TMI Blog2011 (6) TMI 1033X X X X Extracts X X X X X X X X Extracts X X X X ..... y before the Addl. CIT in this regard which is reproduced ditto by the Addl. CIT in his penalty order. The reply of the assessee was not found convincing to the Addl. CIT for the reasons mentioned that when the assessee was in a position to issue bearer cheques to the above parties, he was in a position to issue account payee cheque also. Hence, satisfying himself, the Addl. CIT has concluded that the assessee has committed default within the meaning of section 269T of the IT Act and accordingly imposed a penalty of Rs.30,92,700/- which is the total figure of amounts returned by the assessee to its ex-partners and relatives of the partners of the firm. 3. The penalty was challenged before the learned CIT(A) and the learned Counsel for the assessee submitted that the assessee is a partnership firm in existence since 1986. The assessee is approved AA class Government Contractor. During the year, the assessee had made re-payment of credit balance in the ex-partner s account and their relatives by cheque but by not account payee cheques. These facts were pointed by the AO during the assessment proceedings. The AO then had referred the matter to the Addl. CIT for levy of penalty. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel before doing and as per his advice that, provisions of Section 269T would not be applicable had proceeded in returning the amounts to the expartners. Further, also the books of accounts of assessee were audited by a Chartered Accountant under the provisions of section 44 AB of the Income Tax Act 1961. The Learned Chartered accountant, in his statutory audit report has nowhere mentioned that there was breach of provisions of Sec. 269T of the IT Act. Further, the said credits in the partner s account and other parties were verified by the relevant AOs from time to time. In fact, most of the assessment proceedings in the past years were completed by passing order u/s 143(3) of the Act so the genuineness and identification of the parties were never a question. The assessee was earlier assessed to tax with Central Circle, Rajkot. The learned Counsel had drawn attention of the learned CIT(A) to the legislative intention for which the provisions of section 269 SS and 269 T were inserted by the Finance Act, 1984. The Board, vide Circular No.387 dated 6th July, 1984 [printed at (1984) 43 CTR (TLT) 3], have elaborately explained the scope and intention of inserting the provisions of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 It came to Government's notice that a substantial amount of black money was deposited by tax evaders with banks, companies, co-operative societies and partnership firms either in their own names or in benami names. The Income-tax (Second Amendment) Act, 1981, seeks to counter attempts to circulate black money in this manner. Provisions of sec.26T 269 T Mode of repayment of certain deposits - No branch of a banking company or a co-operative bank and no other company or co-operative society and no Company or other person shall replay any loan or any deposit made with it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who had made the loan or deposit if - (a) the amount of the loan or deposit together with the interest, if any, payable thereon, or (b) the aggregate amount of the loans or deposits held by such person with the branch of the banking company or cooperative bank or, as the case may be, the other company or cooperative society or the Company, or other person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was further submitted that assessee has not accepted any deposits or loans in cash violating the provisions of section 269 SS of the IT Act. It is only that, it had repaid the credit in the ex-partners account and some other parties who happens to be relatives. The assessee had no intention of any sort of tax planning or evasion of taxes. The amounts were in the balance sheets past many years. The assessee being Government approved contractor and claiming refunds, have being continuously scrutinized past 5-8 years where by the AO has verified the credit amounts. Further, most of the parties were expartners and also family members. So there is no question of benami parties. The assessee also drawn attention of the learned CIT(A) to the provisions of section 273B of the IT Act which reads as under: Penalty not to be imposed in certain cases. Notwithstanding anything contained in the provisions of [clause (b) of sub-section (1) of ] [section 271, section 271A, 77[section 271AA,] section 271B [,section 271BA], [section 271BBJ section 271C, [section 271CA,] section 271D, section 271E, [section 271F, [section 271FA,] [section 271FB,] [section 271 ,]] clause (c) or clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. He further referred to the decision of the Hon ble Supreme Court in the case of Asstt. Director of Inspection (Investigation) vs. Kum. A. B. Shanthi wherein it has explained the object of introducing s. 269SS as under: The object of introducing s. 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money, or if he has given some false entries in his accounts, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money us unearthed and the would usually give the explanation that he had borrowed or received deposits from his relatives or friends that it is easy for the so-called lender also to manipulate his records later to suit the plea of the taxpayer. The main object of s. 269SS was to curb this menace. As regards the tax legislations, it is a policy matter, and it is for the parliament to decide in which manner the legislation should be made. Of course, it should stand the test of constitution validity. The object sought to be achieved was to eradi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of S.273B providing that no penalty would be leviable if the person concerned proves that there was reasonable cause for the said failure clearly indicates that these provisions give a discretion to the authorities to impose the penalty or not to impose the penalty. Such discretion has to be exercised in a just and fair manner having regard to the entire relevant facts materials existing on records. - ITO vs. Lakshmi Enterprises Ors. (1990) 185 ITR 595 (AP) applied. Ordinarily a plea as to the ignorance of law cannot support the breach of a statutory provisions; but the facts of such an innocent mistake due to ignorance of the relevant provisions of law, coupled with the fact that the transactions in question are genuine and bona fide transactions and were undertaken during the regular