TMI Blog2016 (5) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... for borrowing the money in cash. This is the case, where the assessee is having bank account, repeatedly borrowing the money in cash with gross violation of the Act. The plea of the ld. AR is that the creditors are genuine and confirmed by the parties and there was no revenue loss to the Department. Had it been, the creditors are not genuine, the AO would have invoked the provisions of sec.68 of the Act. The question of revenue loss is not a reason to consider the levy of penalty u/s.271D of the Act. The provisions of sec.269SS of the Act is constitutionally valid in view of the judgment of ADIT v. Kum A.B.Shanthi (2002 (5) TMI 4 - SUPREME Court ). Further, business exigencies shall be supported by evidence. The assessee has not brought on record any material to show that due to business commitment, the assessee has borrowed money in cash. There was no sufficient balance on the date of borrowing of cash and he has not placed any evidence to establish that there was bank balance on the date of borrowing. Thus we are inclined to reverse the order of the CIT(Appeals) in deleting the penalty and confirming the penalty levied u/s.271D of the Act for all these assessment years. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cash repayment: ₹ 24 lakhs A.Y. 2010-11 Cash loan: 06.06.2009 20 lakhs Cash repayment: ₹ 24 lakhs A.Y. 2011-12 Cash loan: 07.04.2010 20 lakhs Cash repayment: ₹ 24 lakhs 19.08.2010 50 lakhs The information collected at the time of survey action was passed on to the Joint Commissioner of Income Tax, Puducherry Range, Puducherry vide letter dated 12.12.2011. Consequent to the reference, the Joint Commissioner of Income Tax, Puducherry Range, Puducherry issued a show cause notices u/s 271D 271E of the IT Act to the assessee vide letter dated 16.12.2011 and heard the submissions of the assessee from time to time. In the course of penal proceedings before the Joint Commissioner of Income Tax, the AR of the assessee vide letter dated 23.02.2012 stated that penal proceedings relates to the transactions made by Late Sri K.Muthukaruppan who had passed away on 16.2.2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness, but, still he was carrying on the said business. The details available in the record show that Shri A. Kannan had been advancing loans to the parties in cash, against pronotes. The pronotes are cancelled when the loans are repaid. The nature of the business carried on by Shri A. Kannan shows that the transactions of money lending were, by and large, made by way of cash transactions. When the assessees were accepting loans from Shri A. Kannan and repaying loans to him, it is obvious that the transactions must be in cash as insisted by Shri A. Kannan. That acts as a reasonable cause in the case of these assessees regarding acceptance and repayment of loans to Shri A. Kannan, who is the proprietor of M/s Vadamalayan Finance. 17. While considering the circumstances leading to accepting the loans in cash, and while deleting the penalty levied on assessees under Section 271D, the Commissioner of Income Tax (Appeals) might have considered this circumstance also while coming to a conclusion that the assessees had reasonable cause for accepting loans in cash. 18. The explanations given by the assessees time and again before the lower authorities have equally established si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation that he had borrowed or received deposits from his relatives or friends that it is easy for the so-called lender also to manipulate his records later to suit the plea of the taxpayer. The Hon ble Apex Court observed that the main object of Section 269SS was to curb this menace. 23. In the present case, no adverse circumstances existed against these assessees as apprehended by Hon ble Supreme Court in the above decision. In the present case, all the transactions have been duly recorded in the books of the creditor as well as in the books of the assessees. The loans accepted by the assessees have been merged in the business finance of the assessees reflecting in their books of account. The funds required for repayment of loans were also generated out of the business as reflected in their books of account. The details of the parties are available on record. The assessees as well as lenders are all regularly assessed to income-tax. The identity of the parties are beyond doubt. The factum of loan and repayments are beyond doubt. The genuineness of the transactions is also not in doubt. It is also established by the assessees that there existed similar emergency for repa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07.08.2008 20 lakhs Cash repayment: ₹ 24 lakhs A.Y. 2010-11 Cash loan: 06.06.2009 20 lakhs Cash repayment: ₹ 24 lakhs A.Y. 2011-12 Cash loan: 07.04.2010 20 lakhs Cash repayment: ₹ 24 lakhs 19.08.2010 50 lakhs 5.1 The assessee has taken a plea before the AO that the loan taken by the assessee was used as a capital contribution in a firm, where he was a partner and has taken support of the provisions of sec.273B of the Act to say that on account of business expediency, the amount was borrowed in cash and repaid in cash. The assessee is liable to audit u/s.44AB of the Act and the assessee is aware of provisions of sec.269SS of the Act. Cash borrowal by the assessee is not a single occasion but the assessee continuously borrowing money from same persons in cash. It is also on record that the assessee is having bank account as seen in the asst. yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It cannot be said that section 269SS deals with a subject outside the scope of the Incometax Act or that it relates to a topic not within the competence of Parliament. Nor are the provisions of section 269SS or section 271D or section 276DD unconstitutional on the ground that the provisions are draconion or expropriatory. The object of introducing section 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money, or if he makes some false entries, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money is unearthed and the taxpayer would usually give the explanation that he had borrowed or received deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records to suit the plea of the taxpayer. The main object of section 269SS was to curb this menace of making false entries in the account books and later giving an explanation for the same. The undue hardship of the provisions of section 271D , which replaced section 276DD providing for a penalty, is substantially mitigated by the inclusion of section 273B providing that if there was a g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions took place in Pondicherry, a major city and there was no reason why the assessee should not have repaid the amount by cheque or demand draft through the bank, assuming he had received the loan in cash. The entire transaction between the assessee, a financier and the financier who was also financing a large number of persons, was apparently to evade tax, which came to light after a survey was conducted and some documents and records were seized. Therefore, it was a case of infraction of law and could not be said to be a mere technical or venial breach. Indeed, it was a clear case of prejudice caused to the Revenue because the nature of transactions conducted by the financier with the assessee and third parties were clearly not in accordance with the provisions of the Act. In one statement the financier clearly stated that he used to conduct money-lending business in the names of third parties. The assessee on his part had repeatedly, for every assessment year, conducted the business in the same manner receiving and repaying the loan amount in cash. Hence, these could not be called bona fide transactions and there was no reasonable cause. The conduct of the parties is import ..... 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