Income Tax Appellate Tribunal - Amritsar
Navin Kumar vs Joint Commissioner Of Income Tax ... on 17 November, 2005
Equivalent citations: (2006)99TTJ(ASR)267
ORDER
Joginder Pall, A.M. August, 2004
1. This is a bunch of four appeals filed by the two assessees against the respective orders of the CIT(A), Bhatinda, for asst. yrs. 1995-96 and 1996-97. Since the issue raised in all the four appeals is common and identical, these were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. The only identical issue raised in all the four appeals is that the learned CIT(A) was not justified in sustaining the penalty of Rs. 30,000 each imposed by the AO under Section 271D of the IT Act, 1961, for each of the above-mentioned assessment years.
3. The facts of the cases are that during the course of assessment proceedings in the case of M/s Juneja Traders, Fazilka, the AO noticed that Shn Harbans Lal, Prop, of the said concern had advanced cash loans to various persons. He recorded the statement of Shri Harbans Lal, wherein he stated that he had advanced loans of Rs. 80,000 repayable in instalments of Rs. 100 per day. He further stated that he advanced fresh loan after the first loan was returned by the borrower. Since Shri Harbans Lal was not able to explain the source of various loans advanced to parties, he disclosed income under VDIS to cover these loans. The assessment was accordingly completed in the case of Shri Harbans Lal. Thereafter, it appears that the AO obtained copies of the accounts of various persons to whom he had given loans. The AO observed that the assessee had advanced loans in cash to various persons including these two persons in violation of the provisions of Section 269SS. He, therefore, referred the case to Jt. CIT, Bhatinda, for consideration of levy of penalty under Section 271D of the IT Act. Accordingly, the Jt. CIT issued show-cause notices to the aforesaid persons. Since he was not. satisfied with the explanation of the aforesaid persons, he imposed penalties of the following amounts for the below mentioned assessment years:
Name Asst. yr. Penalty imposed Penalty confirmed
by Jt. CIT by CIT(A)
Shri Navin Kumar 1995-96 82,000 30,000
1996-97 1,00,150 30,000
Shri Ashu Bagla 1995-96 30,000 30,000
1996-97 45,000 30,000
4. Being aggrieved, the aforesaid persons impugned levy of penalty in appeals before the learned CIT(A). It was contended before the learned CIT(A) that the AO has obtained copies of accounts of the parties from the books of account of M/s Juneja Traders without giving copies of the same to the affected persons. Besides, he relied on the statement of Shri Harbans Lal recorded at the back of the affected parties without allowing any opportunity of cross-examination. Thus, it was contended that the AO has imposed the impugned penalty in violation of principles of natural justice. The learned CIT(A) directed the AO to furnish the copies of accounts obtained from M/s Juneja Traders to the parties. Accordingly, photocopies of its accounts were furnished to these persons. By referring to the photocopies, it was submitted before the learned CIT(A) that the entries in the books of account of M/s Juneja Traders did not tally with the receipts issued by M/s Juneja Traders and duly signed by Sh. Harbans Lal confirming the repayment of loan and the balance outstanding. It was specifically pointed out that repayment of certain amounts duly acknowledged by Sh. Harbans Lal was not entered in the respective accounts of the parties in the books of account of M/s Juneja Traders. It was also contended that all these persons were poor and illiterate. None of them was assessed to tax. Therefore, they were not aware of the provisions of the Act that acceptance of cash loans exceeding the prescribed limit attracted levy of penalty. Reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh and Ors. . It was also submitted that the penalty should not be levied on these persons because the default was not intentional. Reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa . In addition, reliance was also placed on the decision of Tribunal, Chandigarh Bench, in ITO v. Rajendera Trading Co. (1994) 48 ITD 210 (Chd) and some other cases. The learned CIT(A) considered these submissions. He observed that the AO has imposed penalty in all these cases by relying on copies of accounts of these parties obtained from M/s Juneja Traders and the factual position stated therein did not tally with the statement given by Sh. Harbans Lal. In his statement, Shri Harbans Lal had stated that fresh loans were given only after the earlier loans were returned by the borrowers. This position was found contrary in the copies of accounts obtained from the parties. He also observed that the AO has not adduced any clinching evidence to establish that the affected parties had received loans from Shri Harbans Lal to the extent referred to in the penalty orders. Statements of some of the persons on whom penalty has been imposed were also recorded. They also stated that they had taken loans two or three times from Shri Harbans Lal during their whole life-span. The learned CIT(A) further observed that the Department was not in a position to produce any original records, on the basis of which impugned penalties were levied. Taking into account these facts, the learned CIT(A) observed that it would be reasonable to assume that all these persons must have taken loans of Rs. 30,000 i.e., three times each. Accordingly, he sustained penalty of Rs. 30,000 each in all the cases for each of the asst. yrs. 1995-96 and 1996-97. Aggrieved further, these persons have now brought the issue in appeals before the Tribunal. It appears that the Department has accepted the orders of the CIT(A) as no appeals have been filed.
5. The learned Counsel for the assessee, Sh. Sudhir Sehgal, advocate, reiterated the submissions which were made before the authorities below. He also submitted that none of the persons on whom penalties have been levied is being assessed to tax. They are poor and illiterate persons and had not maintained any books of account. He submitted that the Jt. CIT has levied penalties by obtaining photocopies of the accounts of the parties in the books of account of M/s Juneja Traders and by relying on the statement of Sh. Harbans Lal. Neither the copies of accounts obtained from M/s Juneja Traders nor copy of the statement of Shri Harbans Lal was given to the assessee during the course of penalty proceedings. Thus, it was contended that the impugned orders for levying the penalties were illegal and bad in law because it violated the principles of natural justice. He relied on the following decisions :
(a) The decision of the Tribunal, Chandigarh Bench, in the case of Sangrur Vanaspati Mills Ltd. and Ors. v. Asstt. CIT (2004) 88 TTJ (Chd) 979 : 23 IT Rep.572 (Chd), where it has been held that assessment based on oral evidence or statement of witness recorded in the absence of the assessee without allowing him an opportunity of cross-examination and additions made by relying on certain documents obtained from the 3rd party without affording an opportunity to the assessee to rebut the material contained therein violated the principles of natural justice and could not be sustained (A copy of this decision is also placed before us).
(b) The judgment of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Radhey Sham Sita Ram (2003) 22 IT Rep. 667 (P&H), where it was held that the addition made by relying on the statement of third party without allowing an opportunity to the assessee to cross-examine the witnesses could not be sustained (A copy of the judgment was placed before us).
(c) The decision of the Tribunal, Delhi Bench, in the case of Dolly Farms & Resort (P) Ltd. v. Dy. CIT (2000) 69 TTJ (Del)(TM) : 15 ITR Rep. 159 (Del)(TM), where it was held that the justice should be done even if the heaven falls (A copy of the judgment was placed before us).
(d) The decision of the Tribunal (Delhi Bench) in the case of Satish Gupta v. ITO in ITA Nos. 57 and 100/Del/2004, asst. yr. 1995-96 where by relying on the judgment of the Hon'ble Supreme Court in the case of Kishinchand Chellaram v. CIT , the Tribunal has held that if any evidence is used against the assessee and the same was not shown to him and an opportunity to controvert the same was not given, such evidence was not admissible in support of the addition. He further relied on the two judgments of Hon'ble Punjab & Haryana High Court in the cases of CIT v. Sham Lal and State Bank of Patiala v. Union of India and Ors., .
He further submitted that in his statement recorded by the AO and referred to by the learned CIT(A) in the impugned orders, Sh. Harbans Lal had stated that fresh loans were given after the earlier loans were returned. However, he drew our attention to p. 5 of the paper book which is copy of the account of Sh. Navin Gumbar appearing in the books of M/s Juneja Traders, which showed that a balance of Rs. 63,800 was carried forward. Drawing our attention on the debit side of the accounts, he submitted that entries made therein showed that fresh loans were given by Sh. Harbans Lal before the old loans were returned. He also drew our attention to p. 7 of the paper book which again confirmed the same position. He also placed copies of the receipts given by M/s Juneja Traders during the period from 25th March, 1995 to 30th March, 1996 which showed that certain amounts which were acknowledged by Shri Harbans Lal under his signatures did not appear in the copies of account of these persons taken from M/s Juneja Traders. Thus, he contended that the credibility of the entries recorded by M/s Juneja Traders was highly doubtful. He further stated that the authorities below were not justified in imposing/sustaining penalty of the aforesaid amount by relying on such entries. To sum up Shri Sehgal concluded that the penalty sustained by the CIT(A) may be deleted in all the cases for the above-mentioned assessment years.
6. The learned Departmental Representative for the Revenue, on the other hand, heavily relied on the orders of the authorities below.
7. We have, heard both the parties at length and given our thoughtful consideration to the rival submissions with reference to the facts, evidence and material on record. We have also perused the orders of the authorities below and referred to the respective pages of the paper book to which our attention has been drawn. The undisputed facts of the cases are that penalty under Section 271D has been imposed in all the cases by relying on the copies of accounts of these parties appearing in the books of account of M/s Juneja Traders obtained by the AO during the course of assessment proceedings in the case of M/s Juneja Traders. The copies thereof were not given to these persons during the penalty proceedings. Further, we have also noticed that a copy of statement of Shri Harbans Lal recorded by the AO during the course of assessment proceedings was not given to these persons during the penalty proceedings. No opportunity to cross-examine Sh. Harbans Lal was allowed to these persons. Thus, the action of the Jt. CIT in levying the impugned penalty in all these cases by relying on the copies of accounts of these persons appearing in the books of account of a third party without confronting the same to the affected parties and without allowing an opportunity to cross-examine Shri Harbans Lal violated the principles of natural justice. It is a trite law that evidence obtained from the third party cannot be used against the assessee until the same has been confronted to the assessee and an opportunity to cross-examine the witness has been allowed. The various decisions of the Tribunal relied upon by the learned Counsel, the judgment of the Hon'ble Supreme Court in the case of Kishinchand Chellaram v. CIT (supra) and two judgments of the jurisdictional High Court in the cases of CIT v. Sham Lal (supra) and State Bank of Patiala v. Union of India and Ors. (supra) also support this view. Therefore, we are of the view that such evidence could not be the basis of levy of penalty in the present cases.
