proceedings, during the
course of which, penalty under section 271D and 271E were initiated had been
held to be invalid
Assessing Officer noticed that assessee had taken cash loans
in violation of the provisions of Section 269SS and repaid cash loans in
violation of the provisions of Section 269T and hence penalty proceedings under
section 271D and 271-E were initiated in the assessment orders for Assessment
year 2009-10, 2010-11 & 201112. Assessee in the appeals before CIT(A)
contended that that the assessment orders in which the penalty proceedings under
section 271D and 271E were initiated were quashed and hence the orders imposing
penalty under section 271D and 271E should also be quashed. CIT(A) accepted the
contention and quashed the orders imposing penalty. It was held that so far as
imposition of penalty under section 271D or 271E was concerned, those were
independent proceedings and having nothing to do with assessment proceedings or
its outcome. Therefore, CIT(A) was not justified in cancelling the orders
imposing penalty on the ground that the assessment proceedings, during the
course of which, penalty under section 271D and 271E were initiated had been
held to be invalid. Apart from the fact that the order holding the assessments
to be invalid had not become final, CIT(A) ought not to have cancelled the
orders imposing penalty on this ground. Since, CIT(A) had not adjudicated the
matter on merits, the proper course would be to remit the question of
imposition of penalty to the CIT(A) for fresh consideration, leaving all
aspects open. (Related Assessment Years : 2009-2010 to 2011-12) – [DCIT v.
C. Gangadhara Murthy - Date of Judgement : 20.09.2021 (ITAT Bangalore)]
SLP
against High Court’s decision holding that where assessee-company availed cash
deposits from depositors in rural areas, in view of non-availability of
adequate banking facilities, section 271D penalty need not be imposed, was to
be granted
Assessing Officer
imposed penalty upon assessee, a non-banking finance company, which had
accepted cash deposit in violation of section 271D. High Court in view of its
earlier decision in assessee's own case, deleted penalty on ground that
depositors belonged to rural areas where adequate banking facilities were not
available. On facts, SLP against said decision was to be granted. [In favour of
revenue] (Related Assessment year : 2009-10) - [PCIT(C) v. Sahara India
Financial Corpn. Ltd. (2020) 274 Taxman 214 : 119 taxmann.com 285 (SC)]
Assessee's contention of ignorance
of provisions or lack of banking facilities in area, etc., could not be
accepted as reasonable cause for accepting deposits in cash exceeding
prescribed limit when admittedly assessee was doing large scale finance
business dealing with public
It should be proved that there
existed reasonable and acceptable cause for not accepting loans or deposits
through crossed cheques or demand drafts; mere proof regarding genuineness of
transaction or intention in accepting amounts in cash or that there was no
attempt to induct black money into business, etc., cannot be considered as a
reasonable cause or as compelling circumstances provided under section 273B to
avoid penal action under section 271D. Assessing Officer found that
assessee-society conducted finance business by violating section 269SS by
accepting deposits in cash from various clients, exceeding sum of Rs. 20,000
and, thus, imposed penalty proceedings under section 271D. - Ignorance of
provisions or lack of banking facility in area, etc., could not be accepted as
reasonable cause for accepting deposits in cash when assessee was doing large
scale finance business dealing with public. When admittedly assessee was a
company doing finance business of money lending and receiving deposits,
contention of assessee that both parties to transactions were having
agricultural income and, therefore, transactions would fall within purview of
2nd proviso to section 269SS could not be accepted. There being nothing to
indicate that assessee had got any registration as a banking company, or that
assessee was a 'non-banking financing company', contention of assessee that it
would fall within exempted category of banking company contained under 1st
proviso to section 269SS could not be accepted. On facts, assessee would not be
protected by provisions of section 273B and penalty was rightly levied upon
assessee under section 271D. (Related Assessment year : 2005-06) – [N.S.S.
Karayogam v. CIT (2020) 271 Taxman 193 : 116 taxmann.com 141 (Ker.)]
SLP dismissed against High Court
ruling that receipt of deposits/loans received through journal entries is in
breach of section 269SS
Section 269SS, read with sections
271D and 273B, of the Income-tax Act, 1961 - Deposits - Mode of taking or
accepting (Journal entries) - High Court
by impugned order held that receipt of any advance or loan by way of
journal entries is in breach of section 269SS. - It further held that journal
entries constitute a recognized mode of recording of transactions and in
absence of any adverse finding by authorities that journal entries were made
with a view to achieve purpose outside normal business operations or there was
any involvement of money, there was a reasonable cause for not complying with
section 269SS and penalty under section 271D was not to be imposed. Special
Leave Petition filed against impugned order was to be dismissed. [In favour of
assessee]. – [CIT(C) v. Adinath Builders (P) Ltd. (2019) 261 Taxman 168 :
102 taxmann.com 57 (SC)]
Takes or accepts any loan or
deposit–Gift transactions between husband and wife–Levy of penalty is held to
be not valid
It was held that according to the
assessee, she received a gift from her husband in cash. Thereafter, she had
given gift to her husband in cash. Since the gift amount received and repaid
was the same even if it was considered as loan transactions, the penalty was
not leviable since the loan transactions between close relatives were
considered to constitute reasonable cause in terms of Section 273B. Since the
transactions had been entered into between the assessee and her husband, the
penalty levied under Section 271E was not sustainable. (Related Assessment year
: 2014-15) – [Savita S. Gangadshetti (Smt.) v. JCIT (2020) 77 ITR 79 (SN)
(ITAT Bangalore)]
Takes or accepts any loan or
deposit–Loan from partner–Bona fide belief–Levy of penalty is held to
be not justified
Assessee firm had availed cash loan
of certain amount from one of its partners. Assessing Officer held that
assessee received loan in contravention to Section 269SS and levied the
penalty. The assessee contended that, loan transaction between firm and partner
does not come within purview of Section 269SS, as they could not be treated as
different entities and; secondly, due to business exigencies arising out of
immediate payment to be made to a creditor, assessee was compelled to avail
cash loan from its partner. The Tribunal held that from material on record, it
appeared that assessee had availed cash loan from partner for making payment to
creditors. Assessee had placed on record ledger account copies of two creditors
in support of its claim. Further, assessee had availed cash loan from partner,
with a bona fide belief that provisions of Section 269SS were not
applicable in relation to transaction between firm and partner. Accordingly,
the penalty levied was deleted. (Related Assessment year : 2012-13) – [Surendra
Engg. Corporation v. JCIT (2020) 180 ITD 708 (ITAT Mumbai)]
Burden is on assessee to prove
reasonable cause–Burden is not discharged–Levy of penalty under section 271D is
held to be justified
Dismissing the appeal the Court
held that none of the facts contended or proved by the assessee would
constitute a valid explanation or reasonable cause coming within the purview of
Section 273B. The mere proof that the loans were repaid through cheques drawn
in the name of the lenders or that there was no attempt to induct black money
into the business, itself could not be considered as a reasonable cause or as a
compelling circumstance under which the mandate of Section 269SS could be
violated. It could not be termed as a reasonable cause contemplated under
Section 273B to condone the violation. Accordingly, the order imposing the
penalty was confirmed. – [Listin Stephen v. DCIT (2019) 418 ITR 524 (Ker.)]
SLP dismissed against High Court ruling that
receipt of deposits/loans received through journal entries is in breach of
section 269SS - Penalty under section
271D cannot be levied if the transactions are bona fide, genuine and have
reasonable cause
Mode of taking or accepting (Journal entries) -
High Court by impugned order held that receipt of any advance or loan by way of
journal entries is in breach of section 269SS. It further held that journal
entries constitute a recognized mode of recording of transactions and in
absence of any adverse finding by authorities that journal entries were made
with a view to achieve purpose outside normal business operations or there was
any involvement of money, there was a reasonable cause for not complying with
section 269SS and penalty under section 271D was not to be imposed. Special
Leave Petition filed against impugned order was to be dismissed - Held, yes
[Para 3] [In favour of assessee] – [CIT v. Adinath Builders (P) Ltd (2019) 261 Taxman
168 : 102 taxmann.com 57 (SC)]
Assessee
was found to have received certain sum in cash and contention of assessee that
said cash was towards capital contribution of various projects was not
supported by any evidence, penalty under section 271D was leviable
Assessee, engaged in
business of civil construction, was found to have received certain sum from ‘P’
and others in cash in violation of provisions of section 269SS. Accordingly,
penalty under section 271D was levied. Assessee, however, claimed that cash
received was towards share capital or capital contribution of various projects.
In absence of common bank account, return of income, details of proposed
projects, contention of assessee that he had received funds from ‘P’ for
purpose of share capital of syndicate was baseless and unacceptable. Since
assessee had utilized funds in his own business and ultimately adjusted sums
towards sale of flats to ‘P’ and others, said sums were nothing but loans
accepted by assessee otherwise than in cash and, hence, penalty levied upon
assessee was proper. [In favour of revenue] (Related Assessment year : 2012-13) - [Golla Narayana Rao v. ACIT,
Vijayawada (2019) 198 TTJ 407 : 176 DTR 201 : 174 ITD 67 : (2018) 100
taxmann.com 174 (ITAT Visakhapatnam)]
Penalty under section 271D for contravention of
section 269 SS not leviable if assessee provides reasonable cause
Even
though the assessee had taken a loan in cash, nonetheless, the loan transaction
was a genuine transaction and was routed through the bank account of the
assessee which clearly shows the bona fides of the assessee. The cash given by
the lender was not unaccounted money but was duly reflected in their books of
account. The Assessing Officer also accepted the explanation and found the
transaction to be genuine. The contention of the learned counsel for the
appellant that since there was no urgency, the assessee could have taken the
loan through cheque and should have processed the matter through regular
banking channels is immaterial, inasmuch as the genuineness of the transaction
has not been disputed by the Assessing Officer. Further, the cash was deposited
in the bank account of the assessee and the money was thereafter, routed
through the banking channel for payment to the government for converting the
land into free hold property. In the light of the aforesaid, we are of the view
that reasonable cause had been shown by the assessee and the provisions of
Section 273B of the Act was applicable. Therefore, delete the
penalty levied by the Assessing Officer under section 271D of the Act and
confirmed by the CIT (A). (Related Assessment Year : 2011-12) – [Venkata
Narayana Raju Pasuparthy v. Addl. CIT – Date of Judgement : 10.05.2019 (ITAT
Hyderabad)]
Assessee’s business inoperative for
past years - Assessee borrowing from bank and private money lenders for past
years - Assessee borrowing money from unorganised financial sector in cash for
repaying financial liabilities - Assessee declaring loss in return - Reasonable
cause - Imposition of penalty under section 271D not warranted
Assessee’s business was closed and
inoperative for last 7 years and had borrowed money from private lenders and
banks for last 10 years, to meet business liabilities he had raised cash loans
from the unorganised sector. Assessing Officer opined that there was violation
of S. 269SS in respect of cash loan in respect of assessee, a penalty for the
same loan amount was imposed by the Assessing Officer and further enhanced by
the Commissioner (Appeals). In Appeal held, that the Assessee had specifically
submitted to the Assessing Officer that his business was inoperative for years
and had taken loans for several years to meet financial requirements as lenders
were pressing hard. Assessee even had Rs. 50 crore mortgaged against assets
worth Rs. 5 crore only. When this fact was seen in the light of return filed by
the assessee declaring loss of Rs. 4.35 lakhs, it clearly emerged that the
loans were taken by the assessee in cash in violation of the provisions of
section 269SS to meet the financial liabilities. This constituted a reasonable
cause warranting non-imposition of penalty under section 271D in terms of
section 273B. Therefore, the penalty of Rs. 88,18,000 was deleted. (Related
Assessment year : 1999-2000) – [P. R. Associates v. ACIT (2019) 70 ITR 469
(ITAT Pune)]
Sum initially advanced as loan by
father to son, but later treated as gift transaction cannot be subject to
Section 269SS - Levy of penalty is not justified
The assessee, an individual, was
engaged in the business of share trading. In Assessment year 2008-09, he
received a sum of Rs. 2.54 lakhs in cash on different dates from his father.
Assessee contended that the amount so received in cash is gift. In support of
same, assessee submitted gift deed prepared on 17.05.2011. The Assessing
Officer observed that the gift was received in financial year 2007-08 whereas
the gift deed was made on May 17, 2011, prepared on stamp paper purchased on
May 16, 2011. AO held that the cash accepted was contravention of the
provisions of section 269SS of the Income-tax Act, 1961 and he levied penalty
under section 271D. The CIT (A) affirmed the penalty. Aggrieved, Assessee filed
an appeal before the ITAT. The Tribunal observed that the AO had not doubted
the genuineness of the transaction as no addition was made under section 68.
