TMI Blog2005 (7) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,06,758. After claiming various expenses, the assessee had shown net loss of Rs. 31,837. On examination of trading account, it was noticed by the Assessing Officer that in respect of some of the commodities, the assessee had shown G.P. of Rs. 1,150 and in respect of some other commodities, the assessee had shown loss of Rs. 8,306 and thereby showed a net trading loss of Rs. 7,154 the items in which the losses were shown were Guwar, Jeera, Moongfali and cottonseeds. 3. On examination of profit and loss account it was noticed that the assessee had claimed shop general expenses at Rs. 20,697. The Assessing Officer concluded that these expenses were not fully vouched. On examination of capital account, it was noticed that during the year the assessee had introduced Rs. 17 lakhs as his capital. The assessee explained the source of this amount as from assessee's own funds, namely, from sale of tractor as on 8-6-1999 of Rs. 1,69,000, sale of tractor as on 25-8-1999 of Rs. 1,31,000, loan received back from Shri Ram Niwas of Rs. 60,000 loan received back from Shri Baksharam of Rs. 40,000 loan received back from Shri Bhikaram of Rs. 50,000 totalling to Rs. 4,50,000. The assessee also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) has erred in confirming addition of Rs. 1,50,000 on account of alleged unexplained realization of debtors as source for investment in shop. 2. Under the facts and circumstances of the case the ld. CIT(A) has erred in comfirming following additions made by applying provision of section 68 of the Income-tax Act, 1961: (i) Narayan Ram Chhaba HUF - Rs. 2,00,000 (ii) Smt. Patasi Devi W/o assessee - Rs. 1,00,000 -------------- Rs. 3,00,000" -------------- 9. These are the only main grounds taken by the appellant-assessee. The ld. A.R. Sandeep Jhanwar has submitted that the appellant is an agriculturist since long before starting business in the name and style of M/s. Chhaba Traders, after purchasing a plot for shop in the Krishi Upaj Mandi, Merta City. The assessee was completely involved in agricultural activities. The assessee, in his individual capacity and in his HUF capacity and in the name of his wife had agricultural land totalling to 208 bighas 15 biswas. The assessee had owned agricultural land to the tune of 23 bighas and 3 biswa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted to the extent of Rs. 12,98,772 to be the source of the assessee for investment and the source of Rs. 4.5 lakhs only has been treated as unexplained investment under section 68 of the Act. The source of Rs. 7.5 lakhs is not in dispute which was from sale of old tractors and agricultural land. The only amount of Rs. 10 lakhs was to be explained by the assessee and out of which the department agreed for Rs. 5.5 lakhs. The ld. A.R's contention is that the additions have been made and sustained on surmises and presumptions only because there is no basis for treating the source of investment as unexplained. It has been submitted that there are all evidences on record to show that the assessee had been doing agricultural activities. On a piece of land measuring 208 bighas for the last so many years and in case least possible average saving of Rs. 2,000 per bigha is taken, it would give only savings of Rs. 2.5 lakhs to Rs. 3 lakhs, on estimate basis. According to him, part of the savings remained rotating in agricultural activities and part was given as advance to some persons as has been claimed by the assessee. 10. The ld. A.R. has further submitted that the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins. It is a fact that 77 bighas of land is irrigated. Looking to the overall facts and circumstances of the case and the material on record it is established that the assessee has been engaged in agricultural activities on a fairly large scale. There is nothing on record to suggest any income other than agricultural income, the details of which are placed on record. In this case the sources of unexplained money of Rs. 1.5 lakhs was disputed and doubted by the department. The assessee claims that this money belonged to him only. It is not a borrowing at all from third party. The transaction of advancement have been admitted by the persons and no doubt has been raised in respect of the transaction of similar nature in the case of Smt. Patasi Devi and HUF. The assessee had also sufficient agricultural income to support the advance of money in the past. In such circumstances, there appears to be no reason to disbelieve the assessee's explanation. The HUF and his wife had sufficient source of agricultural income. The assessee had explained the immediate source of entire money and no specific source had been doubted but the additions have been made on estimation basis. Thus, looking to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the facts and circumstances of the case, we are of the considered opinion that the genuineness of the transaction to the extent of penalty is levied was never in doubt and the additions made under section 68 had been deleted by our above order. This is a fact that the appellant-assessee was holding the possession of the entire resources of the family and used it for the business purposes in the common interest of the family. Relying on the decisions cited above, we are of the considered opinion that the penalty under section 271D cannot be levied in this case. Moreover, there existed a reasonable cause in the case of this assessee because he being an agriculturist, he could not be presumed to have knowledge of the law. For that matter, reliance in the case of Dr. Deepak Muchala v. ITO [1997] 58 TTJ (Bom.) 524 wherein it was held that even a dentist could not be presumed to have knowledge of technicalities of the Income-tax Act. So, as we have held above, it is not a fit case for levy of penalty under section 271D of the Act. Accordingly, we delete the penalty of Rs. 9.5 lakhs. 