Income Tax Appellate Tribunal - Mumbai
Parag A. Doshi, Mumbai vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" Bench, Mumbai
Before Shri D.K. Agarwal, Judicial Member
and Shri B. Ramakotaiah, Accountant Member
ITA No. 1836/Mum/2009
(Assessment Year: 2003-04)
ACIT, Circle 15(1) Shri Parag A. Doshi
Room No. 104, Matru Mandir Vs. Narottam Niwas, Nehru Road
Mumbai 400007 Ville Parle (E), Mumbai 400057
PAN - ADKPD 6210 R
Appellant Respondent
Appellant by: Shri Hari Govind Singh
Respondent by: Shri F.V. Irani
ORDER
Per B. Ramakotaiah, A.M.
This appeal by the Revenue is against the order of the CIT(A) XV, Mumbai dated 07.01.2009 cancelling the penalty under section 271D of the I.T. Act of `1,11,63,000/- levied by the A.O. vide order dated 30.12.2007.
2. Revenue has raised the following four grounds for consideration: -
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty levied u/s. 271D of Rs.1,11,63,000/- on a technical ground that penalty proceedings has not been initiated in the course of any proceedings under the I.T. Act, as the provisions of Sec. 271D do not stipulate such condition for initiating penalty, unlike the provision of Sec. 271 wherein this conditions has been clearly enshrined.
2. The Ld. Commissioner of Income Tax (Appeals) erred in law in cancelling the penalty of Rs.1,11,63,000/- levied against Shri Parag A. Doshi u/s. 271D placing reliance on the decision of Hon'ble ITAT, Mumbai Bench in the case of Kesuramse v/s. JCIT (2006) 5 SOT 9 (MUM) ignoring the Special Bench of ITAT's decision in the case of Dewan Chand Amrit Lal v/s. DCIT (2006) (AT) 2003 Chandigarh (SB) wherein it was held that no time limit has been prescribed for initiating penal action in respect of acceptance and return of loan in 2 ITA No. 1836/Mum/2009 Shri Parag A. Doshi cash infringing Sec. 269SS and Sec. 269T of the I.T. Act, which has binding force in the present case.
3. On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in cancelling the penalty u/s. 271D of Rs.1,11,63,000/- despite the fact that there is a clinching evidence on record of acceptance of cash loan transaction in form of Promissory notes duly signed by Shri Parag A. Doshi.
4. On the facts and in the circumstances of the case and in law, the, Ld. CIT(A) has erred in cancelling the penalty of Rs.1,11,63,000/-
levied u/s. 271D despite the fact that the matter is sub-judice before Hon'ble Bombay High Court in suit No. 1606/2006 filed by Shri Ashok A. Shah against the assessee, Shri Parag A. Doshi, to recover the cash loan given to him and the Hon'ble Bombay High Court directed Shri Parag A. Doshi to deposit a sum of `1,00 crore in the court."
3. We have heard the learned D.R. and the learned counsel in detail.
4. Briefly stated, the assessee is an individual. The previous year relevant to A.Y. 2003-04 was the financial year ended on 31.03.2003. The assessee filed its return of income on 22.08.2004 declaring total income of `49,450/-. The return of income was accepted under section 143(1) and there were no further proceedings. During the course of assessment proceedings of one Shri Ashok K. Shah [who is assessed to tax under the jurisdiction of the DCIT Circle 9(2)] it was observed by the A.O. of the said Shri Ashok K. Shah that he had given a loan of `1,11,63,000/- in cash to the assessee. Accordingly vide letter dated 28.12.2006 he requested for initiation of penalty proceedings u/s 271D on 28.12.2006. The ITO, Ward 15(1)(2) forwarded the matter to the Additional commissioner of Income Tax, Range 15(1) for imposition of penalty under section 271D. The assessee submitted that the allegations of Shri Ashok K. Shah that he has given cash advance are totally false and void and are made only with a view to harass the assessee and to extort money from him. It was submitted that there were contradictions in the petition filed by the said Ashok K. Shah before the Hon'ble Court stating the source of funds initially was that of borrowings and subsequently he changed his stand and claimed the same out of undisclosed income and made a false declaration for A.Y. 2003-04 by filing the revised return which was not only belated but an after thought only to 3 ITA No. 1836/Mum/2009 Shri Parag A. Doshi create a sort of evidence for the suit filed by him. It was further submitted that the assessee has contested the issue which centres around existence of 10 Promissory Notes all dated 01.03.2003 for identical sum of `10,00,000/- and remaining one for `11,63,000/- towards interest. It is the contention of the assessee that he has executed all Promissory