TMI Blog2009 (11) TMI 578X X X X Extracts X X X X X X X X Extracts X X X X ..... any provision for payment of interest - In the case of a capital contribution to a partnership firm, there can be a contract amongst the partners that the capital contribution would carry interest - In the present case however it was provided that if the partnership does not materialise, the money would be returned without interest - The idea of a loan or deposit within the meaning of ss. 269SS and 269T is therefore ruled out - the assessee bona fide thought that he could take the capital contribution in cash since it did not carry any interest and cannot be considered as a loan or deposit - Thus, there was bona fide belief which also constitutes reasonable cause within the meaning of s. 273B. No motive of evade tax - Praful Patel was already assessed to tax. Though he advanced the monies to the assessee in cash, the assessee immediately deposited the same in his bank account - Thus, the amount was brought on record and into the accounts of the assessee -The Hon'ble Gujarat High Court has held in the judgment cited supra, on behalf of the assessee, that it is necessary to show the motive to evade tax in order to justify the levy of penalty under s. 271D and s. 271E - Hence, ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's business. A request was thus made for dropping the penalty proceedings. 4. The AO recorded a statement from Praful Patel under s. 131 of the Act on 24th March, 2005. A copy of the statement is at pp. 21 to 23 of the assessee's paper book. He confirmed the assessee's explanation in material aspects. He also stated that he has got back the monies without any interest and also explained how he utilised the same. He stated that he was assessed to income-tax but does not maintain books of account except summary of the bank accounts and details of income from coaching cricketers. 5. The AO was not satisfied with the assessee's explanation or with the statement of Praful Patel. He noted that there was no reasonable cause for taking the money in cash. He further held that the assessee's plea that the amount was accepted as capital for the proposed partnership was not supported by any evidence except the MoU which was prepared after the acceptance of the loan. He also found no evidence in the form of correspondence with 10C to support the plea of the assessee that a partnership between him and Praful Patel was proposed but was not permitted. As regards the argument based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CTR (SC) 513 : (2002) 255 ITR 258 (SC); (v) Chamundi Granites (P) Ltd. vs. Dy. CIT (2000) 162 CTR (Kar) 129 : (2000) 245 ITR 661 (Kar); (vi) Vir Sales Corporation vs. Asstt. CIT (1994) 50 TTJ (Ahd) 130. 8. On the other hand, the learned senior Departmental Representative pointed out that the assessee himself has shown the amount as a loan in its balance sheet and therefore ss. 269SS and 269T were attracted. According to him there was no reasonable cause to justify the cancellation of the penalty. He submitted that the MoU was an afterthought entered into only to get over the charge that there is a violation of the above sections. In this connection he pointed out that the assessee was not able to produce any correspondence with IOC to substantiate his claim that a partnership was proposed to be formed with Praful Patel and permission for the same was sought for or that it was rejected. He submitted that there would have been a serious violation of the conditions of allotment of the gas agency if the assessee attempted to form a partnership with an outsider after having obtained the gas agency under the reserve category. He thus pointed out that the assessee's explanation cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce for its business he had proposed to Praful Patel that he should join as partner and that the amount of Rs. 8 lakhs was to be treated as capital contribution. It further states that after obtaining the necessary permission from IOC a regular partnership deed would be drawn up between the parties with the assessee having 70 per cent share and Praful Patel having 30 per cent share. It is further stated that if the permission is refused the assessee will return the amount immediately without interest to Praful Patel. The relationship between Praful Patel and assessee which induced him to advance the money to the assessee has been brought out in the answer to question No. 5 given by him in the statement recorded under s. 131. He has stated that the assessee was his neighbour in the past and was a personal friend of his father and they had family relations. He also confirmed that no interest was charged on the amount and that the same has been returned with which he constructed a compound wall around his farm, a small house therein and also a borewell. He has also stated that he is assessed to tax. There is no material to suspect either the veracity or credibility of the MoU or the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich also constitutes reasonable cause within the meaning of s. 273B. 10. In addition to the above, this is not a case fit for levy of penalty, because we are not able to spell out any motive to evade tax. Praful Patel was already assessed to tax. Though he advanced the monies to the assessee in cash, the assessee immediately deposited the same in his bank account. Thus, the amount was brought on record and into the accounts of the assessee. In such an open transaction, confirmed by Praful Patel, there can be hardly any motive to evade tax. The Hon'ble Gujarat High Court has held in the judgment cited supra, on behalf of the assessee, that it is necessary to show the motive to evade tax in order to justify the levy of penalty under s. 271D and s. 271E. This decision applies to the present case. 11. So far as the repayments are concerned, they are all by cheques and this is evidenced by the copy of the assessee's bank account with Bank of India. The statements are placed at pp. 15 to 18 of the paper book. Therefrom we find that the assessee repaid the money to Praful Patel (proprietor-Mahindra Traders) in the following manner by cheques: Date Cheque number Amount 29- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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