Income Tax Appellate Tribunal - Pune
Income Tax Officer vs Sunil M. Kasliwal on 7 March, 2003
Equivalent citations: [2005]94ITD281(PUNE), (2003)80TTJ(PUNE)1
ORDER
B.L. Chhibber, A.M.
1. The appeal by the Revenue and the cross-objection by the assessee arise out of the order of the learned CIT(A), Nashik, who has restricted the penalty of Rs. 5,44,150 levied by the AO under Section 271D to Rs. 41,500.
2. The assessee, an individual, is based in the small town of Manmad where he runs a factory for manufacture of Neeru, Sigal, etc. For purchase of machinery, he urgently needed money and accordingly he accepted following loans otherwise than by account payee cheques or by account payee bank drafts in violation of provisions of Section 269SS :
Rs.(1)
Ankush S. Kasliwal (Minor) son of the assesses 63,000 (2) Anuja S. Kasliwal (Minor) d/o of the assessee 61.651 (3) Sou. Pramila S. Kasliwal w/o the assessee 41,500 All by cash (4) Sou. Chandralekha R. Khivansara 50,000 (5) Sou. Zankarbai Khivansara 50,000 (6) Sunil M. Kasliwal (HUF) 2,78,000 5,44,150 The ITO, Ward 1(3), Nashik, assessing the assessee, referred the matter to the Dy. GIT, Range I, Nashik, for levy of penalty under s, 271D r/w Section 274(1) Of the IT Act. The Dy. CIT accordingly issued a show-cause notice and the assessee filed written submissions on 11th Dec., 1993, stating therein, inter alia, as follows :
(1) He is the Karta of his family consisting of his son, daughter and his wife. This HUF is also engaged in similar business as that of the assessee. Thus, there is a dual role to be performed to carry on business in his individual and HUF capacities. The cash (Rs. 2,78,000) of the HUF business has been used by his individual business and that being so, Section 269SS is not applicable.
(2) The cash gifts made to his two minors were accepted by him and credited in the books in their names.
(3) The cash gifts received by his wife were also in his possession and there was no hesitation in crediting in the books in her name.
In short, the assessee concluded that there was thus no question of giving or accepting the cash and hence Section 269SS is not applicable.
3. Not satisfied with the above explanation, the Dy. CIT levied penalty to the tune of Rs. 5,44,150 under Section 271D of the Act.
4. The assessee appealed to the CIT(A) and reiterated the submissions made before the Dy. CIT. Relying upon the decision of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC) held that "the penalty in a given case should not be imposed for mere technical or venial breach of provisions of a particular section." Further, the clarification offered by the CBDT, in their Circular No. 387, dt. 6th July, 1984, has also to be considered in order to appreciate the object or purpose for which Section 269SS was brought on the statute book. Assistance would also be derived from the principles and propositions underlined in the judgment of Hon'ble Tribunal, Cochin Bench, in the case of Muthoot M. George Brothers v. Asstt. CIT (1993) 47 TTJ (Coch) 434 : (1993) 46 ITD 10 (Coch). Accordingly, the transactions relating to the acceptance of cash amounting to Rs. 5,44,150 have to be examined in this context. On going through the assessment order passed by AO vide his order under Section 143(3), dt. 24th Aug., 1992, it is observed that except for the cash gift of Rs. 41,500, no other amount, involved in the cash transaction, has been treated as unexplained. As per the assessment order, following two transactions involving receipt of gifts in the names of Kum. Anuja and Smt. Pramila Sunil Kasliwal, have been treated as unexplained and added to the income of the appellant. Particulars of these gifts are as under :
Date Particular of gifts 20th Jan., 1989 Gift of Rs. 20,000 in the name of Kum. Anuja, given by Shri Mohanlal Mishrilal Utwal.
8th May, 1989 Gift of Rs. 21,000 in the name of Smt. Pramila Sunil Kasliwal given by Smt. Gunmala N. Barodiya."
Accordingly, the CIT(A) gave substantial partial relief and retained only penalty to the tune of Rs. 41,500. Both the parties are aggrieved by the order of the CIT(A) and accordingly are in appeal before this Tribunal.