7.1 Now coming the merits of the cases, we find that during the course of appeal proceedings, photocopies of the accounts of these persons appearing in the books of account of M/s Juneja Traders were given to these persons (as) pointed out by the learned Counsel and duly accepted by the learned CIT(A), copies of accounts of these persons did not record some of the receipts duly acknowledged and signed by Sh. Harbans Lal, Prop, of M/s Juneja Traders which were produced before the learned CIT(A) and also before us. Further, in the statement of Sh. Harbans Lal recorded by the AO, he stated that fresh loans were given after the old loans had been returned by these persons. However, the factual position recorded in the copies of accounts appearing in the books of account of M/s Juneja Traders does not tally with the statement of Sh. Harbans Lal. The same clearly shows that the fresh loans were given before the old loans had been returned. In fact, Shri Harbans Lal stated that loans of small amounts of Rs. 8,500 were given to these persons. After these were returned, fresh loans were given. However, entries made in the books of account of M/s Juneja Traders show the transaction of loan of Rs. 20,000 at some time. Thus, the variation in the statement given by Shri Harbans Lal and factual position as found in the books of account was never confirmed to Shri Harbans Lal. In other words, the same remained unreconciled. In any case, the learned CIT(A) has recorded a clear finding that apart from the copies of accounts obtained from M/s Juneja Traders, the Department does not have any other independent evidence to show that these persons had indeed taken loans to the extent noted in the books of account. Thus, the credibility of the entries recorded by Sh. Harbans Lal appear to be highly doubtful and the same could not form the basis of levy of penalty under Section 271D in these cases.
7.2 The learned CIT(A) has sustained penalty of Rs. 30,000 each for each of the assessment years by taking notice of the fact that these persons had stated in their statements that they availed of loans two or three times in their lifespan. There is no finding recorded by the learned CIT(A) whether such loans exceeded the prescribed limit for which penalty was leviable and consequently whether these loans were taken after the old had been returned. If these persons had taken loans twice or thrice in the entire lifespan, how could a penalty of Rs. 30,000 in each case for each assessment year could be sustained purely on ad hoc basis. This is not a case of GP addition. No penalty can be levied or sustained purely on ad hoc basis or estimated basis. The authority concerned is required to record a specific finding about a particular transaction entered by these persons in violation of the provisions of Section 269SS. No such finding has been recorded by the learned CIT(A) after accepting the position that the Department has not been able to place any evidence in support of levy of penalty in each case. It must be noted that provisions of Sections 271D and 27IE are the harshest of all other penalty provisions of the IT Act, as in this case penalty is not leviable with reference to income or tax payable therein, but the amount of penalty is equal to the amount of loan given or taken irrespective of the fact whether the person accepting such loan/advancing loans has taxable income or not. Therefore, it is imperative on the part of the Revenue authorities to exercise due care and examine the case from various angles before levying penalty under these sections. This approach has not been adopted in the present cases.
7.3 The provisions of Sections. 269SS and 269T have been introduced in the Act with a view to curb tax evasion. In the present cases, the undisputed facts of the cases are that these were small persons having no major source of income. Facts placed on record show that Shri Navin Kumar was working as salesman in a cloth shop, Sh. Ajay Kumar was an employee at Fazilka, Sh. Ashu Bagla was carrying on small business of readymade garments and Sh. Raj Kumar was carrying on labour job of printing and designing of cloth at Fazilka. None of these persons had ever filed IT returns. In spite of the fact that the AO levied penalty of the aforesaid amounts in all these cases by taking notice of heavy loans taken by these persons, no assessment/reassessment proceedings in these cases appeared to have been initiated. Thus, what could be the intention of these persons in accepting such cash loans ? It is certainly not the intention of these persons to evade the tax by taking these cash loans. The culprit in these cases appears to be Shri Harbans Lal who was being assessed to tax and who advanced these cash loans because these were given out of his undisclosed income. It is precisely for this reason that he disclosed income under the VDIS. Therefore, there does not appear to be any mala fide intention on the part of these persons in accepting such cash loans because they had no taxable income at all. Thus, the explanation given by these persons during the course of proceedings before the authorities below that they were ignorant of the provisions of the Act and they were under bona fide belief that they were not violating any provisions of the Act in accepting such cash loans appeared to be bona fide. It is no doubt true that ignorance of law is of no excuse. But there is also no presumption that every person knows the law. Reliance in this regard is placed on the judgment of Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh and Ors. (supra).
7.4 Mere violation of the provisions of Section 269SS does not automatically invite levy of penalty under Section 271D of the IT Act. Section 274 provides that no penalty shall be imposed until the assessee has been allowed reasonable opportunity of being heard. This necessarily implies that in a case where the assessee has explained that he acted in a bona fide belief and his conduct was not contumacious and dishonest, no penalty can be imposed. Reliance in this regard is placed on the often cited judgment in the case of Hindustan Steel Ltd. v. State of Orissa (supra) where the Hon'ble Supreme Court has held :
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 obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in a conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. 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 a manner prescribed by the statute.
In the present case, the authorities below have failed to establish that these persons acted in conscious disregard of the statutory obligation and they were guilty of contumacious or dishonest conduct. In the light of these facts and circumstances of the cases and the legal position discussed above, we are of the considered opinion that the learned CIT(A) was not justified in sustaining the impugned penalty of the aforesaid amounts in all the cases for the above-mentioned assessment years. Accordingly, we set aside the impugned orders of the learned CIT(A) and delete the penalty of Rs. 30,000 each in both the cases for the asst. yrs. 1995-96 and 1996-97. Thus, respective grounds of appeals in all the cases for the above-mentioned assessment years are allowed.
8. In the result, all the appeals filed by the assessees are allowed.
U.B.S. Bedi, J.M. 16th May, 2005
1. In the appeals under consideration, post-hearing discussions on various aspects clearly indicated that there would be difference of opinion and on receipt of signed order sent by learned AM, desire to write own order was expressed but before such order could be finally drafted and unsigned order is sent, a need was felt to discuss certain facts and points and also to consider, one order of Division Bench of which, I was one of the Members constituting the Bench, in the cross-appeals of Abnash Chandar, Brick Kiln Owner in ITA Nos. 455 and 465/Asr/2000 for asst. yr. 1996-97 which was on similar facts and identical issues. One DO enclosing therewith the photocopy of this order, was sent to the learned AM but he refused discussion as well as considering the above said order vide reply DO. Then again another DO was sent requesting him for sending of unsigned proposed draft order as required in Clause 6 of "Convention to be observed by the Members" as contained in the Departmental book "Convention and Other Useful Information for Members of the Tribunal" under the head "Procedure in the cases of dissent" and learned AM refused to do the same on the plea that these are only conventions and not the provisions of the Act. Thereafter I personally conveyed to him that in view of Division Bench's order, which is contrary to findings and contentions as recorded in learned AM's proposed signed draft order, these cases should be refixed for hearing or reference should be made to the Hon'ble President for constitution of Special Bench as there are good number of other cases of similar nature, pending before the Bench. It was also made clear to learned AM that in view of Hon'ble President's letter DO No. P. 25/2004, dt. 6th Oct., 2004, who while quoting decisions of Hon'ble Supreme Court as reported in Sundarjas Kanyalal Bhatija and Ors. v. Collector, Thane and Ors. and Union of India and Anr. v. Paras Laminates (P) Ltd. , directed that co-ordinate Bench should follow order of the Bench on identical question and warned in clear terms that non-compliance of such direction, a very strict view of the matter would be taken. The last para of Hon'ble President's letter reads as under :
It is thus settled law that a co-ordinating Bench should follow the decision of same Bench on an identical question. If they are to differ, the procedure as laid down by the Hon'ble Supreme Court should be followed. I, therefore, once again request you to adhere to principle laid down by the Hon'ble Supreme Court. There is no justification to disregard above principle. In future if I note that attempt is being made not to follow the law as laid down by the Hon'ble Supreme Court, a very strict view of the matter would be taken and such cases would be dealt with in accordance with law.
2. Despite that learned AM did not agree to change his stand and returned the files to me on last Friday of my working at Amritsar. So under these circumstances, I am writing my order.
3. In ITA Nos. 357/Asr/2000 & 358/Asr/2000, the facts indicate that during the course of assessment proceedings in the case of M/s Juneja Traders, Fazilka, the AO noticed that Shri Harbans Lal Prop, of the said concern had advanced cash loans to various persons and he declared such amounts as his income under VDIS and after finalisation of assessment in his case, copy of accounts of borrowers were obtained by the AO who found that Shri Navin Gumber S/o Shri Sohan Lal, Cloth Merchants, opposite M/s Khem Chand Bahadur Chand Ahuja, Fazilka accepted certain loans in cash i.e., otherwise than by account payee cheque or account payee draft, the details of which is given below from M/s Juneja Traders, Fazilka, during the year relevant to the asst. yrs. 1995-96 and 1996-97 in contravention of the provisions of Section 269SS of the IT Act, 1961 :
Asst. yr. 1995-96 S. No. Date Amount Mode
1. 18-2-1995 20,000 in cash
2. 1-3-1995 20,000 in cash
3. 7-3-1995 10,000 in cash
4. 13-3-1995 12,000 in cash
5. 24-3-1995 10,000 in cash
6. 29-3-1995 10,000 in cash Total 82,000 Asst. yr. 1996-97 S. No. Date Amount Mode
1. 19-7-1995 10,000 in cash
2. 23-8-1995 20,000 in cash
3. 27-8-1995 10,000 in cash
4. 27-6-1995 150 in cash
5. 17-10-1995 10,000 in cash
6. 15-12-1995 10,000 in cash
7. 15-12-1995 10,000 in cash
8. 12-1-1996 10,000 in cash
9. 27-1-1996 5,000 in cash
10. 7-2-1996 5,000 in cash
11. 30-3-1996 10,000 in cash _________ Total 1,00,150 _________
4. Accordingly, the AO referred the matter to the Jt. CIT, Bhatinda Range, Bhatinda, for imposition of penalty under Section 271D of the Act. Accordingly, notices under Section 274 read with Section 271D of the Act for the asst. yrs. 1995-96 and 1996-97 were issued to the assessee on 2nd Dec, 1999 for 27th Dec, 1999. On 27th Dec, 1999, Shri Navin Gumber, the assessee, attended the proceedings and on his request, the penalty proceedings were adjourned for 14th Jan., 2000. On 13th Jan., 2000, the assessee submitted written submissions, vide letter dt. 12th Jan., 2000, which was not signed by the assessee, stating therein that the amount of loan was accepted due to bear the expenses on the illness of his wife; that these loans have been repaid by him after sale of clothes, sale of ancestral house and raising loan from the bank; that the loan has been accepted by him after banking hours. In the last para, the assessee has sought some time to collect the evidence regarding reasonable cause of contravening the provisions of Section 269SS of the Act.
