Income Tax Appellate Tribunal - Mumbai
Dr. Deepak Muchala vs Income Tax Officer on 26 February, 1996
ORDER
V. Dongzathang, Vice-President
1. This appeal of the assessee is directed against the order of the CIT(A).
2. The assessee in this case is an individual and a doctor (dentist by profession). During the previous year relevant to the assessment year under consideration, the assessee took loans aggregating to Rs. 94,400, i.e., Rs. 63,000 from Shri Kishore Muchala, Rs. 20,000 from Ms. Umaben Muchala and Rs. 11,400 from Shri Jayesh Goel. The AO initiated proceedings under s. 271-D r/w s. 269-SS of the IT Act, 1961. It was explained before the AO that the assessee took the loans because he booked a flat with Lok Housing & Constructions Ltd. at a cost of Rs. 4,21,000, for which he had to make deposit to the tune of Rs. 1,60,000. Over and above, he made arrangement with M/s Status Enterprises for the purchase of a dental chair, for which he was required to keep ready money. The assessee also had to make payments for various purchases of instruments for the clinic. Since the loans were genuinely taken, it was submitted that no penalty should be imposed under the above section. The AO rejected the claim and imposed penalty of Rs. 83,000. On appeal, the assessee reiterated the same explanations as given before the AO. The learned CIT(A) declined to interfere.
3. The assessee is still aggrieved and has come up in appeal before the Tribunal. Shri Atul K. Jasani, learned counsel for the assessee, reiterated the same submissions as made before the Revenue authorities and it is submitted that since the loans were genuinely taken for the purposes of the business and for various investments, the provisions of s. 271D of the Act should not have been invoked. On the other hand, Shri N. D. Kadam, the learned Departmental Representative, supported the order of the CIT(A). Keeping in view the valid reasons given by the AO for rejecting the explanations, it is submitted that no interference is called for in this regard.
4. On careful consideration of the rival submissions in the light of the material on record, I am of the view that the assessee is to succeed. Firstly, the assessee is a Dentist by profession. He is not a person expected to be well-versed in the fast changing IT Laws. On the basis of the requirement of cash for paying the instalments of the flat booked by him and also for purchasing items of instruments from his clinic and for the dental chair, he borrowed money from friends and relatives as indicated above. There is no whisper about the genuineness or otherwise of the loans taken. In the assessment for the year under consideration, there is no objection raised to any of the loans taken during the year. In such a case, the genuineness of the loans is never in question.
5. The provisions of s. 271D have been introduced by the Finance Act, 1984. In the Budget Speech, the Hon'ble Finance Minister made the following reference :
"With the reduction in rates and expeditious disposal of assessments, I believe there can now be no excuse for any leniency to be shown to those who abuse our laws. Such cases will necessarily have to be dealt with severely. In order to discourage tax avoidance and tax evasion, I am also introducing some further measures. In all cases where the annual turnover exceeds Rs. 20 lakhs or where the gross receipts from a profession exceed Rs. 10 lakhs, I am providing for a compulsory audit of accounts. This is intended to ensure that the books of account and other records are properly maintained and faithfully reflect the true income of the taxpayer. I am also proposing that loans or deposits of Rs. 10,000 or more shall be taken or accepted only by crossed cheque or bank draft."
In the Memorandum explaining the provisions of the Finance Bill, 1984, it was explained as follows :
"22. Unaccounted cash found in the course of searches carried out by the IT Department is often explained by taxpayers as representing loans taken from or deposits made by various persons. Unaccounted income is also brought into the books of account in the form of such loans and deposits, and taxpayers are also able to get confirmatory letters from such persons in support of their explanation.
23. With a view to circumventing this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Bill seeks to make a new provision in the IT Act debarring persons from taking or accepting, after 30th June, 1984, from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of such loan or deposit or the aggregate amount of such loan and deposit is Rs. 10,000 or more. This prohibition will also apply in cases where on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not) and the amount or the aggregate amount remaining unpaid is Rs. 10,000 or more. The proposed prohibition would also apply in cases where the amount of such loan or deposit, together with the aggregate amount remaining unpaid on the date on which such loan or deposit is proposed to be taken, is Rs. 10,000 or more.
24. The proposed prohibition will, however, not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by the following, namely :
(a) Government;
(b) any banking company, post office savings bank or any co-operative bank;
(c) any corporation established by a Central, State or Provincial Act;
(d) any Government company as defined in s. 617 of the Companies Act, 1956;
(e) such other institution, association or body of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette."
A careful perusal of the above explanations shows that the section was introduced to prevent abuse of laws and to discourage tax avoidance and tax evasion. In particular, it was meant to circumvent the device by which the taxpayers often explain away unaccounted cash or unaccounted deposits found in the course of searches carried out by the Department. Since in this case the assessee took bona fide loans for the purpose of payment of instalments for the flat and for the business, it will not be justified to apply the above section. As pointed out earlier, there is no doubt about the genuineness of the loans and the AO has fully accepted these loans in the assessment made for the year under consideration. There is, therefore no reason to impose penalty under s. 271D for the technical default of the assessee. This view is duly fortified by the decision of the Hon'ble Supreme Court in the case of Hindustan Steels Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC).
6. With regard to the claim of ignorance of law also, it is seen that the Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh & Ors. (1979) 118 ITR 326 (SC) held that there is no presumption that every person knows the law. It is often said that everyone is presumed to know the law, but that is not a correct statement; there is no such maxim known to the law. This ratio of the decision of the Hon'ble Supreme Court is squarely applicable in the case of the assessee who is a dentist by profession. Even if there is any ignorance of law, which resulted in infraction of law, the default is in the nature of technical or venial infraction of law which does not prejudice the interests of the Revenue, as no tax avoidance or tax evasion is involved in this case. I hold accordingly and cancel the penalty.
7. In the result, the appeal is allowed.