Income Tax Appellate Tribunal - Jabalpur
Mahesh Prasad Soni vs Addl. Cit on 29 November, 2002
Equivalent citations: (2004)86TTJ(JAB)815
ORDER
Keshaw Prasad, A.M.:
The appeal has been directed by the assessee against the order of the Commissioner (Appeals) dated 28-10- 1999, confirming penalty under section 271D of the Act pertaining to assessment year 1996-97.
2. Briefly, the facts of the case are that the assessee derived income from trading in jewellery, truck plying and sale of agricultural produce. During the year, the assessee purchased a property along with his father for a consideration of Rs. 3,80,000. Since the assessee had no funds available, the father of the assessee paid the entire consideration as per agreement of co-ownership executed on 10-4-1995. Father made the payment of Rs. 2,00,000 by way of Bank draft and balance amount of Rs. 1,80,000 was paid in cash. As per co-ownership agreement dated 10-4-1995 which is registered, the consideration was to be paid by father whereas the property was to be registered in the name of the assessee. Thus, in the assessee's account, the entire amount of Rs. 3,80,000 was shown as loan from the father of assessee. The Addl. CIT was of the opinion that such loan was accepted in contravention of the provisions of section 269SS of the Act and accordingly issued a show-cause notice as to why penalty under section 271D may not be imposed. As the show-cause notice was not responded, the Addl. CIT imposed a penalty of Rs. 3,80,000 under section 271D of the Act.
3. On appeal, the Commissioner (Appeals) held that as only a sum of Rs. 1,80,000 was taken in cash as a loan in violation of the provisions of section 269SS of the Act, the penalty to this extent was justified. He, therefore, confirmed the penalty to the extent of Rs. 1,80,000 against which the assessee is in appeal before us.
4. It is argued by the learned counsel Shri B.K. Nema that there was no dispute that the assossee has obtained the loan in cash from his father. The identity of both the lender and the borrower was, therefore, established. It was stated that as the payment has to be made immediately, the loan in cash was taken. The learned counsel further stated that actually it was only a paper entry in the accounts of the assessee, otherwise the amount in cash was directly given by the assessee's father to the person from whom the land was purchased. It was stated that the penalty under section 271D of the Act was subject to the provisions of section 273B of the Act. Section 273B provides that if there was a reasonable cause in contravention of the provisions of section 269SS, no penalty under section 271D was imposable. The reliance was placed on the decision of Jabalpur Bench, of the Tribunal in the case of Subhash Nikhra (ITA No. 220/Jab/1995), Tribunal, Pune Bench decision in the case of Moti Lal J. Doshi (32 BCAJ 963 Part 10) and Tribunal, Mumbai Bench decision in the case of Jain Builders 32 BCAJ 237. Learned counsel also relied on the decision of Hon'ble Supreme Court in the case of Hindustan Steels Ltd. v. State of Orissa (1972) 83 ITR 26 (SC) wherein it was held that no penalty was imposable merely on technical or venial breach of law. Shri BK Nema, learned counsel for the assessee also relied on the decision of Jabalpur Bench of the Tribunal in the case of Chaudhary Co. Bhujiawala 33 BCAJ 1021.
5. On the other hand, learned Departmental Representative while relying on the decision of the Commissioner (Appeals) submitted that the genuineness of the payment or the creditworthiness of the lender was not relevant for the purposes of penalty under section 271D of the Act. As the assessee had failed to prove the reasonable cause in violating the provisions, the penalty was exigible in this case. He also stated that as the statute has provided penalty even for venial breach, no exception has been granted under the Act. The assessee should have been aware about the provisions of, law and ignorance of law was of no excuse. He, therefore, pleaded that the penalty sustained by the Commissioner (Appeals) deserves to be upheld.
6. We have considered the rival submissions. In the case before us, the assessing officer/Commissioner (Appeals) have imposed penalty under section 271D of the Act as the assessee has taken or accepted loan or deposits otherwise than by an account payee cheque or account payee Bank draft in violation of section 269SS of the Act.
7. The provisions of sections 269SS and 269T were brought on the statute by the Finance Act, 1984, with effect from, 1-4-1984. The intention behind bringing the above provisions on the statute was clarified by the CBDT vide, its Circular No. 387, dated 6-9-1984 (reported in 146 ITR 162 (St)). The relevant part of the circular is as under :
"Unaccourited cash found in the course of searches carried out by the Income Tax department is often explained by taxpayers as representing loans taken from or deposits made by the 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 letter from such persons in support of their explanation.