5. The AO considered the submissions of the assessee but did not find any force in it because proof of illness of assessee's wife pertained to the period April, 1994, whereas the assessee has raised/accepted loans w.e.f. February, 1995 to March, 1996 i.e., during the period relevant to the asst. yrs. 1995-96 and 1996-97. Similarly, the copy of account of the assessee as appearing in the books of M/s Juneja Traders, Fazilka, obtained by the AO, Ward-2, Abohar, during the course of assessment proceedings in the case of M/s Juneja Traders, Fazilka, showed that the assessee is making the repayment of the loans regularly. Further, the proof attached by the assessee i.e., PNB, Fazilka's letter dt. 25th Oct., 1999 shows that the assessee has raised loan from the bank to run the business of tailoring and stitching of cloth and not to repay the loan. Therefore, the reply of the assessee was considered to be a made-up story by the Jt. CIT and the same was held to be not acceptable. So, the Jt. CIT imposed penalties of Rs. 82,000 and Rs. 1,00,150 for the asst. yrs. 1995-96 and 1996-97, respectively, by holding that there is contravention to the provisions of Section 269SS of the Act.
6. Against this order of imposition of penalties, the assessee took up the matter in appeal and it was contended by the counsel of the assessee in appeal proceedings that the assessee is employed as salesman in a cloth shop at Fazilka and has never filed IT return. It was further stated that the AO, while making the assessment of M/s Juneja Traders, Fazilka, found that this concern has advanced loans to various persons against interest. During the course of assessment proceedings, Shri Harbans Lal Juneja, prop, of the firm, is stated to have disclosed before his AO that he advanced cash loans of Rs. 10,000 to various persons against interest. He is further stated to have said that the actual advance was Rs. 8,500 and the same was received back in the instalments of Rs. 100 per day and fresh loan was given to the borrower after repayment of the loan. M/s Juneja Traders, Fazilka, filed declaration under VDIS to disclose the amounts involved in loans to various persons as found in his books. After finalisation of the assessment proceedings of M/s Juneja Traders, Fazilka, the copy of account of the borrowers were obtained by the AO. After the directions issued by the CIT(A), copy of account of the assessee as appearing in the books of account of M/s Juneja Traders, Fazilka, has also been provided to the assessee. The AO is stated to have accepted the contention of Shri Harbans Lal. But perusal of the copy of account of the assessee in the books of M/s Juneja Traders, Fazilka, presented a different picture. Books of account are contradictory to the alleged statement of Shri Harbans Lal, Prop. M/s Juneja Traders, Fazilka. The Department has relied upon the books of account of third party to take action against the assessee without proving that the books of account of third party were reliable. Books of accounts of the third party do not confirm his alleged statement before the AO, which was also accepted by the AO. He further stated that the assessee was never an income-tax assessee and he was also not aware of the technical provisions of law. Moreover, he was acting under the bona fide belief that no offence was being committed. The contention is further justified if facts of the case are examined in context of normal human behaviour as also in the context of normal knowledge of law. It is a trite law that levy of penalty is not automatic in view of the Supreme Court decision reported as Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pmdesh and Ors. to the effect that there is no presumption that every person knows the law but that this is not a correct statement, there is no such maxim known to the law. He has also relied in support of his submissions on Supreme Court decision reported as Hindustan Steel Ltd. v. State of Orissa . Further reliance was placed on the decisions of the Tribunal, Amritsar Bench, in the cases of Harpal Singh Jaswant Singh, Malout, Rattan Singh Mann Singh, Malout and M/s Jagir Singh Bairaj Kumar, Malout to plead that the Tribunal has held that bona fide belief will constitute a reasonable cause for not invoking the provisions of Sections 271D and 271E of the IT Act. He has also relied upon the decision of the Tribunal, Chandigarh Bench, reported as ITO v. Rajendera Trading Co. (1994) 48 ITD 210 (Chd).
7. The learned Counsel for the assessee further pleaded before the first appellate authority that the Department has imposed the penalties under Section 27ID merely on the strength of entries in the books of Shri Harbans Lal Juneja, Prop. M/s Juneja Traders, Fazilka, treating them as conclusive. The AO has supplied the photocopy of the account of the assessee as appearing in the books of Shri Harbans Lal Juneja, Prop. M/s Juneja Traders, Fazilka. A perusal of the same would disclose that the entries in the books of account of Shri Harbans Lal cannot be said to be conclusive on account of the following reasons :
(i) The third party has written the date of 21st Dec, 1995 as 21st Dec, 1996 in the ledger account of the appellant for the period from 1st April, 1995 to 31st March, 1996 which shows that the books of account were written after 31st March, 1996.
(ii) There are certain receipts issued by Shri Harbans Lal Juneja, Prop. M/s Juneja Traders, Fazilka, which clearly show that the assessee paid the amount of Rs. 100 to Rs. 200 per day but the consolidated receipts were issued. The photocopy of the same are enclosed herewith. That on these receipts the third party has worked out the outstanding balance of the appellant remaining unpaid on that date. The same is always less than Rs. 20,000.
(iii) There are certain receipts issued by Shri Harbans Lal Juneja, Prop. M/s Juneja Traders, Fazilka, which has not been credited in the account of the assessee as supplied by the learned AO.
8. As per the representative of the assessee, the logical conclusion which can be drawn from the above stated facts is that the entries relating to the loans advanced to the assessee, as appearing in the books of Shri Harbans Lal, Prop., M/s Juneja Traders, Fazilka, are not authentic which makes these books unreliable and these entries cannot be relied upon for imposing penalty under Section 271D. That a perusal of the debit entries relating to the alleged debit balance of Rs. 63,000, the following loans were advanced to the appellant :
Date Amount
19-5-1995 10,000
23-8-1995 20,000
17-10-1995 10,000
15-12-1995 10,000
27-1-1996 5,000
27-2-1996 5,000
9. That if the copy of account is perused keeping in view the contentions of Shri Harbans Lal Juneja, Prop. M/s Juneja Traders, Fazilka, before the AO that he advanced fresh loans on the repayment of earlier loan, the logical conclusion will be that the entries on these books were not conclusive to impose penalty under Section 271D on the assessee. Reliance for the contention is placed on the following judgments :
(i) State Bank of India v. CIT
(ii) (ii) Chiranji Lal Steel Rolling Mills v. CIT (1972) 84 ITR 223 (P&H)
(iii) RS. Abdul Majeed v. Agrl. ITO and Ors. (1994) 209 ITR 821 (Ker).
10. It was further pleaded that the Department has not allowed the assessee to cross-examine Shri Harbans Lal. In view of the above facts, the learned Counsel pleaded that the penalties imposed may kindly be deleted.
11. The AO on the other hand, observed that the assessee indulged in the contravention of the provision of Section 269SS and rendered himself liable to the penalty under Section 271D of the IT Act, 1961 and accordingly he imposed penalties of Rs. 80,000 for the asst. yr. 1995-96 and Rs. 1,00,150 for the asst. yr. 1996-97 under the said section of the IT Act, 1961.
12. The learned CIT(A) while considering and accepting the plea of the assessee partly has concluded to uphold the penalty of Rs. 30,000 for each of these two years and by allowing relief of Rs. 52,000 and Rs. 70,150 for the asst. yr. 1995-96 and asst. yr. 1996-97, respectively.
13. Still aggrieved, the assessee is in further appeal and while reiterating the submissions as made before the lower authorities, it was pleaded that since the assessee has not contravened any of the provisions of law, therefore, no amount of penalty is leviable in this case and the learned CIT(A) was unjustified in restricting the penalty to Rs. 30,000 for each of the years. It was further contended that the AO has obtained copy of account from the books of account of Juneja Traders without giving copy of the same to the affected persons and has treated these entries in the books of account of said party to be authentic. Besides, he relied on the statement of Shri Harbans Lal recorded at the back of the affected parties without allowing any opportunity of cross examination. So, the AO has imposed penalties in violation of the principle of natural law of justice and when appeal of the assessee was taken up, the learned CIT(A) directed to furnish a copy of account obtained from M/s Juneja Traders to the persons affected. Accordingly, photocopies of these accounts were furnished to these persons and by referring to the photocopies, it was pleaded that the books of account of M/s Juneja Traders did not tally with the receipts issued by M/s Juneja Traders and duly signed by Shri Harbans Lal confirming the repayment of loans as well as balance outstanding. It was specifically pointed out that repayment of certain amounts duly acknowledged by Shri Harbans Lal was not entered in the respective accounts of the parties in the books of account of M/s Juneja Traders. It was also contended that these were illiterate persons, therefore, they were not aware of the provisions of the Act that acceptance of cash loans exceeding the prescribed limit attracted levy of penalty. Reliance was placed on the judgment (supra), (1972) 83ITR 26 (SC) (supra) and (1994) 48 ITD 210 (Chd) (supra). The learned Counsel for the assessee pleaded the AO has imposed penalty in all these cases by relying upon copies of accounts of these parties obtained from M/s Juneja Traders and the factual position stated therein did not tally with the statement given by Shri Harbans Lal. In his statement, Shri Harbans Lal has stated that fresh loans were given only after the earlier loans were returned by the borrowers. This position was found contrary in the copies of accounts obtained by the parties. It was further contended that the AO has not established that parties had received loans from Shri Harbans Lal to the extent referred to in the penalty orders. Statements of some of the persons on whom penalty has been imposed were also recorded. It was also stated that they have taken loans two or three times from Shri Harbans Lal during their whole lifespan. The learned CIT(A) further observed that the Department was not in a position to produce any original records, on the basis of which impugned penalties were levied. Taking into account these facts, the learned CIT(A) observed that it would be reasonable to assume that all these persons must have taken loans of Rs. 30,000, i.e., three times each. Accordingly, he sustained penalty of Rs. 30,000 each in all these cases. It was also contended by the learned Counsel for the assessee that none of the persons on whom penalties have been levied are being assessed to tax. They are poor and illiterate persons and had not maintained any books of account. He submitted that the Jt. CIT has levied penalties by obtaining photocopies of the accounts of the parties in the books of account of M/s Juneja Traders and by relying on the statement of Shri Harbans Lal. Neither the copies of accounts obtained from M/s Juneja Traders nor copy of the statement of Shri Harbans Lal was given to the assessee during the course of penalty proceedings. It was further contended that the impugned orders for levying the penalties were illegal and bad in law because these violated the relevant provision as well as principles of law of natural justice. Reliance was placed in the case of Sangrur Vanaspati Mills Ltd. and Ors. v. Asstt. CIT (2004) 88 TTJ (Chd) 979 : 23 IT Rep. 572 (Chd), CIT v. Radhey Sham Sita Ram (2003) 22 IT Rep. 667 (P&H), Dolly Farms & Resort (P) Ltd. v. Dy. CIT (2000) 69 TTJ (Del)(TM) 821 : 15 IT Rep. 159 (Del)(TM), decision of Tribunal, Delhi Bench in the case of Satish Gupta v. ITO in ITA Nos. 57 and 100/Del/2004, Kishinchand Chellaram v. CIT , CIT v. Sham Lal and State Bank of Patiala v. Union of India and Ors. . While filing photocopies of few receipts issued by Shri Harbans Lal who acknowledged having received repayment of some loans in some of the cases and having shown amounts advanced and balance remaining payable, it was contended that since the amounts mentioned in the statement of account of the assessee in the books of M/s Juneja Traders, do not tally with the receipts issued, therefore default based on such copy of account cannot be held to be valid for imposition of penalty. It was thus pleaded for deletion of penalties imposed by the AO and to the extent sustained by the learned CIT(A).
