TMI Blog2013 (1) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company gave Rs. 2 lakh to its director with a bona fide belief that an urgency to ensure honoring of the cheque issued to the landlord constitutes a reasonable cause u/s 273B where no penalty shall be imposable on the assessee for any failure referred to in the said provisions inter alia Section 269T. Evaluating the impugned transaction as depicted in CIT Versus Idhayam Publications Limited [2006 (1) TMI 97 - MADRAS HIGH COURT] in the present case the ledger account of Shri Varun Sarup Agarwal with the assessee company reveals that there was a current account between the assessee company and its director and no interest was being charged for the transactions and the same could not be termed either as a loan or a deposit with the assessee company. Accordingly, the penalty levied was not based on justified and reasonable grounds - in favour of assessee. - ITA No.4062/Del/2011 - - - Dated:- 19-9-2012 - J.S. Reddy and Chandra Mohan Garg, JJ. Respondent Rep by: Shri R.S. Negi, Sr.DR ORDER Per: Chandra Mohan Garg: This appeal has been preferred by the assessee against the order of the CIT(A)-XVI, New Delhi dated 28.04.2011 for AY 2007-08 confirming th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sarup Agarwal. The AO further noted that any amount spent by any director on behalf of the assessee company is an unsecured loan in the hands of assessee company and its repayment in cash is a clear violation of the provisions of Section 269T of the Act. The AO held that merely because a transaction is genuine (as contended by the assessee), it cannot be taken out of the ambit of Section 271E. The AO relying on the judgment of ITAT, Visak in the case of ACIT vs Vinman Finance Leasing Ltd. (ITAT, Visak-TM) 115 ITD 115 held that the assessee company violated Section 269T of the Act and imposed a penalty of Rs. 2 lakh on the assessee u/s 271E of the Act. 5. The aggrieved assessee filed an appeal before the CIT(A) which was dismissed through impugned order. The operative part of impugned order is being reproduced below:- In view of above facts and judicial pronouncements, the AR of the appellant company prayed that no penalty u/s 271E is leviable and the penalty of Rs. 2 lacs levied u/s 271E of the Act deserves to be deleted. 2.2 I have considered the facts of the case and the submissions of the AR of the appellant. It is an admitted fact that Rs.2,00,000/- paid by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irector on behalf of the appellant company were loan by the director to the appellant and not current account transactions. Neither was there any urgency to return the amount in cash to the director. In the case of Narayan Ram Chhaba vs. ITO (supra), the assessee was an agriculturist who took cash loans from his wife and HUF and in the case of CIT vs Kasi Corporation Anr.(supra), the assessee was in the business of accepting deposits from the public and in some of the cases repaid them in cash on account of closure of banking hours, payments to lady members who did not have bank accounts, etc. The appellant is not an agriculturist and has not made the repayment of loan in cash for any such urgent reasons and so the facts of the appellant's case are totally different. As per the other judicial pronouncements relied upon the appellant, penalty u/s 2710/271 E is not attracted when there is reasonable cause for giving or returning loans in cash or the appellant holds a bona-fide belief that such payments can be made. In the case of the appellant it cannot be said that there was any reasonable cause for return of the loan in cash, since as discussed earlier, the bank account of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sult of a quasicriminal proceeding and penalty should not be imposed unless the party under obligation acted deliberately in defiance of law or was guilty of conduct or acted dishonestly, or acted in conscious disregard of its obligation. Relying on the submissions made before the CIT(A), the AR contended that the authorities below decided the issue in a mechanical manner without considering the fact that the cash payment was made by the assessee company to its director who used his personal resources to save the goodwill of the assessee company. The authorities below also ignored the fact that the assessee company and its director Shri Varun Sarup Agarwal acted in good conscience, honestly and without any intention to violate the statutory provisions of the Act. 9. The ld. DR supported the impugned order, inter alia the order of the AO passed u/s 271E of the Act and submitted that the assessee company made payment of Rs.2 lakh on 9th February, 2007 as repayment/reimbursement of rent and other expenses incurred by the director Shri Varun Sarup Agarwal on behalf of the assessee company. As the assessee company opened its bank account on 7.2.2007, there is no reasonable cause to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time