5. Shri S.K. Rastogi, the learned Departmental Representative, strongly supported the order of the CIT(A)(sjc-AO). He submitted that from the facts of the case it was very clear that the assessee had contravened the provisions of Section 269SS and accordingly, the assessee was liable to be penalised under Section 271D. Merely because money was lying in the account with the assessee or that the assessee was working in dual capacity as individual and HUF would not make any difference so far as application of provisions of Section 269SS is concerned and similarly the fact that some of the gifts received by the relatives of the assessee were genuine is also of no significance. He accordingly submitted that the levy of penalty is fully justified and the CIT(A) is not justified in retaining only a paltry amount of Rs. 41,500. In support of his contentions, he placed reliance on the following decisions :
(i) Bhushan Chemicals v. Dy. CIT (1995) 54 ITD 5 (Pune);
(ii) Prabhavshali Chit Fund Co. (P) Ltd. v. CIT (1995) 52 TTJ (Del) 271 : (1994) 49 ITD 566 (Del);
(iii) ITO v. Narsing Ram Ashok Kumar (1993) 47 ITD 38 (Pat);
(iv) Chamundi Granites (P) Ltd. v. Dy. CIT and Anr. (1999) 239 ITR 694 (Kar);
(v) Sukhdev Rathi v. Union of India and Anr. (1995) 211 ITR 157 (Guj); and
(vi) K.R.M.V. Ponnuswamy Nadar Sons (Firm) and Ors. v. Union of India and Ors. (1992) 1961TR 431 (Mad).
6. Shri C.V. Chitale, the learned counsel for the assessee, strongly supported part of the order of the CIT(A) which favours the assessee and assailed his order so far as retention of penalty to the extent of Rs. 41,500 is concerned. The learned counsel submitted that penalty under Section 271D is of compensatory nature and it is equal to the amount of loan or deposit. Therefore, the provisions must be reasonably construed having regard to the object of Section 2G9SS. The object was explained by the CBDT in their Circular No. 387 dt. 6th July, 1984, and the learned counsel read the first para of the said circular which is as follows :
"Unaccounted cash found in the course of searches carried out by the IT Department is often explained by the taxpayers as representing loans taken from various persons. Unaccounted income is also brought into the books of account in the form of such loans, and taxpayers are also able to get confirmatery letters from such persons in support of their explanations."
Relying upon the above circular, the learned counsel submitted that it is very clear that only if some unaccounted money was involved then the section becomes applicable and in the case of the assessee, there is no dispute whatsoever about the source of money. In such a case, therefore, it will be highly technical to hold that there is any default as contemplated under Section 271D. In this regard, he placed reliance on the judgment of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa (supra) where it has been held that penalty is not to be imposed merely because it is lawful to do so and that it should not be imposed if there is only a technical or venial breach of law. The learned counsel further submitted that cash was already lying with the assessee, because the assessee was the Karta of the HUF, some of the cash belonged to his wife who was living with him and some of the cash belonged to his minor children who were also living with him and hence the assessee did not raise any loans. As regards the retention of penalty amounting to Rs. 41,500 by the CIT(A), the learned counsel submitted that merely because two gifts were not accepted as genuine that does not mean that cash was not available for deposit in the books of account and in any case, there is no evasion of tax involved. In support of his contentions, he relied upon Muthoot M. Geroge Brothers' case (supra) and ITO v. Lakshmi Enterprises and Ors. (1990) 185 ITR 595 (AP).
