TMI Blog2008 (2) TMI 494X X X X Extracts X X X X X X X X Extracts X X X X ..... o banking facilities were available where the parties were putting up. The Assessing Officer in our opinion was fair enough not to impose penalty in respect of the sum of Rs. 11,30,934 where he found that the repayment of deposit related to the depositors putting up in remote area. The assessee is a Finance and Leasing Public Limited Company, and, therefore, it is duty bound to abide by the provisions of the Income-tax Act. We, therefore, set aside the order of the CIT(A) and restore the order of the Assessing Officer imposing penalty on the assessee in respect of cash repayment of the deposit for a sum of Rs. 3,80,000. Penalty is deterrent so that a person may abide by the Law of the country. In the result, the appeal of the revenue is allowed. Assessee has taken the plea that as long as the transaction is a genuine one and when the assessee is able to substantiate that there was a reasonable cause, penalty under section 271E is not justified - We have already held that the assessee has not substantiated that the default was made due to reasonable cause. The genuinety of the transaction can be proved only when the additions are to be made under section 68 of the Act when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of the Act, in response to the penalty proceedings he was advised to take the benefit of the factual matrix with regard to non-availability of the banking facility as a reasonable cause. It is evident from the order passed by the Assessing Officer as well as the order passed by the Accountant Member that the plea of non-availability of banking facility as well as ignorance of the provisions of the Act were brushed aside without any evidence to prove to the contrary. Here is a case where the assessed income is Rs. 59,210 only. It is difficult to presume that assessee had received deposits and repaid them in cash, totalling to Rs. 25 lakhs (approximately), with the knowledge and threat of exposing itself to levy of penalty equivalent to the amount transacted, which works out to more than 40 times of the assessed income. 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 section 273B of the Act. In othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the provision of section 269T it was mandatory on the part of the assessee to repay the loan or the deposit by an account payee cheque or account payee draft if it is Rs. 20,000 or more. The provision of section 271E makes it mandatory to levy the penalty on the assessee in case the party made no compliance under section 269T. The assessee has not given any reasonable cause for the same, therefore the provisions of section 273B are not applicable and the penalty is leviable. 6. The learned AR on the other hand relied on the order of the CIT(A) and stated that the parties demanded payment in cash, therefore, the deposits were to be paid in cash. Further it was submitted that the management was not aware about the provisions of Income-tax Act and thus it was prevented by sufficient cause to make the payment through cheque, the genuinety of the transaction was not denied, therefore, no penalty can be imposed. 7. We have considered the rival submissions, perused the material on record. We find that the assessee made default under section 269T by not paying the deposits through cheques or bank drafts as is required under section 269T, as in each case the amount to deposit repaid w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction the assessee has taken the plea that as long as the transaction is a genuine one and when the assessee is able to substantiate that there was a reasonable cause, penalty under section 271E is not justified. We have already held that the assessee has not substantiated that the default was made due to reasonable cause. The genuinety of the transaction can be proved only when the additions are to be made under section 68 of the Act when the repayment is being made as Assessing Officer cannot make any addition deeming to be the income of the assessee. Although in the cross objection the assessee in ground No. 3 stated that in the recent judgment the Hon'ble Hyderabad Bench Tribunal has held in this regard, but no copy of such judgment was filed before us. We, therefore, do not find any merit in the cross-objection of the assessee, we accordingly dismiss the same. 14. In the result, the appeal of the revenue stands allowed, while the cross objection of the assessee stand dismissed. ORDER Per Hemant Sausarkar, Judicial Member.-The ITA No. 03/V/02 is filed at the instance of revenue against the order of learned CIT(A) and the assessee is also in cross objection in CO No. 12/V/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the regular assessment and no addition was made under section 68 of the Act. Most of the persons to whom the payments or deposits made were mostly agriculturists living in rural areas but there is lack of banking facilities. The payment was made with the bona fide intention in need of the depositors as per their request and relied on the decisions in Asstt. Director of Inspection (Investigation) v. Kum. A.B. Shanthi [2002] 255 ITR 258 (SC), 80 ITD 388 (sic), CIT v. Bhagwati Prasad Bajoria (HUP) [2003] 263 ITR 487 (SC), Shreehath Builders v. Dy. CIT [2000] 66 TTJ (Ahd.) 113, Star Paper Mills Ltd. v. CCE [1990] 185 ITR 575 (SC) and Hindustan Steel Ltd.'s case and submitted that the mistake on the part of assessee for payment of deposits as per the request of depositors is out of ignorance of the law being first year and such innocent mistakes may be treated as bona fide and reasonable and no penalty is called for. 8. We have heard the rival submissions and perused the records. 9. The learned Sr. DR has not brought to our notice that in the assessment under section 143(3) the addition was made under section 68 of the Act, therefore, deposits were termed as genuine one and the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposed under section 271E is justified by the CIT(A) under the facts and circumstances of the case or not? (2) Whether the cross objections filed by the assessee are to be allowed under the facts and circumstances of the case or not? THIRD MEMBER ORDER Per D. Manmohan, Judicial Member (As a Third Member). Penalty of Rs. 3,80,000 levied by the Assessing Officer under section 271E of the Income-tax Act having been cancelled by the Commissioner of Income-tax (Appeals), the revenue preferred the appeal before the Tribunal, whereas the assessee-company filed cross-objections supporting the order of the first appellate authority. 