Notes on a single day, i.e. on 01.03.2003 as Shri Ashok K. Shah assured him that he would arrange funds, provided the assessee executes Promissory Notes so as to enable him to raise requisite funds from various parties. However, he has failed to do so and expressed his inability and promised that the Promissory Notes should be destroyed, which was executed in good faith. It was the submission of the assessee that the said Ashok K. Shah betrayed the trust and filed false and malafide suit against the assessee. The assessee further contested that there is no truth in receiving the money on 01.03.2003 and further with reference to the so called Promissory Notes which mentioned 'the value received from time to time' to state that the money was not received on that day and accordingly the proceedings under section 271D cannot be continued for levy of penalty as there was no proof of receiving cash in excess of `20,000/- each within the financial year relevant to A.Y. 2003-04. The A.O., however, did not agree and levied penalty on the basis of the fact that the said Ashok K. Shah has filed revised return admitting the cash and further the assessee was directed by the Hon'ble High Court to deposit a sum of `1 crore within 16 weeks as per the orders which the assessee did comply. In view of this the A.O. levied penalty of the entire amount of `1,11,63,000/- under section 271D of the I.T. Act.
5. Before the CIT(A) the assessee made detailed written submissions which are extracted in para 7 of the CIT(A)'s order from page 3 to 22 and the contentions were summed up vide para 17 of the written submission extracted in page 23 of the CIT(A)'s order, which are as under: -
"a) The Appellant has not taken any loan in violation of provisions of section 269SS.
b) The issue is sub judice and not colluded against the Appellant and therefore levy of penalty on the basis of unproved and unsubstantiated allegations is incorrect and void.4 ITA No. 1836/Mum/2009
Shri Parag A. Doshi
c) The fact that the alleged loans given is not shown in the original return and shown only in the revised return clearly shows that this is nothing but feeble attempt to create evidence against the Appellant.
d) No proceedings for A.Y. 2003-04 were pending against the Appellant and therefore penalty u/s. 271D cannot be levied.
e) Without prejudice to above if the assessment proceedings of Shri Ashok Shah are deemed to be proceedings under which the penalty is initiated then the penalty proceedings are barred by limitation and hence void.
f) The Additional Commissioner of Income tax has not recorded any satisfaction before issue of penalty notice and therefore penalty proceedings are void ab initio.
g) The penalty is levied in gross violation of Principles of Natural Justice and hence levy of penalty is void."
6. The CIT(A) having found the detailed explanation and the important issue involved in the matter remanded to the office of the A.O. on 22.02.2008 and the A.O. submitted the report dated 14.03.2008. The A.O. supported the stand on factual basis but there was no rebuttal of the case law. The CIT(A) then asked for counter comments/representation in respect of the remand report of the A.O. and again the assessee filed detailed written submissions again extracted in para (a) to (g) on page 28 of the order. After considering the detailed submissions the CIT(A) deleted the penalty on the following grounds: (a) the penalty has been levied prematurely without establishing the factum of cash loan beyond all reasonable doubt as the matter is sub-judice before the Hon'ble Bombay High Court, (b) the contention of the assessee that where no assessment is made nor any proceeding is pending under the Act, assessee's penalty proceedings having not been initiated during the course of any proceedings, the same is illegal and bad in law following the decision of the Agra Bench in the case of Sahara Educational Trust vs. ACIT 99 TTJ (Agra) 212 and Mumbai bench in the case of Keshu Ramsay vs. JCIT 5 SOT 9 (Mum), (c) the evidence of the third party cannot be utilised against the assessee unless it is admitted and confirmed by a Court of law and (d) When the matter is sub-judice it cannot be considered prematurely that actual cash was taken on that day in violation of provisions by the assessee as there is ambiguity about actual 5 ITA No. 1836/Mum/2009 Shri Parag A. Doshi receipt of cash relying on the mention in the Promissory Note as "for the value received from time to time". In view of the above, the CIT(A) cancelled the penalty. Revenue is aggrieved.