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 Income Tax Act debarring persons from taking or accepting, after 30-6-1984, from any other person any loan or deposits otherwise than by an account payee cheque or account payee Bank draft if the amount of such loan 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 to 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 proposed to be taken, is Rs. 10,000 or more"
8. Keeping the above circular in view, the Hyderabad Bench of the Tribunal in case of Industrial Enterprises v. Dy. CIT (2000) 73 ITD 252 (Hyd) in para 17.2 of its order held as under :
"Provisions of section 269SS were brought in the statute book to counter the evasion of tax in certain cases, as clearly stated in the heading of Chapter XX-B of the Income Tax Act, 1961, 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 in the Income Tax Act was to avoid certain circumstances to tax evasion, whereby huge transactions are made outside the books of account by way of cash. As far as the case on hand before us is concerned, there is no case against the assessee-firm that these transactions had anything to do with evasion of tax or concealment of income. As rightly pointed out by the Commissioner (Appeals) himself, it may be a case of negligence. But a negligent person does not have any intention or mens rea to purposely violate any provision of law, so as to be visited with stringent punishment of heavy penalty".
9. The same Bench considered this issue in the case of Dillu Line Enterprises (P) Ltd. v. Addl. CIT (2002) 80 ITD 484 (Hyd). The Bench ordered as follows :
"We find force in the argument of the learned counsel for the assessee that the object of the provisions being unearthing of unaccounted money, is not applicable to any transaction which is done in an open manner, which is genuine and in which no unaccounted money is involved. Mere technical breach of the provisions, while the transactions are held to be genuine, do not attract the provisions of section 269SS. It is not the case of the revenue that the amounts involved were unaccounted transaction. It is an undisputed fact that the transactions are genuine. The Chapter XX-B. and section 269SS begins with the heading-Requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax. The term 'certain' used therein, when read along with the legislative intent of curbing tax evasion, clearly means that all loans are not attracted. This section attracts only 'certain' loans that are brought in by the taxpayer to explain away his unexplained cash or unaccounted deposit. This section is definitely not intended to penalize genuine transactions, where no tax evasion is involved. It is well-settled that the headings preferred to sections or set of sections in some modern statutes are regarded as 'preambles' to those sections. This view was approved by Farewell I.J. in Fletcher v. Birkenhead Corpn. (1907) 1 KB 205".
10. Keeping in view the intent of the legislature behind enacting the above sections, we hold that the loans/deposits brought in by the assessee were not to explain his unaccounted cash, and, therefore, the question of violating the provisions of section 269SS/269T did not arise. We may mention here that even there is no suggestion from the revenue that by way of accepting loans and deposits in cash, the assessee has introduced his unaccounted cash in the garb of loans.
11. Jabalpur Bench of the Tribunal in the case of Chaudhary Co. Bhujiawala (supra) has adjudicated similar issue. The Tribunal has held that the stand taken by the revenue that the genuineness of the deposits/loans was not the relevant factor to be considered for levy of penalty under section 271D was not well-founded and while referring to the CBDT Circular No. 387, dated 6-7-1984 explaining the object of introducing the provisions of sections 269SS and 269T of the Act, it was held that it was not the intention of the legislature to penalize genuine flow of funds for meeting the urgent business necessities. Tribunal, Pune Bench, in the case of Moti Lal J. Doshi (supra) has held that where the loan received in cash was from a relative of the partner of the firm, there was a bona fide belief that section 269SS was not attracted. The Chandigarh Bench of the Tribunal in the ' case of Income Tax Officer v. Rajendra Trading Co. (1994) 48 ITD 210 (Chd) while cancelling the penalty under section 271D had observed as under :
"An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceedings and penalty will not ordinarily be imposed unless the party is obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Even if a minimum penalty is prescribed, the authority competent to impose the 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."
12. There is another very important factor in this case which has been completely over looked by the Commissioner (Appeals). The penalty under section 271D was imposable where "a person takes or accepts deposits". But in the instant case, as per co-ownership agreement dated 10-4-1995 which is registered, the purchase consideration was to be paid by the father of the assessee to the seller, no amount came to the assessee. It is also provided in the agreement that till the payment is made by the assessee to his father, the amount will be shown as outstanding in the name of father. These facts clearly indicate that actually there was no actual acceptance of loan or deposits by the assessee. Only the entries were made in the accounts of the assessee. Hence, the question of any violation of the provisions of section 269SS of the Act and attracting the penalty under section 271D of the Act did not arise. Even if such view was not bona fide atleast the assessee had a bona fide belief that by making entries in its account, there will be no violation of the provisions of section 269SS of the Act. The penalty under section 271D is subject to the provisions of section 273B of the Act. We, therefore, examined as to whether there was any reasonable cause in violation of the provisions of section 269SS of the Act. We find that the assessee was in the urgent need of money for purchasing the property. The father made the payment on behalf of the assessee and that too under a co-ownership agreement. The assessee was, therefore, having a bona fide belief that such transaction will not be violative of the provisions of section 269SS read with section 271D of the Act. We, therefore, hold that as there was a reasonable cause, no penalty under section 271D was leviable. The penalty sustained by the Commissioner (Appeals) is, therefore, cancelled.
13. In the result, the appeal filed by the assessee is allowed.