The provision of section 269SS was brought under the statute to discourage the
assessee to justify their unaccounted money. However, in the case on hand,
there is no allegation that the assessee has introduced unaccounted money in
his business. Relying on the decision of G.D. Subraya Sheregar v. ITO (10
SOT 378), observed that the expression “any other person” appearing in
section 269SS has been interpreted by the two Benches of the Tribunal in two
different ways. One view is that the said expression excludes all those persons
who are closely connected with the assessee and the other view is to the
opposite effect. Both views are possible views. It is well-settled that there
are two possible views, the view favourable to the assessee needs to be
accepted. The Tribunal held that such cash transaction, between father and son,
which are genuine cannot be brought under the net of tax under the provision of
section 269SS of the Act. The Tribunal went further to hold that, even if it
was given as loan at that relevant time and later on the parties agreed to
treat as gift, then the matter ends here as the transaction was between son and
father which was substantiated with gift deed and confirmation. Section 271D applies
on accepting loans & deposits. There is the basic difference between the gift
and loan/Deposit. A gift is never paid back/return to the donor while it is not
so in the case of the loan. The Tribunal observed that there was nothing on record
to shows that money was paid back to the father by the assessee directly or
indirectly. Penalty levied under section 271D was thus deleted. (Related Assessment
year : 2008-09) – [Hareshkumar Becharbhai Patel v. JCIT (2019) 69 ITR 73 (SN)
(ITAT Ahmedabad)]
Commissioner passed a
revisional order directing Assessing Officer to initiate penalty proceedings
under section 271D, in view of fact that said revisional order was set aside by
Tribunal, consequential order of Assessing Officer under section 144 read with
section 263 did not survive and thus, penalty imposed in said order also
deserved to be deleted
For relevant year,
assessment in case of assessee was completed under section 143(3) in which
there was no indication that loan aggregating to Rs. 3.04 lakh was received in
cash from various persons in contravention of provisions of section 269SS. Subsequently,
Commissioner passed a revisional order directing Assessing Officer to initiate penalty
proceedings under section 271D. Accordingly, an order was passed under section
144, read with section 263 levying penalty under section 271D. Tribunal set
aside revisional order and as a result only surviving order in case of assessee
was original assessment order under section 143(3). Since revisional order was set aside by
Tribunal, consequential order of Assessing Officer under section 144 read with
section 263 did not survive and thus, penalty imposed in said order also
deserved to be deleted. [In favour of assessee] (Related Assessment year
: 2007-08) -
[Kirti
Kumar v. Addl. CIT, Lucknow (2018) 93 taxmann.com 281 (ITAT Lucknow)]
Assessing Officer finding that
assessee had accepted loans by way of cash, in contravention of provisions of
section 269SS, passed a penalty order under section 271D, since assessee failed
to establish its stand that aforesaid transactions related to trade alone and,
moreover, there was no distress situation which forced assessee to accept loan
in cash, impugned penalty order was to be confirmed
Trade transactions - For relevant
year, assessee filed its return declaring certain taxable income. While completing assessment, Assessing Officer
found that assessee had accepted loans by way of cash from seven persons amounting
to Rs. 41.95 lakhs. Assessing Officer taking a view that said loan was taken in
violation of provisions of section 269SS, passed a penalty order under section
271D(1). Commissioner (Appeals) allowed assessee’s appeal on ground that
transactions done by assessee with seven persons were in nature of trade
transactions relating to purchase of raw materials and did not relate to
advancing of loan. Tribunal, however, restored penalty order. It was noted that
assessee was given an opportunity to substantiate genuineness of parties and
claim made by them that transactions related to trade alone, but it failed to
establish same. Further, there was no distress situation for assessee so as to take
loan in cash, since it was their own case that they had sufficient cash during relevant
time. In aforesaid circumstances, impugned order passed by Tribunal levying
penalty was to be upheld. [In favour of revenue]. (Related Assessment year :
1999-2000) – [Five Star Marine Exports (P) Ltd. v. DCIT (2018) 92
taxmann.com 404 (Mad.)]
It was upheld the penalty levied
under section 271D on account of violation of provision of section 269SS for receipt
of cash from unsecured creditor (being promoter & director), holding that
the assessee-company had failed to prove with reasonable cause for such
receipt. It was noted that (i) the assessee-company had failed to show
reasonable cause that the emergency funds in form of cash deposited by Dr. AMA
(promoter & director) were for business exigencies as the cash flow
produced by assessee clearly negated such claim and (ii) In the assessment
order of one Mr. J which was made pursuant to search, a finding was given that
the unaccounted income of Mr. J had been routed through Dr. AMA and deposited
into the accounts of assessee which were laundered and then withdrawn by Dr.
AMA and returned to Mr.J and thus, unaccounted income in respect of loan
transaction were traced as unaccounted income of J. Vasan. – [Healthcare (P)
Ltd. v. ( Addl CIT (2018) 54 CCH 262 (ITAT Delhi)]
As per the provisions of section
273B penalty under section 271D shall not be imposable on the person or the
assessee, as the case may be, for any failure referred to in the said
provisions, if he proves that there was a reasonable cause for the said
failure. Considering the totality of the facts of the case in the instant case,
we are of the opinion that when the assessee has let out the hotel building on
a daily basis, when the tenants had no bank account at Shrirampur and the
genuineness of the transaction has not been doubted, a fact not controverted by
the Revenue, therefore, there was a reasonable cause on the part of the
assessee for accepting such security deposit in cash. Under these
circumstances, we are of the considered opinion that it is not a fit case for
levy of penalty under section 271D of the Act. We accordingly set-aside the
order of the CIT(A) on this issue and the penalty is directed to be deleted. – [Sanjay
Ramchandra Phand v. Addl. CIT – Date of Judgement : 26.12. 2013 (ITAT Pune)]
Section 269SS not applicable to
transactions between relatives
The learned counsel for the
assessee, on the other hand, has contended that the provisions of section 269SS
are not strictly applicable to the transactions between the relatives and the
penalty imposed by the assessing officer under section 271D and confirmed by
the learned Commissioner (Appeals) is not sustainable. In support of this
contention, he has relied on the decision of the Coordinate Bench of this
Tribunal rendered in the case of Manisha Prakash Amin v. JCIT vide its
order dated 24.05.2011 passed in ITA No. 1839/Kol/2010, wherein it was held that
the transactions between relatives involving receipt of loan in cash are not in
the nature of loans or deposits as envisaged in section 269SS of the Act and
the penalty imposed under section 271D was accordingly cancelled by the
Tribunal. A similar issue was again decided by the Tribunal in the case of Anant
Himatsingka v. Addl. CIT (ITA Nos. 331 & 332/Kol/2010) dated 25.11.2011)
cited by the ld. Counsel for the assessee, wherein it was held that the loan
transaction between son-in-law and father-in-law for giving a support and help
was not a loan or deposit in stricter sense of section 269SS of the Act and the
same having been given only as a financial support, the relevant transaction did
not fall in the ambit of section 269SS of the Act. In our opinion, the ratio of
these decisions of the Coordinate Bench of this Tribunal is squarely applicable
in the present case, where the loans in question were received by the assessee in
cash from her daughter and son-in-law and applying the same, we hold that the
penalty imposed by the assessing officer under section 271D and confirmed by
the learned Commissioner (Appeals) is not sustainable. (Related Assessment Year
: 2012-2013) – [Snehalata Sitani v. JCIT - Date of Judgement : 24.04.2019
(ITAT Kolkata)
Tax arrear – Penalty levied for
contravention of Sections 269SS and 269T is eligible to claim the benefit of
the Scheme
Single Judge held that penalty
levied for contravention of Sections 269SS and 269T is eligible to claim the
benefit of the Scheme. On appeal by the revenue dismissing the appeal the
division bench held that when a specified sum was provided as penalty, such
specified sum was the minimum penalty payable. This did not, however, mean that
the benefit of the Scheme could be claimed only by those assessees who had been
levied penalty under the provisions of the Act providing for minimum penalty
and maximum penalty. Apart from the fact that such a contention was not raised
when the writ petitions were heard by the single judge, on the merits also,
such contention was rejected. According to Section 271D, a person who was
liable to pay penalty thereunder was liable to pay, by way of penalty, a sum
equal to the amount of the loan or deposit or specified sum so taken or
accepted, in contravention of Section 269SS. Similarly, under Section 271E
also, the penalty provided was a sum equal to the amount of loan or deposit or
specified advance, if so repaid. The assessees could not be denied the benefits
of the Scheme. – [CIT v. Grihalakshmi Productions And Another (2018) 405 ITR
75 : 304 CTR 199 : 169 DTR 70 (Ker)]
It is not enough for the assessee
to show that the transaction of taking loan/deposit by cash is genuine or bona fide. It has also to be
shown that there was reasonable cause under section 273B for the assessee being
unable to take the loan/deposit by account payee cheque or account payee bank draft
There is no dispute between the
parties that bona fide nature of transactions alone would not be
sufficient to escape the clutches of section 271D of the Act. As per the decision
rendered by Hon’ble Supreme Court in the case of Kum. A.B. Shanthi (supra),
it is required to be established that there was some bona fide reasons
for the assessee for not taking or accepting loan or deposit by account payee
cheque or account payee bank draft, so that the provisions of section 273B of
the Act will come to the help of the assessee. Only in such cases, the
Assessing Officer is precluded from levying penalty under section 271D of the
Act. – [Deepak Sales & Properties (P) Ltd v. ACIT - Date of Judgement :
13.06.2018 (ITAT Mumbai) (Special Bench)13.06.2018
Mode of receipt of loan and
deposits – Not offering reasonable cause–Levy of penalty under section 271D is
held to be justified
Dismissing the appeals the Court
held that the assessees did not bring on record their financial position, the
details of any time bound purchase orders that were required to be executed and
did not correlate the purchases made from the cash loans in question. The
assessees had all along relied on the oral assertions of urgent requirement of
funds without producing any material to establish such assertion. Order passed
by the Tribunal affirming the levy of penalty is held to be justified. (Related
Assessment year : 2008-09) – [Nitin Mohan Wadikar v. ACIT (2019) 414 ITR 647
(Bom), Manisha Nitin Wadikar v. ACIT (2019) 414 ITR 647 (Bom.)]
Acceptance of Loan in cash in
excess of specified limits – Deletion of penalty under section 271D based on
entries alone – Matter remanded to Tribunal for fresh consideration
It was held that the Tribunal in
its findings had primarily relied on entries in the books of account that the
two cash payments were imprest, and therefore neither loan nor deposit. It had
not considered and noticed specific aspects referred to in the order of penalty
under section 271D and the observations and findings of the Commissioner
(Appeals) holding that the contention and claim of imprest was a sham and
facile. Accordingly, the penalty order was set aside and the matter was
remanded to the Tribunal. (Related Assessment year: 1999-2000) – [CIT v.
Pawan Kumar Jain. (2018) 407 ITR 405 (Del.)]
Assessees having been
levied with penalty under sections 271D and 271E for contravention of section
269SS will be entitled to have their applications processed for benefit of
Direct Tax Dispute Resolution Scheme, 2016, SLP dismissed
High Court by impugned
order held that assessees having been levied with penalty under sections271D
and 271E for contravention of section 269SS will be entitled to have their
applications processed for benefit of Direct Tax Dispute Resolution Scheme,
2016 as when a specified sum is so provided as penalty, such specified sum is
minimum penalty payable and it does not mean that benefit of Scheme could only
be claimed by those assessees who had been levied penalty under provisions of
Act providing for minimum penalty and maximum penalty. SLP against said
impugned order was to be dismissed. [In favour of assessee] – [JCIT v. Grihalaksh
Films (2018) 257 Taxman 188 : 96 taxmann.com 176 (SC)]
Transfer of money between family
members to help and support, it was not a loan, but financial help or support –
Penalty not justified
To support and help the family
members assesssee was transferring money from one family member to another
family, in law, is not a loan or deposit in stricter sense of sections 269SS
and 269T and it is only a financial support. Hence, imposition of penalty under
sections 271D and 271E on said transfer of money between family members was not
justified. During the course of assessment proceedings, AO observed that the
assessee had accepted loan in cash on an unspecified date from his son, in
contravention of sections 269SS had repaid loans in cash to various family
members in contravention of section 269T. Therefore, AO initiated penalty
proceedings under sections 271D and 271E. Held: Assessee had accepted the loan
in cash from his son and repaid the same to his son, his wife and his another
son. All these transactions were between husband and wife, and between father
and son, being close relative of one family. It was also noted that assessee
was a salaried employee and not a businessman. Therefore, based on the facts
narrated above, these transactions do not fall within the ambit of sections 269SS
and 269T as the said transaction between son and father and wife and husband,
for giving a support and help, in law, was not a loan or deposit in stricter
sense of section 269SS and it was only a financial support. Hence, penalty
imposed by the Assessing Officer was not justified. – (Related assessment year
2010-11 – [Nikhil Banik Mazumder v. JCIT (2018) TaxPub(DT) 635 (ITAT
Kolkata)]
It is not enough for the assessee to show that
the transaction of taking loan/ deposit by cash is genuine or bona fide. It has
also to be shown that there was reasonable cause under section 273B for the
assessee being unable to take the loan/deposit by account payee cheque or
account payee bank draft
Tribunal
held that since the Learned representative for the assessee consented to the
proposition that apart from the bona fides of the transaction, assessee is also
required to prove the existence of reasonable cause to come within the immunity
provided in Section 273B of the Act,there was no reason to dwell upon any
further on the reservations expressed by the Division Bench. ADIT (Inv) v.
