TMI Blog2006 (3) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... of Tribunal. Chandigarh (Special Bench) in the case of Diwan Chand Amrit La1 vs. Dy. CIT (2005) 98 TTJ (Chd)(SB) 947 : (2006) 98 ITD 200 (Chd)(SB), there is no merit in this ground of appeal. Request of the learned counsel to withdraw ground No. 2 is allowed and the same is dismissed as withdrawn for both the appeals. 3. As mentioned earlier, the issue raised in ITA No. 162 of 2004 relate to penalty of Rs. 81.048 imposed under s. 271E for violation of the provisions of IT Act. The facts of the case are that the assessee is a partnership firm constituted by a partnership deed dt. 4th Aug., 1986. The firm consisted of four partners, namely, Sh. Ashok Kumar Khanna, Sh. Sat Pal Seth, Smt. Anjula Khanna and Smt. Sunita Seth. Subsequently, two partners, namely, Sh. Ashok Kumar Khanna and Shri Sat Pal Seth retired from the firm on 31st March, 1990 and the remaining two partners continued the business with the partnership firm. A fresh partnership deed dt. 1st April, 1990 was executed. The balance in the capital account of the outgoing partners remained with the partnership firm. A closing balance in the capital account of Sh. Ashok Kumar Khanna was at Rs. 95,148 as on 31st March, 1990. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and the payments of small amounts were made to her for meeting some urgent requirements. It was submitted that the penalty was not exigible in respect of such payments. The Dy. CIT considered the reply and rejected the same and levied penalty of Rs. 81,048 for default under s. 271E of the IT Act, 1961. The assessee impugned the levy of penalty in appeal before the CIT(A), who deleted the same. However, the Revenue filed an appeal before the Tribunal. The Tribunal set aside the order of the CIT(A) on the ground that the CIT(A) had not passed a speaking order and had not given any cogent reasons for deleting the said penalty. The matter was restored to the file of the CIT(A) for deciding the same on merits. 4. Thereafter, the learned CIT(A) took up the set-aside proceedings and the assessee filed written submissions stating therein that the amounts in question were withdrawn by two partners from the capital accounts and, therefore, the provisions of s. 269T were not attracted. It was also argued that a partnership firm under the Indian Partnership Act, 1932 was not a distinct legal entity apart from the partners constituting it and the firm as such had no separate rights of its o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners ceased to be partners. Similarly, the learned CIT(A) observed that the fact that repayment in one case was made to the wife of one partner would not make any material difference in regard to the applicability of provisions of s. 269T. He further observed that both the partners and firm are two separate entities for the purpose of the Act and, therefore, repayments made by the firm to two ex-partners were covered under s. 269T. Thus, the learned CIT(A) upheld the penalty imposed by the AO under s. 271E of the Act. The assessee has now brought this matter in appeal before us. 5. The learned counsel for the assessee reiterated the submissions which were made before the authorities below. He submitted that this was a case of partnership firm which was constituted on 4th Aug., 1986 and consisted of four partners. Subsequently, there was a change in the constitution of the firm as two partners, namely, S/Sh. Ashok Kumar Khanna and Sat Pal Seth retired w.e.f. 1st April, 1990 and the business of the firm was continued by the remaining two partners. He submitted that a fresh partnership deed dt. 1st April, 1990 was executed. He then drew our attention to pp. 70 and 71 which are cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only for petty amounts on different dates for meeting such urgent requirement and did not show any mala fide intent on the part of assessee. Relying on the decision of Tribunal, Jodhpur Bench. in the case of Asstt. CIT vs. Alfa Hydromec (P) Ltd (2006) 99 TTJ (Jd) 405, the learned counsel submitted that no penalty under s. 271E can be imposed. 6. The learned Departmental Representative, on the other hand. heavily relied on the findings of the CIT(A). 7. We have heard both the parties and carefully considered the rival submissions with reference to facts, evidence and material on record. We have also referred to relevant pages of the paper book to which our attention has been drawn and also gone through the orders of the authorities below. The provisions of s. 269T were inserted in the IT Act by Income-tax (Second Amendment) Act, 1981. The aim and object of inserting the provisions in the statute was explained by the CBDT vide their Circular No. 345, dt. 28th Jan., 1982 as per which the object was to counter attempts to circulate black money. As per the proposed amendment introduced by insertion of s. 269T, the banks, companies, cooperative societies and firms were prohibited f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Madras High Court held that the contention of the party that term 'deposit' in s. 269T was wide enough to include loan could not be accepted and, therefore, it was observed that the provisions of s. 269T would not be applicable for repayment of loans. 