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TMI Blog2003 (3) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... nsara Rs. 50,000 (5) Sou. Zankarbai Khivansara Rs. 50,000 (6) Sunil M. Kasliwal (HUF) Rs. 2,78,000 -------------- ₹ 5,44,150 -------------- The ITO Ward 1(3) Nashik, assessing the assessee, referred the matter to the Dy. CIT, Range I Nashik for levy of penalty under section 271D read with section 274(1) of the Income-tax Act. The Dy. CIT accordingly issued a show-cause notice and the assessee filed written submissions on 11-12-1993 stating therein, inter alia, as follows: (1) He is the karta of his family consisting of his son, daughter and his wife. This HUF is also engaged in similar business as that of the assessee. Thus, there is a dual role to be performed to carry on business in his individual and HUF capacities. The cash (Rs. 2,78,000) of the HUF business has been used by his individual business and that being so, section 269SS is not applicable. (2) The cash gifts made to his two minors were accepted by him and credited in the books in their names. (3) The cash gifts received by his wife were also in his possession and there was no hesitation in crediting in the books in her name. In short, the assessee concluded that there was thus no question of giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was liable to be penalised under section 271D. Merely because money was lying in the account with the assessee or that the assessee was working in dual capacity as individual and HUF would not make any difference so far as application of provisions of section 269SS is concerned and similarly the fact that some of the gifts received by the relatives of the assessee were genuine is also of no significance. He accordingly submitted that the levy of penalty is fully justified and the CIT(A) is not justified in retaining only a paltry amount of ₹ 41,500. In support of his contentions, he placed reliance on the following decisions: (i) Bhushan Chemicals v. Dy. CIT [1995] 54 ITD 5 (Pune), (ii) Prabhavshali Chit Fund Co. (P.) Ltd v. CIT [1994] 49 ITD 566 (Delhi), (iii) ITO v. Narsingh Ram Ashok Kumar [1993] 47 ITD 38 (Pat.), (iv) Chamundi Granites (P.) Ltd. v. Dy. CIT [1999] 239 ITR 694 (Kar.), (v) Sukhdev Rathi v. Union of India [1995] 211 ITR 157 (Guj.), (vi) K.R.M.V. Ponnuswamy Nadar Sons (Firm) v. Union of India [1992] 196 ITR 431 (Mad.). 6. Shri C.V. Chitale, the learned counsel for the assessee, strongly supported part of the order of the CIT(A) which favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 595 (AP). 7. We have considered the rival submissions and perused the facts on record. From the facts of the case, it is evident that when the assessee required money for purchase of machinery, he took such amounts in cash from the HUF of which he was the karta, from his wife Smt. Pramila S. Kasliwal and from his two children, namely, Shri Ankush S. Kasliwal and Anuja S. Kasliwal, who were all living under one roof and from his two close relatives (Sou. Chandralekha R. Khivansara ₹ 50,000 and Sou. Zankarbai Khivansara ₹ 50,000). So, it was under the bona fide belief that the assessee got the amounts from his own family members and close relatives and there is only a technical/venial breach of the provisions of law. The provisions of section 269SS were brought on statute book to counter evasion of tax in certain cases, as clearly stated in the heading of Chapter XXB which reads 'requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax.' Legislative intention in bringing section 269SS was to avoid certain circumstances of tax evasion, whereby huge transactions are made outside the books of account by way of cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt facts and material existing on records. Accordingly, we hold that the CIT(A) has rightly deleted the penalty to the tune of ₹ 5,02,650. 8. As regards the retention of penalty by the CIT(A), he has done so on the ground that the two gifts of ₹ 20,500 and ₹ 21,000 received by Kum. Anuja and Smt. Premila S. Kasliwal have been treated as income of the assessee from undisclosed sources. The reasoning given by the CIT(A) has no legs to stand, because when the two amounts have been treated as income of the assessee from undisclosed sources, then these two amounts lose character of a loan or a deposit. Accordingly, provisions of section 269SS will not be applicable. Under the circumstance, we see no justification for retention of penalty, to the tune of ₹ 41,500. The same is accordingly deleted. 9. Coming to the cases relied upon by the learned D.R., we find that the three decisions of the Tribunal relied upon by him are distinguishable on facts. In the case of Bhushan Chemicals, the loans were not raised from close relatives living under the same roof or from sister concerns. These were received; from outsiders "during the course of flow of current accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts was with regard to the constitutional validity of section 269SS and the Hon'ble High Courts upheld the constitutional validity. There is no dispute in this regard that provisions of section 269SS are constitutionally valid and accordingly, these three judgments do not advance the cause of the Revenue so far as levy of penalty in this case is concerned. 13. In the light of above discussion, we uphold the finding of the CIT(A) deleting the penalty to the tune of ₹ 5,02,650 and delete the penalty of ₹ 41,500 retained by him. 14. In the result, Revenue's appeal is dismissed and the cross objection of the assessee is allowed. Per U.B,S. Bedi, Judicial Member- 15. I have had an occasion to go through the proposed order of the learned Accountant Member and despite my best persuasion to myself, I have not been fully agree with the findings and conclusions as drawn by him with respect to revenue's appeal. So far as the order with respect to Cross Objection of the assessee is concerned, I fully concur with the same. My reasons for not fully agreeing with respect to the issue raised in the ground of appeal of the revenue are as under: 16. The assessee being an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s unexplained and upheld the penalty with respect to this amount and deleted the penalty with respect to other amounts. 