Kum. A. B. Shanthi (2002) 255 ITR 258 (SC). The Tribunal held that, the
assessee failed to show that there was any urgent business necessity due to
which the assessee was constrained to take loans by way of cash. As the
assessee has failed to show that there was a reasonable cause for getting loans
in violation of the provisions of Section 269SS of the Act. CIT(A) was justified in
confirming the penalty of Rs. 2,00,000 imposed by the Assessing Officer. (Related
Assessment year 2008-09) – [Deepak Sales & Properties (P) Ltd. v. ACIT
(2018) 194 TTJ 690 : 172 ITD 33 : 168 DTR 65 (ITAT Mumbai)]
Loan received from father – same
could be treated as gift and not loan – Levy of penalty under section 271D
unjustified
It has been held by the Appellate
Tribunal that merely because loan taken by assessee from his father for
purchasing the assets was shown as debt in his father ’s balance sheet, same
need not be treated as violation of the provision of Section 269SS and
attracting levy of penalty under section 271D of the Act. (Related Assessment
year : 2009- 10) – [Gokavarapu Venkata Satya Durga Prasad v. Addl. CIT
(2018) 194 TTJ 14 (ITAT Vishakha)(UO)]
Section 269SS of the Act were not
applicable on the loan transaction between husband and wife
It was held that provisions of
Section 269SS of the Act were not applicable on the loan transaction between
husband and wife. It relied on the judgment in case of Tuhinara Begum Hoogly
v. JCIT wherein it was held that the provisions of Section 269SS were not
applicable on the loan transaction between husband and wife because there was
no debtor-creditor relationship. The transaction between the husband and wife
are protected from the legislation as long as they are not for commercial use.
Thus, the question of levying of penalty under section 271D of the Act does not
arise. – [Nabil Javed v. ITO [TS-701-ITAT-2018(DEL)]
Assessee-AOP borrowed cash loan of
Rs. 40 lakhs from its promoter for acquisition of land, in view of fact that
genuineness of transaction had not been disputed by lower authorities, so also
importance and urgency of raising cash loan, Tribunal was right in deleting
penalty under section 271D
The Assessing Officer noticed that
the assessee, an association of persons, borrowed loan of Rs. 40,00,000 from
‘S’, main promoter of the association of persons, in cash for expeditious
acquisition of land, in violation of section 269SS. Therefore, penalty of Rs.
40,00,000 was levied under section 271D. The Tribunal found that there were
compelling circumstances for assessee to raise cash loan as raising funds by
way of demand draft would have delayed realization of payment.
Held that since the genuineness of
transaction had not been disputed by the lower authorities, so also importance
and urgency of raising cash loan, its payment to farmers for acquiring
re-granted land from ‘GHB’ and conveyance of same land by these farmers in
favour of the assessee on same day, the Tribunal was right in deleting penalty
under section 271D. [In favour of assessee] (Related Assessment year : 1994-95)
– [CIT v. Panchsheel Owners Associations (2017) 395 ITR 380 : 88 taxmann.com
504 (Guj.)]
Assessee had accepted a sum of Rs. 2 lakhs from
his son to meet urgent requirement of depositing margin money in bank account
for buying a vehicle for personal use, amount so received was neither a loan
nor a deposit within meaning of section 269SS
The Assessing Officer levied penalty under
section 271D on ground that the assessee had accepted a sum of Rs. 2 lakhs from
his son in cash in contravention to provision of section 269SS. The assessee
clarified that the said sum was received in cash to meet the urgent requirement
of depositing the margin money in the bank account for buying a vehicle for
personal use and amount so received was neither a loan nor a deposit within the
meaning of section 269SS. Held that penalty
is not automatic under section 271D of the Income-tax Act, 1961 on mere
violation of the provisions of section 269SS of the Act. A proper explanation had been rendered by the
appellant for the above cited transaction. Hence, penalty levied under section
271D was to be deleted. [In favour of assessee] (Related Assessment year : 2003-04)
- [Dr. Rajaram L. Akhani v. ITO (2017) 395
ITR 497 : 88 taxmann.com 693 : (2016) 96 CCH 43 (Guj.)]
Assessee
had received loan/deposit through non-banking mode, in contravention of section
269SS but could not provide reasonable cause for such contravention, Tribunal
was not justified in deleting penalty
On perusal of book
entries of assessee firm, Assessing Officer noted that assessee had received
loans/deposits to extent of Rs. 46 lakh through non-banking channel in
contravention of section 269SS and consequently levied penalty under section
271D. Assessee submitted that said entries arose out of normal day to day
business transactions and, they were not in nature of loan or deposit so as to
attract provision of section 269SS. Once any amount received by assessee had
been shown in its books of account, it partakes nature of deposit. Since
assessee could not prove that it had a reasonable cause which had occasioned
above contravention to get any advantage under section 273B, Tribunal was not
justified in deleting penalty. In view of the aforesaid facts and
circumstances, the breach of section 269SS is apparent making the
respondent-assessee liable for penalty under section 271D. [In favour of
revenue] (Related Assessment year : 1994-95) - [CIT, Kanpur v. Sunil Sugar Co.
(2017) 85 taxmann.com 254 : TS-353-HC-2017 (All.)]
Assessing Officer has the power to
initiate penalty proceedings under section 271D of the Act and upon referral to
the Additional Commissioner, the penalty order would be barred by limitation as
the date of issue of notice would be the date when the Assessing Officer issued
notice
Dismissing the appeal of the
revenue, the Court held that; Section 271D(2) of the Act provides that the
jurisdiction of imposing penalty is vested in the Joint Commissioner. The High
Court held that though section 271D of the Act vests the jurisdiction of
imposing penalty solely in the Joint Commissioner, it is silent as regards to
who could initiate the proceedings. Relying on the ruling of the Supreme Court
in the case of D. M. Manasvi v. CIT (1972) 86 ITR 557, the High Court
held that in a case falling under section 271D, the Assessing Officer is not
precluded from initiating the proceedings by issuing a notice. The High Court
had distinguished the ruling of the Kerala High Court in the case of Grihalakshmi
Vision (2015) 379 ITR 100, wherein it was held that if the Assessing Officer
has come across a case of violation of law attracting penal provisions and has
thereafter a notice, it would tantamount to be an act without jurisdiction.
Thus, the High Court held that the order is hit by limitation as the
proceedings were initiated on 26.12.2006 when the notice was issued for the
Assessment year and hence the period of limitation expired on 30.06.2007,
whereas the order imposing penalty was passed on 21.09.2007. Thus, the appeal
was dismissed. (Related Assessment year 2004-05) – [CIT v. Narayani &
Sons (P) Ltd. (2016) 289 CTR 301 : 141 DTR 315 : 73 taxmann.com 21 (Cal.)]
Penalty under section 271D cannot
be imposed in absence of payment in cash
Section 269SS does not include in
its ambit where there is a transaction of loan or deposit by way of entries in
the books of account by crediting or debiting the account of the other person.
In other words, the provisions of section 269SS of the Act, according to us,
are not attracted when there is an acknowledgement of debt by passing entry in
the books of account and there is no transfer of money in cash from one person
to another person by way of loan or deposit. (Related Assessment year :
2001-02) – [CIT v. Apex Finlease Ltd. & Ors. Date of Judgement :
17.10.2016(All)]
Assessee company took cash over Rs. 20,000 from
its directors or their spouse to meet sudden business exigency that required
immediate discharge of certain liabilities, reasonable cause under section 273B
was established; no penalty was to be levied under section 271D
As per section 273B, no penalty shall be imposed
on person or assessee as the case may be for any failure referred to in section
269SS, if he proves that there was reasonable cause for failure to take a
‘loan’ or ‘deposit’ otherwise than by account payee cheque or account payee
bank draft. Assessee received cash loans from its directors or their spouse
amounting to lakh in each case. Assessing Officer imposed penalty under section
271D upon assessee for accepting cash loans in violation of provisions of
section 269SS. Since cash transactions were due to business exigency warranting
immediate discharge of certain liability, these transactions would be genuine
and there was reasonable cause as envisaged in under section 273B. Therefore,
no penalty could be imposed. [In favour of assessee] (Related Assessment year :
2008-09) - [Chawla
Chemtech (P) Ltd. v. JCIT (2016) 158 ITD 48 : 67 taxmann.com 374 (ITAT
Chandigarh)]
Assessee
had sufficiently proved that share application money was taken in cash from a
director to meet urgent and immediate requirement of business and there was a
reasonable cause to take 'loan' or deposit otherwise than by account payee
cheque or account payee bank draft, penalty under section 271D could not have
been levied
Assessee was a private
limited company engaged in manufacturing of Cedar Oil. During course of
assessment proceedings, Assessing Officer noticed that assessee had received a
sum of Rs. 30.26 lakhs in cash as share application money from a director of
Company and took view that provisions of section 269SS had been violated and
consequently levied penalty under section 271D. However, it was found that cash
transactions of assessee were with director of company to meet urgent and
immediate requirement of business as banking facility was not available at work
site of assessee being a backward area. Further, assessee had proved throughout
beyond any shadow of doubt that transactions were genuine. Since amount had
been deposited by director/shareholder of assessee company, in view of the
provisions of rule 2(b)(ix) of 1975 Rules, it could not be said that assessee
company had violated provisions of section 269SS. Since there was a reasonable
cause within meaning of section 273B for failure to take a ‘loan’ or ‘deposit’
otherwise than by account payee cheque or account payee bank draft, no penalty
could have been levied under section 271D. [In favour of assessee] (Related
Assessment year : 2006-07) - [Valley Extraction (P) Ltd. v. JCIT (2016) 158 ITD 976
: 68 taxmann.com 202 (ITAT Chandigarh)]
Penalty proceedings for
contravention of Sections 269SS & 269T are not related to the assessment
proceeding but are independent of it. Therefore, the completion of appellate
proceedings arising out of the assessment proceedings has no relevance.
Consequently, the limitation prescribed by section 275(1)(a) does not apply.
The limitation period prescribed in section 275(1)(c) applies to such penalty
proceedings
In CIT, Bikaner v. Hissaria Bros
(2007) 291 ITR 244 Raj, the Rajasthan High Court held that penalty
proceedings for default in not having transactions through the bank as required
under Sections 269SS and 269T are not related to the assessment proceeding but
are independent of it, therefore, the completion of appellate proceedings
arising out of the assessment proceedings or the other proceedings during which
the penalty proceedings under Sections 271D and 271E may have been initiated
has no relevance for sustaining or not sustaining the penalty proceedings. It
was held that clause (a) of sub-section (1) of Section 275 was not attracted to
such proceedings. It was held that if that were not so, clause (c) of Section
275(1) would be redundant because otherwise as a matter of fact every penalty
proceeding is usually initiated when during some proceedings such default is
noticed, though the final fact finding in this proceeding may not have any
bearing on the issues relating to establishing default e.g. penalty for not
deducting tax at source while making payment to employees, or contractor, or
for that matter not making payment through cheque or demand draft where it is
so required to be made. On appeal by the department to the Supreme Court HELD
dismissing the appeal:
On perusing the judgment of the High Court, it is
found that penalty imposed on the respondent herein was also set aside on the
ground that the provisions of Sections 271-D and 271-E of the Income Tax Act
were invoked after six months of limitation and, therefore, such penalty could
not have been imposed. Since the outcome of the judgment of the High Court can
be sustained on this aspect alone, it is not even necessary to go into other
aspects. Leaving the other questions of law open, the appeal is dismissed.
There shall be no order as to costs. – [In favour of assessee] – [CIT, Bikaner v. Hissaria Brothers,
Hanumangarh Jn (2016) 386 ITR 719 : 288 CTR 244 : 243 Taxman 174 : 74
taxmann.com 22 (SC)]
Loans and deposits are to be taken
different and distinct
“The two expressions loans and
deposits are to be taken different and the distinction can be summed up by
stating that in the case of loan, the needy person approaches the lender for
obtaining the loan therefrom. The loan is clearly lent at the terms stated by
the lender. In the case of deposit, however, the depositor goes to the
depositee for investing his money primarily with the intention of earning
interest.” – [Housing & Urban Development Corporation Ltd. v. JCIT
(2006) 102 TTJ 936 (Del)(SB)]
Assessees were members of HUF of M.
Subramaniam. The assessing officer noticed that during the assessment year
2009-10 both the assessees who were husband and wife had received and repaid
cash loans exceeding Rs. 20,000 from/to M. Subramaniam (HUF) thereby
contravening the provisions of sections 269SS and 269T of the Act. Thus, the
assessing officer levied penalty under sections 271D and 271E of the Act. The
assessee contended before the assessing officer that he has not received any
loan or deposit but it was only an accommodation transaction there was no
revenue leakage or evasion of tax from accepting and repaying the amounts from
HUF, therefore pleaded that no penalty to be levied. – [S. Vasundara Devi v.
