TMI Blog2018 (3) TMI 1317X X X X Extracts X X X X X X X X Extracts X X X X ..... eal against the common order of the Tribunal for the assessment years 2005-06 and 2006-07. The issue relates to acceptance of loans and deposits other than by way of Cheque or Draft, in violation of Section 269SS of the Income Tax Act, 1961 [for brevity the Act ] and the resultant penalty levied under Section 271D, totaling the amounts so accepted. The Bench of two members of the Tribunal wrote split verdicts. The Administrative Member (for brevity AM ] affirmed the orders of the Additional Commissioner, as affirmed by the first appellate authority; remanding to the extent of further verification of the loan of ₹ 49,00,000/- received from the daughter of the President of the Trust. The Judicial Member [for brevity JM ], however, did not agree with the AM and wrote a separate order finding the explanation offered by the assessee to be satisfactory to enable the assessee to be absolved of the penalty under Section 273B; by reason of which the matter was placed before a third member. The third member, the Vice-President of the Tribunal concurred with the JM's order. 2. The questions of law arising from the above order, as framed by another Division Bench of this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e majority of the Tribunal members in Commissioner of Income Tax v. P.K.Shamsuddin in I.T.A.No.237 of 2010 dated 04.02.2011 has been distinguished by another Division Bench in K.V.George v. Commissioner of Income Tax in I.T.A.No.279 of 2013 dated 18.12.2013. The learned Senior Counsel for the Revenue also relies on Commissioner of Income-tax (TDS), Cochin v. Thomas Muthoot [(2015) 233 TAXMAN 557 (Ker.)] , Manural Huda Trust v. Commissioner of Income Tax [2016 (3) KHC 683], Grihalakshmi Vision v. Addl.CIT [(2015) 379 ITR 100 (Ker.)], Commissioner of Income Tax (TDS) v. Muthoot Bankers [(2017) 398 ITR 276 (Ker) and CIT v. Muthoot Bankers (Aryasala) [(2016) 385 ITR 51 (Ker.)] to contend that reasonable cause, as applied to a human action is that which would constrain a person of average intelligence and ordinary prudence (sic- Dy. CIT Vs. Adinath Industries {[2001] 252 ITR 471 (Delhi) }. Ignorance of law under no circumstance can be a reasonable cause; especially here, looking at the status and stature of the assessee. 6. The learned Senior Counsel appearing for the assessee would take us through the decision in Assistant Director of Inspection (In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance even if accepted, would not offer any mitigation to the assessee insofar as the penalty imposed under Section 271D since the law does not distinguish refundable or non-refundable loans or deposits. As far as urgent requirement of funds, it was found that the ground raised is of a general and vague nature without any substantiating material produced. The next contention as to the Assessing Officer having not initiated any proceedings was rejected on the finding that the Assessing Officer had clearly recorded in the assessment order, the fact of the assessee having accepted loans and advances in violation of Section 269SS and noticed the penalty proceedings initiated separately. The A.C imposed penalty on the amounts received by the assessee other than by way of cheque or drafts. The first appellate authority also affirmed the same. The Tribunal, by majority deleted the penalty on the ground that the assessee had offered a reasonable cause for having accepted money in cash. 9. As to reasonable cause, various decisions were placed before us. P.K.Shamsuddin was a case in which an assessee who retired from a Circus Company, started an industry and took loans from various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been taxed or penalised, was negatived. It was found that the amendment intends to curb the menace of frivolous explanations being offered for unaccounted money, with certificates obtained from third parties, of loans and deposits. The borrower who adopts such device, to account for unaccounted money, was found to have been rightly penalised especially viewing it from the angle of tax evasion. The penal provision, as it exists with Section 271D, which replaced the earlier provision providing for even imprisonment, was found to be neither draconian nor exproprietory in nature. Section 273B was also noticed, which offered mitigation insofar as genuine and bonafide transactions, whenever reasonable cause is shown for acceptance of cash. Mitigation cannot be without reasonable cause and the provision alone will not absolve a defaulter assessee of penalty, whenever an explanation is offered. It had to be reasonable. What is reasonable is the vexing question for which we get some guidance from the decisions cited on both sides. 11. Saini Medical Store and Lakshmi Trust Company are cases in which the two High Courts found no substantial questions of law arising from the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rately dealt with the issue of what reasonable cause is. The penalty which came up for consideration was for non-deduction of tax at source. The Tribunal interfered with the penalty finding the belief, entertained by the assessees that there was no liability to deduct tax from the interest paid by them, to the firm in which they were partners, was reasonable. It was also found that the partnership firm had disclosed the interest income, but had no liability to tax for reason of the declared loss and hence there was no cause to find revenue loss. The Patna High Court in C I T Vs. Jagadish Prasad Choudhary (1995) 211 ITR 472, held reasonable cause to mean a cause which is beyond the control of the assessee and which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bonafides, to satisfy the obligation under the Act. This view was followed by the Delhi High Court in two cited decisions which also found favour with the Division Bench of this Court. On facts, it was found that the belief of the assessee of there being no liability to deduct tax, from the interest paid by the partners to the firm, was only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion did not come within the ambit of reasonable cause and there was even absence of such pleading as also proof and, hence, the penalty was rightly imposed was the finding. Grihalakshmi Vision was a case in which the assessee took amounts in cash from the partners of the firm allegedly to meet urgent business expenditure. The explanation was concurrently found by all the three fact finding authorities to be insufficient and not a reasonable cause. The Division Bench refused to interfere with such finding of fact, holding that no question of law arises. 17. Thomas Muthoot and Manural Huda Trust apply squarely to the facts of the instant case. The questions of law raised of deletion of penalty on the explanation offered, is in effect; on the perversity of the findings of the Tribunal. The only explanation offered was that the deposits were those received from the staff, many of which were refunded by cheque. The explanation as to urgent requirement of funds, was only with respect to the loan from one Zeenath who is said to be the daughter of the President of the Trust. A.B. Shanthi upheld the provisions finding the same to be intended at curbing the menace of unac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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