course of its business, will constitute a reasonable cause and the decision in the case of Muthoot M. George Brothers Vs ACIT (1993) 47 TTJ (Coach) 434 : 46 ITD 10 wherein it was held as under: Bona fide transactions between sister concerns with centralized accounts and management do not attract provisions of ss. 26955 and 269T and, therefore, penalty under ss. 271D/271E is not leviable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm by other than account payee cheque during the year. The Learned AR had placed on record copy of each ex-partner from the day of their retirement till the date the payment was made. Copies of the capital accounts placed on the file shows that the amounts which were paid were the closing balances in the capital accounts and the same included initial contribution and share of profit earned by the firm during the period when they were partners. There were no other credit or debit transactions in their accounts. The Learned Authorised representative has clarified that no interest was paid on the credit balance. Secondly all the partners were assessed to tax. The Assessing officer, while completing the scrutiny assessment had no where brought on the record that the said transactions were sham or bogus. It is no doubt, true that at the time of retirement of the partners the firm was required to repay the amounts standing in their capital accounts and, therefore, the same represented as liability of the firm towards partners. But the said liability does not automatically take the shape of deposits. The Learned AR also placed a paper book containing the confirmations of the ex-partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee firm and on retirement by the partners their share capital was returned on which no interest has been paid. It was, therefore, not a loan or deposit as prescribed u/s 269 T of the IT Act. He submitted that there is no dispute that the transaction was genuine and all the partners are assessed to tax. The assessee made bona fide payment to the partners who are closely related with each other. He has submitted that since the partnership firm is represented by the partners collectively, therefore, re-payment was made to self. He has further submitted that at least all these facts show that the assessee proved that there was a reasonable cause for failure to comply with the provisions of law. Therefore, penalty was rightly canceled by the learned CIT(A). He has relied upon the order of the ITAT Amritsar Bench in the case of Skyline Vs ACIT 12 SOT 8 and the order of the ITAT Ahmeabad Bench in the case of M/s. Honest Enterprises Ltd. Vs ACIT in ITA No.3539/Ahd/2008 dated 15-02-2011. Copies of the same are filed in the paper book. 7. We have considered the rival submissions and the material available on record. The facts as noted above are not in dispute. It is also not in dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove provision has been introduced in the Act with a view to overcome tax evasion. The source of the payment made by the assessee is not in doubt. No material has been brought on record by the AO to show that such repayments were claimed by the creditors for explaining the source of certain unexplained investment or expenditure. The Board Circular would thus squarely apply in favour of the assessee in this case. The decision of ITAT Amritsar Bench in the case of Skyline Silk Mills (supra) would also support the case of the assessee. ITAT Ahmedabad Bench in the case of M/s. Hones Enterprises Ltd. (supra) in Para 5 to 7 held as under: 5. We have considered the rival submission and the material available on record. The authorities below have relied upon the decision in the case of Bhalotia Engineering Works Pvt. Ltd. (supra) in which it was held share application money received in cash exceeding prescribed limit amounts to deposit within the meaning of section 269 SS of the IT Act and penalty can be imposed u/s 271D of the IT Act. In this case the Tribunal referred the following question to the Hon ble High Court for its opinion whether acceptance of share application money in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the assessee was mala fide and with the sole object to conceal money. Consequently, penalty imposed under section 271D merely on technical mistake committed by the assessee, which had not resulted in any loss of revenue, was harsh and could not be sustained in law. 5.1 The Hon ble Punjab Haryana High Court in the case of CIT Vs Saini Medical Store 276 ITR 79 held as under: In the present case, the Commissioner of Incometax (Appeals) in his order dated January 18, 1999, whereby the penalty under section 271D of the Act was deleted, had accepted the version given by the assessee that violation of the provisions of the Act was under a bona fide belief of the assessee and the same was not with any intention to avoid or evade the tax. The findings of the Commissioner of Income-tax (Appeals) have been confirmed in appeal by the Tribunal. The cancellation of penalty was valid. 5.2 The Hon ble Gauhati High Court in the case of CIT Vs Bhagwati Prasad Bajoria (HUF) 263 ITR 487 held as under: Section 273B of the Income-tax Act, 1961, provides that notwithstanding anything contained in the provisions of section 271D, no penalty shall be imposable on the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of CIT Vs Sunil Kumar Goel 315 ITR 163 held as under: Held, that there was no dispute about the fact that the cash transactions of the assessee were with the sister concern and these transactions within the family and due to business exigency. A family transaction, between two independent assessees, based on an act of casualness, specially in a case where the disclosure thereof was contained in the compilation of accounts, and which had no tax effect, established reasonable cause under section 273B of the Act. Since the assessee had satisfactorily established reasonable cause under section 273B of the Act, he must be deemed to have established sufficient cause for not invoking the penal provisions of sections 271D and 271E of the Act against him. The deletion of penalty by the Tribunal was valid. 6. Considering the facts in the light of the above decisions, we are of the view that the assessee has been able to explain reasonable cause for failure to comply with the provisions of law. The directors have introduced share capital money through cash for urgent business need; therefore, the assessee is able to prove that it has reasonable cause for fai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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