JCIT (2015) 66 (II) ITCL 578 (ITAT Chennai)]
Even though assessee had taken a loan in cash,
since loan was routed through bank account of assessee for payment to
Government for converting land into free hold property, no penalty could be
imposed under section 271D
Assessee along with her husband acquired lease
hold rights over a land. On payment of certain sum, said land was converted
into freehold in favour of assessee and her husband. Assessing Officer noticed
that 50 per cent of said amount was taken in cash as an unsecured loan from
political party. Assessing Officer held that assessee had violated provisions
of section 269SS and therefore, imposed a penalty under section 271D. Assessee
contended that since she did not have requisite fund at that point of time and
funds were urgently required for conversion of property, a loan was taken from
said political party. It was found that even though assessee had taken a loan
in cash, loan was routed through bank account of assessee for payment to
Government for converting land into free hold property which clearly showed
bona fides of assessee. Since reasonable cause had been shown by assessee,
provisions of section 273B was applicable and no penalty could be imposed. [In
favour of assessee] (Related Assessment year : 2006-07) - [CIT-II, Agra v. Smt. Dimpal Yadav (2015) 379 ITR 177 : 280 CTR 309
: 234 Taxman 160 : 61 taxmann.com 219 (All)]
Making book adjustment of funds by
assessee firm with sister concern without making payment of cash, could not
said to be violation or contravention of section 269SS and section 269T, Penalty
under section 271D could not be imposed
A notice was issued to assessee-firm proposing to levy
penalty on ground that certain receipts/payments exceeding ceiling limit were
made in cash to/from sister concern and to one ‘S’. Assessee submitted that
there were only book adjustments of funds with sister concern and no cash was
paid. As regard payment to ‘S’, it was stated that same was paid to ‘S’ on
death of her husband who was legal advisor of company. Held, allowing the appeal, that except making
reference to the relevant provisions of the Act and the allegation contained in
the show-cause notices, the Assessing Officer did not indicate the method of
payment. It was simply mentioned that everything was done in cash. The very
fact that from the same agencies, amounts were said to have been received and
repaid, as reflected in the books, disclosed that it was nothing but book
adjustment. Making book adjustment of the funds by a firm vis-a-vis its sister
concern, could not be said to be violation or contravention of section 269SS
and section 269T. Levy of penalty was deleted. [In favour of assessee] (Related
Assessment years : 1992-93, 1993-94) – [Gururaj Mini Roller Flour Mills v.
Addl. CIT (2015) 370 ITR 50 : 277 CTR 53 : 118 DTR 218 : 56 taxmann.com 336 (T
& AP)]
If assessee’s plea about compulsion to pay/
receive loans in cash is not disputed, the violation of section 269SS/269T is
deemed to be bonafide and does not attract penalty
According
to the plea raised, the persons who have advanced these loans to the assessee
are relatives of a salesman who reside in a village and were having no bank
account. Such contention of the assessee has not been discarded or disproved.
It is also not mentioned in the penalty order that the aforementioned amount
taken by the assessee in violation of section 269SS and repayment thereof in
violation of section 269T was not bonafide transaction and the same was made
with a view to evade tax. If it is so, then according to the decision of
Hon’ble Bombay High Court in the case of CIT v. Triumph International
Finance (I) Ltd. (2012) 345 ITR 720
(Bom.), no penalty is imposable either under section 271D or under section
271E as the explanation submitted by the assessee would be considered to be
reasonable cause under section 273B of the Act. - [Chemfert Traders (Bombay)
Pvt. Ltd v. ACIT - Date of Judgement : 18.02.2015 (ITAT Mumbai)]
Cash
receipt exceeding specified limit not supported by reasonable cause - Explanation
for receiving cash payment was not convincing - Alternative plea to treat said
transaction as gift was an afterthought
It is evident that the assessee is in the business of
construction, which required many a times payment in cash to the labour. Thus,
the necessities of making payment to labour or to small suppliers in cash
cannot be accepted as a good and justifiable ground for receiving cash by the
assessee. The necessities of expenditure to be made in cash are not the same as
necessities involved in receiving money in cash. If the line of reasoning of
the assessee is to be accepted, then the purport of section 269SS itself would
be lost and there is no necessity at all to the provision like section 273D.
While there
could be no objection to the assessee raising funds from friends and relatives,
the only requirement of law is that when the assessee goes for any finance
facility from friends and relatives or from any quarters, the receipt has to be
in the manner provided for under the Act. When such receipt crosses the
particular sum, law does not frown on receipt of cash beyond a particular level
subject to the fact that the assessee explains the reasonable cause for taking
money in cash.
As far as the present case is concerned, except for stating
that they had to make payments to the suppliers and the labour, there is hardly
any material available on record to show any justification for receipt of cash
over and above Rs. 20,000 during the course of the year. The assessee admits
that they are in the line of business of construction where day in and day out
cash payments are made to labourers and to suppliers. Even, the justification
for making payment in cash must necessarily satisfy rule 6DD of the Income Tax
Rules, as it existed then. The assessee had not shown any acceptable or
unavoidable circumstances or impracticability or difficulty in receiving money
otherwise than in cash. Even accepting the reasoning of the assessee that the
reasonable cause that the assessee may show could be appreciated on the lines
shown in rule 6DD, there was no reasonable cause shown in the letter given by
assessee, which was in a very general form. Except for mere statement that the
work undertaken by the assessee at outside the State was for the first time and
there was necessity for meeting the requirements to labour and other suppliers
demanding cash, no details were placed before the authorities concerned to
accept the case of the assessee that there was a reasonable cause shown in
receiving an amount of Rs. 6,51,000 in cash from ‘M’. Thus, the assessing
authority rightly pointed out that the explanation was not convincing, hence,
the case of the assessee was rejected.
The plea that the transaction should be viewed as a gift
transaction is devoid of merit and it is only an afterthought. Confronting with
the factual situation the transaction in cash attracted penal provision, the
assessee immediately wanted to change the colour of the transaction to one of
gift. The facts could not take different colour at different point of time when
confronted with one kind of conclusion against the assessee, that too to
wriggle out of penal liability, the assessee attempted to give a different
colour to the nature of transaction as it pleased. As pointed out by the
Tribunal, there was no bona fides in such a claim. In the circumstances, such a plea was to be
rejected. Thus, the alternate contention does not call for even a remand.
Accordingly,
the Appeal stands dismissed. [In favour of revenue] (Related Assessment year : 1994-95)
– [Builtec Engineers & Builders v. DCIT, Range (2013) 256
CTR 205 : 214 Taxman 99 : 31 taxmann.com 406 (Mad.)]
In case of a partnership firm, there is no
separate identity of partner and firm and, therefore, where a partner took loan
in cash from firm, there was no violation of section 269SS so as to invoke
penal provisions of section 271D
Assessee was a partner in four partnership firms. Assessing
Officer noted that assessee had taken loan in cash from said firms. He thus
passed a penalty order under section 271D. Tribunal held that there was no
separate identity for partnership firm and that partner was entitled to use
funds of firm. It was also found that assessee acted bona fide and that there
was a reasonable cause within meaning of section 273B. Accordingly, Tribunal set aside penalty order.
On facts, there was no legal infirmity in Tribunal’s order requiring
interference. [In favour of assessee] – [CIT, Coimbatore v. V. Sivakumar (2013)
354 ITR 9 : 32 taxmann.com 62 (Mad.)]
Period
of limitation for purpose of penalty under section 271D is to be reckoned from
date of first show cause notice issued for imposing penalty
The Commissioner
(Appeals) allowed the assessee’s appeal holding that the penalty order was
barred by period of limitation as mentioned under section 275(1)(c), as, it was
passed after the expiry of six months from end of the month in which penalty
proceedings were initiated by the Assessing Officer. The Tribunal affirmed the
order of the Commissioner (Appeals). Held : Appellate proceedings
against assessment order is hardly of relevance so far as penalty proceeding
under section 271D is concerned. Even though authority competent to impose
penalty under section 271D is Joint Commissioner, period of limitation for
purpose of penalty proceedings cannot be reckoned from issue of first show
cause by Joint Commissioner, but from date of issue of first show cause (even
by Assessing Officer) for initiation of penalty proceedings. The proceedings
having been initiated on 25.03.2003, the order passed by the Joint Commissioner
under section 271D on 28.05.2004 was hit by the bar of limitation and the
Commissioner (Appeals) and the Tribunal had, thus, not committed any error in
setting aside the order of penalty. [In favour of assessee] – [CIT, Udaipur v.
Jitendra Singh Rathore (2013) 352 ITR 327 : 31 taxmann.com 52 (Raj.)]
Owing
to urgent need of money, father-in-law of assessee paid purchase price of
property directly to seller on assessee’s behalf, transaction did not attract
provisions of section 269SS
Assessing
Officer initiated penalty proceedings under section 271D on the ground that the
assessee had obtained a loan of Rs. 20.99 lakh in cash from her father-in-law,
which was in contravention of the provision of section 269SS. During the
penalty proceedings, the assessee claimed that the amount received in cash from
her father-in-law was a gift and not a loan. The
Assessing Officer held that the assessee received the amount as a loan and not
as a gift, because the same was shown as a loan in the balance sheet of the
assessee, which was filed along with the return of income. Hence, the Assessing
Officer levied penalty. The Tribunal held that the transaction in question was
between the father-in-law and daughter-in-law and the genuineness of the
transaction was not disputed, in which, the amount had been paid by the
father-in-law for the purchase of property. The Tribunal thus set aside the
penalty order.
Held : In the light of the relationship between the
assessee and her father-in-law, the Tribunal has rightly held that the
genuineness of the transaction is not disputed, in which, the amount has been
paid by the father-in-law for purchase of property and the source had also been
disclosed during the assessment proceedings. If there was a genuine and bonafide
transaction and the taxpayer could not get a loan or deposit by account payee
cheque or demand draft for some bona fide reason, the authority vested with the
power to impose penalty has a discretion not to levy penalty. In the instant
case, the Tribunal has rightly found that the transaction between the
daughter-in-law and father-in-law is a reasonable transaction and a genuine one
owing to the urgent necessity of money to be paid to the seller, it would
amount to reasonable cause shown by the assessee to avoid penalty under section
271D. In view of above, impugned order passed by the Tribunal deleting penalty,
was to be confirmed. [In favour of assessee] (Related Assessment year : 2005-06) - [M.
Yesodha (2013) 351 ITR 265 : 31 taxmann.com 153 (Mad.)]
Assessee
could prove genuineness of accepting cash loan beyond exempted limit and no
involvement of unaccounted or black money was traceable, penalty under section
271D could not be levied for violation of section 269SS
Assessee accepted cash
loan beyond exempted limit from Samajwadi Party, of which he was member, for
making payment to Nazul Department in order to meet part cost of converting
lease hold rights over Nazul land into free hold. According to Assessing
Officer, said cash loan transaction violated section 269SS because assessee's
case neither fell in any exceptional clause of section 269SS nor he could prove
urgency of accepting cash directly avoiding banking channel; and therefore,
penalty under section 271D was attracted. However, it was found that Assessing
Officer did not dispute genuineness of said transaction and made no addition in
this regard. Further, cash loan deposited by Samajwadi Party in assessee's
joint account was withdrawn on same day for making payment to Nazul Authority
and assessee had also filed confirmation of Samajwadi Party. In addition,
Assessing Officer had not made out any case that assessee had used unaccounted
or black money. When assessee had entered into genuine transaction for bona
fide reasons, and said loan was also repaid through banking channel, assessee
had been able to establish that he had 'reasonable cause' for not complying
with section 269SS. Therefore, it was not a fit case for levy of penalty. [In
favour of assessee]
(Related Assessment
year : 2006-07) - [DCIT v. Akhilesh Kumar Yadav (2013) 56 SOT 2 :
(2012) 26 taxmann.com 264 (ITAT Agra)]
Share application monies received by
assessee-company in cash for allotment of shares would not amount either to a ‘loan’
or ‘deposit’ within meaning of section 269SS
Assessee-company
received share application monies amounting to Rs. 18 lakhs in cash from three
private limited companies for allotment of shares. Additional Commissioner
relying on judgment of Jharkhand High Court rendered in case of Bhalotia
Engg. Works (P) Ltd. v. CIT (2005) 275 ITR 399 levied penalty under section
271D upon assessee. He rejected submission of assessee that there was no
violation of provisions of section 269SS on its part. Appellate authorities
cancelled penalty levied upon assessee holding that share application monies
received by assessee in cash for allotment of shares would not amount either to
a loan or a deposit within meaning of section 269SS. Appellate authorities were
justified in their view. [In favour of assessee] (Related Assessment year : 2005-06)
- [CIT v. I. P. India (P) Ltd. (2012) 343
ITR 353 : 204 Taxman 368 : (2011) 16 taxmann.com 407 (Del.)]
In order to exercise power of levy
of penalty under section 271D primary condition is that proceedings in respect
of assessee for relevant assessment year should be pending before Assessing
Officer to come to conclusion that given set of facts and circumstances merit
initiation of penalty proceedings
A survey under section 133A was
conducted at business premises of assessee on 10.12.2007. During course of
survey, certain documents were impounded which revealed that assessee had
received loan of Rs. 2 lakhs in cash from ‘B’. Assessing Officer took a view
that assessee had violated provisions of sections 269SS and 269T. A show-cause
notice was issued to assessee by Assessing Officer for imposing penalty under
sections 271D and 271E. Assessee’s plea that it had surrendered a sum of Rs.
30.00 lakhs pursuant to survey and amount was covered in said surrender, was
rejected by Assessing Officer as surrender was for assessment year 2007-08 and
loan was taken and repaid in financial year 2004-05. Accordingly, a penalty order was passed under
sections 271D and 271E. Commissioner (Appeals) upheld orders of Assessing
Officer in levying penalty. In order to exercise power of levy of penalty under
respective section/s, primary condition is that proceedings in respect of
assessee for relevant assessment year should be pending before Assessing Officer
to come to conclusion that given set of facts and circumstances merit
initiation of penalty proceedings. In the facts of the present case, no
proceedings were initiated for the financial year 2004-05 i.e. assessment year
2005-06, which is the year to which the aforesaid transaction of accepting and
payment of the cash loan relates. The show-cause notice was issued to the
assessee by the Assessing Officer, however, in the proceedings relating to
assessment year 2007-08 and even penalty proceedings were initiated under
sections 271D and 271E while completing assessment order relating to assessment
year 2007-08. There is no merit in the said initiation of penalty proceedings
under sections 271D and 271E relating to assessment year 2005-06, while
completing assessment proceedings relating to assessment year 2007-08. Since,
in instant case, no proceedings were pending before Assessing Officer for
assessment year in question, impugned penalty order deserved to be set aside. In
view of above, the penalty levied under sections 271D and 271E is deleted [In
favour of assessee] (Related Assessment year : 2005-06) - [Baldev Singh v.