may be consumed for banking transaction for routing money from the assessee s bank account to Shri Varun Sarup Agarwal s bank account and this would have resulted in dishonoring of cheque issued by Shri Varun Sarup Agarwal on behalf of the assessee company for payment of rent. 13. We have observed that the Assessing Officer relied on the judgment of ITAT, Visac, Third Member Bench in the case of Vinman Finance (supra) wherein it was held that:- 10. However, cancellation of penalty on technical grounds is not justified. In my considered opinion, penalty proceedings under section 271E of the Act need not be initiated during the course of assessment proceedings as could be seen from the plain language of the provisions of section 275(1)(c) of the Act. Similar view taken in the case of Dr. D. Siva Sankara Rao (supra). Similarly, by taking analogy from the observations of the Apex Court in the case of Similarly, by taking analogy from the observations of the apex Court in the case of Attar Singh Gurmukh Singh vs. ITO (1991) 97 CTR (SC) 251 : (1991) 191 ITR 667 (SC), the provisions of ss. 269SS and 269T of the Act having been intended to regulate business transactions and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of the assessee with the following observations:- "Under the circumstances, I agree with the conclusions of the learned Judicial Member that in view of the claim of ignorance of provisions of law coupled with the bona fide reasons for making payment in cash, no case was made out for levy of penalty since the explanation constitutes a reasonable cause within the meaning of s. 273B of the Act. In other words, the penalty imposed under s. 271E is not justified and the cross objections filed by the assessee deserve to be allowed. 16. The facts and circumstances of this case are not identical with the present case as the appeal in hand is related to the cash transaction of a company with its director. 17. The assessee s representative relied on the judgment of ITAT Bangalore Bench in the case of Canara Housing Development Co. vs ACIT (2010) 127 TTJ (Bang) 446 wherein it was held as under:- 13. Much of the arguments advanced before were on the question whether transactions between sister concerns in cash are hit by s. 269T. The section does not expressly confer any exemption for transactions between connected parties or sister concerns. A perusal of the decided cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer shall not be construed as resulting in any business arrangement between them. Thus, the monies cannot be said to represent any business or trade deposits so that they can be included in the definition of loans or deposits in the section. Thus, this judgment is of no assistance to the Department on the facts of the present case. 14. So far as AE is concerned, Satish Pai who is a partner in the assessee firm is also a partner in AE. In the assessee s reply dt. 23rd May 2008 to the ACIT, it was explained that the amount of Rs. 12 lakh was drawn by Satish Pai in cash for making investment in a property in the name of AE and thus it was nothing but drawings by a partner. The ledger account of AE in the assessee s books is at p. 85 of the paper book. The assessee s claim has not been specifically refuted in the orders of the Departmental authorities. In fact, it appears to us that the cash repayment relating to AE has not been specifically considered at all in their orders. Since the assessee s claim that it represents drawings by a partner. The ledger account of AE in the assessee s books is at p. 85 of the paper book. The assessee s claim has not been specifically r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the revenue held that the transaction between the assessee and the director was not a loan or deposit and it was only a current account in nature and no interest was being charged for the transactions made under the account, the Hon ble High Court confirmed the order of the Tribunal which deleted the penalty. 19. In view of above case, if we evaluate the impugned transaction in this case, then from the ledger account of Shri Varun Sarup Agarwal with the assessee company available at page 17 of the paper book, it reveals that there was a current account between the assessee company and its director and no interest was being charged for the transactions and the same could not be termed either as a loan or a deposit with the assessee company. 20. Accordingly, we finally hold that the penalty levied by the Assessing Officer and confirmed by the Commissioner of Income Tax(A) was not based on justified and reasonable grounds. The Assessing Officer misinterpreted the ratio of the judgment of the ITAT, Visac in the case of Vinman Finance (supra) and in the peculiar facts and circumstances of the case wherein the impugned cash payment was made to the director was under bona fide b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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