7. We have considered the rival submissions and perused the facts on record. From the facts of the case, it is evident that when the assessee required money for purchase of machinery, he took such amounts in cash from the HUF of which he was the Karta, from his wife Smt. Pramila S. Kasliwal and from his two children, namely, Shri Ankush S. Kasliwal and Anuja S. Kasliwal, who were all living under one roof, and from his two close relatives Sou. Chandrelekha R. Khivansara Rs. 50,000 and Sou. Zankarbai Khivansara Rs. 50,000). So, it was under the bona fide belief that the assessee got the amounts from his own family members and close relatives and there is only a technical/venial breach of the provisions of law. The provisions of Section 269SS were brought on statute book to counter evasion of tax in certain cases, as clearly stated in the heading of Chapter XXB which reads 'Requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax.' Legislative intention in bringing Section 269SS was to avoid certain circumstances of tax evasion, whereby huge transactions are made outside the books of account by way of cash. This intention is also clear from CBDT Circular No. 387, dt. 6th July, 1984, relevant portion from which has been reproduced in para 6 supra. As far as the case on hand is concerned, there was no case against the assessee that these transactions had anything to do with evasion of tax or concealment of income. At the most, it was a case of negligence, but a negligent person does not have any intention or mens tea to purposely violate any provision of law so as to be visited with stringent punishment of heavy penalty. In the case before us, admittedly, there is no attempt for introducing unaccounted income by the assessee in the form of loans and deposits. In the case of Muthoot M. Geroge Brothers v. Asstt. CIT (supra), the Cochin Bench of the Tribunal has, relying upon the aforesaid circular of the CBDT, held that provisions of Section 269SS are not applicable on deposits or loans from different firms being sister concerns. In the case of the assessee, he has accepted deposits from his family members who were living under the same roof and the cash was already available under the same roof and it would be too much to expect that the assessee should first go to the bank and buy some demand drafts by paying bank commission and then advance such deposits. In any case, that is not the intention of the legislature. In CIT v. J.H. Gotla (1985) 156 ITR 323 (SC), the Hon'ble Supreme Court has held that where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the legislature, the Court might modify the language used by the legislature so as to achieve the intention of the legislature and produce a rational result. Viewed in the ratio laid down by the apex Court in the aforesaid judgment, it would be worthwhile to mention that a harmonious construction of the relevant provisions of Sections 271B, 271E and 273B clearly reveals that the use of the expression 'shall be liable to pay' in Sections 271D and 271E and the provisions of Section 273B providing that no penalty would be leviable if the person concerned proves that there was reasonable cause for the said failure, clearly indicate that these provisions give a discretion to the authorities to impose the penalty or not to impose the penalty. Such a discretion has to be exercised with wisdom and in a just and fair manner having regard to the entire relevant facts and material existing on records. Accordingly, we hold that the CIT(A) has rightly deleted the penalty to the tune of Rs. 5,02,650.
8. As regards the retention of penalty by the CIT(A), he has done so on the ground that the two gifts of Rs. 20,500 and Rs. 21,000 received by Kum. Anuja and Smt. Premila S. Kasliwal have been treated as income of the assessee from undisclosed sources. The reasoning given by the CIT(A) has no legs to stand, because when the two amounts have been treated as income of the assessee from undisclosed sources, then these two amounts lose character of a loan or a deposit. Accordingly, provisions of Section 269SS will not be applicable, Under the circumstances, we see no justification for retention of penalty to the tune of Rs. 41,500. The same is accordingly deleted.
9. Coming to the cases relied upon by the learned Departmental Representative, we find that the three decisions of the Tribunal relied upon by him are distinguishable on facts. In the case of Bhushan Chemicals (supra), the loans were not raised from close relatives living under the same roof or from sister concerns. These were received from outsiders "during the course of flow of current account" and accordingly, this Bench held that there was no reasonable cause and accordingly held that the assessee had contravened the provisions of Section 269SS and penalty was clearly leviable.
10. In Prabhavshali Chit Fund Co. (P) Ltd. (supra), the issue before the Delhi Bench 'A' was that in pursuance of resolution passed, two directors of the assessee-company brought in cash by withdrawing the same from their partnership firms as share application for additional shares in order to increase its paid-up share capital. Later, it decided against increase in capital and repaid them in cash. The assessee claimed that on all occasions when subscribers were due on prized chits and it was short of requisite liquid funds, its directors brought in cash after withdrawing from their partnership firms to tide over temporary financial needs and relevant amount was later repaid in cash. This exercise was repeated every month and accordingly, the AO treated it as in the nature of loan or deposit and imposed penalty under Section 271D, Except saying that to tide over temporary financial need, no reasonable cause was proved before the authorities below and accordingly, the Delhi Bench upheld the levy of penalty. In the case before us, there was a reasonable cause as elaborated by us in the above paras and accordingly, the facts are distinguishable.