18. In the result, we accept both the appeals of the assessee. ITA Nos. 339 340/JV/2004. Per Jog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 16 bighas of land in his own name and 35 bighas in the name of his son, his household expenses were about Rs. 15,000 to Rs. 20,000, his agricultural income was about Rs. 20,000 to Rs. 30,000, he borrowed Rs. 40,000 from the assessee about 5 years before, the amount was returned to the assessee and loan was taken and returned in cash. He also stated that there was no written proof for taking or returning the loan. 5. A copy of the statement of Sh. Bhikha Ram, maternal uncle of the assessee recorded on 9-12-2002 is at pages 67 and 68 of the paper book. He confirmed that he was an agriculturist, owning 40 bighas of land having annual income of Rs. 20,000 to Rs. 25,000, his household expenses were about Rs. 8,000 to Rs. 10,000, he borrowed an amount of Rs. 50,000 from the assessee about 4 to 5 years before, the amount was returned to the assessee alongwith interest. The amounts were accepted and returned in cash, loan was taken for household expenses and marriage expenses and there was no written proof for taking and returning the loan. 6. The Assessing Officer rejected the claim of the assessee that the loans were advanced to these persons about 5 years before and such amounts w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sh. Baxa Ram and Sh. Bhikha Ram either during the course of assessment proceedings or even during the appellate proceedings. Therefore, the addition made was upheld by recording the following finding in para 4.3 of the impugned order: "4.3 I have considered the submissions of the ld. A.R. of the appellant as well as the reasons given by the Assessing Officer for making the addition. After due consideration, I find that the assessee has not produced any evidence regarding loans given to Sh. Ramniwas, Sh. Baxaram and Sh. Bhikha Ram. It is also seen that the Assessing Officer has interrogated the above persons by way of recording their statements and in the statements they have denied of having any evidence in respect of alleged loans given to them by the assessee and the repayments made by them to the assessee. During the appellate proceedings also no such evidence was produced, therefore, in my view the Assessing Officer was justified in making the addition of Rs. 1,50,000 treating the same as assessee's income from undisclosed source, therefore, the addition of Rs. 1,50,000 is hereby confirmed." The assessee has now brought these issues in appeal. 8. The submissions of both t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of the assessee, the facts placed on record show that the assessee owned agricultural land of 4 bighas in 1980. He was examined by the Assessing Officer on 9-12-2002. He owned 4 bighas and 3 biswas in 1988. He purchased the land measuring 15 bighas in 1990 and purchase further land measuring 44 bighas 11 biswas during the period from 1990 to 1999. Statement of the assessee was recorded by the Assessing Officer and a copy of the same is placed at pages 86 to 94 of the paper book. In his statement Sh. Narayan Dass had stated that his annual agricultural income was about Rs. 70,000 to Rs. 80,000 and his household expenses were to the tune of Rs. 60,000. He also confirmed having constructed one house about 15 to 20 years before. In addition, he has also stated that he had purchased agricultural land from time-to-time. He also owned two tractors purchased during the earlier years. Sale proceeds of such tractors were also invested in the purchase of shop. These facts clearly show that whatever income was earned by the assessee in the earlier period, the same was utilized in construction of the house property, purchase of agricultural land and tractors. Even as per his own admissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om Sh. Sri Niwas and Sh. Bhikha Ram was reflected in the income-tax return filed by the assessee for the earlier assessment year or in the assessment year under reference requires verification. In case the assessee has shown such interest income in the returns of income for the earlier years on accrual basis or in the return filed for the assessment year under reference on receipt basis, it would be reasonable to believe that the assessee had indeed given such loans in the past and the source thereof would stand proved. However, if such income is not disclosed in the returns filed for earlier assessment years, or in the current assessment year, the version of the assessee cannot be accepted and addition for the same would be called for. In the light of these facts, I consider it fair and appropriate to set aside the order of the CIT(A) and restore the issue to the file of the CIT(A) for verification on the lines indicated above and for deciding the same afresh in accordance with law and after allowing reasonable opportunity to both the parties. 