14. The learned Departmental Representative while relying on the order of the AO has pleaded for dismissal of the appeal of the assessee. It was further submitted that if the amounts shown in the photocopies of the receipts stated to have issued by Shri Harbans Lal are tallied with the copy of accounts of the assessee in the books of M/s Juneja Traders, it would transpire that except one or two entries, all other entries do tally with the copy of accounts and even balance at pp. 6 and 7 tallied with the balance shown in these receipts with respect to four of the entries and the assessee has not produced all the receipts nor a chance to verify such receipts has been given to Jt. CIT by learned CIT(A) who without following due procedure as laid down under Rule 46A has admitted additional evidence and considered the same also. So on the basis of such receipts no further relief is allowable and in view of these facts, relief as claimed by the assessee cannot be allowed and order of learned CIT(A) should be upheld.
15. Both the sides have been heard and material on record has been perused in the light of case law cited by rival sides. Before adverting to the facts of the present case, it would be appropriate to reproduce relevant portion of Section 269SS which reads as under :
269SS. No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if,--
(a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or
(b) 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), the amount or the aggregate amount remaining unpaid; or
(c) the amount or the aggregate amount referred to in Clause (a) together with the amount or the aggregate amount referred to in Clause (b), is twenty thousand rupees or more." (Since the case of the assessee does not fall within the purview of either of the proviso, hence these are not being reproduced).
16. So far as validity of the provision containing Section 269SS is concerned, same came up for consideration before Hon'ble Supreme Court in the case of Asstt. Director of Inspection (Inv.) v. Kum. A.B. Shanthi and Ors. and Hon'ble Supreme Court while upholding the validity of the provision has held as under :
Section 269SS of the IT Act, 1961, prescribing the mode of taking or accepting certain loans or deposits, is not discriminatory and it not violative of Article 14 of the Constitution of India; nor was it enacted by Parliament without legislative competence. It cannot be said that Section 269SS deals with a subject outside the scope of the IT Act or that it relates to a topic not within the competence of Parliament. Nor are the provisions of Section 269SS or Section 271D or Section 276DD unconstitutional on the ground that the provisions are draconian or expropriatory.
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 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.
The undue hardship of the provisions of Section 271D, which replaced Section 276DD providing for a penalty, is substantially mitigated by the inclusion of Section 273B providing that if there was a genuine and bona fide 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 discretionary power not to levy the penalty.
It is settled law that the heads of legislation given in the lists in the Seventh Schedule to the Constitution should not be construed in a narrow or pedantic way. If any legislature makes an ancillary or subsidiary provision which incidentally transgresses 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 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 that it is not, that it can be said that the legislation so enacted is a colourable legislation and that there is no legislative competence. If any legislation which is 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 Parliament.
When a provision 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 statute ostensively 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.
17. In the context of penalty under Section 271D, Third Member in the case of ITO v. Sunil M. Kasliwal in ITA No. 362/Pn/1995 [reported at (2003) 80 TTJ (Pune)(TM) 1--Ed.] in the case of Pune Bench, while agreeing with the view taken by JM, has opined as under :
14. The assessee may be exonerated from the rigour of penalty under Section 271D of the Act, provided it is established that there existed 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. Khivasara 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.
18. In the context of penalty provision, the Full Bench of Hon'ble Patna High Court in the case of CIT v. Jagdish Prasad Choudhary has held that for existence of 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.
19. So from the aforedecisions of the Courts including that of highest Court of the land, the provision under Section 269SS has been held to be valid provision and while upholding such validity, at the same time, Hon'ble Supreme Court in the case of Kum. A.B. Shanthi (supra) has held as under :
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 in the Act. If there was a genuine and bona fide transaction and if for any reason the taxpayer could not 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, we do not think that Section 269SS or 271D or the earlier Section 276DD is unconstitutional on the ground that it was draconian or expropriatory in nature.
20. In view of abovenoted decisions and discussion as held above, the provision being harshest of all other penalty provisions under the IT Act as pleaded by the assessee and noted in the proposed order by learned AM cannot be a ground to take the assessee out of the sweep of the provision when such provision has already been held to be valid by the Court, none other than Hon'ble Supreme Court of India, therefore, in my considered view until a reasonable cause is pleaded and substantiated by producing/adducing material/evidence, the assessee cannot be exonerated from levy of penalty. As regards plea of having no knowledge of the provision taken by the assessee and its acceptance by learned AM in the draft proposed signed order of learned AM is concerned, it would be imperative to mention that similar issue came up for consideration in the case titled CIT v. Sunil Kumar Goel in which CIT has prayed for determination of the following question of law in appeal under Section 260A before Hon'ble Punjab & Haryana High Court :
Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal was justified in deleting the penalties imposed under Sections 27ID and 271E of the IT Act, 1961, amounting to Rs. 1,45,000 and Rs. 95,000, respectively, by holding that the assessee has made transactions of cash bona fide and under ignorance of the provisions of the income-tax law, ignoring the fact that ignorantia legis non excusal (ignorance of law is no excuse) ?
21. After noting the facts of the case, in the said judgment, the conclusion as arrived at by Tribunal was reproduced as under :
We have considered the facts and circumstances of the case presented before us. We have also perused the decision of the Tribunal rendered in the case of Vit Sales Corporation. The decision is direct on the point. No contrary decision was brought before us. In the instant case, a transaction was between the sister-concerns. It was with a view to meet the business exigencies. It was under the bona fide belief and under the ignorance of relevant provision of law. We hope that it constitutes a valid excuse and reasonable cause within the meaning of Section 273B r/w Sections 271D, 271E of the IT Act, 1961. Accordingly, we direct the AO to delete the penalties.
22. On having heard both the sides and considering the record, Hon'ble jurisdictional High Court has opined that in addition to the question of law of which determination has been sought by the Revenue, the following substantial question of law calls for determination by the Court :
Whether the order dt. 2nd Jan., 1998, passed by the Tribunal in ITA Nos. 3294 and 3295/Del of 1995 is vitiated due to violation of the rules of natural justice inasmuch as the same is totally bereft of reasons ?
23. After discussing and considering various case laws, following conclusion has been drawn by the Hon'ble Punjab & Haryana High Court : , If the order passed by the Tribunal is scrutinized in the light of the aforementioned proposition of law, we do not find any difficulty in setting aside the same on the ground of violation of the rules of natural justice. The flowery language used by the Tribunal to justify its acceptance of the respondent's plea that he did not know the law does not warrant our affirmation. In our opinion, the Tribunal was duty-bound to record tangible and cogent reasons for upsetting well-reasoned orders passed by the AO and the CIT(A). It should have directed its attention to the language of Sections 271D and 271E of the Act in conjunction with other provisions of the same family and then decided by a reasoned order whether the respondent had been able to make out a case for deleting the penalty. The order passed by the Tribunal should have clearly reflected the application of mind by the learned Members.
In view of the above conclusion, we do not consider it necessary to deal with and decide the question framed by the appellant.
For the reasons stated above, the appeal is allowed. Order dt. 2nd Jan., 1998, passed by the Tribunal in ITA Nos. 3294 and 3295/Delhi of 1995 is set aside and the case is remanded to it for fresh adjudication of the appeals, filed by the respondent....
24. So in view of above authoritative finding of Hon'ble jurisdictional High Court, neither plea of the assessee that he did not know the law nor deletion of the penalty on this ground by learned AM can be accepted/agreed to by me. As such, plea in this regard is rejected.
25. Further, the assessee, in this case, has taken the stand before the AO that in connection with illness of his wife he borrowed these funds after banking hours and sought time to substantiate the plea raised which plea of the assessee was not appropriately addressed by Jt. CIT who rejected the same but before learned CIT(A), the assessee comes out with a totally different plea and also filed fresh evidence in the shape of photocopies of the receipts stated to have been issued by Shri Harbans Lal without formally applying for admission of such evidence and learned CIT(A) without adhering to the provisions of Rule 46A of the IT Rules, not only admitted such evidence but even considered the same before arriving at the conclusion drawn by him. There is no mention about statement of Shri Harbans Lal having been recorded or forming part of penalty proceeding but learned CIT(A) is found to have not only mentioned about such statement, he has also considered the same for arriving at the conclusion drawn. Learned CIT(A) while discussing the case has referred to repayment of loan in instalments of Rs. 100 or Rs. 200 per day but if the photocopies of the receipts filed by the assessee, it would transpire that these receipts do not support such inferences drawn by learned CIT(A) because wherever dates are mentioned, those do not indicate either Rs. 100 per day or of Rs. 200 per day. For example, receipt No. 003934, dt. 3rd Feb., 1996 indicates receipt of Rs. 1,200 from 3rd Feb., 1996 to 6th Feb., 1996 which is for four days which could be Rs. 300 per day and after deducting the same from Rs. 17,800, Rs. 16,600 was the balance shown. Similarly receipt No. 003978 dt. 30th March, 1996 indicates receipt of Rs. 8,050 from 1st March, 1996 to 23rd March, 1996, i.e., for 23 days, so per day amount comes to Rs. 350 and after deducting the said amount of Rs. 8,050 from Rs. 13,550 balance comes to Rs. 5,500. In another receipt No. 003981, dt. 30th March, 1996, receipt of Rs. 250 is shown to have been received and this receipt indicates Rs. 4,600 as earlier balance Rs. 10,000 cash payment received by assessee and total on 30th March, 1996 Rs. 14,600 and if Rs. 250 is deducted, balance comes Rs. 14,250. This balance is otherwise above Rs. 10,000. So in none of these receipts, amount of Rs. 100 per day or Rs. 200 per day have shown to have received by Shri Harbans Lal otherwise these receipts are purported to have been filed by the assessee in first appeal stage. As regards inference drawn by learned CIT(A) about assessee having accepted loan of Rs. 10,000 but in fact amount of Rs. 8,500 in place of Rs. 10,000 on each occasion is stated to have been received by the assessee from the said creditor and plea of the assessee subsequently that loan is received by the assessee after liquidation of earlier loan is found to be far from the truth because neither account statement collected by the AO and copies placed by the assessee in the paper book, nor in the photocopies of so-called receipts enclosed by the assessee in the written submission filed at appeal stage support such inference drawn by learned CIT(A).