11. As regards the reliance placed by the learned Departmental Representative on the judgment of the Patna Bench in the case of ITO v. Narsing Ram Ashok Kumar (supra), we find that it is a Single Member decision. In this case, certain amounts were received by the assessee from AK and RK, two strangers in cash which contravened Section 269SS and accordingly, penalty under Section 271D was levied and upheld by the Tribunal as no reasonable cause could be advanced by the assessee. In the case before us, the loans were raised from the family members and there was a reasonable cause for not getting the loans by crossed cheques/demand drafts as enumerated by us in the aforesaid paras.
12. As regards the reliance placed by the learned Departmental Representative on the three judgments of the High Courts, viz., Chamundi Granites (P) Ltd. v. Dy. CIT (supra), Sukhdev Rathi v. Union of India (supra) and K.R.M.V. Ponnuswamy Nadar Sons (Firm) and Ors. (supra) we note the issue before the three High Courts was with regard to the constitutional validity of Section 269SS and the Hon'ble High Courts upheld the constitutional validity. There is no dispute in this regard that provisions of Section 269SS are constitutionally valid and accordingly, these three judgments do not advance the cause of the Revenue so far as levy of penalty in this case is concerned.
13. In the light of above discussion, we uphold the finding of the CIT(A) deleting the penalty to the tune of Rs. 5,02,650 and delete the penalty of Rs. 41,500 retained by him.
14. In the result, Revenue's appeal is dismissed and the cross-objection of the assessee is allowed.
U.B.S. Bedi, J.M. 4th March, 2002
15. I have had an occasion to go through the proposed order of the learned AM and despite my best persuasion to myself, I have not been fully agree with the findings and conclusions as drawn by him with respect to Revenue's appeal. So far as the order with respect to cross-objection of the assessee is concerned, I fully concur with the same. My reasons for not fully agreeing with respect to the issue raised in the ground of appeal of the Revenue are as under :
16. The assessee being an individual and based in the small town of Manmad where he runs a factory for manufacture of Neeru, Sigal etc, For purchase of machinery, he is stated to have urgently needed money and he has accepted the following loans otherwise than by account payee cheque/draft in violation of the provisions of Section 269SS.
(i) Ankush S. Kasliwal (Minor) son of the assessee 63,000
(ii) Anuia S. Kasliwal (Minor) d/o of the assessee 61,651
(iii) Sou Pramila S. Kasliwal w/o of assessee 41,500 All by cash.
(iv) Sou Chandralekha R. Khinvsara 50,000
(v) Sou Zankarbai Khinvasara 50,000
(vi) Sunil M. Kasliwal (HUF) 2,78,000 5,44,150 On reference to the Dy. CIT, Range I, Nasik, for levy of penalty under Section 271D r/w Section 274 of the Act, the Dy. CIT issued a show-cause notice and the assessee filed written reply as under :
(1) He is the Karta of his family consisting of his son, daughter and his wife. This HUF is also engaged in similar business as that of the assessee. Thus, there is a dual role to be performed to carry on business in his individual and HUF capacities. The cash (Rs. 2,78,000) of the HUF business has been used by his individual business and that being so, Section 269SS is not applicable.
(2) The cash gifts made to his two minors were accepted by him and credited in the books in their names.
(3) The cash gifts received by his wife were also in his possession and there was no hesitation in crediting in the books in her name.
17. Not satisfied with the reply furnished, the Dy. CIT levied penalty to the tune of Rs. 5,44,150 under Section 271D of the Act. The assessee appealed to the CIT(A) and reiterated the submissions as made before the Dy. CIT, relying upon the decision in the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC) on the point that penalty in a given case should not be imposed for a mere technical or venial breach of provisions of a particular section, CBDT Circular No. 387 dt. 6th July, 1984, and relying upon the decision of the Cochin Bench of the Tribunal in the case of Muthoot M. George Brothers v. Asstt. CIT (1993) 47 TTJ (Coch) 434 : (1993) 4 ITD 10 (Coch) it was pleaded for deletion of the entire penalty. The learned CIT(A) accepted the contention as raised by the assessee with respect to all other amounts except the cash gift of Rs, 41,500 involved in the cash transaction which has been treated as unexplained, and upheld the penalty with respect to this amount and deleted the penalty with respect to other amounts.
