TMI Blog2010 (3) TMI 928X X X X Extracts X X X X X X X X Extracts X X X X ..... y, a show-cause notice under section 274 read with sections 271D and 273B of the Act was issued to the assessee-company on March 25, 1996. After the change of jurisdiction further detailed show-cause letters were issued to the assessee on September 17, 1996 and September 24, 1996 and the assessee was required to explain as to why penalty under section 271D may not be imposed in their case as they had clearly violated the provisions of section 269SS of the Act. The Assessing Officer observed that a perusal of the audit report filed along with the revised return of income filed for the assessment year 1993-94 in 1994 shows that a large number of loans/deposits have been accepted by the assessee in cash. In the following cases the aggregate of the arrear balance along with the fresh loan obtained during the year is exceeding Rs. 20,000 : S. No. Name of the party Opening balance Deposits/Loan during the year Closing balance 1. Sureshkumar C. Vania 22,500 18,000 40,500 2. Krishandas Vallabhdas 16,000 15,000 31,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvance as for each such payment some time-limit is always allowed for making payments. It is therefore felt that these types of liabilities are always known to the assessee in advance and suitable arrangements can be made in advance for arranging the funds. In this connection it is also interesting to note that most of the persons from whom the assessee claims to have borrowed funds in cash at the last moment are from outside Baroda and it is not known as to how the assessee-company was able to borrow funds from these parties at a very short notice. Thus the assessee s explanation does not appear to be convincing. Firstly the liabilities mentioned by the assessee are such where the assessee is always allowed reasonable time for making payments. Secondly the parties are mostly outside parties and the assessee must have required time to contact these parties for loans/deposits. On the facts and in the circumstances of the case, therefore it is evident that the amounts which have been borrowed in cash could have been borrowed through banking channels also, as the entire expenditure must have been known to the assessee in advance. The submission of the assessee in this regard is ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Deputy Commissioner of Income-tax, Central Range, Baroda on the above submissions. In his oral arguments, Shri Bakshi has drawn my attention to the following decisions to contend that no penalty cannot (read as can ) be imposed on any additional item which does not fall within the part of the initial satisfaction recorded at the time of initiation of penalty. (1) CIT v. Lakhdhir Lalji [1972] 85 ITR 77 (Guj). (2) Addl. CIT v. Nihalchand Badrilal [1982] 135 ITR 519 (MP). (3) Addl. CIT v. Kejriwal Iron Stores [1987] 168 ITR 715 (Raj). Regarding the argument of the reasonable cause, it is observed that the loans had been borrowed by the appellant to make immediate payments to its suppliers and to discharge its other statutory obligations. These facts had not been disputed either by the Assessing Officer imposing the penalty or by the successor in his report. Reasonable cause will have to be appreciated in the overall context of a prudent businessman sitting in his chair and looking after his financial affair. I do not agree with the observation of the Deputy Commissioner of Income-tax, Central Range, Baroda that the appellant should have instructed its lenders to make the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which such penalty is levied, go to prove the assessee s point that the nature of transactions in the account of Shri Chhagon Vania as per the copy of account submitted vide pages 53 to 60 of the assessee s paper book show that all credit entries reflected in the said account are by way of journal entries which are made in the account of the assessee as acknowledgment of debt due to the depositor by passing the journal entries giving credit of the deposit for the payments made by the said depositor on behalf of the assessee. To further elaborate, the assessee s counsel submitted that the nature of transactions are such that considering the exigencies of the business and the urgency of payments the assessee used to request and instruct the lender to make the payments to the suppliers/parties for and on behalf of the assessee. The depositor in turn used to normally obtain the demand draft in favour of the suppliers/creditors, which the assessee used to acknowledge the debt by passing journal entries debiting the party/expenditure and by crediting the depositor. According to learned counsel, in effect the assessee has never received any monies and what has been credited in the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot accepted as loan or deposit of monies which is not covered by the provisions of section 269SS of the Act primarily and even if they are considered as covered the same is done to meet the business exigencies and not prejudicially affecting the interests of the Revenue and considering the law existing in this regard supported by the cases cited the penalty deserves to be cancelled. We have heard the rival contentions and gone through the facts and circumstances of the case. We have also perused the case records including the assessment order, the order of the Commissioner of Income-tax (Appeals), penalty order and the assessee s paper book containing pages 1 to 314. The first party, i.e., Chhaganlal Keshvji Vania in respect of whom penalty was levied at Rs. 35,06,806 on the basis of audit report. Before us, the assessee has placed complete ledger accounts at the assessee s paper book pages 67 to 84 and we find that most of the receipts credited to the account of the above party in compilation are on account of general voucher entry. The payments to suppliers and towards telephone bills including statutory dues are not in the ambit of section 269SS of the Act. The entry in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the urgent business necessity will constitute a reasonable cause. In the light of aforesaid facts and the legal position, the transactions inter se between the sister concerns made with a view to meet the urgent business necessity and made under the bona fide belief and under ignorance of the relevant provisions of law (sections 269SS and 269T) is a valid excuse and constitute a reasonable cause within the meaning of section 273B. The penal provisions of sections 271D and 271E read with section 273B confer a discretion on the authorities to levy or not to levy penalty. Such discretion needs to be exercised with wisdom and in a fair and just manner. Even if the relevant provisions of law prescribed levy of a minimum penalty, it does not mean that penalty must necessarily be imposed in every case falling within section 269SS or 269T. Even if the minimum penalty is prescribed the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical breach or venial violation of the provisions of the Act or where the breach flows from a bona fide belief like in the present case. Since the transactions in question were bonafide and genuine t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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