12. The next part of the ground relates to an addition of Rs. 40,000 being loan given to Sh. Baxa Ram father of the assessee and return t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arning business income only after purchase of shop was again found to be factually incorrect for the reason that even for the earlier years, the assessee was being assessed to tax and income had been shown from interest. The assessee had, then, contended that the HUF and his wife had collectively purchased the shop. This submission was also rejected on the ground that the shop was purchased by the assessee in his individual capacity and amounts in question were shown as loans in the balance sheet. It was also contended that the assessee had to take these loans because of emergent need for making the payment to Krishi Upaj Mandi. This submission was again found to be factually incorrect on the ground that the immediate payment was required to be made only to the tune of Rs. 3 lakhs. Thereafter, there was time gap for making the payment of the remaining amount. The assessee could have easily obtained loans by way of account payee cheques/bank drafts as there was sufficient time available for making the payment. Accordingly, the Assessing Officer accepted the explanation of the assessee in respect of cash loans of Rs. 3 lakhs due to urgent business need and levied a penalty of Rs. 9.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has reiterated the submissions which were made before the authorities below. These have already been summarized by my Ld. Brother in his order. These submissions are that the assessee belonged to an agriculturists family, the loans were taken from HUF and Smt. Patasi Devi who were also having agricultural income, genuineness of the loan is not in doubt, there was a reasonable cause for accepting the cash loans because the assessee was required to make payments urgently to Krishi Upaj Mandi for the purchase of shop. It was also submitted that both the HUF and Smt. Patasi Devi did not have any bank account, and, therefore, under such circumstances, penalty sustained by the learned CIT(A) may be cancelled. 16. The learned DR, on the other hand, heavily relied on the orders of authorities below. He submitted that the submissions of the assessee that the persons from whom loans were accepted were agriculturists is factually wrong because both the HUF and Smt. Patasi Devi were being assessed to tax. Even for the earlier assessment years, they had income from other sources. He particularly drew our attention to the findings of the CIT(A) recorded in para 2.3 of the impugned order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, his wife and HUF had advanced amounts on interest in the earlier assessment years and they were earning regular income by way of interest. In fact even the close relations of the assessee admitted having borrowed amounts on interest. Therefore, the submission is without any merit. The other submissions of the assessee that there was a reasonable cause for accepting the loans in cash for meeting emergent needs is again not correct. It is no doubt true that the property in question was purchased in auction i.e. on 6-4-1999 where the assessee was required to make part of the payment immediately. Loans taken for this purpose have been accepted and no penalty has been levied for the same. However, subsequent loans were taken from the HUF at Rs. 1 lakh on 4-5-1999, Rs. 1 lakh on 16-10-1999 and Rs. 1.50 lakhs on 1-11-1999 i.e. much after the date of public auction. Similarly, loan of Rs. 7 lakhs was taken from Smt. Patasi Devi on 30-5-1999 i.e. nearly after two months from the date of auction. There was no such emergent need for taking the loans in cash as the assessee could have easily routed these transactions through bank. 19. Further, the explanation of the assessee that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsider it fair and reasonable to set aside the order of the CIT(A) and restore the issue to the file of the CIT(A) for deciding the matter afresh in accordance with law and after allowing a reasonable opportunity to both the parties. While deciding the case, the CIT(A) shall also keep in mind the observations made hereinabove. The ground of appeal are also treated as allowed for statistical purposes. 22. In the result the appeal in ITA No. 339/JU/2004 is partly allowed for statistical purposes and appeal in ITA No. 340/JU/2004 is allowed for statistical purposes. STATEMENT OF THE POINT OF DIFFERENCE U/S 255(4) In my view, the following points of difference need to be referred to the Hon'ble President under section 255(4) of the Income-tax Act, 1961:- Point of difference in ITA No. 339/JU/2004 (A.Y. 2000-01) "Whether, on the facts and in the circumstances of the case and having regard to material and evidence on record, addition of Rs. 1,50,000 being unexplained investment is to be deleted or matter remanded for making further enquiries?" Point of difference in ITA No. 340/JU/2004 (A.Y. 2000-01) "Whether, on the facts and in the circumstances of the case penalty impose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,50,000 from Shri Narayanram Chhaba (HUF). The source of assessee's own funds was shown as sale consideration of two trucks amounting to Rs. 3 lakhs and recoveries of loans, viz., Rs. 60,000 from Shri Ramniwas (sister's husband); Rs. 40,000 from Shri Baksharam (father) and Rs. 50,000 from Shri Bhikaram (maternal uncle). It was stated before the Assessing Officer that he had recovered the loans from these three persons in this year, which were advanced in earlier years out of his agricultural income and sale consideration of agricultural land on 28-4-1998 for Rs. 53,133. The Assessing Officer did not accept the genuineness of the receipt of refund of the loans and accordingly treated the sum of Rs. 1,50,000 as assessee's own income from undisclosed sources. The source of loan from Shri Narayanram Chhaba (HUF) was stated to be as under: ----------------------------------------------------------------------- Date Source of Investment Amount (Rs.) ----------------------------------------------------------------------- 1-4-1999 Cash in hand [Past saving] 42,707 2-4-1999 Recovery of loan from Dhanmram Jat, Badga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,000 ---------------------------------------------------------------- The Assessing Officer accepted the genuineness of this credit to the tune of Rs. 6 lakhs and made addition for the balance amount of Rs. 1 lakh under section 68 of the Act. 3. The submissions made on behalf of the assessee on these three credits, failed to persuade the first appellate authority to fall in line with the assessee's point of view. In the appeal before the Tribunal, it was contended on behalf of the assessee that the assessee had 208 bighas and 15 biswas of agricultural land in his individual and HUF capacity and also in the name of his wife. It was also contended that the assessee was the main person in the family and the entire financial affairs of the family, including that of his wife, being a homely lady, were being taken care of by him. It was still further contended that the assessee was controlling the entire agricultural income belonging to all the three entities and no books of account were maintained prior to the commencement of the business, which was started in this year pursuant to the purchase of plot in open auction conducted by the State Government. It was reiterated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee relatives, which were stated to be advanced in earlier years. There is no quarrel about the fact that the assessee was engaged only in the agricultural activities ab initio and had never maintained his books of account except in the previous year relevant to the assessment year in question in which the business of commission agency of agricultural produce was started for the first time. The assessee, in his statement recorded on 9-12-2002, copy placed at page 86 of PB, stated that he was engaged in agricultural activities, the annual income from which was at Rs. 70,000 to Rs. 80,000. It was also admitted by him that the annual household expenses of his family comprising of nine members were Rs. 60,000. The ld. D.R., on perusing the said statement of the assessee, during the course of present proceedings, fairly conceded that no question was asked by the Assessing Officer with regard to advancing of loans to these three persons in the past. It is further noted that these three close relatives, whose statements were recorded by the Assessing Officer during the course of assessment proceedings, in the financial year 2002, copies placed at pages 62 to 68 of the PB, admitted the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31 bighas and 11 biswas. Meaning thereby that he was looking after the total agricultural land of 208 bighas and 15 biswas, which pertained to the three different taxable entities. The assessee led evidence before the Assessing Officer that his individual agricultural income in the financial year 1998-99 was Rs. 49,350. Not only that, the assessee had shown in his HUF capacity, the agricultural income during the financial year 1999-2000 at Rs. 87,293, being a component of total credit of Rs. 5,50,000, which has been accepted in entirety. In his statement he only referred to approximate annual agricultural income of Rs. 70,000 to Rs. 80,000 as pertaining to his individual capacity. No question was raised regarding the quantum of agricultural income earned in the status of HUF and his wife. As he was the head of the family, naturally, he was responsible to maintain his family, for which he had stated to have spent Rs. 60,000 on household expenses. There is no question in the statement regarding the source wherefrom the household expenses were met. Obviously, the contention of the ld. A.R. that such expenses were met by the assessee out of common pool, as he was having financial cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt persons in this year totalling to Rs. 4,20,000, (agricultural land holding of 108 bighas) which has been eventually accepted in entirety. Similarly, Smt. Patasi Devi had also advanced the loans in the past, which were recovered by her in the year under consideration to the tune of Rs. 2,45,650 (agricultural land holding of 31 bighas 11 biswas) which fact also stands finally accepted. When the genuineness of recovery of the loans by Narayan Ram Chhaba (HUF) and Smt. Patasi Devi is considered in the light of their respective land holdings, vis-a-vis the land occupied by the assessee in individual status (at 45 bighas and 11 biswas) there appears to be no reason for not accepting the source of advancing loans by the assessee in his individual status out of agricultural income at a sum of less than Rs. 97,000 (Rs. 53,133 was admittedly the sale consideration of agricultural land utilized for advancing loans). 8. The case of the assessee right from the beginning was that prior to the year under consideration the assessee had filed return only for the assessment year 1999-2000 because he did not have any taxable income in the past. The department has not brought on record even an io ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered opinion that the addition of Rs. 1,50,000 was uncalled for. I, therefore, agree with the view taken by the J.M. in deleting the addition. ITA NO. 340/JDPR/2004 The ld. Members after passing dissenting orders made a reference to the Hon'ble President identifying separately the point of difference as under: As per ld. J.M. "Whether in the facts and circumstances of the case penalty under section 271D of the Income-tax Act, 1961 cannot be levied or the matter requires to be restored to the file of the CIT(A)?" As per ld. AM. 