18. The Revenue is in appeal against the deletion of penalty order passed by the learned CIT(A) and it was pleaded that Section 269SS makes a mention about acceptance and about taking or accepting of any loan or deposit otherwise than by account payee cheque or account payee bank draft by a person from the other persons and, therefore, the HUF and the individual are separate legal entities under the taxation laws, as such relief allowed by the learned CIT(A) should not be allowed. Reliance was placed on the decisions reported in Bhushan Chemicals v. Dy. CIT (1995) 54 ITD 5 (Pune), Prabhavshali Chit Fund Co. (P) Ltd. v. CIT (1995) 52 TTJ (Del) 271 : (1994) 49 ITD 566 (Del), ITO v. Naising Ram Ashok Kumar (1993) 47 ITD 37 (Pat), to plead for restoration of the order of the AO as even the loans or deposits taken or accepted from the sister concern are also hit by the provisions of Section 269SS and violation thereof makes the assessee liable for penalty which has been rightly imposed. Therefore, it was strongly pleaded that the action of learned CIT(A) is unjustified in deleting the same. It was urged for restoring the order of the AO.
19. The learned counsel for the assessee, while highlighting the objects for introduction of the provisions in the statute book as contained in the Circular No. 387 dt. 6th July, 1984, has contended that since the genuineness of any of the transactions has not been doubted and it is merely a technical breach, therefore, relying upon the decisions reported in (1993) 46 JTD 10 (supra), and Mohan Karkare v. Dy. CIT (1995) 51 TTJ (Ind) 599, it was pleaded for confirmation of the impugned order as transaction was between the same individual in his dual capacity-one as an individual and other as Karta of his HUF, and other loans are from his wife, minor children and one of the relatives, who are closely related to him, therefore, on the same analogy, the loans accepted from them also take the assessee out of the rigors of the provisions of Section 269SS which are otherwise very harsh. While relying upon the decision in the case of Hindustan Steel Ltd. (supra) it was submitted that the learned CIT(A) appreciated the facts and arguments advanced before him but deleted only the part of the penalty whereas no penalty is exigible at all.
20. After hearing both the sides and going through the record as well as case law cited by the assessee and as relied upon by the learned CIT(A), I find that so far as the acceptance of loan from Sunil M. Kasliwal (HUF) by the assessee is concerned, the same comes within the purview of sister concern as the business is same and assessee himself is the Karta of the HUF and there is common control of funds with the assessee and this Bench of the Tribunal is consistently holding that the penalty under Section 271D under such circumstances is not attracted. So, the penalty with respect to transaction in the amount of Rs. 2,78,000 at item No. (vi) above has rightly been found to be not exigible by the learned CIT(A) and his action to this extent is confirmed. So far as transactions at item Nos. (i), (ii), (iv) and (v) above to the extent of Rs. 2,24,650 are concerned, these cannot be equated with the transaction between the assessee and sister concern having similar type of business. Therefore, in my considered view, the penalty with respect to these amounts taken or accepted from wife, minor son, minor daughter and one of the relatives of the assessee, who are only relatives of the assessee, cannot be equated with transaction between the HUF, of which the assessee is Karta and having the same business as that of the assessee in order to take these amounts out of the purview of penalty under Section 271D of the Act, for violation of Section 269SS as their case is distinct and different than that of the sister concern. Therefore, while accepting the appeal of the Revenue partly, I set aside the order of the learned CIT(A) with respect to penalty of Rs. 2,24,650 relatable to transactions with relatives of the assessee and restore the order of the AO in this regard, as a consequence whereof, the penalty levied by the AO is restored to the extent of Rs. 2,24,650 while order of deletion of penalty to the extent of Rs. 2,78,000 by the learned CIT(A) gets confirmed. Therefore, while accepting the appeal of the Revenue partly, I restrict the penalty of Rs. 2,24,650 imposed by the AO. My above view is supported by Pune Bench decision in the case of ITO v. Mrs. Shantabai Tukaram Gaikwad in ITA No. 949/Pn/1998 for asst. yr. 1993-94, dt. 30th Aug., 2001.