Addl. CIT - Date of Judgement : 28.02.2012 : (2018) 93 taxmann.com 212 (ITAT
Chandigarh)]
In
general, ignorance of law is no excuse but under certain circumstances it may
be so - In the present case, ignorance of law may be defense, but one
should be cautious while applying this proposition - It should be rarely used
as specific circumstance. It is settled law that each case is decided in the
facts and circumstances.
A search under section
132 of the Act was carried out in the case of the assessee group on 18.10.2003.
The cheques of Rs. 95.5 lakhs mention different date were found Sneh
Builders Assessment year 2004-05, from Shri. B.M.Shah The stand of the assessee
was that these cheques were given as security for the accounted loan transactions
which was rejected by the Assessing Officer. According to the Assessing Officer
these transactions could not be said to be innocent transactions and the
assessee could not make out the case to justify the same. Thus, the assessee
was liable to penalty under section 271D of Act. Hence, in all, penalty of
Rs. 99,00,000/- is levied by the Assessing Officer. The matter was carried in
appeal before the CIT(A) wherein penalty of 95,50,000/- was deleted while
penalty of Rs. 3,50,000/- was enhanced to Rs. 23,50,000/- on account of factual
mistakes committed at assessment level. This factual mistake has not been
disputed but the penalty including enhancement of penalty has been opposed
before us on merit.
The stand of the
assessee is that such a practice of taking loans through bearer cheques is
being followed from year to year but same never pointed out by the auditors. It
was further stated that Shri B.H. shah has acknowledged the loan and therefore,
the transactions were genuine. The assessee also pleaded that he was ignorant
that receipt of bearer cheques violated the provisions of section 269SS of the
Act. Transactions were during routine course of business and the genuineness of
the transactions was not in doubt. So, penalty in question is not
justified.
Held
: that the action of the Assessing Officer in imposing the penalty under
section 271D on the presumption that against the security of these cheques of
Rs. 95,50,000/- the assessee must have taken equivalent amount of cash is not
borne from the records. There is no concrete evidence to fact that such amount
was in fact received in cash by the assessee except the statement of Shri B.H.
Shah. General statement of third person cannot be valid basis or taking action against the assessee. As the
penalty has been imposed only on the basis that against the security of cheques
equivalent amount of cash might have been taken cash loans is not justified.
Under the facts and circumstances penalty of Rs. 95,50,000/- was rightly
deleted by the CIT(A). We uphold the same. [In favour of assessee] (Related
Assessment year : 2004-05) – [DCIT (C) v.
Sneh Builders- date of Judgement : 20.05.2011 ( ITAT Pune)]
Assessee accepted share application money being
Rs. 20,000 in cash and finding of Commissioner (Appeals) was that transaction
was bona fide and default was of technical nature and, in any case, amount was
received from public and not from directors or shareholders, levy of penalty under section 271D for receipt of share application money in cash was not justified
The assessee accepted share application money
being Rs. 20,000 in cash. The Commissioner (Appeals) upheld the stand of the
assessee that the amount received was not loan or deposit and no interest was
payable. It was further held that the transaction was bona fide and
default was of technical nature and in any case, the amount was received from
the public and not from directors or shareholders. Hence, it was held that levy
of penalty on the assessee under section 271D was not justified. Held that,
the finding to the effect that the transaction was bona fide and
the default was of technical nature which did not justify levy of penalty was
not shown to be, in any manner, perverse or unreasonable. Hence, the levy of
penalty could not be upheld. [In favour of assessee] (Related Assessment year :
2001-02) - [CIT v. Speedways Rubber (P) Ltd. (2010)
326 ITR 31 (P&H)]
Capital contribution in cash of a partner
in the partnership firm does not attract provisions of Section 269SS even if assessee
could not succeed in getting approval of Government for constituting
partnership to takeover gas agency, it could not be said that assessee had
received 'deposit' or ‘loan’ in cash so as to attract section 269SS
The assessee had accepted a
sum of Rs. 8 lakhs in cash from 'MT'. The said sum appeared in the balance
sheet of the assessee under the head ‘Unsecured loans’. The Assessing Officer
initiated penalty proceedings under section 271D on the ground that there was a
contravention of section 269SS inasmuch as the assessee took a loan in cash of
a sum exceeding Rs. 20,000. In response to the penalty notices, the assessee
explained that he was given the dealership of IOC gas agency in the reserved
category; that in order to augment the capital he accepted Rs. 8 lakhs from one
‘P’ who was the proprietor of ‘MT’ as capital for the partnership which was
proposed to be constituted under a MoU; that since the assessee could not
succeed in getting the approval of the Government for constituting a
partnership to takeover the gas agency, the amount was returned and in these
circumstances there was no violation of either section 269SS or 269T. However,
the Assessing Officer went ahead and imposed penalty on the assessee under
sections 271D and 271E.
Held that, because the assessee needed finance
for its business he had proposed to ‘P’ that he should join as partner and that
the amount of Rs. 8 lakhs was to be treated as capital contribution. After
obtaining the necessary permission from IOC a regular partnership deed was to
be drawn up between the parties with the assessee having 70 per cent share and
'P' having 30 per cent share. It was further stated that if the permission was
refused the assessee would return the amount immediately without interest to ‘P’.
It could even be stated that the assessee bona fide thought that he
could take the capital contribution in cash since it did not carry any interest
and could not be considered as a loan or deposit. Thus, there was bona
fide belief which also constituted reasonable cause within the meaning
of section 273B. Hence, penalty under section 271D was not attracted. So far as
the repayments were concerned, they were all by cheques and this was evidenced
by the copy of the assessee’s bank account. Section 269T was, therefore, not
attracted and the penalty imposed under section 271E also could not survive. [In
favour of assessee] (Related Assessment years : 2001-02 and 2003-04) - [Bhikhabhai Dhanjibhai Patel v. ACIT (2010) 127 TTJ 479 (ITAT
Ahmedabad)]
Provisions of section 269SS were not applicable
to amount advanced for future supply of goods
The respondent-assessee had accepted various
amounts from BR, during March, 1991, and the total amount came to Rs. 1,00,000.
The amount was received otherwise than by way of account-payee cheque or bank
draft. The assessing authority initiated penalty proceedings under section 271D
and imposed penalty on the assessee. Held that on the quantum side
the assessing authority had added Rs. 1,00,000 which was the same amount as
unexplained cash credit under section 68 and the Commissioner (Appeals) had
held that the aforesaid amount had been taken as advance from BR against
subsequent purchase of pulses made from the assessee-respondent. The provisions
under section 269SS are applicable only in case of loan or deposit and do not
cover cash advance for purpose of goods in future. Hence, the provisions of
section 269SS were not applicable to the present case. [In favour of assessee]
(Related Assessment year : 1990-91) - [CIT
v. Kailash Chandra Deepak Kumar (2009) 317 ITR 351 (All.)]
Assessing Officer having treated
the impugned amount of deposit as income, he is precluded from treating the
same amount as deposit or loan for the purpose of section 269SS and levy
penalty under section 271D. The penalty ought to be cancelled
As a consequence of search under section 132 conducted at
assessee’s premises, block assessment was completed on 25.05.2000. During
course of assessment, Assessing Officer had found that assessee had accepted
certain deposits other than by way of account payee cheques. Assessee failed to
give any explanation in this regard; thus, Assessing Officer was of opinion
that assessee was liable for penalty under section 271D. He, therefore, made a
reference to Addl. Commissioner who issued show-cause notice to assessee on
17.08.2000 and imposed penalty on 13.02.2001. Assessee contended that penalty
order was time-barred. Whether since
Assessing Officer had treated impugned amount of deposits as assessee’s income,
he was precluded to treat same amount as deposits or loans for purpose of
section 269SS and subject transaction to penalty under section 271D. Therefore,
penalty imposed upon assessee was to be cancelled. (Block assessment period :
1988-89 to 1998-99) -
[Bajrang Textiles v. Addl. CIT (2009) 122 TTJ 190 : 33 SOT 5 [ITAT Jodhpur]
Amount paid by firm to partners or vice versa -
is payment to self and does not partake the character of loan or deposits in
general law. Provisions of section 269SS and 269T are not applicable to such
facts
The Assessing Officer
levied penalty on the assessee-firm under sections 271D and 271E in respect of
certain transactions between the assessee-firm and its partners described as
deposits from the partners. The assessee had claimed that in view of the fact
that partners and firm are not independent of each other and the firm is not
juristic person, these transactions could not be considered as intra person but
were only for the purpose of carrying on partner's own business. The assessee
took the plea that inter se transactions between the partners
and the firm were not governed by the provisions of sections 269SS and 269T. Held
that it could not be doubted that the assessee had acted bona fide and
his plea was bona fide and reasonable ground existed on which
it had not adhered to the requirement of conducting the transaction through
bank only. Thus, no penalty could be imposed on the assessee under section
271D/271E. – [CIT v. Lokhpat Film Exchange
(Cinema) (2008) 304 ITR 172 : (2007) 212 CTR 371 (Raj.)]
Once finding on
facts was arrived at by Tribunal on factsthat
transactions were genuine and identity of the lender was established, there was
no intention on the part of the assessee to evade tax, it was not proper for court to interfere with
finding of fact, the cancellation of penalty under section
271D was justified
Penalty was imposed on the assessee under
section 271D/271E. The Commissioner (Appeals) held that the business of the
assessee which was done mostly in Erode required cash purchases which made the
assessee to accept loans in cash from sister concerns and that repayments to
sister concerns were also made in cash. The Commissioner (Appeals), finding
that the transactions of loans were genuine and the identity of lenders was not
in doubt, cancelled the penalties. The Tribunal held that there was no intention
on the part of the assessee to contravene the provisions of section 269SS and,
accordingly, upheld the order of the Commissioner (Appeals). Held that once
finding as to the genuineness of the transactions was arrived at by Tribunal on
facts, it was not proper for the court to interfere with the finding of fact.
[In favour of assessee] (Related Assessment year : 1997-98) - [CIT v. Lakshmi Trust Co. (2008) 303 ITR 99 (Mad.)]
Tribunal found that amounts
alleged to have been received in cash or paid in cash were mere book entries
and were part of transactions on behalf of family members, it could not be said
that there was violation of sections 269SS and 269T so as to attract penalty
During the course of assessment proceedings, the
Assessing Officer noticed that the assessee, who carried on the business of
money-lending and trade in jewellery, had accepted various loans / deposits
from different parties and repaid such loans/deposits to different parties in
contravention of the provisions of sections 269SS and 269T. Accordingly,
penalty was levied on the assessee under section 271D and 271E. The Tribunal
held that the amounts of the alleged receipts except the amounts of cash loan
taken by the assessee and the amount received by the assessee on maturity of
NSCs of different family members could not be treated as loan and deposits nor
amounts of repayments could be treated as for violation of the provisions of
section 269T as amounts were not received in cash by the assessee nor he paid
the amounts in cash to different family members but most of the amounts
involved were based on mere book entries. The Tribunal also found that the
assessee was prevented by a reasonable cause in light of the affidavit of one
J.B., the advocate and the income-tax practitioner, having standing of 33
years, as the gentleman had opined that the assessee would not violate the
provisions of sections 269SS and 269T if the assessee received amounts from the
family members and repaid same to different family members. The Tribunal,
therefore, deleted the penalty. Held that the Tribunal had found that on
the facts and in the light of the evidence on record there was no violation of
either the provisions of section 269SS or section 269T. The Tribunal had
further found that there was a reasonable cause, assuming that there was any
violation by the assessee. Hence, the Tribunal had rightly deleted the
penalties levied under sections 271D and 271E. [In favour of the assessee] (Related
Assessment year : 1991-92) -
[CIT v. Natvarlal Purshottamdas Parekh (2008) 303 ITR 5 :
219 CTR 509 : 205 Taxation 237 : 4 DTR 37 (Guj.)]
Deposits in cash in excess of specified limit – Effect
of section 273B – Reasonable explanation for such deposits – Purchase of goods
– Balance due adjusted by book entries – It is necessary to show the motive to
evade tax in order to justify the levy of penalty under section 271D and
section 271E - No intention to evade tax – Penalty under section 271D could not
be imposed
The assessee-company
purchased goods from time-to-time from the creditor company. As it was not in
position to make the payment of the outstanding purchase price immediately, the
parties arrived at an understanding whereunder the outstanding purchase price
was treated as a loan on 'sarafi account' after making part payment of the
outstanding dues. During course of assessment proceeding, the Assessing Officer
treated the outstanding amount on ‘sarafi account’ as acceptance of deposit in
violation of provisions of section 269SS and, accordingly, he imposed penalty
under section 271D upon the assessee. The Commissioner (Appeals) upheld the
penalty order. However, on second appeal, the Tribunal cancelled the impugned
penalty. On reference :
Held : While introducing
section 269SS, section 273B was also incorporated in the statute which provides
that no penalty shall be imposable on a person or an assessee, as the case may
be, for any failure referred to in the said provision if the assessee proves
that there was a reasonable cause for such failure. In other words, penalty is
not automatic under section 271D on mere violation of provisions of section
269SS. The Tribunal had found that there was no evidence on record to show that
infraction of the provisions was with knowledge or in defiance of the
provisions. It had further been held that there was nothing on record to
indicate that the assessee had indulged in any tax planning or tax evasion. On
the contrary, the Tribunal had recorded that by making the book entries, the
assessee had made the adjustment bona fide without having the knowledge that
such book entries would render it liable to penalty under section 271D on account
of violation of provisions of section 269SS. Thus, there was a reasonable cause
and, hence, no penalty was leviable. In light of the findings of fact recorded
by the Tribunal, it was not possible to find any legal infirmity in the
impugned order. Not only there was a reasonable cause, as found by the
Tribunal, but in light of the finding of the Tribunal that the breach, if any,
was merely a technical or venial breach, no penalty was leviable merely because
it was lawful to do so without exercising discretion before imposing the
penalty. In the result, the Tribunal was justified in deleting the penalty.