'Whether on the facts and in the circumstances of the case penalty imposed under section 271D of the Income-tax Act, 1961 is to be cancelled or the matter is to be restored to the file of the ld. CIT(A) for malting further enquiries?" The crux of the dispute between the ld. Members is to decide as to whether the penalty of Rs. 9,50,000 imposed by the Assessing Officer under section 271D of the Act deserves to be deleted or the matter requires fresh consideration by the first appellate authority. 10. There is no dispute on facts by the ld. Members, which in nutshell, are as follows. The assessee, who was an agriculturist, since inception, start ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favouring Shri Narayan Ram Chhaba (HUF) giving a note that the bank account was opened on 27-3-2000. It was argued with vehemence that the assessee in question No. 5 of his statement recorded by the Assessing Officer at page 87 of PB, had categorically stated that he had his bank account at Central Bank of India and UCO Bank, whereas his wife and HUF had no account other than at UCO Bank. With reference to the disclosure of bank interest by HUF in its computation of income for assessment year 1999-2000, it was stated that this amount was inadvertently included in the computation of income. It was also stated that he, during the course of hearing before the Division Bench, had shown letter of the Chartered Accountant intimating about the wrongful inclusion of this amount of Rs. 18 in the return of income of HUF and had further shown copy of the pass book of assessee's HUF depicting that the Saving bank account at UCO Bank was opened in the year 2000. It was reiterated that the assessee was an agriculturist since beginning and it was for the first time that he purchased the shop and ventured to start business in this year and the bank accounts of the assessee, his HUF and his wife we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee in his books of account turns out to be ingenuine, that calls for addition under section 68 and hence the false nomenclature of loan given to that transaction sheds its character. It is, ergo clear that only when the loan is genuine, the provisions of section 269SS can be considered for application. This view has been taken by the Delhi Bench of the Tribunal in the case of Asstt. CIT v. Ruchika Chemicals Investment (P.) Ltd. [2004] 88 TTJ (Delhi) 85. Similar view has been taken in the case of ITO v. Narsing Ram Ashok Kumar [1993] 47 ITD 38 (Pat.) and Udaichand Santosh Kumar Jain v. ITO [2003] 79 TTJ (Indore) 88. In the light of these precedents, I find this argument of the ld. A.R. as bereft of any force. 13. The erudite A.R. has not disputed the fact that in addition to the agricultural income, the loaner and loanees had income from interest at the time when the transactions of loan took place. He has candidly admitted that the transactions in question were in the nature of loans and the assessee had also paid interest thereon. This leads to a situation that the loans accepted by the assessee in cash were more than the limit specified and hence the violation of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nably lead any ordinarily prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do. The assessee in the present case has pleaded the ignorance of the relevant provisions as a reasonable cause for the breach of the section 269SS. I am reminded of the celebrated decision of the Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. [1979] 118 ITR 326 in which it was held that "there is no presumption that every person knows the law. It is often said that every one is presumed to know the law, but that is not a correct statement: there is no such maxim known to the law". This verdict is an authority for the proposition that the dictum: Ignorance of law is not excusable' does not hold good in all cases. The plea of ignorance of law has to be decided in the facts of each case. In a particular situation, the afore-referred maxim may hold good, while in another, it may not. The facts of each case are required to be examined cautiously before reaching any conclusion as to whether the guilty can be said to have knowledge of law or not. If the surrounding circumstances not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s wrongly imposed. 16. Be that as it may, it is noted that the assessee's counsel relied, before the Division Bench, on the Third Member decision in the case of Sunil M. Kasliwal to bring home the point that the penalty was erroneously confirmed in the first appeal. In this case, the assessee received certain loans in cash in violation of the provisions of section 269SS. Out of the total loans of Rs. 5,44,150, a major loan of Rs. 2,78,000 was borrowed from his HUF and Rs. 41,500 was borrowed from his wife. Both the members of the Division Bench came to the conclusion that the acceptance of loan by individual from his HUF of which the assessee was karta, did not warrant the imposition of penalty because there was common control of funds with the assessee. Similarly, both the Members agreed that the transaction of loan from wife to husband also did not call for imposition of penalty under section 271D. Though there was difference of opinion between the two Members on certain other loans, but on the aspect of accepting the loans from HUF and wife, there was unanimity in their findings. In the case of ITO v. Rajendra Trading Co. [1994] 48 ITD 210 (Chd.) the assessee firm accepted loa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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