21. As a result, the appeal of the Revenue gets partly accepted.
REFERENCE UNDER S. 255(4) OF THE IT ACT, 1961 B.L. Chhibber, A.M. 8th March, 2002
1. As there is a difference of opinion between the AM and the JM, the matter is being referred to the President of the Tribunal with a request that the following question may be referred to a Third Member or to pass such orders as the President may desire :
"Whether, on the facts and in the circumstances of the case, the CIT(A) is justified in deleting the penalty levied by the AO under Section 271D in respect of the loans aggregating to Rs. 2,24,650 raised by the assessee from his minor son, minor daughter and two close relatives, Sou. Chandralekha R. Khivansara and Sou. Zankarbai Khivansara ?"
M.K. Chaturvedi, Vice president, (As Third Member) 3rd March, 2003
1. This appeal came before me as a Third Member to express my opinion on the following question :
"Whether, on the facts and in the circumstances of the case, the CIT(A) is justified in deleting the penalty levied by the AO under Section 271D in respect of the loans aggregating to Rs. 2,24,650 raised by the assessee from his minor son, minor daughter and two close relatives, Sou. Chandralekha R. Khivansara and Sou. Zankarbai Khivansara ?"
2. I have heard the rival submissions in the light of material placed before me and precedents relied upon. As suggested in the question, the dispute is apropos the levy of penalty under Section 271D of the IT Act, 1961, (hereinafter called the Act) in respect of the loans aggregating to Rs. 2,24,650. The details of the loans on which penalty was maintained by the CIT(A) are as under :
Rs.(1)
Ankush S. Kasliwal (minor son of the assessee) 63,000 (2) Anuja S. Kasliwal (minor daughter of the assessee) (Rs.
61,650 minus Rs. 20,500) 41,150 (3) Smt. Pramila S. Kasliwal (wife of the assessee) (Rs. 41,500 minus Rs. 21,000) 20,500 (4) Smt. Chandralekha R. Khivansara 50,000 (5) Smt. Zankarbai Khivansara 50,000 2,24,650
3. Shri G.S. Singh, learned CIT, Departmental Representative, at the outset submitted that the genuine transactions, ipso facto do not fall beyond the ken of Section 269SS of the IT Act, 1961. It was alleged that any transaction would be either genuine or non-genuine. If genuine transaction is out of the ambit of Section 269SS of the Act, then this section, ex consequenti, would apply only in respect of non-genuine transactions. If this interpretation is to be followed, it would defeat the very purpose of the provision. Resultantly, the provision would be inutile and futile. To buttress the point, reliance was placed on the various precedents. In the case of Attar Singh Gurmukh Singh v. ITO (1991) 191 ITR 667 (SC), in the context of Section 40A(3) of the Act, Hon'ble Supreme Court has held that genuine and bona fide transactions cannot be taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the AO the circumstances under which the payment in the manner prescribed in the section was not practicable or would have caused genuine difficulty to the payee. In interpreting a taxing statute, the Court cannot be oblivious of the proliferation of black money, which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money, should not be regarded as curtailling the freedom of trade or business.
4. In the case of Associated Engineering Enterprise v. CIT (1995) 216 ITR 366 (Gau) it was held that it is not merely the genuineness of the transaction but also the existence of circumstances warranting payment by cash which has to be proved to claim exclusion from application of the section.
5. In the case of Balaji Traders v. Dy. CIT (2001) 73 TTJ (Pune) 246 : (2001) 78 ITD 368 (Pune) it was held that the language of Section 269SS is unambiguous and, therefore, even genuine transaction of acceptance of deposit in cash will fall within its ambit.
6. In the case of Prabhavshali Chit Fund Co. (P) Ltd. v. CIT (1995) 52 TTJ (Del) 271 : (1994) 49 ITD 566 (Del) it was held that Section 269SS covers all loans or deposits received otherwise than by account payee cheques or drafts and, therefore, penalty was rightly imposed on the assessee.
