TMI Blog2018 (5) TMI 1635X X X X Extracts X X X X X X X X Extracts X X X X ..... g the assessee with penalty under section 271D and 271E. We allow both the appeals of the assessee and delete penalty. - Decided in favour of assessee. - ITA.No.397 and 398/Ahd/2016 - - - Dated:- 22-5-2018 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER For The Assessee : Shri T.P. Hemani, AR For The Revenue : Shri V.K. Singh, Sr.DR ORDER PER RAJPAL YADAV, JUDICIAL MEMBER: Present two appeals are directed at the instance of the assessee against separate orders of the ld.CIT(A) dated 6.11.2015 passed for the Asstt.Year 2009-10. 2. Though the assessee has taken four grounds of appeal in each appeal, but its solitary grievance relates to confirmation of penalty under section 271D and 271E of the Income Tax Act amounting to ₹ 1,74,99,700/- and ₹ 51,16,065/- respectively. 3. The facts on all vital points are common. Penalty has been imposed for violation of section 269SS and 269T of the Income Tax Act, 1961. In other words, according to the ld.AO the assessee has obtained loan/deposits in cash and violated provisions of section 269SS, therefore, deserves to be visited with penalty under section 271D. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43100 4. NirajKShah ANYPS3197B 97453 Total 55,16,065 6. The ld.AO vide show cause notice dated 11.6.2014 issued under section 274 r.w.s. section 271D and 271E invited explanation of the assessee as to why the assessee should not be visited with penalty under sections 271D and 271E for violation of sections 269SS and 269T of the Act. The assessee made detailed written submissions which were considered by the AO, but somehow the ld.AO did not convince with the contentions of the assessee and imposed penalty of ₹ 1,74,99,700/- under section 271D and ₹ 55,16,065/- under section 271E of the Act. 7. Dissatisfied with the penalty order, the assessee had filed two separate appeals before the ld.CIT(A). It filed written submissions in both the appeals, which have been reproduced by the ld.CIT(A). The ld.CIT(A) has gone through the submissions of the assessee but did not accept them. The ld.CIT(A) concur with the AO and confirmed penalty by way of impugned orders passed independently on each appeals of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by them in cash. It was also contended that amounts were received by the assessee either from relatives or associated concerns, and in case funds are received from relatives or associated concerns, then such transactions are not hit by section 271D of the Act. For buttressing his contentions, he made reference to the following decisions: i) CIT Vs. Sunil Kumar Geol, 315 ITR 163 (P H); ii) Mahmood Associates P.Ltd. vs. JCIT, ITA No.1112/Kol/2012; iii) Zodiac Developers P.Ltd. Vs. ACIT, ITA No.31/Mum/2011. 9. Further, the ld.counsel for the assessee relied on the written submissions filed before the ld.CIT(A). Along with case laws submitted before us, he filed a brief note demonstrating reasonable cause available with the assessee for accepting these loans in cash and repayment of such in cash. Taking into consideration the detailed submission filed before the ld.CIT(A) for brevity of repetition, we deem it appropriate to take note of these submissions submitted by the ld.counsel for the assessee at the time of hearing. It reads as under: o Assessee is a Public limited company. Initially, assessee carried out its business as a Partnership Firm in the name and style ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d banks, Private banks and other NBFCs), no other nationalized banks, private banks, NBFC or any other financial institution were ready to advance further funds to the appellant. Hence, it became extremely difficult for the appellant to run the company. The survival of the appellant was at stake. o In such a scenario, shroffs in the market, in spite of being worst financiers, were the only ray of hope so as revive the appellant company and get it back in good working condition. Assessee started its activities by obtaining job work in the same line of business. As and when export orders were received, the same were executed. No local sales were ever made. However, situations didn't improve to the expectations of the appellant. Hence, assessee applied for registration as sick company with BIFR in 1998-99. BIFR registered the assessee as sick industrial unit in February 2000 vide Registration No.68/2000. The assessee was declared sick on 04.048.06. The scheme of BIFR was passed on 07.12.11. Copy of scheme of BIFR dated 07.12.11 is placed at Pgs.23-61 of P/B. o As per the undertaking given to BIFR, assessee had to remit payment being One Time Settlement to both the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cheque drawn by the assessee towards its legitimate dues were honored as and when the same was presented before the bank for clearing. There was no scope of fetching money from the organized sector at all. Hence, had the directors, their relatives and shroffs not funded the appellant, appellant company couldn't have survived in such tuff time. Thus, there was no mala fide intention behind accepting money other-wise then account payee cheque. 10. On the other hand, the ld.DR relied upon the orders of the ld.Revenue authorities. He contended that persons who have given loans to the assessee were having bank account. The assessee is also having bank account. What prohibited the assessee to obtain loans through banking channel ? Why the assessee has accepted the cash and deposited the same in the bank accounts and cleared cheque issued by it. All these transactions could be carried out through banking channel. 