(Related Assessment year : 1991-92) – [Bombay Conductors and Electricals
Ltd. v. CIT (2008) 301 ITR 328 : 205 Taxation 259 : 173 Taxman 434 (Guj.)
Transactions between sister concerns are not covered
by either provisions of section 269SS or section 269T of the Act
Tribunal
having deleted penalty under sections 271D and 271E observing that transactions
between sister concerns are not covered by either provisions of section 269SS
or section 269T and that the default if any was of venial nature, no
interference is called for. High Court held that “..... The transaction of loan
has found place in the books of account of the assessee as well as the lender
of the loan. None of the authorities have reached the conclusion that the
transaction of the loan was not genuine and it was a sham transaction to cover
up the unaccounted money. It appears to us that the assessee felt need of money
and thus he approached the money-lender for advancement of the money, the
transaction is reflected in the promissory notes executed by the assessee in
favour of the lender. When there is an immediate need of money the person
cannot get such money from the nationalised bank to satisfy the immediate
requirement. .....”. It has further been held that it is a common trading
practice for parties to make payment on behalf of each other to sister concern.
That the provisions of section 269SS and section 269T of the Act have been brought
on statute book with a specific intention of curbing black money and taking
advantage of cash transaction for explaining the cash available during the
search. The Tribunal has, therefore, concluded that the default, if any, is of
a venial nature and no penalty can be imposed. In the aforesaid set of facts
and circumstances of the case, it is apparent that the Tribunal has merely
appreciated the facts and evidence on record. There is no evidence to come to
the conclusion that such appreciation of facts and evidence is not correct, or
is perverse. Therefore, the impugned order of Tribunal in relation to deletion
of penalty under s. 271D and s. 271E of the Act does not call for any
interference. - [Shree Ambica Flour Mills Corporation v. CIT v. (2008) 6 DTR
169 (Guj.)]
There being no finding of Assessing
Officer, CIT (A) or Tribunal that the transactions in violations of section
269SS were not genuine, assessee’s return of having been accepted under section
143(3) after scrutiny, there being also no finding that transactions were
malafides aimed at disclosing concealed
money, imposition of penalty under 271D merely for technical mistake
could not be sustained
After completing the
assessment, the Assessing Officer initiated penalty proceedings under section
271D against the assessee-firm for having received cash deposits of Rs. 20,000
or more in violation of section 269SS. The assessee explained that it was in urgent
need of money for making payment to labourers and sufficient cash not being
available, it received cash deposits from different persons in cash; that its
return was finally accepted under section 143(3) and no loss of revenue was
found; and that it had not acted deliberately in defiance of law. The Assessing
Officer rejected the submissions of the assessee and imposed penalty. On
appeal, the Commissioner (Appeals) as well as the Tribunal concurred with the
Assessing Officer and upheld the imposition of impugned penalty. On reference :
Held : The nature of
penalty and principle governing imposition of the same are well-settled by a
catena of decisions of the Supreme Court and the various High Courts. The
settled proposition of law, therefore, is that the provisions dealing with
penalty must be strictly construed. An order imposing penalty for failure to
carry out a statutory obligation is the result of a quasi-criminal proceeding
and penalty will not ordinarily be imposed unless the party either acted deliberately
in defiance of law or was guilty of conduct, contumacious or dishonest or acted
in conscious disregard of his obligation. Penalty will also not be imposed
merely because it is lawful to do so. Rather, penalty should be imposed for
failure to perform a statutory obligation which is a matter of discretion of
the authority to be exercised judicially and on consideration of all the
relevant circumstances. Even if a minimum penalty is prescribed, the authority
competent to impose penalty will be justified in refusing to impose penalty,
when there is a technical or venial breach of the provisions of the Act or
where the breach flows from a bona fide belief that the offender is
not liable to act in the manner prescribed by the statute.
One of the cardinal
principles of the English criminal law is expressed in the maxim actus
nonfacit reum, nisi mens sit rea, that is, a person cannot be convicted
and punished in a proceeding of a criminal nature, unless it can be shown that
he had a guilty mind. A penalty imposed for a tax delinquency is a civil
obligation, remedial and coercive in its nature, and is far different from the
penalty for a crime or a fine or forfeiture provided as punishment for the
violation of criminal or penal laws.
The words ‘reasonable cause’
have not been defined under the Act, but they could receive the same
interpretation which is given to the expression 'sufficient cause'. Therefore,
in the context of the penalty provisions, the words 'reasonable cause' would
mean a cause which is beyond control of assessee. Assessing Officer
imposed penalty under section 271D upon assessee for having received cash
deposits in violation of section 269SS.
Assessee explained that it was in urgent need of money for making
payment to labourers and sufficient cash not being available, it received cash
deposits from different persons. Commissioner (Appeals) as well as Tribunal
upheld imposition of penalty. Since there was no finding of assessing
authority, appellate authority or Tribunal that transaction made by assessee in
breach of provisions of section 269SS was not a genuine transaction and on
contrary, return filed by assessee was accepted after scrutiny under section
143(3), imposition of penalty merely on technical mistake committed by
assessee, which had not resulted in any loss of revenue, was harsh and could
not be sustained in law.
– [Omec Engineers v. CIT (2007) 294 ITR 599 : (2008) 217 CTR 144 : 169 Taxman 158
(Jharkhand)]
Penalty under section 271D cannot be levied on mere
surmises or incomplete evidences
Relying on accounts of ‘H’
showing that assessees had taken loans from that concern in contravention of
section 269SS, Assessing Officer imposed penalty on assessees under section
271D. Penalties
being strict in nature they cannot be automatic. Unless the fact of breach of
provision is proved beyond doubt and the act or omission falls within four
corners of the provision of law, penalty should not be levied. In the absence
of any definite material to establish that the assessee had received
loan/deposit in contravention of the provisions of section 269SS, Except
photocopies of alleged statement of loan account of assessees in books of ‘H’
which was contradicted by admission of ‘H’ himself and was shown to be
incomplete, there was no material to infer that loans/deposits in contravention
of provisions of section 269SS were taken by assesses. Except photocopies of
alleged statement of loan account of assessees in books of ‘H’ which was
contradicted by admission of ‘H’ himself and was shown to be incomplete, there
was no material to infer that loans/deposits in contravention of provisions of
section 269SS were taken by assesses. Besides, assessees were petty traders
carrying on small business, their income was below taxable limit and they had
no intention to contravene provisions of section 269SS. On facts, levy of
penalty was not justified. (Related Assessment years : 1995-96, 1996-97)
– [Navin Kumar v. JCIT (2006) 99 TTJ 267 : 98 ITD 242 (TM)(ITAT Amritsar)]
None of persons had any
bank account at time when they made deposits in cash with assessee and moreover
assessee was not aware of provisions of section 269SS or 269T about which his
counsel did not apprise him about the provisions, imposition of penalty on
assessee under section 271D/271E was not justified
The provisions of
section 271D are subject to the provisions of section 273B which stipulates for
the non-imposition of penalty if the assessee proves that there was reasonable
cause for violation or to comply with the relevant provisions. Where none of the
persons had any bank account at the time when they made deposits in cash with
the assessee and moreover the assessee was ignorant of relevant provision about
which the assessee was not advised by his counsel and the affidavit the
advocate of the assessee to that effect was placed before the Assessing
Officer. Held that the assessee was not aware or was not
enlightened, more specifically in the background of the situation that he was
only a matriculate. In view of the totality of the facts and circumstances of
the case, no penalty could be imposed on the assessee under section 271D/ 271E.
– [ITO v. Prabhulal Sahu (2006) 99 TTJ 177 (ITAT Jodhpur)]
Loan given by relatives on Sunday for safe custody and
for use in business. No contravention of section 269SS takes place
The assessee had taken
loans from one ‘S’ and ‘C’. The Joint Commissioner found that the loans were
availed of by the assessee in contravention of the provisions of section 269SS.
He, thus, issued a notice to the assessee to show cause as to why penalty under
section 271D should not be levied and after finding that the assessee had no
reasonable cause for borrowing the amount in cash, he levied penalty under
section 271D. The Commissioner (Appeals) confirmed the penalty order. On
appeal, the Tribunal, holding that the assessee had reasonable cause to borrow
loans, quashed the penalty. On appeal :
Held : The Tribunal had
considered the case of the assessee that the family members of the assessee
wanted their money to be kept in safe custody and to use it as and when
required for the business of the assessee and the assessee received the money
on a sunday. The Tribunal had held that merely for the reason that after the
amounts were received, the assessee did not utilize the same, it would not go
to show that there was no business requirement for the assessee. Therefore, on
the facts and circumstances of the case, the Tribunal had rightly come to the
conclusion that the penalty imposed was not warranted and accordingly, allowed
the appeals. There was no reason to interfere with the finding of fact arrived
at by the Tribunal. No substantial question of law arose out of the order of
the Tribunal as the Tribunal had rendered a finding of fact. The appeals,
therefore, were to be dismissed in limine. [In favour of assessee] - [CIT v.
T. R. Renagrajan (2005) 279 ITR 587 (Mad.)]
A genuine transaction made in an emergency, does not
attract penalty under section 271D
- Since TSL, a closely held company in which
assessee and her father were promoter and chief promoter, was on verge of
winding up, and in process of its revival, assessee took cash loans from TSL in
order to comply with Court orders and to furnish deposit as per AAIFR’s
direction to TSL, said purpose could not be said to be tax evasion and there
was no animus to defy provision of law - In such circumstances assessee could
be exonerated from rigours of section 271D
The assessee after
taking cash loans from ‘TSL’, had deposited the same in her bank account. Thereafter
the assessee withdrew amounts from bank and purchased FDRs and after encashing
the FDR, amount was returned to ‘TSL’ by cheque. As per the Assessing Officer
said mode of accepting loans by the assessee violated provisions of section 269
SS and, therefore the assessee was liable to penalty. The assessee submitted
before the Assessing Officer that the ‘TSL’ was a sick company, and the amounts
had been given in cash in order to make deposits for obtaining further funds
for the business of said company, as it had been directed to make such deposits
to revive the company; hence, there was no violation of section 269SS. The
Assessing Officer rejected the explanation of the assessee and imposed penalty
on the assessee. On appeal, the Commissioner (Appeals) upheld the penalty.
Since there was difference of opinion between Judicial Member and Accountant
Member of the Tribunal, matter was referred to the Third Member.
Held (Per Third Member)
: TSL was on the verge of winding up. The assessee was the promoter and
director of TSL. Her father was the chief promoter and managing director of
TSL. It was a closely held company. The assessee was concerned with the revival
of TSL. In the process of revival, the assessee took the cash loans from TSL.
Genuineness of the loan was not doubted. The circumstances under which the loan
was taken were not disputed. The assessee felt that the delay may defeat the
purpose. As such, to comply with the Court orders and to furnish the deposits
as per the direction of AAIFR to TSL, the assessee took the loan. The purpose
was not tax evasion. There was no animus to defy the provision of law. It was
to revive a sick company in which the assessee was interested. The assessee
proved the bona fide beyond the shadow of doubt. Once the bona fide is
proved, what remains is only procedural default, which is of a venial
nature. ‘De Minimis Non Curat Lex’ (law takes no notice of
trivialities) is the well-known tenet of law. The procedure should be maid and
not the mistress of the legal justice. Taking into consideration the
entire conspectus of the case, there existed a reasonable cause for accepting
the cash loans. As such, the assessee could be exonerated from the rigour of
section 271D. The Accountant Member was correct in deleting the penalty. (Related
Assessment year : 1994-95) - [Mrs Rupali R. Desai v. ACIT (2005) 273 ITR 109
: (2004) 88 ITD 76 : 82 TTJ 190 (ITAT Mumbai)]
Credit
entries made in books of account of assessee are by way of transfer entries,
there being no deposit as per mode of section 269SS, violation of said section
could not be said to have taken place - Even assuming that assessee violated
provisions of section 269SS, penalty could not be sustained where there was
nothing to show that violation of said provisions had been done by assessee
knowingly or in stark defiance of provisions
During the course of
assessment proceedings, the Assessing Officer found certain credit entries in
the name of 7 persons which were not through account-payee cheques or bank
drafts. The assessee claimed that the aforesaid entries were by way of transfer
entries and there was no receipt or payment which could be said to be in
violation of provisions of section 269SS/269T. The Assessing Officer, however,
held that the assessee had violated the provisions of the said sections and on
the basis of the said information levied penalty under sections 271D and 269T.