7. The apex Court in the case of Chamundi Granites (P) Ltd. v. Dy. CIT (2002) 255 ITR 258 (SC) has held that the object of introducing Section 269SS was to ensure that taxpayer is not allowed to give false explanation for his unaccounted money, or if he makes some false entries, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money is unearthed and the taxpayer would usually give 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 to suit the plea of the taxpayer. The main object of Section 269SS was to curb this menace of making false entries in the account books and later giving an explanation for the same.
8. From the scrutiny of the records it revealed that penalty was also maintained in respect of the loans taken by the assessee from his family members as under:
(1) Ankush S Kasliwal, minor son Rs. 63,000 (2) Anuja S. Kasliwal, minor daugther Rs. 41,150 (3) Smt. Pramila S. Kasliwal, wife Rs. 20,500
9. The learned CIT, Departmental Representative relied on the decision of the Tribunal rendered in the case of Unique Constructions v. Dy. CIT (1995) 52 TTJ (Bom) 96. In this case the Tribunal held that the assessee contravened the provisions of Section 269SS of the Act, even when the amounts were received from family members, partners and sister concerns.
10. In the present case I find that the assessee is manufacturer of building material, i.e., Neeru, Sunla, Sago, etc. He was in need of funds for his business. He borrowed the money from his minor children and wife. As far as minors are concerned, the assessee himself acted as the guardian. No other person was involved. In the capacity of the guardian of the minor children, he has given the loan and accepted it in the capacity of individual. Therefore, even assuming that there was breach, it was only a technical and venial breach. There is a common law maxim : "De non minimis curat lex". It means law does not take into consideration trivialities. In respect of the loan taken from the wife, I have noted that the amount of loan is very small. Normally it cannot be construed to be a transaction between the borrower and the lender. Genuineness of the transaction was not doubted. Apropos the relation of husband and wife, it is said in the Bible that "what God hath joined together man cannot cast asunder". As such, there existed a mitigating circumstance. In my opinion, the penalty cannot be maintained in respect of the loans to minor children and wife.
11. I now consider the loans taken by the assessee from Smt. Chandralekha R. Khivansara and Smt. Zankarbai Khivansara. The assessee took loan of Rs. 50,000 from each of these two ladies. It was explained before me that these two ladies were the cousin sisters of his mother. The genuineness of the loans was not doubted. Addition under Section 68 of the Act was not made by the AO. Tacitly, genuineness of the loan was accepted. Test of human probabilities was not applied by the Revenue. It seems improbable in the normal course that the ladies who are distantly related to the assessee would sell their jewellery to provide funds to the assessee for the procurement of machinery. But this fact is not germane to the present issue. As such, I do not make any comment on this aspect. It is trite law that de hors reasonable cause, assessee cannot be exonerated from the rigour of penalty. It must be demonstrated beyond the shadow of doubt that the cash loans were accepted under extraordinary circumstances. It was stated that there was no sufficient cash balance to pay for the machinery. Both these ladies were income-tax payers. Both of them did not have any bank accounts. The amounts borrowed from them were required for purchase of the machinery. The cash was collected from these ladies on 15th Aug., 1989. Due to the ill-health of the assessee, the purchase could be effected only on 5th Sept., 1989. For delay caused due to the illness, the assessee had to pay extra money to the seller. The assessee enclosed certificate dt. 1st Nov., 1993, from Jain Engineering Company to the effect that the deal for the purchase of machinery by the assessee at Rs. 1,25,000 was cancelled due to the assessee's non-attendance on 16th Aug., 1989. Two assessment orders in respect of these two ladies were also submitted before the AO. It transpired from the perusal of the said assessment orders that the returns were filed on 30th Nov., 1990, where both had wealth consisting of gold and silver. These were sold to advance monies to the assessee; on the same date, i.e., sale of ornament date and advancing of money on the same date of 15th Aug., 1989.