26. There is another important aspect of these appeals. The Jt. CIT gave opportunity to the assessee and assessee sought adjournment on the ground that necessary material for pleading reasonable cause in accepting loan exceeding the prescribed limit in cash, i.e., otherwise than by crossed cheque or by bank draft was accepted after banking hours to bear the medical expenses on illness of his wife but he rejected assessee's request for adjournment and proceeded to draw the inference that illness of assessee's wife was in the period April, 1994, whereas the assessee has accepted loans w.e.f. February, 1995 to March, 1996 and the assessee was making repayments of loans regularly. The assessee came up with detailed explanation before first appellate authority, which he accepted partly on the basis of relevant and irrelevant considerations. The course of action adopted by learned CIT(A) is not in accordance with the settled position because before admitting any material in the proceeding, learned CIT(A) should have confronted such material to the AO and should have sought his objection which he failed to do so. It is also settled law that necessary opportunity is required to be given by the officer imposing the penalty and if such opportunity is lacking, the proper course is that the matter should be remanded back to the file of the officer for giving adequate opportunity. Hon'ble Supreme Court in the case of Tin Box Company v. CIT has opined as under :
Held, reversing the decision of the High Court, that once the Tribunal found that the ITO had not given to the assessee proper opportunity of being heard, that the assessee could have placed the evidence before the appellate authority or before the Tribunal was really of no consequence for it was the assessment order that counted; that order had to be made after the assessee had been given a reasonable opportunity of being heard.
The Hon'ble Supreme Court accordingly set aside the orders of the High Court, the Tribunal and the CIT(A) and remanded the matter to the ITO, for fresh consideration. From the judgment of the Hon'ble Supreme Court, it is abundantly clear that (in view of) lack of proper opportunity by the Jt. CIT to the assessee, the appropriate course for learned CIT(A) was to restore the matter to the file of the AO.
27. Keeping in view, the entirety of the facts and circumstances of the case, I am of the considered opinion that assessee has been denied adequate opportunity of being heard as he sought adjournment for adducing necessary evidence to show reasonable cause which was not allowed to him by the AO and appropriate course for learned CIT(A) was to restore the matter back on the file of the AO but he has proceeded by admitting fresh arguments and materials in contravention of the provision of Rule 46A and further his view is also not found to be based on relevant considerations. As such view of both the authorities below cannot be held to be proper and valid. It would be imperative to mention that similar situation arose before Division Bench of Tribunal, Amritsar, in the cross-appeals of Abnash Chandar Brick Kiln Owner in ITA Nos. 455 and 465/Asr/2000 for asst. yr. 1996-97 decided on merits on 30th Nov., 2004 in which penalty under Section 271D with respect to acceptance of cash loans exceeding prescribed limit from the same person, i.e., Shri Harbans Lal, Prop., M/s Juneja Traders, was under consideration and matter has been set aside on the file of the AO for de novo consideration. Therefore, in the interest of justice and in order to have fair play in the matter, I find it just and appropriate to set aside the orders of authorities below and restore the matter back on the file of the AO for adjudication of the matter afresh as per law after allowing a reasonable opportunity of being heard to the assessee. I hold and direct accordingly.
28. As a result, the appeals for both the years are allowed for statistical purposes.
29. As regards appeals in the case of Ashu Bangla in ITA Nos. 377 and 378/Asr/2000 for the asst. yrs. 1995-96 and 1996-97 are concerned, the facts indicate that the assessee is doing business of readymade garments at Fazilka and has never filed IT return. The AO while making the assessment of M/s Juneja Traders, Fazilka, found that this concern has advanced loans to various persons against interest. During the course of assessment proceedings, Shri Harbans Lal Juneja, Prop, of the firm, is found to have advanced cash loans to various persons aggregating to Rs. 20,000 and above in cash, i.e., otherwise than by crossed cheque or bank draft as required under Section 269SS. The AO referred the matter to Jt. CIT who issued notice to the assessee with respect to acceptance of cash loan of Rs. 30,000 and Rs. 45,000 on two and four occasions for the asst. yrs. 1995-96 and 1996-97, respectively. The first notice remained uncomplied with and in response to second notice, the assessee submitted that due to financial crisis, he opened a tea stall and closed his business; that he took loan of Rs. 20,000 by cheque on 12th Jan., 1995 as the same was required for smooth running of his business; that other amounts mentioned in the notices were never taken by him; that his income never crossed the taxable limit; that due to these reasons, he never violated the provisions of Section 269SS; that therefore, proceedings may kindly be dropped. Another opportunity was given to the assessee who attended the proceeding and case was adjourned for 7th Jan., 2000. On said date, the assessee stated that he took Rs. 10,000 from M/s Juneja Traders, Fazilka, which was not mentioned in the written submission earlier furnished by him and on the request of the assessee, penalty proceeding was adjourned for 14th Jan., 2000. After that the assessee did not appear and Jt. CIT treating the assessee to have contravened the provision, imposed the penalty of Rs. 30,000 and Rs. 45,000 for the asst. yrs. 1995-96 and 1996-97, respectively, while refuting the pleas as raised by the assessee on the ground of having not been substantiated.
30. The assessee took up the matter in appeal and learned CIT(A) on the same basis and reasoning as given in the case of Navin Kumar Gamber, confirmed the penalty for the asst. yr. 1995-96 which was of Rs. 30,000 and restricted the penalty for 1996-97 to Rs. 30,000 by giving relief of Rs. 15,000 to the assessee.
31. Aggrieved by this order of learned CIT(A), the assessee is in further appeal and learned Counsel for the assessee, while relying upon the same basis and arguments as advanced in the case of Navin Kumar Gamber, pleaded for deletion of the entire penalty for both the years whereas learned Departmental Representative has relied upon the arguments, as taken in the earlier case, has pleaded for confirmation of the impugned order.
32. After hearing both the sides and considering the material on record, 1 find that facts, issues and arguments as advanced by rival sides in the case of Navin Kumar Gamber are similar to the facts and issues of the cases in hand, therefore following the same basis and reasoning as given in earlier part of the order in the case of Navin Kumar Gamber, I set aside the orders of authorities below and restore the matters back on the file of AO for deciding these afresh as per direction issued in that case. I hold and direct accordingly.
33. As a result, all the appeals are treated to have been accepted for statistical purposes.
REFERENCE UNDER SECTION. 255(4) OF THE IT ACT,. 1961 U.B.S. Bedi, JM.
16th May, 2005
1. There being difference of opinion amongst the Members constituting the Bench in above-noted appeals, following point of difference is formulated and referred to learned President for nominating Third Member under Section 255(4) of the IT Act :
Whether penalty under Section 271D, in view of facts and circumstances, can be entirely deleted or matter can be restored back on the file of the AO for reconsideration ?
Joginder Pall, A.M. 24th May, 2005
1. Normally I would have immediately agreed to the draft question proposed by my learned brother for reference under Section 255(4) of the IT Act, 1961. But after I had sent my proposed draft order on 3rd Sept., 2004 and receipt of proposed order of the JM, on 25th April, 2005, there have been some developments of the case which need to be mentioned. These have not been incorporated in the order of Hon'ble JM who wrote his order afterwards although he has placed reliance on the same.
2. Once the Hon'ble JM conveyed to me that he would be writing his own order, I sent the proposed draft order on 3rd Sept., 2004. The Hon'ble JM also conveyed his intention of writing a dissenting order vide his DO letter dt. 15th Sept., 2004. This position was accepted and then he was promptly replied vide my DO letter dt. 20th March, 2004 that he may send the draft order along with the draft question(s) to be referred to the Hon'ble President under Section 255(4) so as to avoid repetitive shuttling of file between Jodhpur (I was then posted at that station) and Amritsar. Thereafter, I did not hear anything from the Hon'ble JM.
3. However, on my joining at Amritsar, the Hon'ble JM vide his DO letter dt. 15th Dec, 2004 forwarded to me a copy of order dt. 30th Nov., 2004 in the case of Abnash Chander, Brick Kiln Owner v. ITO in ITA Nos. 455 and 465/Asr/2000 for asst. yr. 1996-97 decided by the combination of Sh. U.B.S. Bedi and Sh. R.S. Syal, Hon'ble Members expressing a contrary view than proposed in my draft order sent on 3rd Sept., 2005 and desired discussion in the light of such decision. The facts of all these cases and issues involved are identical. Since the subsequent order passed by the Division Bench to which Hon'ble JM became a party did not exist on the date when we heard the appeals, I expressed my inability to modify the order already sent about 3 months before by taking cognizance of such order. Further, in my humble view, the Hon'ble JM should have not become a party to the subsequent decision expressing a contrary view without following the procedure laid down under Section 255(4) of the Act, as the matter was pending with him. Moreover, I could have not modified such order in view of the judgment of Hon'ble Delhi High Court in the case of Delhi Press Samachar Patra (P) Ltd v. CIT . Therefore, these objections were duly conveyed to the Hon'ble JM through my DO letters already placed on file and he was also requested to incorporate the same in the body of his order. These do not find mention therein so much so that even the date on which subsequent order was passed by the Division Bench has not been mentioned. Be that at it may, in my view, the following questions need to be referred to the Hon'ble President under Section 255(4) of the Act:
(i) Whether, in the facts and circumstances of the cases, penalty under Section 271D sustained by the CIT(A) deserves to be deleted or the matter is to be restored to the file of AO for reconsideration ?
(ii) Whether, in the facts and circumstances of the cases and having informed his intention of writing a dissenting order on 15th Sept., 2004 and before sending a dissenting order on 25th April, 2005, the action on the part of Hon'ble JM in becoming a party to a subsequent decision by the Division Bench on 30th Nov., 2004, expressing a contrary view than proposed by the AM in the initial draft order is in conformity with the procedure laid down under Section 255(4) of the Act ?
(iii) Whether, subsequent order passed by the Division Bench on 30th Nov., 2004 is binding on the Member who proposed the initial draft order expressing a contrary view and he is bound to modify the initial proposed order to fall in line with subsequent order which did not exist on the date when Bench heard the appeals and the Member sent the initial draft order ?
Vimal Gandhi, President 27th Oct., 2005
1. On account of difference between the learned Members of the Tribunal, Amritsar Bench, Amritsar, the following questions have been referred to me under Section 255(4) of the IT Act :
Questions proposed by the learned JM :
Whether penalty under Section 271D, in view of facts and circumstances, can be entirely deleted or matter can be restored back on the file of the AO for reconsideration ?