On appeal, the Commissioner (Appeals) deleted the penalties on the ground that
the transactions in question were transfer entries only in the books of account
and there was no introduction of cash or money in any form and, therefore, the
assessee was under the bona fide belief that sections 269SS
and 269T were not applicable on account of the aforesaid transactions. On
appeal :
Held
: After considering the
CBDT Circular Nos. 345 dated 28.06.1992 and 387 dated 06.07.1984, and in view
of the decision in Muthoot M. George Bankers v. ACIT (1993) 46 ITD 10 (ITAT Ahmedabad) and Bombay Conductors &
Electricals Ltd. v. DCIT (1997) 90 Taxman 138 (ITAT Ahmedabad) it was to be
held that for violation of section 269SS, it necessarily requires involvement
of transfer of money which was not so in the assessee’s case. There being no
deposit as per the mode prescribed under section 269SS, violation of the said
provisions could not be accepted. Even assuming that the assessee violated the
provisions of section 269SS, the penalty could not be sustained because there
was nothing to show that the violation of the provisions had been done by the
assessee knowingly or in stark defiance of the provisions. Therefore, the
Commissioner (Appeals) was perfectly justified in cancelling the imposition of
penalty under section 271E in view of the aforesaid decisions. As a result, the
revenue’s appeal was dismissed. [In favour of revenue] (Related Assessment year
: 1992-93) –
[CIT v. Lala Murari Lal and Sons (2004) 2 SOT 543 (ITAT Lucknow)]
Assessee
took loan in violation of provisions of section 269SS, and said transaction was
duly reflected in assessee’s books of account as well as lender of loan, it
could not be concluded that assessee had entered into a transaction to avoid
payment of tax or to defraud revenue - Therefore, penalty proceeding under
section 271D was to be dropped in such a case
During
a search and seizure operation of the premises of one ‘U’ large number of
promissory notes were seized. Among those, three promissory notes were found to
have been executed by the assessee in favour of ‘U’ for the amount taken by him
as a loan. As the said amount had not been paid to the assessee by account
payee cheque or account payee bank draft, the penalty proceedings were taken up
against the assessee for imposition of penalty under section 271D. The
Assessing Officer found that there was contravention of the provisions of
section 269SS and, therefore, the assessee was liable to pay the penalty equal
to cash loan taken by him.
On
appeal, the Commissioner (Appeals) held that, as the provision of section 269SS
itself had been declared ultra vires in the case of Kumari A.B. Shanthi v.
Asstt. Director of Inspection (1992) 197 ITR 330 (Mad.), no penalty
proceedings could have been taken for imposition of penalty under section 271D.
On appeal by the revenue, the Tribunal accepted the order passed by the
Commissioner (Appeals). Accordingly, instant appeal was filed.
Section 273B provides that
notwithstanding anything contained in the provisions of section 271D, no
penalty shall be imposed on the person or the assessee, as the case may be, for
any failure referred to in the provisions of section 269SS, if there was a reasonable
cause for such failure and if the assessee proves that there was a reasonable
cause for failure to take a loan otherwise than by account payee cheque or
account payee bank draft and in such circumstances the penalty shall not be
levied. In view of that provision, it is apparent that there is a discretion
left with the authority concerned whether to levy the penalty or not in the
given circumstances, if the assessee comes and proves a reasonable cause for
not accepting the loan by account payee cheque or account payee bank draft.
In the matter
of Asstt. Director of Inspection v. Kumari A.B. Shanthi (2002)
255 ITR 258 : 112 Taxman 574 the Apex Court had reversed the judgment of the
Madras High Court in Kum. A.B. Shanthi’s case (supra) wherein the
Madras High Court quashed the provision of section 269SS as ultra
vires to the Constitution. That being the case, the reasoning given by the
Commissioner (Appeals) and the Tribunal as regards validity of section 269SS
for not imposing penalty on the assessee could not stand.
In the instant case,
transaction of loan had found place in the books of account of the assessee as
well as lender of the loan. None of the authorities had reached to the
conclusion that the transaction of the loan was not genuine and it was a sham
transaction to cover up the unaccounted money. It appeared that the assessee
felt need of the money and, thus, he approached the money lender for
advancement of the money and the transaction was reflected in the
promissory notes executed by the assessee in favour of the lender. When there
is an immediate need of money, the person concerned cannot get such money from
the nationalised bank to satisfy the immediate requirement. To satisfy the
immediate requirement of money the person normally approaches the money lender
or his friend or relative who could lend money to him to satisfy his immediate
requirement. In such circumstances, it could not be said that the assessee had
entered into a transaction to avoid the payment of tax or to defraud the
revenue. The element of mens rea was not borne out from the nature
and the manner in which the transaction was carried out. The instant
appeal was, accordingly, to be dismissed. [In favour of assessee] – [CIT v. Bhagwati Prasad Bajoriya (HUF) (2003) 263 ITR 487 :
183 CTR 484 : 133 Taxman 426 (Gau.)]
Tribunal found that payment made by promoter of
assessee-company to assessee was not by way of deposit or loan, but towards
adjustment of amount drawn by him from assessee’s account and, hence, cancelled
penalty imposed by Assessing Officer - Finding of Tribunal was a finding of
fact and, therefore, application for reference had to be dismissed
It is held that once it
was found that payment made by promoter of assessee-company to assessee was not
by way of deposit or loan, but towards adjustment of amount drawn by him from
assessee’s account, no penalty to be levied. The dispute is regarding payments
made to the assessee in instalments, by one Shri R.C. Khosla, in the relevant
assessment year, amounting to Rs. 2,31,390. Apparently, Shri Khosla was the
promoter and managing director of the respondent-company. According to the
assessing authority as also the Commissioner of Income-tax (Appeals), the said
payment was in contravention of Section 269SS of the Income-tax Act and the
assessee was, therefore, liable to pay penalty. The penalty so imposed was,
however, vacated in second appeal by the Tribunal on the finding that the said
payment was not by way of deposit or loan, but towards adjustments of the
amount drawn by Shri Khosla, from the company’s account. We find ourselves in
full agreement with the Tribunal that the aforesaid finding is a finding of
fact, and, therefore, does not give rise to any question of law to be answered
by this court. [In favour of assessee] (Related Assessment year : 1990-91) – [CIT
v. Indore Plastics (P) Ltd. (2003) 262 ITR 163 : (2002) 124 Taxman 729 (MP)]
Ignorance of law is no excuse for violation of
provisions of sections 269SS and 269TT
During the assessment
proceedings, the Assessing Officer noticed that the assessee had received Rs. 35,000 in cash from ‘L’ in
instalments of Rs. 10,000, Rs. 15,000 and Rs. 10,000 and also Rs. 13,500 from
‘S’ from whom a further amount of Rs. 10,000 was due which was in violation of sections 269SS and
269T. Therefore, penalty proceedings under sections 271D and 271E were
initiated. The assessee submitted that the business was located in a small town
and he was not having any bank account. It was also submitted that he was not
conversant with the amendments made in income-tax law and that was why the
default was committed. It was further submitted that there was no mens
rea, and, therefore, penalty could not be imposed. The Assessing Officer,
however, imposed a penalty of Rs. 48,500 in respect of the two sums received in
cash being Rs. 35,000 from ‘L’ and Rs. 13,500 from ‘S’. The Commissioner
(Appeals) confirmed the penalty. On second appeal :
The genuineness of loan has
nothing to do with the provisions of sections 269SS and 269T. These provisions
simply put a restriction that loans and deposits cannot be accepted in cash
beyond a particular limit or repaid in cash beyond a particular limit. It is a
well-settled principle that ignorance of law is not an excuse. Also the
assessee did not seem to be that ignorant because he had taken advantage of certain
provisions as found by the Assessing Officer by giving cross gifts to the minor
children of the partners. From the penalty order, it was seen that the assessee
had been represented by two CAs and one advocate which clearly showed that the
assessee was taking help of tax experts and could be presumed to be aware of
legal provisions. It is also a well-settled legal position that mens
rea is not required for imposing penalty for default in complying with the
statute.
No penalty is imposable
unless and until the limit of Rs. 20,000 is crossed. That becomes clear from
section 269SS where limit of Rs. 20,000 has been mentioned after clauses (a),
(b) and (c ). As it is well-settled that penal provisions have to be
construed strictly, penalty can be imposed only after the assessee violates the
limit. Keeping that position in view, in case of ‘L’ there was violation only
to the extent of Rs. 15,000 because when the deposit of Rs. 10,000 was
accepted, there was no violation and again when the deposit of Rs. 15,000 was
accepted, there was violation only to the extent of Rs. 5,000.
Similarly, in the case of ‘S’, there was an
unpaid amount of Rs. 10,000, when a further sum of Rs. 13,500 was accepted from
him. Thus, there was a violation of Rs. 3,500. Therefore, the order of the
Commissioner (Appeals) was set aside and the imposition of penalty was upheld
to the extent of Rs. 18,500. In case of ‘L’ there
was violation only to extent of Rs. 15,000 and in case of ‘S’ there was
violation to extent of Rs. 3,500.
The imposition of penalty
would not become invalid just because the word ‘deposit’ had not been mentioned
by the lower authorities. If the assessee wanted to take that plea and prove
that it was not a deposit but a loan, he was at liberty to bring the fact of
returning the loan before the lower authorities. Even before the Tribunal, the
assessee never tried to prove that what was returned was the loan and not the
deposit. Even from the statement of ‘L’, it became clear that what was
deposited by ‘L’ was only a deposit and not a loan. Therefore, the assessee had
violated the provisions of section 269T and the levy of penalty under section
271E was justified. - [Udaichand
Santoshkumar Jain v ITO (2003) 131 Taxman
184 : 79 TTJ 88 (2004) 1 SOT 831 (ITAT Indore)]
Assessee was under the bona fide belief that he was not
required to receive the amount otherwise than by an account payee cheque or
account payee draft. - Default could be considered either technical or venial
breach of the provisions of law and, therefore, no penalty under section 271D
was leviable
The assessee, a Government contractor, made some
investments in the acquisition of immovable properties. In that connection, the
assessee took an amount of Rs. 70,000 in cash from his wife, which was shown in
the statement of assets and liabilities furnished in the course of assessment
proceedings. Penalty under section 271D was levied on ground that
assessee had received loan of Rs. 70,000 in cash from his wife for investment
in acquisition of immovable properties. Wife had given money to husband for
prosperity of family only and there was no evidence that amount in question was
taken for commercial use. Though revenue considered it loan, but there was no
material on record to show that assessee had returned amount received from wife
or paid interest thereupon. Assessee was also under bona fide belief that
amount in question did not require to be received otherwise than by an account
payee cheque or account payee bank draft. Considering above and also keeping in
view that intention of Legislature was never to punish a party involved in
genuine transactions, it had to be held that there was reasonable cause and no
penalty under section 271D was leviable. (Related Assessment year : 1993-94 - [ITO v. Tarlochan Singh
(2003) 128 Taxman 128 Taxman 20 : 81 TTJ 1021 (ITAT Amritsar)]
Assessee had received
cash from father of one ‘G’ to be paid to ‘G’ to meet his educational expenses
- Assessing Officer considered it as deposit in contravention of section 269SS
and imposed penalty - Amount could not be treated as deposit but it was trust
money to be repaid as and when required by ‘G’ and, therefore, there was no
contravention of section 269SS and no penalty could be imposed
The assessee had
received cash from father of one ‘G’ on various dates totalling to Rs. 33,000
and pleaded that payer was an agriculturist and had kept that amount with the
assessee for giving to ‘G’ to meet his educational expenses. The Assessing
Officer considered the same as deposit in contravention of section 269SS and
imposed penalty under section 271D. On revenue’s appeals : Held : So far
as deposit of money in name of ‘G’ was concerned, the same being given to the
assessee by the father of ‘G’ for meeting educational expenses of ‘G’ could not
be considered as deposit, rather it was trust money to be repaid as and when
required by ‘G’ and, therefore, there was no contravention of section 269SS
and, consequently, the Commissioner (Appeals) was justified in cancelling the
penalty under section 271D. (Related Assessment year : 1992-93) – [ITO
v. Shree Mahaveer Industries (2003) 82 TTJ 549 : 4 SOT 126 (ITAT Jodhpur)]
If any legislation intended to achieve collection of
income-tax and to make it easier and systematic, is enacted, such legislation
would certainly be within competence of Legislature - Section 269SS or 271D, or
earlier section 271DD, can not be held to be unconstitutional on ground that it
is draconian or expropriatory in nature - Section 269SS is not in any way
violative of article 14 of the Constitution
In
this appeal the constitutional validity of sections 269SS and 271D was
challenged and the Single Judge of the Madras High Court quashed the
prosecution against the respondent by holding that section 269SS was violative
of article 14 of the Constitution and so the prosecution was illegal. On appeal
:
Held :
The main attack against section 269SS was made on the basis that it violated
article 14 of the Constitution. The contention of the appellant was that taking
a loan or receiving a deposit is a single transaction wherein a lender and
borrower are involved and by the impugned section the borrower alone is sought
to be penalized and the lender is allowed to go scot-free.
The contention of the
appellant had no force. The object of introducing section 269SS is to ensure
that a taxpayer is not allowed to give false explanation for his unaccounted
money, or if he has given some false entries in his accounts, he shall not
escape by giving false explanation for the same. During search and seizures,
unaccounted money is unearthed and the taxpayer usually gives the explanation
that he had borrowed or received deposits from his relatives or friends and it
is easy for the so-called lender also to manipulate his records later to suit
the plea of the taxpayer. The main object of section 269SS is to curb this
menace. As regards the tax legislation, it is a policy matter, and it is for
the Parliament to decide in which manner the legislation should be made. Of
course, it should stand the test of constitutional validity.