18. The revenue is in appeal against the deletion of penalty order passed by the learned CIT(A) and it was pleaded that section 269SS makes a mention about acceptance about taking or accepting of any loan or deposit otherwise than by account payee cheque or account payee bank draft by a person from the other persons and therefore, the HUF and the individual are separate legal entities under the taxation laws as such relief allowed by the learned CIT(A) should not be allowed. Reliance was placed on the decisions in Bhushan Chemicals's case, Prabhavshali Chit Fund Co. (P.) Ltd.'s case, Narsingh Ram Ashok Kumar's case to plead for restoration of the order of the Assessing Officer as even the loan or deposit was taken or accepted from the sister concern are also hit by the provisions of section 269SS and violation thereof makes the assessee liable for penalty which has been rightly imposed. Therefore, it was strongly pleaded that the action of learned CIT(A) is unjustified in deleting the same. It was urged for restoring the order of the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e equated with transaction between the HUF, of which the assessee is karta and having the same business as that of the assessee in order to take these amounts out of the purview of penalty under section 271D of the Act, for violation of section 269SS as their case is distinct and different than that of the sister concern. Therefore, while accepting the appeal of the revenue partly, I set aside the order of the learned CIT(A) with respect to penalty of ₹ 2,24,650 relatable to transactions with relatives of the assessee and restore the order of the Assessing Officer in this regard, as a consequence whereof, the penalty levied by the Assessing Officer is restored to the extent bf ₹ 2,24,650 while order of deletion of penalty to the extent of ₹ 2,78,000 by the learned CIT(A) gets confirmed. Therefore, while accepting the appeal of the revenue partly, I restrict the penalty of ₹ 2,24,650 imposed by the Assessing Officer. My above view is supported by Pune Bench decision in the case of ITO v. Mrs. Shantabai Tukaram Gaikwad [I.T. Appeal No. 949 (Pune) of 1998 for assessment year 1993-94 dated 30-8-2001]. 21. As a result, the appeal of the revenue gets partly accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the ambit of section 269SS of the Act, then this section, ex consequenti would apply only in respect of non-genuine transactions. If this interpretation is to be followed, it would defeat the very purpose of the provision. Resultantly, the provision would be inutile and futile. To buttress the point, reliance was placed on the various precedents. In the case of Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667, in the context of section 40A(3) of the Act, Hon'ble Supreme Court has held that genuine and bona fide transactions cannot be taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in the section was not practicable or would have caused genuine difficulty to the payee. In interpreting a taxing statute, the Court cannot be obvious of the proliferation of black money, which is under circulation in our Country. Any restraint intended to curb the chances and opportunities to use or create black money, should not be regarded as curtailing the freedom of trade or business. 4. In the case of Associated Engg. Enterprise v. CIT [1995] 216 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, the assessee himself acted as the guardian. No other person was involved. In the capacity of the guardian of the minor children, he has given the loan and accepted it in the capacity of individual. Therefore, even assuming that there was breach, it was only a technical and venial breach. There is a common law maxim : "DE NON MINIMIS CURAT LEX". It means law does not take into consideration trivialities. In respect of the loan taken from the wife, I have noted that the amount of loan is very small. Normally it cannot be construed to be a transaction between the borrower and the lender. Genuineness of the transaction was not doubted. Apropos the relation of husband and wife, it is said in the Bible that "what God hath joined together man cannot cast asunder." As such, there existed a mitigating circumstance. In my opinion, the penalty cannot be maintained in respect of the loans to minor children and wife. 11. I now consider the loans taken by the assessee from Smt. Chandralekha R. Khivansara and Smt. Zankarbai Khivansara. The assessee took loan of ₹ 50,000 from each of these two ladies. It was explained before me that these two ladies were the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held to be ipse dixit. 13. In the case of CWT v. Jagdish Prasad Choudhary [1995] 211 ITR 472 (Pat.) (FB) Hon'ble High Court has held that for the existence of a reasonable cause the assessee is entitled to offer a factual explanation. It is incumbent upon the Assessing Officer to be satisfied about the existence or the absence of the reasonable cause in the context of the explanation offered. The Assessing Officer, in arriving at his satisfaction in such a situation, acts in a quasi-judicial capacity. The proceeding for imposition of penalty is a quasi-criminal proceeding. The satisfaction has to be reached by the Assessing Officer objectively and on consideration of relevant materials only and to the total exclusion of extraneous and irrelevant considerations. 14. The assessee may be exonerated from the rigour of penalty under section 271D of the Act, provided it is established that there existed a reasonable cause for not complying with the prescription of section 269SS of the Act. The mandate given under section 269SS of the Act is clear. Any departure from the said mandate invites penalty as is envisaged under section 271D of the Act. It is clearly laid down in the secti ..... 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