Questions proposed by the learned AM :
(i) Whether, in the facts and circumstances of the cases, penalty under Section 271D sustained by the CIT(A) deserves to be deleted or the matter is to be restored to the file of AO for reconsideration ?
(ii) Whether, in the facts and circumstances of the cases and having informed his intention of writing a dissenting order on 15th Sept., 2004 and before sending a dissenting order on 25th April, 2005, the action on the part of Hon'ble JM in becoming a party to a subsequent decision by the Division Bench on 30th Nov., 2004, expressing a contrary view than proposed by the AM in the initial draft order is in conformity with the procedure laid down under Section 255(4) of the Act?
(iii) Whether, subsequent order passed by the Division Bench on 30th Nov., 2004 is binding on the Member who proposed the initial draft order expressing a contrary view and he is bound to modify the initial proposed order to fall in line with subsequent order which did not exist on the date when Bench heard the appeals and the Member sent the initial draft order ?
2. At the time of hearing of the matter under Section 255(4) of the IT Act, both the parties agreed that the facts and the circumstances in both the cases are identical and, therefore, both the appeals can be disposed of through a consolidated order. Even the learned Members while dissenting from each other, proposed consolidated orders. I, therefore, considered the facts and the circumstances of case of Shri Navin Kumar to dispose of the matters before me.
3. The facts of the case are that two assessees before me were alleged to have received loans/deposits in violation of provisions of Section 269SS of the IT Act, 1961. The aforesaid provisions in the relevant period provided as under :
269SS. No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if --
(a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or
(b) 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), the amount or the aggregate amount remaining unpaid; or
(c) the amount or the aggregate amount referred to in Clause (a) together with the amount or the aggregate amount referred to in Clause (b), is twenty thousand rupees or more.
(Since the case of the assessee does not fall within the purview of either of the proviso, hence these are not being reproduced).
4. It may be relevant to state that both the assessees do not maintain any books of account nor they have ever been assessed under the IT Act. However, from the assessment of one Shri Harbans Lal, Prop., M/s Juneja Traders, Fazilka, it was found that loans in cash were given by that concern to several parties in violation of the terms of Sections 269SS and 269T of the IT Act. Accordingly, proceedings under Section 269SS were taken against the assessees and show-cause notice was issued to them as to why penalty under Section 271D be not imposed in their cases. The matter was ultimately referred to the Jt. CIT, Bhatinda Range, Bhatinda, who after considering the unsigned submissions of the assessees, facts and the circumstances of the case imposed penalties of Rs. 82,000 and Rs. 1,00,150 for the asst. yrs. 1995-96 and 1996-97, respectively, under Section 271D of the IT Act. Similar penalties were imposed by the same officer in the other case.
5. The assessees impugned the above levy in appeals before the learned CIT(A) and contended that the assessee was a petty salesman in a cloth shop and was not assessed under the IT Act. There was no justification for the levy of penalty on the basis of alleged accounts maintained by Shri Harbans Lal, Prop., M/s Juneja Traders, Fazilka. In his statement, Shri Harbans Lal had admitted that he had been recording loan of Rs. 10,000 when actually he advanced only Rs. 8,500 as loan which was recovered in instalments of Rs. 100 per day. Shri Harbans Lal further stated that fresh loan was advanced only when earlier loan was recovered. Thus, the statement of Shri Harbans Lal did not tally and in fact contradicted the accounts produced by him. The assessees further submitted that no books of account of M/s Juneja Traders were confronted to them nor statement of Shri Harbans Lal was shown to them. Opportunity to cross-examine Shri Harbans Lal was also denied. Thus, penalties were imposed by relying upon the books of a third party and on unverified statement of Shri Harbans Lal. At the direction of the learned CIT(A), photocopies of accounts relating to loan entries were furnished to the assessees. The original books of account were not produced at any stage of the proceedings. After getting the photocopy of account, the assessee pointed out that many payments made to Shri Harbans Lal were not reflected in those accounts and that copies of accounts given to them were unreliable. The assessees also stated that they were illiterate persons having no knowledge of law nor any idea that a statutory provision was being violated by them. As assessees were acting bona fidely, the penalties under Section 271D be cancelled. Reliance was placed by the assessees on the decision of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa .
6. The learned GIT(A) after examining the facts and the circumstances of the case including photocopies of accounts of the assessee, confirmed the levy of penalties to the extent of Rs. 30,000 in each case in each year with the following observations :
5. I have given careful consideration to the views expressed by both the sides. It is a factual position that the appellant has taken the loan/deposit from Shri Harbans Lal, Prop., M/s Juneja Traders, Fazilka. It is also a factual position that the Fazilka party has given loans to different individuals in and around the area of Fazilka. It is also a factual position that the Jt. CIT has levied penalty in most of the cases of the loanees of Shri Harbans Lal, Prop., M/s Juneja Traders, Fazilka, under the provisions of Section 271D of the IT Act, 1961, as he has held that all the loanees have contravened the provisions of Section 269SS of the IT Act, 1961. It is also a factual position that the ITO, Abohar, has recorded the statement of most of the loanees of M/s Juneja Traders, Fazilka, Prop., Shri Harbans Lal wherein they have stated that they has taken loan from Fazilka party. They have also stated that they have taken loan amounting to Rs. 10,000 and had returned it with interest at a nominal instalment running from Rs. 100 to Rs. 200 per day and once the principal including the interest is returned, they have taken again further loan of Rs. 10,000 on the same terms and conditions. It is also a factual position that most of the loanees have stated that they have taken the loan from Fazilka party 2 to 3 times during their lifetime. It is also a factual position that in the case of the appellant, (he) has been issued receipts by the lender Shri Harbans Lal Juneja, Prop., M/s Juneja Traders, Fazilka and the amounts of these receipts as indicated supra is amount of Rs. 1,000, Rs. 2,200 and Rs. 2,000 and these receipts do not coincide with the amounts shown by the lender in his account books with the appellant. It is also a factual position that ITO and the AO has not produced clinching evidence that the appellant has in fact received loan from Shri Harbans Lal, Prop., M/s Juneja Traders, Fazilka to the tune referred in the penalty orders. It is also a factual position that not a single evidence is collected or found from the appellant except stated in the statement that he has taken loans from Shri Harbans Lal, Prop., M/s Juneja Traders, Fazilka, at the most two to three times during his whole lifespan. It is also a factual position that the Department is not in a position to produce the original records on the basis of which the penalties were imposed on receipt of the photocopy of the so-called original. Keeping in view all these factors into consideration, I hold that the appellant has taken the loan from said lender of Fazilka and the amount of such loan of Rs. 30,000 is also held to be taken at one point of time as against 3 times each as stated by number of loanees. These findings will be fair and reasonable to the appellant as well as to the Department. Since I hold that the appellant has taken a loan of Rs. 30,000 in cash and thus has contravened the provisions of Section 269SS of the IT Act, 1961, therefore, the penalty for each year is upheld to the tune of Rs. 30,000 each and the balance amount of penalty for the asst. yrs. 1995-96 and 1996-97 is deleted to the tune of Rs. 52,000 and Rs. 70,150, respectively. It is moreso because the ratio of the decision of the Hon'ble Punjab & Haryana High Court reported in Chiranji Lal Steel Rolling Mills v. CIT is squarely applicable and in the said case their Lordships have held that no addition can be made on the basis of enquiries found in the books of account of the third party and the appellant denying the same.
(Underlined, italicized in print, by me, to emphasise)
7. The Revenue authorities accepted above order of the learned CIT(A). The assessees, however, remained aggrieved and impugned the order in appeals before the Tribunal.
8. After hearing the parties, the learned AM proposed the leading order and cancelled the penalties sustained by the learned CIT(A). His reasonings for taking the above view can be summarised as below :
(i) The copies of account of assessees in the books of account of M/s Juneja Traders, Fazilka, obtained by the AO were not given to the assessees. Copy of statement of Shri Harbans Lal was also not given even during the penalty proceedings. No opportunity to cross-examine Shri Harbans Lal was allowed to these persons. Thus, action of the AO in relying upon the accounts of a third party without confronting the affected parties and without affording opportunity to cross-examine Shri Harbans Lal violated the principles of natural justice. Above evidence could not form basis of levy of penalty. For above view, the learned AM relied upon the decision of the Hon'ble Supreme Court in the case of Kishinchand Chellamm v. CIT and the decisions of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Radhey Sham Sita Ram (2003) 22 IT Rep. 667 (P&H) and cases of CIT v. Sham Lal and State Bank of Patiala v. Union of India and Ors. .
(ii) On merits, the learned AM found that the photocopies of accounts of M/s Juneja Traders were given to the assessees in the appellate proceedings. In the above account, some of the amounts returned to Shri Harbans Lal were not recorded and this is duly accepted in the impugned order by the CIT(A), further statement of Shri Harbans Lal recorded by the AO did not tally with entries in the account produced by him as in the said account, it was not shown that fresh loan was given after return of old loan, as admitted by Shri Harbans Lal. The learned AM also noted that in his statement Shri Harbans Lal had admitted that he was recording loan of Rs. 10,000 when actually he had been giving only Rs. 8,500 as loan. Accordingly, it was held that the statement of account remained unreconciled. The learned AM further observed that the Department did not have any other independent evidence to show that the assessees had indeed taken loans to the extent mentioned in the accounts. It was accordingly observed that credibility of entries recorded by Shri Harbans Lal was highly doubtful and the same could not be the basis for levy of penalty under Section 27ID of the IT Act.
(iii) It is further observed in the proposed order that learned CIT(A) was not justified in sustaining the penalty of Rs. 30,000 each for each of the assessment years without recording finding that any of the loans exceeded the limit prescribed under Section 269SS of the IT Act. From the statement of the assessee that the loan was taken two or three times in the lifespan, it could not follow that said amount exceeded Rs. 30,000 for penalty of Rs. 30,000 was sustained purely on ad hoc and estimate basis without recording a specific finding about any particular transaction entered into in violation of the provisions of Section 269SS. The provisions of Sections 27ID and 27IE are the harshest of all other penalty provisions, as penalty under these sections is leviable not with reference to income or tax payable by the assessee but with reference to loan given or taken despite the fact that assessee's income may not be taxable. It is, therefore, imperative that the Revenue authorities must exercise due care and examine the case from various angles before imposing penalty under these sections. Such approach has not been adjudicated in the present cases.