7. The learned D.R. reiterated the facts of the case and submitted that the A.O. has correctly initiated the proceedings and the CIT(A) deleted the penalty on the decision of the ITAT in Keshu Ramsay (supra) which was not correct as the Special Bench in the case of Dewan Chand Amrit Lal vs. DCIT 98 ITD 200 has reversed the said decision. The learned counsel submitted that there is no evidence that the assessee has taken money in cash and referred to the copies of the Promissory Notes placed on record and further relied on the decision of the ITAT Hyderabad Bench in the case of Citizen Co-operative Society Ltd. vs. Addl. CIT 41 DTR (Hyd) 305 for the proposition that the provisions of section 271D were introduced so as to prevent furnishing of evidence of cash advances in the course of search proceedings and the A.O. has to examine the reasonable cause before levy of penalty. He also relied on the Special Bench decision(supra), particularly para 18 of the order with reference to necessity for incorporation of section 269SS, 269T, 271D and 271E w.e.f. 01.04.1989 and the Department circular no. 387 dated 07.07.1989 and the findings therein. It was his submission that both on facts as well as on law, the Revenue has failed to prove that the assessee has taken cash in violation of section 269SS and accordingly the CIT(A) was right in deleting the penalty.
8. We have considered the issue. As far as ground Nos. 1 & 2 of Revenue in the appeal are concerned the necessity of initiating penalty proceedings in the course of any proceedings under I.T. Act has not been stipulated and the Special Bench decision in the case of Dewan Chand Amrit Lal (supra) is in support of the Revenue Ground Nos. 1 & 2.
9. The Hon'ble Special Bench has considered the issue and held that: -
"Thus, it appears that the Legislature has not considered it necessary to provide limitation for initiation of penalty proceedings under sections 271D and 271E. It becomes more probable when one considers the intention of the Legislature behind incorporation of provisions of sections 268SS and 269T. The intention behind incorporation of these provisions 6 ITA No. 1836/Mum/2009 Shri Parag A. Doshi was to counter the proliferation of black money, which when found in the course of search is sought to be explained by cash loans from various persons. As such, there is no time-limit for conducting searches. When in the course of search, some information is found about cash loans or deposits or repayment of loans or deposits or such claims are made, the necessity for initiating proceedings under section 271D or 271E arises. If one were to compute the limitation with reference to the assessment proceedings, then in no case, penalty under section 271D and 271E could be initiated in the case where the information is gathered in the course of search. That would defeat the very purpose of the legislating the provisions of sections 271 and 271E. Looking from the background which gave rise to incorporation of sections 269SS, 269T, 271D and 271E, the Legislature has consciously not prescribed any limitation for initiation of penalty proceedings under sections 271D and 271E. The limitation, of course has been prescribed for imposition after its initiation by the competent authority.
Assuming for argument's sake that there was an unintended omission by the Legislature in not providing limitation for initiation of penalty proceedings under sections 271D and 271E, even in that case, it is not for the Tribunal to provide for the casus omissus of the Legislature. Thus, the authority competent to impose penalty under sections 271D and 271E is vested with the Dy. Commissioner (now Joint Commissioner) and the Assessing Officer does not have the power either to initiate the penalty proceedings or impose the same. There is no procedure for reference by the Assessing Officer to the competent authority for imposition of penalty under section 271D or 271E. Therefore, the limitation for completion of penalty proceedings as provided under section 275(1)© has got to be computed from the date of issue of show-cause notice by the competent authority, which in the instant case, was the Dy. Commissioner (now Joint Commissioner). Since the respective orders under section 271D had been passed within a period of six months from the date of initiation by the Competent Authority, the penalty orders passed in the cases of the assessees were not barred by limitation.
Thus, having regard to provisions of sections 271D and 271E, the period of limitation for the purposes of section 275 is to be reckoned from the date when penalty proceedings are initiated by the Dy. Commissioner (Joint Commissioner) and not from the date on which the assessment proceedings are completed."
10. The reasoning of the CIT(A) in cancelling the penalty on the basis of initiation of the proceedings on jurisdiction issue thus cannot be upheld. The order to that extent has to be reversed. Respectfully following the findings of the Special Bench, which overrules the ITAT decision relied upon by the CIT(A), it is to be held that there is no time limit prescribed for 7 ITA No. 1836/Mum/2009 Shri Parag A. Doshi initiating penal action in respect of acceptance and return of loan in cash infringing section 269SS and section 269T of the I.T. Act. Since the penalties were initiated and finalised within the prescribed limits, the order to that extent is modified. Ground Nos. 1 & 2 are treated as allowed.