7.2. Now in order to attract the provisions of s. 269T and for levy of penalty under s. 271E, it was incumbent upon the Department to prove that the impugned repayments made by the assessee were for deposits. We find from copies of show-cause notices issued under s. 271E placed at pp. 1 and 3 of the paper book, where it is clearly mentioned that the assessee has made repayment of loans exceeding certain monetary limits for violation of provisions of s. 269T. The default of the assessee has to be seen in the light of charge made by the Dy. CIT in the show-cause notice issued for initiating penalty proceedings. No doubt in the impugned penalty order dt. 19th Sept., 1994, the Dy. CIT has mentioned that the assessee has made the payment of loans/deposits in cash otherwise than (by) account payee cheque and, therefore, he has levied the penalty. He has used the word deposit only because in reply to show-cause notice, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Madras High Court observed the difference between the term 'deposit' and the term 'loan'. The High Court observed that in the case of a deposit, it is generally the duty of the depositor to go to the person with whom the money was deposited and to make demand for the repayment of the same and in case of a loan, it is the duty of the debtor to seek the creditor and repay the money to him according to the agreement. But in this case, the amount was already standing in the books of account of the firm as capital of the outgoing partners. Therefore, the Revenue has failed to establish that repayments were made in respect of deposits. As such the preliminary condition of attracting the provisions of s. 269T to prove that the repayment was towards deposits by two partners has not been fulfilled. Therefore, penalty levied for repayments made to two partners is liable to be struck down on this ground itself. 7.3 As regards the repayments made to Smt. Usha Seth amounting to Rs. 16,155, it is not in doubt that she was the wife of one of the outgoing partners. The amount was shown in the current account of Smt. Usha Seth. Again payments of small amounts were made on different dates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound certain repayments in violation of provisions of s. 269T would not itself justify imposition of penalty. In the case of CIT vs. Saini Medical Store the Hon'ble Punjab Haryana High Court held that in a case where assessee explains the default due to a sufficient cause, penalty shall not be imposed. Same view was held by Tribunal, Delhi Bench in the case of Farrukhabad Investments (I) Ltd. vs. Jt. CIT. Now in the present case, we find that the assessee has explained that the repayment of balance in the capital account of the outgoing partners did not attract the provisions of s. 269T. This in our view appears to be a genuine and reasonable explanation, more so when the Department has failed to establish that the assessee had made repayment of deposits so as to attract penalty under s. 271E. The bona fides of the transactions is not in doubt either in the case of payer or recipient, as the source of repayment is not in doubt. Therefore, even in regard to the merits of the case, penalty under s. 271E is not leviable. 7.4 Assuming for a while that the impugned repayments were for deposits and there was a default on the part of the assessee, such default would only be of a techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty on the ground that the assessee committed default in accepting loans of. Rs. 3,500 in violation of provisions of s. 269SS. The assessee is aggrieved with the order of the CIT(A). Hence, this appeal before us. 10. The learned counsel for the assessee reiterated the submissions which were made before the authorities below and also for penalty imposed under s. 271E of the Act. 11. The learned Departmental Representative also relied on the order of the CIT(A). 12. We have heard both the parties and carefully considered the rival submissions with reference to facts, evidence and material on record. The facts of the case and the submissions of both the parties are the same as noted in the appeal relating to levy of penalty under s. 271E except that the provisions of s. 269SS covered both deposits and loans. There is no doubt about the fact that Sh. Sat Pal Seth was a partner in the firm who retired on 1st April, 1990 and had balance in the capital account lying with the firm. From such account, the assessee (sic-partner) withdrew petty sums for meeting some urgent requirements like payment of electricity bills, house-tax, income-tax, etc. and also deposited a small amount of Rs ..... 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