(iv) The object of provisions of Sections 269SS and 269T was to curb tax evasion. The assessees are petty persons with no taxable income. They never filed any IT return. Inspite of heavy loans alleged to be taken by them, no assessments/ reassessments were initiated in those cases. The assessees had clearly acted bona fidely. These people were also not aware of statutory provisions. The real culprit was Shri Harbans Lal who claimed to have advanced cash loans to these persons out of undisclosed income. In the above background, levy of penalty when there was no intention to avoid any tax, was unjustified. No contumacious or dishonest conduct on the part of the assessee has been proved. The matter is duly covered by the often cited judgment of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa (supra).
(v) In the ultimate para, the learned AM observed as under :
In the present cases, the authorities below have failed to establish that these persons acted in conscious disregard of the statutory obligation and they were guilty of contumacious or dishonest conduct. In the light of these facts and circumstances of the cases and the legal position discussed above, we are of the considered opinion that the learned CIT(A) was not justified in sustaining the impugned penalty of the aforesaid amounts in all the cases for the above-mentioned assessment years. Accordingly, we set aside the impugned orders of the learned CIT(A) and delete the penalty of Rs. 30,000 each in both the cases for the asst. yrs. 1995-96 and 1996-97. Thus, respective grounds of appeals in all the cases for the above-mentioned assessment years are allowed.
9. The learned JM did not agree with the above proposed views of the learned AM. He wanted to have further discussion with the learned AM. One of the reasons was that a Division Bench of the Tribunal, to which he was the party in the case of Abnash Chander, Brick Kiln Owner in ITA Nos. 455 and 465/Asr/2000, had taken a different view on similar facts. The said order, though passed after the proposed order of the learned AM, in the opinion of the learned JM, was binding on this Bench. The learned JM wrote DOs to the learned AM to the above effect and asked for further discussion. As per the learned JM, the learned AM did not agree with the above proposals. In these circumstances, the learned JM proposed a separate order.
10. The aforesaid observations of the learned JM have given rise to the questions Nos. 2 and 3 proposed by the learned AM. I would like to dispose of the said proposed questions at the very outset.
11. I have given thought to the reasonings given by the learned Members relating to the above two questions. A Bench of the Tribunal comprises of a JM and an AM. The powers and functions of the Tribunal are to be exercised by the Bench and not by the Members individually. It is imperative that two Members should act in unison and in harmony and the decision should be taken and arrived at after deliberations and discussions by the Bench. The litigant should have the feeling that the Bench is one and not two Members moving in opposite directions. For smooth functioning of the Benches and of the institution as a whole individualistic approach and ego has to be suppressed by adopting fair, reasonable and objective approach aimed at advancing cause of justice. Conflicts and disputes as far as possible are to be avoided. I am not suggesting that Members are not entitled to disagree or pass dissenting orders. Disagreement and dissenting is essential for development of law and is healthy but disagreement has to be shown in a graceful manner. It should not lead to any bitterness or disgrace, nor it should damage the image of the institution.
12. In the present case, after the learned JM had made suggestion to the learned AM and when he found that the suggestions were not acceptable to the learned Member, the learned JM should have stopped at that. There was absolutely no need for him to write DO letters and repeat his suggestion with a view to force the other Member to agree to his point of view, particularly when the proposed order of the learned AM was with him for a considerable time. The learned JM should have written his separate order as conveyed by. him in September, 2004 and avoided unnecessary delay in the disposal of the appeal. The Members should also avoid directing questions at each others' action in reference to the President. Proceedings under Section 255(4) of the Act are not meant to settle scores between the Members. Even dissent and difference should be reflected in a healthy manner. It should not show clash of egoes.
13. It was not proper for the learned JM to wait till the end of November, 2004, become a party to the contrary view and then ask the other Member who had proposed and signed the order (here learned AM) as early as September, 2004 to change his view in line with the view expressed by him as a party to a Division Bench decision. Even if a different AM had agreed with his view as part of Division Bench, there was no need to ask or expect or force the other Member to change his proposed order. The principle of binding precedent is not applicable in such a situation where order has already been proposed and signed by the Member. Such controversies as have arisen in this case should be avoided for consideration of image of this Tribunal. I say so with utmost respect to all the Members of the Tribunal.
14. I have also considered other decisions referred to by Hon'ble Members including decision in the case of Abnash Chandar, Brick Kiln Owner (supra) dt. 30th Nov., 2004. Peculiar facts and circumstances have been noted in this case and the matter is required to be decided on the basis of these facts. Facts and circumstances of the case, categorical findings recorded by learned CIT(A) and accepted by the Revenue, leave me with the short question viz., whether on facts of the case, CIT(A) is justified in sustaining penalty of Rs. 30,000 in each year in each case. This question on facts and in the light of the submission of the parties, I would be considering hereinbelow. Apart, from above, the two questions discussed above do not materially affect the disposal of the case.
I now proceed to consider the matter on merit. The learned representatives of parties also did not address me on questions Nos. 2 and 3 proposed by the learned AM. I, therefore, propose to decide question No. 1 in reference of the learned AM as also question proposed by the learned JM.
15. On merits, the learned JM took note of the loans shown as per the books of account of M/s Juneja Traders, Fazilka, for the asst. yrs. 1995-96 and 1996-97. He referred to the observations of the AO and the opportunities of being heard provided by him to the assessee. He further referred to the written submissions dt. 12th Jan., 2000, not signed by the assessee and to the contentions raised therein. He observed that the AO did not find any force in the submissions advanced on behalf of the assessee. He referred to the observations of the AO that the assessee was making repayment of loans regularly. He noted the circumstances under which penalty was imposed under Section 269SS of the IT Act.
16. The learned JM thereafter noted the proceedings which took place before the learned CIT(A). He further referred to the statement of Shri Harbans Lal Juneja where he had stated that against advanced cash loan of Rs. 10,000 he was actually advancing Rs. 8,500 which was received back in instalment of Rs. 100 per day. The learned JM also referred to the observations of the learned CIT(A) holding that entries in the books of account did not conform with the statement of Shri Harbans Lal made before the AO. Reference was also made to the decision of the Hon'ble Supreme Court in (supra) and certain other decisions of the Tribunal.
17. The learned JM further noted in para 7 the submissions advanced on behalf of the assessee. He noted the contention of the assessee that loan shown as per books of M/s Juneja Traders, Fazilka, were not authentic or reliable to justify levy of penalty under Section 271D. He also noted the objections relating to non-confrontation of accounts and failure to provide opportunity to cross-examine Shri Harbans Lal.
18. In para 14, the learned JM noted submissions of the learned Departmental Representative that all entries tallied with accounts of the assessee in the books of M/s Juneja Traders except one or two entries. Even the balance at pp. 6 and 7 of paper books fully tallied with the accounts maintained by M/s Juneja Traders. He also noted the Departmental Representative's contention that additional evidence was admitted by the learned CIT(A) without following procedure laid down under Rule 46A of the IT Rules.
19. The learned JM after taking note of the provisions of Section 269SS further noted that validity of such provisions was upheld by their Lordships of the Supreme Court in the case of Asstt. Director of Inspection (Inv.) v. Kum. A.B. Shanthi and Ors. . A part of observations of their Lordships of Supreme Court are extracted by the learned JM in paras 16,17 and 19 of his proposed order. The learned JM also noted the decision of the jurisdictional High Court in the case of CIT v. Suml Kumar Goel . On the basis of above decisions, the learned JM observed that neither the plea of the assessee that he did not (have) knowledge (of) the law nor deletion of the penalty on this ground by the learned AM could be accepted/agreed to by him. Such plea was rejected.
20. The learned JM was of the view that the matter should be set aside and restored to the file of the AO for a fresh decision after allowing reasonable opportunity of being heard to the assessees. His reasoning is contained in paras 25 to 27 of the order, which are as under:
25. Further, the assessee, in this case, has taken the stand before the AO that in connection with illness of his wife he borrowed these funds after banking hours and sought time to substantiate the plea raised which plea of the assessee was not appropriately addressed by Jt. CIT who rejected the same but before learned CIT(A), the assessee comes out with a totally different plea and also filed fresh evidence in the shape of photocopies of the receipts stated to have been issued by Shri Harbans Lal without formally applying for admission of such evidence and learned CIT(A) without adhering to the provisions of Rule 46A of IT Rules, not only admitted such evidence but even considered the same before arriving at the conclusion drawn by him. There is no mention about statement of Shri Harbans Lal having been recorded or forming part of penalty proceedings but learned CIT(A) is found to have not only mentioned about such statement, he has also considered the same for arriving at the conclusion drawn. Learned CIT(A) while discussing the case has referred to repayment of loan in instalment of Rs. 100 or Rs. 200 per day but if the photocopies of the receipts (are) filed by the assessee, it would transpire that these receipts do not support such inferences drawn by learned CIT(A) because wherever dates are mentioned those do not indicate either Rs. 100 per day or Rs. 200 per day. For example receipt No. 003934 dt. 3rd Feb., 1996 indicates receipt of Rs. 1,200 from 3rd Feb., 1996 to 6th Feb., 1996 which is for four days which could be Rs. 300 per , day and after deducting the same from Rs. 17,800, Rs. 16,600 was the balance shown. Similarly, receipt No. 003978 dt. 30th March, 1996 indicates receipt of Rs. 8,050 from 1st March, 1996 to 23rd March, 1996, i.e., for 23 days, so per day amount comes to Rs. 350 and after deducting the said amount of Rs. 8,050 from Rs. 13,550 balance comes to Rs. 5,500. In another receipt No. 003981 dt. 30th March, 1996, receipt of Rs. 250 is shown to have been received and this receipt indicates Rs. 4,600, as earlier balance Rs. 10,000 cash payment received by assessee and total on 30th March, 1996 Rs. 14,600 and if Rs. 250 is deducted, balance comes (to) Rs. 14,250. This balance is otherwise above Rs. 10,000. So in none of these receipts, amount of Rs. 100 per day or Rs. 200 per day have shown to have received by Shri Harbans Lal otherwise these receipts are purported to have (been) filed by the assessee in first appeal stage. As regards inference drawn by learned CIT(A) about assessee having accepted loan of Rs. 10,000 but in fact amount of Rs. 8,500 in place of Rs. 10,000 on each occasion is stated to have been received by the assessee from the said creditor and plea of the assessee subsequently (that) loan is received by the assessee after liquidation of earlier loan is found to be far from the truth because neither account statement collected by the AO and copies placed by the assessee in the paper book, nor in the photocopies of so-called receipts enclosed by the assessee in the written submission filed at appeal stage support such inference drawn by learned CIT(A).