11. We have duly considered rival submissions and gone through the record. It is imperative upon us to take note of relevant provisions viz. sections 269SS, 269T, 271D and 271E which reads as under: Section 269SS '269SS. Mode of taking or accepting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty, a sum equal to the amount of the loan or deposit or specified advance so repaid. **** 12. A bare reading of section 269SS would indicate that it was introduced by the Finance Act, 1984 w.e.f. 1-4-1984. It provides that after 30.6.1984 no person shall accept any loans or deposits from any other person of ₹ 10,000/- or more (which has been enhanced to ₹ 20,000/- w.e.f. 1-4-1989) except by account payee cheque or account payee bank draft. Thus, it prohibits acceptance of any loan or deposits from any other person of more than ₹ 20,000/- except by account payee cheque or draft. At the time of introduction, section 276DD provided consequences for violation of section 269SS. It provided for an imprisonment which may extend upto two years. However, while making amendment in section 269SS by Finance Act, 1987 section 276DD was omitted and new section 271D was brought into the statute book which provides for visiting assessee with penalty by equal amount. Similar are the facts with regard to violation of section 269T, and if the assessee repaid loans or deposits by any other mode, than the account payee cheque/draft, he will be visited with penalty as pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to this decision, if an assessee has demonstrated bona fide of the transaction and business exigency for taking cash loans, then on account of this technical breach, he would not be visited with penalty. 15. Next judgment referred by the ld.counsel for the assessee is ITAT, Calcutta Bench in the case of Mahmood Associates P.Ltd. JCT, 112/Kol/2012 order dated 29.4.2015. In this case also assessee took a cash loan and violated section 269SS of the Act. The AO has imposed penalty of ₹ 3,98,719/- under section 271D which was confirmed by the ld.CIT(A). The Tribunal while deleting penalty made reference to the decision of Hon ble Madras High Court in the case of CIT Vs. Ibdhayam Publications Ltd. (2006 285 ITR 221 (Mad) wherein the Hon ble High Court has held as under: 4. We heard the arguments of the learned counsel for the Revenue. We have perused the materials available in record. Admittedly Mr.S.V. S.Manian was one of the Directors. Therefore the order of the lower authority clearly shows that there was a running current account in the books of account of the assessee in the name of Mr.S.V.S.Manian. Mr.S.V.S.Manian used to pay the money in the current account and u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court observed that if transaction is genuine the penalty under section 271D would not be imposed. 18. Next decision referred by the ld.counsel for the assessee is ITAT, Ahmedabad Bench in the case of Maruti Nandan Finance Cap. P.Ltd. Vs. ACIT, 114 TTJ 142 (Ahd). In this case cheque of ₹ 10 lakhs was issued. However, since there was a shortage of fund in the account, sum of ₹ 5 lakhs was taken in cash from the directors, which was deposited in the account. Reason for such act was that cheques should not bounce. According to the assessee, had it not deposited money then its cheque could be bounced. Thus, considering genuineness of the transactions and loan taken from the directors, Tribunal deleted penalty. 19. The next decision referred by the ld.counsel for the assessee is of ITAT, Mumbai Bench (Third Member). In this case, the assessee-company took a cash loan in violation of section 269S. The assessee was visited with penalty. There was a difference of opinion between the members and ultimately dispute referred for the opinion of Third Member. The ld.Third Member has opined that transaction was genuine and under business exigency cash loan was taken. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r enacting Section 269SS of the Act was to counter the device of tax evasion, which enabled the taxpayers to explain away unaccounted cash or unaccounted deposits. 13. A statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. It is very important to keep the stream of justice clear and pure. Innocents should not suffer and recalcitrant should not go scot-free, Let justice be not a riddle and get lost in the labyrinth of procedure. Justice demands fairness. Fairness itself is a flexible, pragmatic and relative, concept, and not a rigid, ritualistic or sophisticated abstraction. The prime object of law is to secure justice to the people. In view of this the legislature took proper safeguard under Section 273B of the Act, which enumerates the cases where penalty is not to be imposed. In such enumeration, Section 271D of the Act also finds a place. It is prescribed under Section 273B of the Act that penalty is not to be imposed on the assessee if he proves that there existed a reasonable cause for not complying with the provisions. 14. Black's Law Dictionary define the word reasonable as under: Reasonable Fair, prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 271D. Similarly, in the case of Shreenathji Corpn. (supra), the Hon ble Court has accepted genuineness of the transactions and business exigency as reasonable cause for accepting cash loans. On the other hand, the ld.DR relied upon the orders of the ITAT in the case of Kalpesh K. Kinariwala Vs. ACIT in ITA No.316/Ahd/2013 order dated 2.3.2016 wherein Judicial Member (herein) is party to the order. According to him, the Tribunal has confirmed the penalty imposed under section 271D of the Act. In this case, the Tribunal has confirmed penalty because there was no reasonable cause demonstrated by the assessee for accepting loans in cash from the sister concern. 21. In the light of the above, let us examine the facts of the present case. We have extracted the explanation of the assessee showing reasonable cause. It has been contended by the assessee that it came into existence in 1980. It has been exporting dyes and inter-mediatories. Business was running smoothly. Somehow in 1995 Latin American countries have revalued their currency, and therefore, it could not recover its dues from those clients. The financial institution put pressure for realization of loans and due to such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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