Section 269SS is not in
any way violative of article 14 and, consequently, quashing of the proceedings
by the Single Judge of the Madras High Court for this reason was not legally
sustainable.
It is settled law that
the heads of legislation given in the legislative list should not be
constructed in a narrow or pedantic way. If any Legislature makes any ancillary
or subsidiary provision which incidentally transgresses over its jurisdiction
for achieving the object of such legislation, it would be a valid piece of
legislation. The entries in a legislative list should be given their fullest
meaning and the widest amplitude and be held to extend to all ancillary and
subsidiary matters which can fairly and reasonably be said to be comprehended
in them. It is only when a Legislature which has no power to legislate, or the
legislation is camouflaged in such a way as to appear to be within its
competence when it knows it is not, then alone it can be said that the
legislation so enacted is a colourable legislation and that there is no
legislative competence. The law relating to taxation can very well be enacted
under Entry 82 in List I of the Seventh Schedule. If any legislation which
intended to achieve the collection of income-tax and to make it easier and
systematic is enacted, such legislation would certainly be within the
competence of the Legislature.
When the principle in a
statute is challenged on the ground of colourable legislation, what has to be
proved to the satisfaction of the Court is that though the Act ostensibly is
within the legislative competence of the Legislature in question, in substance
and in reality, it covers a field which is outside its legislative competence -
Jaora Sugar Mills (P) Ltd. v. State of M.P. AIR 1996 SC 416.
Applying the above
principle, it could not be said that section 269SS was enacted in respect of a
subject which is outside the scope of the Act or that this section relates to a
topic not within the competence of the Legislature.
The next contention was
that original section 276DD was draconian in nature as penalty imposed for
violation of section 269SS was imprisonment which may extend to two years and
shall also be liable to fine equal to the amount of loan or deposit. This
section was subsequently omitted and a new section 271D was enacted. The
penalty of imprisonment was deleted in the new section. The new section 271D
provides only for fine equal to the amount of loan or deposit taken or
accepted.
It is important to note
that another provision, namely, section 273B was also incorporated which
provides that notwithstanding anything contained in the provisions of section
271D, no penalty shall be imposable on the person or the assessee, as the case
may be, for any failure referred to in the said provision if he proves that
there was reasonable cause for such failure and if the assessee proves that
there was reasonable cause for failure to take a loan otherwise than by account
payee cheque or account payee demand draft, then the penalty may not be levied.
Therefore, undue hardship is very much mitigated by the inclusion of section 273B.
If there is a genuine and bona fide transaction and if for any reason the
taxpayer cannot get a loan or deposit by account payee cheque or demand draft
for some bona fide reasons, the authority vested with the power to impose
penalty has got discretionary power. In that view of the matter, sections 269SS
and 271D and the earlier section 276DD are not unconstitutional on the ground
that they are draconian or expropriatory in nature. – [Assistant Director of
Inspection v. Kum. A.B. Shanthi (2002) 255 ITR 258 : 174 CTR 513 : 122 Taxman 574
(SC)]
Genuineness of the borrowings were not doubted by
Assessing Officer and Assessing Officer was satisfied with the assessee’s
explanation regarding the nature & source of the amount, the transactions
of deposits do not fall within the mischief of section 269SS
During the assessment
year 1995-96, the assessee-firm had received amounts in cash from VE, a
proprietary concern of ‘S’ who was wife of ‘R’, a director of the company which
was one of the partners of the assessee-firm. The amounts having been received
in contravention of section 269SS, the Assessing Officer initiated penalty
proceedings under section 271D. The assessee explained that it had a running
account and a business relationship with VE, that it was the usual practice for
the assessee to receive temporary advances from VE in cash, that the amounts
under consideration were received for the specific purpose of payment of
advance excise duty and were repaid either out of the sale proceeds or through
adjustments and that the amounts were neither loans nor deposits within meaning
of section 269SS but only temporary advances received in the course of the
business and for the purposes of the business. The Assessing Officer observed
that in the majority of the borrowings the purpose appeared to be the payment
of excise duty which was to be made in cash. After scrutinising the accounts of
VE, he found that a sum of Rs. 9,85,000 had not been utilised for making the
excise duty payments, and to that extent, there was a violation of section
269SS. He accordingly levied penalty.
There was no merit in
the assessee’s contention that VE being a sister concern, the provisions of
section 269SS could not apply to any amounts received by the assessee from it
in contravention thereof. Even assuming that VE was a sister concern one could
not see how it was excluded from the purview of the words ‘any other person’
appearing in the section.
As regards the existence
of reasonable cause, the monies received from VE were utilised for making
advance payments of excise duty. No doubt, in a few cases there was some time
gap between the date on which the money was received from VE and the date on
which payments were made to the excise duty department. But this was
attributable to the various exigencies and vicissitudes of business. It might
not be possible for an assessee to predict with precision the exact
requirements of money for discharging its obligations connected to the
business, statutory or otherwise, and also to anticipate the exact dates on
which it may be required to discharge such obligations.
The fact that the monies
were taken for the purpose of making the excise duty payments was not in
dispute at all. It had not also been suggested nor could it possible be, that
the discharge of excise duty payments was not incidental to the assessee’s
business, but was something unconnected with the business or personal in
nature. If the assessee was able to lead evidence to show that not only was
there reasonable cause for taking the money in cash, but the amounts did not
also represent unaccounted monies either of the assessee or of the person from
whom they were taken, normally that should be held sufficient to hold that the
penalty was not justified.
The genuineness of the
borrowings in the instant case was also not in doubt. Apparently, the Assessing
Officer was satisfied with the assessee’s explanation regarding the nature and
source of the amount. Thus, the transactions between the assessee and ‘VE’ did
not fall within the mischief sought to be remedied by the section. The
expression ‘reasonable cause’ has to be considered pragmatically and keeping in
view the vicissitudes and the exigencies of the business, where it is not
always possible to get things done or to anticipate the course of events with
infallible precision. Therefore, there was reasonable cause for the assessee to
act in contravention of the provisions of section 269SS by taking monies from
VE in cash.
Moreover the amounts
taken by the assessee in the present case from VE were temporary advances and
there was no evidence that there was any stipulation as to the period or any
stipulation for interest. It was therefore a matter of grave doubt as to
whether the amounts received from VE could be characterised as loans or
deposits. They could be more appropriately referred to as temporary advances. Such
temporary advances are outside the purview of section 269SS.
The Assessing Officer
had held that whatever amounts were not utilised by the assessee for payment of
excise duty should be considered as falling under section 269SS and to that
extent, the assessee would be liable for penalty. The mere fact that in the
ultimate analysis it transpired that the assessee had taken more monies than
were actually required for making the excise duty payments did not authorise a
different treatment to be accorded to the excess amount than what had been
accorded to the amounts which were actually utilised for making excise duty
payments. The penalty was, therefore, to be cancelled. (Related Assessment year
: 1995-96) -–
[Karnataka Ginning And pressing factory v. JCIT (2001) 77 ITD 478 (ITAT
Mumbai)]
Assessee
obtained certain loan from his wife for construction of house which was
naturally a joint venture for prosperity of family and transaction did not
involve any interest element and there was no promise to return amount with or
without interest, provisions of section 269SS would not apply and it could be
said that there was reasonable cause within meaning of section 273B and, thus,
no penalty under section 271D was leviable for violation of provisions of
section 269SS
Provisions
of section 269SS would be applicable even where transaction is between husband
and wife or parents and children. The expression ‘any other person’
employed in section 269SS is wide enough to encompass a spouse. Furthermore,
the Legislature have specially provided by way of two provisos to the section
the persons who would be excluded from the operation of the provisions of
section 269SS. The Legislature have in their wisdom not made exception in
respect of any kind of relationship between the borrower or lender in this
behalf. It is, therefore, apparent that these provisions would be applicable
even where the transaction is between the husband and wife or parents and
children. It held that the money given by the wife is
a joint venture of the family and taking into consideration overall facts and
circumstances of the case, it could be said that the concerned legislation was
not applicable in the instant case; that the assessee had a reasonable cause
within the meaning of section 273B and the penalty should be deleted. The
Tribunal also observed that the communications/transactions between the husband
and wife are protected from the legislation as long as they are not for
commercial use. Even keeping in view the contents of the departmental
Circular No. 387, it was never the intention of the Legislature to punish a
party involved in a genuine transaction. Therefore, by taking a liberal view in
the instant case, the assessee had a reasonable cause within the meaning of
section 273B. (Related Assessment year : 1990-91)
– [Dr. B.G. Panda v. DCIT (2000) 111 Taxman 86 (ITAT Calcutta)]
There
is no infirmity in enactment of section 269SS since it carries out its object
of prevention of evasion of tax and plug possible loopholes - Provisions of
sections 269SS and 271D are reasonable restrictions in accordance with powers
which are with Parliament and as such cannot be considered violative of
articles 14 and 19 of the Constitution
The assessee-company
received deposits in cash in excess of Rs. 20,000 from various parties aggregating
to Rs. 12,50,000 in the assessment year 1991-92. The Assessing Officer levied
penalty of Rs. 12,50,000 under section 271D for violation of the provisions of
section 269SS. Aggrieved, the assessee filed writ petition under article 226 of
the Constitution challenging the validity of the provisions of sections 269SS
and 271D being violative of articles 14 and 19. On petition :
Held : Section 269SS has placed restriction on taking any loans or
deposits otherwise than by way of an account payee cheque. It is only a
reasonable restriction and does not take away the right of any person even to
take loan from other person in the manner prescribed under law. It is the mode
prescribed under the section which is to ensure prevention of evasion of tax to
avoid fictitious entries to be made in the books of account without there being
any actual transaction. There is no infirmity in enactment of such a provision
since it carries out its object of prevention of evasion of tax and plug
possible loopholes. The lender and borrower constitute a different class. For
the reason because the borrower has been made liable, it cannot be construed
that there is violation of article 14. It is only in the case of the borrower
who needs adjustment by book entries only to avoid tax. The loan may be genuine
and in a particular case a reasonable hardship might be created to the borrower
by such a provision. But the ultimate aim of the section is to prevent evasion
of tax. Section 269SS to prevent evasion of tax is ancillary and incidental to
the main power to levy the tax. The contention that if the loan is taken again
and again and repaid, it may result in levy of penalty more than the loan once
taken and, therefore, confiscatory, has also no substance because the
Legislature intended to check the transactions which are beyond the prescribed
limit and they should be only through account payee cheque. If any
contravention is made, action could be taken under section 271D. The provisions
of sections 269SS and 271 D are the reasonable restrictions in accordance with
the powers which are with the Parliament and as such, cannot be considered
violative of articles 14 and 19. The writ petitions, therefore, having no force
were to be dismissed. - [ChamundiGranites (P)
Ltd. v. DCIT (1999) 239 ITR 694 : 157 CTR 128 : 106 Taxman 364 (Karn.)]
Penalty
was imposed on assessee under section 271D for receiving certain amounts in
cash which contravened section 269SS. Even if it was genuine loan or deposit,
assessee had to explain why it had been obtained in cash, and in absence of any
satisfactory explanation in instant case, penalty under section 271D was
rightly levied except in case of one transaction which was made on Sunday when
banks were closed
From the scrutiny of
accounts. the Assessing Officer found that Rs. 10,080 and Rs. 21,960 was
received by the assessee from Ashok Kumar and Rajesh Kumar respectively in cash
which contravenes section 269SS, therefore, is liable for penalty under section
271D. He levied penalty of Rs. 32,040 under that section. It was also
pointed out that Rs. 9,160 from Shri Rajesh Kumar was received on Sunday. On a
perusal of the Circular of the Board referred to by the assessee one could not
agree with the interpretation put on it by the assessee. It is no doubt that
section 269SS was inserted for some purpose. The purpose was, as clearly stated
in the Circular, to damper the transaction in cash to introduce unaccounted
deposits. It does not suggest that in genuine transactions section 269SS is not
applicable. A posterior study of Circular fosters other impression. Section
269SS is enacted to enforce transactions of deposits or loans over certain
limitation to be made through cheque media so that bogus transactions may be
arrested. The difference is that if it is a genuine loan, but received in cash,
then onus lies on the assessee to explain why they were received in cash, the
same is reasonably explained, he is not liable for penalty under section 271D.
On the other hand, if he fails, the penalty would be levied even if there is no
addition as income from undisclosed sources. The income from undisclosed
sources can be added in the parlance of section 68 and not section 269SS.
Section 269SS was inserted to discourage the transaction made in cash in case
of deposits or loan over certain amount. In short, even if it was genuine loan
or deposit, the assessee had to explain why it had been obtained in cash and if
he was able to explain, section 273B would come to his rescue and no penalty
was leviable under section 271D, otherwise it was clearly leviable as intended
by the Parliament inserting section 269SS. There was no ambiguity in section
269SS which could mislead anyone about the intention and interpretation of the
same. The submission of misconception could not be reasonable cause in the
instant case when the section had no ambiguity and when there was no reasonable
cause as such. The penalty, therefore, levied was confirmed except in respect
of Rs. 9,160. (Related Assessment year : 1990-91) -– [ITO v. Narsing
Ram Ashok Kumar (1993) 47 ITD 38 (ITAT Pat