12. AO noticed that the assessee continued to generate funds till the machinery was purchased. It was only on 4th Sept., 1989, that the assessee could go to Bombay with the cash to buy the machinery. AO stated that the certificate from one of his co-businessmen certifying assessee's illness and cancellation of deal has no meaning unless the deal was evidenced by an instrument which could be substantiated to have existed. The evidence in the form of certificate was held to be ipse dixit.
13. In the case of CWT v. Jagdish Prasad Choudhary (1995) 211 ITR 472 (Pat)(FB) Hon'ble High Court has held that for the existence of a reasonable cause the assessee is entitled to offer a factual explanation. It is incumbent upon the AO to be satisfied about the existence or the absence of the reasonable cause in the context of the explanation offered. The AO, in arriving at his satisfaction in such a situation, acts in a quasi-judicial capacity. The proceeding for imposition of penalty is a quasi-criminal proceeding. The satisfaction has to be reached by the AO objectively and on consideration of relevant materials only and to the total exclusion of extraneous and irrelevant considerations.
14. The assessee may be exonerated from the rigour of penalty under Section 271D of the Act, provided it is established that there exited a reasonable cause for not complying with the prescription of Section 269SS of the Act. The mandate given under Section 269SS of the Act is clear. Any departure from the said mandate invites penalty as is envisaged under Section 271D of the Act. It is clearly laid down in the section that no person shall after 30th June, 1984, take or accept from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft, if the amount of loan or deposit or the aggregate amount of such loan or deposit is Rs. 20,000 or more. This panoply of law was brought on the statute to counter the tax evasion. Therefore, it is not sufficient to say that simply the transaction was genuine, so Section 269SS of the Act is not applicable. One cannot accept such proposition of law. There is no ambiguity in the language of the provision. As such, there is no need to apply the purposive theory of interpretation. Subject to the existence of mitigating circumstances penalty cannot be deleted. The assessee must prove beyond the shadow of doubt that there existed a reasonable cause for not complying with the conditions contained in Section 269SS. Circumstances under which the cash was accepted must be explained. Unfortunately, no cogent material was produced in that direction. The exigency was stated to be the requirement of machine. How urgent that requirement was is not known. The machine was not purchased soon after taking the loan. This indicates that the assessee could have complied with the requirements of Section 269SS of the Act, without much difficulty. It is the duty of every citizen to respect law. Majesty of law is to be maintained.
15. Taking into consideration the entire conspectus of the case, I am of the opinion that there existed no reasonable cause for accepting the loan of Rs. 1,00,000 i.e., Rs. 50,000 each from Smt. Chandralekha R. Khivansara and Smt. Zankarbai Khivansara. Penalty can, therefore, be maintained pro tanto. I, therefore, agree partly with the learned JM and partly with the learned AM.
16. The matter will now go before the regular Bench for deciding the appeal in accordance with the opinion of the majority.
U.B.S. Bedi, J.M. 7th March, 2003
1. As there was a difference of opinion between the AM and the JM, following question was referred to a Third Member :
"Whether, on the facts and in the circumstances of the case, the CIT(A) is justified in deleting the penalty levied by the AO under Section 271D in respect of the loans aggregating to Rs. 2,24,650 raised by the assessee from his minor son, minor daughter and two close relatives, Sou. Chandralekha R. Khivansara and Sou. Zankarbai Khivansara ?"
2. The learned Vice-President, Shri M.K. Chaturvedi, sitting as Third Member, by his opinion dt 3rd March, 2003, has concurred partly with the JM and partly with the AM. In accordance with the majority view, we hold that penalty under Section 271D in relation to the amount of Rs. 63,000 (Ankush S. Kasliwal--minor son of the assessee), Rs. 41,150 (minor daughter of the assessee Anuja S. Kasliwal) and Rs. 20,500 (Smt. Pramila S. Kasliwal wife of the assessee) is not attracted and is deleted and penalty in relation to the amount of Rs. 50,000 each aggregating to Rs. 1,00,000 (Smt. Chandralekha R. Khivansara and Smt. Zankarbai Khinansara) is attracted and the AO was justified in levying penalty in relation to the above two sums. As a result, penalty levied by the AO is restricted to Rs. 1,00,000. Revenue succeeds partly in this appeal.
3. As a result, appeal of the Revenue gets partly accepted.