26. There is another important aspect of these appeals. The Jt. CIT gave opportunity to the assessee and assessee sought adjournment on the ground that necessary material for pleading reasonable cause in accepting loan exceeding the prescribed limit in cash, i.e., otherwise than by crossed cheque or by bank draft was accepted after banking hours to bear the medical expenses on illness of his wife but he rejected assessee's request for adjournment and proceeded to draw the inference that illness of assessee's wife was in the period (of) April, 1994 whereas the assessee has accepted loans w.e.f. February, 1995 to March, 1996 and the assessee was making repayments of loans regularly. The assessee came up with detailed explanation before first appellate authority, which he accepted partly on the basis of relevant and irrelevant considerations. The course of action adopted by learned CIT(A) is not in accordance with the settled position because before admitting any material in the proceeding, learned CIT(A) should have confronted such material to the AO and should have sought his objection which he failed to do so. It is also settled law that necessary opportunity is required to be given by the officer imposing the penalty and if such opportunity is lacking, the proper course is that the matter should be remanded back to the file of the officer for giving adequate opportunity. Hon'ble Supreme Court in the case of Tin Box Company v. CIT has opined as under :
Held, reversing the decision of the High Court, that once the Tribunal found that the ITO had not given to the assessee proper opportunity of being heard, that the assessee could have placed the evidence before the appellate authority or before the Tribunal was really of no consequence for it was the assessment order that counted; that order had to be made after the assessee had been given a reasonable opportunity of being heard.
The Hon'ble Supreme Court accordingly set aside the orders of the High Court, the Tribunal and the CIT(A) and remanded the matter to the ITO, for fresh consideration. From the judgment of the Hon'ble Supreme Court (it) is abundantly clear that (in view of) lack of proper opportunity by the Jt. CIT to the assessee, the appropriate course for learned CIT(A) was to restore the matter to the file of the AO.
27. Keeping in view the entirety of the facts and circumstances of the case, I am of the considered opinion that assessee has been denied adequate opportunity of being heard as he sought adjournment for adducing necessary evidence to show reasonable cause which was not allowed to him by the AO and appropriate course for learned CIT(A) was to restore the matter back on the file of the AO but he has proceeded by admitting fresh arguments and materials in contravention of the provision of Rule 46A and further his view is also not found to be based on relevant considerations. As such, view of both the authorities below cannot be held to be proper and valid. It would be imperative to mention that similar situation arose before Division Bench of Tribunal, Amritsar in the cross appeals of Abnash Chander Brick Kiln Owner in ITA Nos. 455 and 465/Asr/2000 for asst. yr. 1996-97 decided on merits on 30th Nov., 2004 in which penalty under Section 271D with respect to acceptance of cash loans exceeding prescribed limit from the same person i.e. Shri Harbans Lal, Prop., M/s Juneja Traders, was under consideration and matter has been set aside on the file of the AO for de novo consideration. Therefore, in the interest of justice and in order to have fair play in the matter, I find it just and appropriate to set aside the orders of authorities below and restore the matter back' on the file of the AO for adjudication of the matter afresh as per law after allowing a reasonable opportunity of being heard to the assessee. I hold and direct accordingly.
21. The appeals were allowed for statistical purposes in the proposed order. Similar order was suggested in appeals of Ashu Bagla.
22. The matter was fixed for hearing and I have heard Shri Sudhir Sehgal, advocate, on behalf of the assessees and Shri Jayant Kumar, the learned Departmental Representative for the Revenue. Shri Sudhir Sehgal relied upon the order of the learned AM. He further argued that there was no clear evidence of advancing loan of Rs. 20,000 in this case. In this connection, he referred to p. 5 of the paper book, which was copy of account of the assessee from 1st April, 1995 to 31st March, 1995 in account books of M/s Juneja Traders. Total amount received as loan on different dates was Rs. 82,000 against which Rs. 18,200 was paid by the assessee. On the next page, some further amount was received and whole balance was cleared by sixth of January. Nobody struck day-to-day balance to show that at any stage loan/deposit exceeded Rs. 20,000. In fact certain return of loans were not recorded in above account and this position was duly accepted by the learned CIT(A) in the impugned order which has been accepted by the Revenue. Likewise the learned Counsel has referred to account of the assessee on p. 8 of the paper book which was allegedly maintained from 1st April, 1995 to 31st March, 1996. However, the said page contained entries of cash received in the month of December, 1996 also. Here again cash was advanced which was received back from day-to-day in small amounts. No day-to-day balance is struck. These pages were only photocopies of accounts. Original books were not produced by Shri Harbans Lal inspite of direction of the CIT(A). Shri Sudhir Sehgal further argued that no reliance could be placed on photocopies of accounts when original are not forthcoming. Even photocopies were found to be unreliable and incomplete and did not reconcile with the statement admittedly made by Shri Harbans Lal in his assessment order and statement which was duly accepted by his AO. On above vague material, no levy of penalty was justified.
23. Shri Sudhir Sehgal further submitted that it has to be kept in mind that Shri Harbans Lal was a tax evader and was carrying on business with undisclosed money and did not produce relevant account. He admitted that he actually gave Rs. 8,500 but made entry of loan of Rs. 10,000. He further admitted that he did not give fresh loan unless earlier loan was returned. Photocopies of entries produced by the Revenue were not in conformity with the above statement. Shri Sudhir Sehgal also placed strong reliance on the written submissions made by the assessee before the CIT(A). Shri Sehgal also relied upon the following decisions :
(1) CIT v. Saini Medical Stow
(ii) Narayan Ram Chhabra v. ITO and Anr. (2005) 97 TTJ (Jd)(TM) 297.
24. The Departmental Representative strongly supported the impugned order of the learned JM. He reiterated that the CIT(A) had admitted additional evidence in contravention of Rule 46A of the IT Rules and, therefore, the matter was required to be remanded to the Revenue authorities. On my request to point out any particular entry or entries which taken singly or in a conjunction would show repayment of loan/deposit exceeding Rs. 20,000 and would thus justify imposition of penalty of Rs. 30,000 each, the learned Departmental Representative could not pinpoint any.
25. After careful consideration of the rival submissions and relevant material on record, I see no justification to uphold levy of penalties sustained by the learned CIT(A).
26. It has to be appreciated that learned CIT(A), after consideration of relevant material, did not agree with the view adopted by the AO. He recorded categorical factual findings to which reference had been made earlier. It was open to the Revenue to challenge the said order in further appeal before the Tribunal but that was not done. From above, it follows that orders of learned CIT(A), as far as Revenue is concerned, have attained finality. In appeal filed by the assessee, the Revenue could only support the order of CIT(A) and not challenge the same by raising various grounds. They could only argue that no further relief be allowed to the assessee. They had no right to contend that the CIT(A) had erroneously taken additional evidence or had recorded erroneous finding of facts. If the Revenue could not contend and challenge the order of the CIT(A) in the given circumstances, it was much less open to the Hon'ble Tribunal to find fault with the order or with any finding recorded in support of the claim of the assessee. Therefore, observation of the learned JM relating to admission of the additional evidence in violation of the provisions of Rule 46A of the IT Rules and observation that factual finding recorded by the CIT(A) is erroneous are unjustified on the facts of the case.
27. The short question which in the circumstances of the case arose before the Tribunal was whether levy of penalty of Rs. 30,000 sustained by the CIT(A) in this case was justified. The learned CIT(A) on the basis of statement of Shri Harbans Lal as also on the basis of evidence of return of loan supported by receipts but not accounted for in the statement rejected photocopies of accounts of M/s Juneja Traders, Fazilka, relied upon by the Revenue to justify levy of penalty under Section 271D of the IT Act. The learned CIT(A) had made the following pertinent observations :
It is also a factual position that ITO and the AO has not produced clinching evidence that the appellant has in fact received loan from Shri Harbans Lal, Prop., M/s Juneja Traders, Fazilka, to the tune referred in the penalty orders.
28. The above factual finding recorded by the learned CIT(A) is fully supported by the material on record. Except for photocopies of alleged statement of loan account of assessee which is contradicted by admission of Shri Harbans Lal and is shown to be incomplete, there is no material to infer that loan/deposit in contravention of the provisions of Section 269SS was received by the assessee. In the circumstances of the case, it is not possible to accept that Shri Harbans Lal did not make admissions in his statement attributed to him by the learned CIT(A). Above fact was not challenged before me even by the learned Departmental Representative. It is further not clear to me as to how fact of entering Rs. 10,000 when actually Rs. 8,500 were given, a fact admitted by Shri Harbans Lal would be reflected in the copy of account produced by the Revenue. I find it difficult to subscribe to the view proposed by the learned JM. It is a settled law that penalty proceedings are quasi-criminal proceedings. The Revenue authorities are obliged to record a clear binding based on authentic evidence which would leave no scope for doubt that assessee committed offence and was liable to be visited with penalty. The penalty cannot be imposed on vague and imaginary evidence. No such definite evidence is available in this case to show that the assessee contravened provisions of. Section 269SS to justify levy of penalty under Section 271D of the IT Act. The learned CIT(A) on the basis of statement of the assessee assumed that he must have received loan or deposit of Rs. 30,000 and, therefore, imposed penalty of an equal amount. This inference is not supported by any cogent material. The learned AM has properly analyzed statement of the assessee. There are large number of credit and debit entries in unreliable photocopies of accounts relied upon by the Revenue authorities. Entry or entries taken singly or jointly do not establish that assessee received loan/deposit of Rs. 30,000 in contravention of statutory provision. The penalty, as rightly observed by the learned AM, has been imposed on estimate and guesswork and Rs. 30,000 has been taken in an ad hoc manner. There is no justification to hold that statutory provisions have been violated in terms of Section 271D of the IT Act. Legal effect of the order proposed by the learned JM is that relief allowed by the learned CIT(A) is withdrawn although no request to do so is made by the Revenue. The impugned order has been accepted by them. I also find force in the alternative finding of the learned AM that assessees are petty traders carrying on small business, with income below taxable limit and for purposes of business were taking small loans without any intention to violate any statutory provision. They had no intention to contravene the provisions of Section 269SS and, therefore, it would not be a fit case to levy penalty on them.
29. Thus, for the above reasons, I agree with the order proposed by the learned AM.
30. Let the matter be now placed before the regular Bench for disposal of the appeals in accordance with law.
Joginder Pall, A.M. 17th Nov., 2005
1. While disposing of the appeals, there was a difference of opinion between the Members constituting the Division Bench and, therefore, the following question was referred to the Third Member under Section 255(4) of the IT Act, 1961 :
Whether penalty under Section 271D, in view of facts and circumstances, can be entirely deleted or matter can be restored back on the file of the AO for reconsideration ?
2. The Hon'ble President acting as a Third Member has agreed with the view of the AM. In conformity with the majority view, the orders of the CIT(A) are set aside and penalty sustained in these cases is cancelled. Accordingly, all the appeals of the assessees are allowed.