11. Coming to the other two grounds raised by the Revenue that the CIT(A) erred in cancelling penalty, when there are clinching evidences on record of acceptance of cash loan in the form of Promissory Notes duly singed by the assessee and also the fact that the Hon'ble Bombay High Court directed the assessee to deposit a sum of `1 crore in the Court the revenue could not establish the case. As rightly considered by the CIT(A) in the detailed order passed in this regard, there is no clinching evidence at this point of time that the assessee has taken cash loan relevant for that assessment year on 01.03.2003. The assessee admits that he has signed the Promissory Notes on the basis of the promise that finance will be arranged. However, the Memorandum of Understanding dated 01.03.2003 signed between the parties, Mr. Parag A Doshi and Mr. Ashok K. Shah, placed in the paper book on page 35 indicates that the assessee has acted as estate agent for various property transactions of Mr. Ashok K. Shah and had many times and may occasions time and again taken loans from Ashok K. Shah and the monies received from Mr. Ashok K. Shah has not been repaid and solemnly declared that the assessee, Shri Parag A. Doshi owes `1,11,63,000/- and promises to pay before 15.08.2003. This Memorandum of Understanding was executed on a `20/- stamp paper dated 03.10.2002 purchased by Shri Ashok K. Shah, along with the Promissory Notes 11 in number executed on the same day ie 01-03-03. It was the contention of the assessee before the Hon'ble Court that there were disputes between the parties and there were indeed a sort of settlement by way of deed of cancellation unsigned which indicates that the parties have not lent any amount and relied on the unsigned cancellation deed from the Advocate of Mr. Ashok K. Shah to submit that the petition filed by Mr. Ashok K. Shah was not genuine. In view of this averment and counter averment as placed before the Hon'ble High Court, it cannot be stated that there is clinching 8 ITA No. 1836/Mum/2009 Shri Parag A. Doshi evidence that the assessee has taken loans as evidenced by the Promissory Notes unless they are established before the Hon'ble High Court.
12. As rightly pointed out by the CIT(A) the Promissory Notes also do indicate that the value were received from time to time which does not indicate that the money was received on that day alone. Eventhough the sum was mentioned as `10,00,000/- each in 10 Promissory Notes and `11,63,000/- in the 11th Promissory Note they indicate that the value was received from time to time which does not establish that cash was received on that day in violation of provisions of Sec 269SS. As the matter is sub- judice before the Hon'ble Bombay High Court in suit No. 1606 of 2006 filed by Mr. Ashok K. Shah against the assessee and since the factum of receipt of cash loans are yet to be established, we agree with the findings of the CIT(A) that the proceedings have been concluded prematurely without establishing the violation of section 269SS. In view of this, we are of the view that there is no merit in ground Nos. 3 & 4 raised by the Revenue. Accordingly the grounds are rejected and order of the CIT(A) to that extent is upheld.
13. In the course of arguments the parties have relied upon various case law on the intention of the Legislature in introducing the provisions of section 269SS, 269T, 271D, etc. Since these were also considered by the Special Bench of the ITAT in the detailed order (supra), there is no need to repeat those findings in the present order. We have considered all the submissions of both the parties on legal principles, but since the fact of receipt is yet to be established, we are of the view that there is no need to levy penalty under section 271D at this point of time.
14. Further, it was also stated that this order is in the context of examining the violation of provisions of section 269SS and consequent levy of penalty u/s 271D under the IT ACT,1961 and the findings or observations in this order should no way prejudice the claims of parties before the Hon'ble Bombay High Court in the suit. The department will also be free to consider the issue according to the law after the matter before the Hon'ble 9 ITA No. 1836/Mum/2009 Shri Parag A. Doshi High Court is finalised. Accordingly the order of the CIT(A) in cancelling the penalty however was sustained.
15. In the result, appeal of the Revenue is partly allowed.
Order pronounced in the open court on 24th September 2010.
Sd/- Sd/-
(D.K. Agarwal) (B. Ramakotaiah)
Judicial Member Accountant Member
Mumbai, Dated: 24th September 2010
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) - XV, Mumbai
4. The CIT- XV, Mumbai City
5. The DR, "C" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.