2. The Members of the Division Bench, who originally heard the matter, differed in their views; the learned Judicial Member cancelled levy of penalty by observing that the initiation I of penalty proceedings subsequent to the completion of assessment is bad in law apart from the fact that the transaction is genuine and the default was on account of ignorance of relevant provisions of law which constitutes a reasonable cause; on the other hand, the learned Accountant Member was of the view that all the parties to whom repayments were made are residing i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of the provisions of section 269T of the Act referable to the repayments of deposits aggregating to Rs. 15,10,934. In response thereto, the assessee contended that it had started business only in the financial year 1993-94 and accepted as well as repaid deposits in cash from/to persons living in rural areas on account of ignorance of the provisions of the Act. It was submitted that the offence was committed for the first time and most of the depositors are purely agriculturists living in rural areas where no banking facilities are available apart from the fact that the depositors insisted upon cash payment and thus there was a bona fide cause for making payments by cash. It was further contended that the company mainly concentrated on the development of business only in the initial stage and the management was not aware of the consequences of the Income-tax Act. The depositors have made the deposits only on the condition that as and when they needed money, the same has to be repaid at the door step and thus cash payments were made on insistence of the depositors. Further, most of the depositors were old aged and sick persons and cannot move from the village to receive the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer had not levied penalty with regard to several payments made in cash. He also observed that all the depositors are with village and agricultural background who lack banking facility and thus assessee could not forcibly repay the amount in cheques. Therefore, the payments made by cash are supported by reasonable cause. He accordingly cancelled penalty levied by the Assessing Officer. 6. On an appeal filed at the instance of the revenue, learned Accountant Member noticed that the depositors were not from village background and a finance company is duty bound to abide by the provisions of law, whereas the learned Judicial Member observed that they were all from rural background where there is no banking facility and upon their insistence cash payments were made. Genuineness of the transaction coupled with ignorance of relevant provisions of law was held to constitute a reasonable cause. 7. Learned counsel appearing on behalf of the assessee while supporting the order of the learned Judicial Member submitted that the four depositors to whom repayments were made by cash filed confirmation letters before the Assessing Officer wherein they have explained the reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would fall for consideration under section 269SS/269T of the Act, as otherwise, they can be considered under section 68 of the Act itself and thus merely on account of the fact that the transactions were genuine, it cannot be taken out of the sweep of section 271E of the Act and such interpretation would make the provisions of sections 271D and 271E of the Act as otiose. He further submitted that penalty proceedings need not be initiated during the course of assessment proceedings and in this regard placed reliance upon the order of the ITAT, SMC Bench, Visakhapatnam, in the case of Dr. D. Siva Sankara Rao v. ITO [ITA No. 7/Vizag/2000, dated 16-3-2007]. He thus supported the order passed by the learned Accountant Member. 9. Upon giving careful consideration to the facts and circumstances of the case, I am of the view that the learned Judicial Member was justified in cancelling the penalty on the ground of reasonableness of explanation tendered by the assessee. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case for assessment year 1997-98, penalty levied by the Assessing Officer under section 271D of the Act was considered by the ITAT, Visakhapatnam Bench, wherein penalty levied by the Assessing Officer was cancelled on the ground that most of the depositors are from villages and not so educated to utilize banking facilities. 12. Even the plea of the assessee with regard to ignorance of provisions of law was rejected by the Assessing Officer on the limited ground that the Directors of the Company are well-educated and they ought to be aware of the provisions of the Act. Further, the plea of non-availability of the banking facility was in itself taken as the pointer to hold that the assessee was conscious of the provisions of the Act, ignoring the fact that though the assessee pleaded ignorance of the provisions of the Act, in response to the penalty proceedings he was advised to take the benefit of the factual matrix with regard to non-availability of the banking facility as a reasonable cause. It is evident from the order passed by the Assessing Officer as well as the order passed by the Accountant Member that the plea of non-availability of banking facility as well as ignorance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking reference to the history of the enactments. In such circumstances, it would be a travesty of truth and justice to hold that the assessee knew or ought to have known the correct law and comply therewith, even though, in fact, he was not aware of the provisions. It is well established by the decision of the Supreme Court in Hindustan Steel Ltd v. State of Orissa [1972] 83 ITR 26 that the liability to pay penalty does not arise merely upon proof of default in complying with the statutory requirements and an order imposing penalty for failure to carry out a statutory obligation being the result of a quasi-criminal proceeding, 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 conscious disregard of its obligation, and penalty will also not be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform the statutory obligation, it is stated, is a matter of discretion of the authority concerned to be exercised judicially on a consideration of all relevant circumstances and even if a minimum penalty is prescribed, the authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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