TMI Blog2019 (7) TMI 1915X X X X Extracts X X X X X X X X Extracts X X X X ..... proposal of loan which was not materialized and this fact is also corroborated by the subsequent sanction of loan by AU Finance Ltd. Accordingly, in the facts and circumstances of the case as discussed above, we hold that the revenue has failed to establish conclusively and beyond doubt that the actual transaction of ₹ 15 crores has taken place between the assessee and Shri DP Sehgal, hence the penalty levied under section 271D is not sustainable and the same is liable to be deleted. Accordingly, we delete the penalty. Appeal of assessee allowed. - ITA No. 405/JP/2019 (Assessment Year : 2015-16) - - - Dated:- 3-7-2019 - SHRI RAMESH C. SHARMA, AM SHRI VIJAY PAL RAO, JM Assessee by : Shri Mahendra Gargieya Shri F. Rahman (Advocates) Revenue by : Shri Ranjan Kumar (CIT) ORDER PER VIJAY PAL RAO, JM : This appeal by the assessee is directed against the order dated 22nd January, 2019 of ld. CIT (A) Kota arising from the penalty order passed under section 271D of the I.T. Act for tCssessee has raised the following grounds :- 2. The assessee is an Individual and derives income from salary as Managing Director of a closely held company, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or through Shri DP Sehgal was not pursued further. Even in the statement recorded under section 132(4), Shri DP Sehgal has denied the fact of giving the alleged loan to the assessee but he explained that since he could not arrange the money and finally in the month of August, 2014 he expressed his inability to provide any loan. The ld. A/R has further submitted that the documents found during the search in case of Shri DP Sehgal would not prove the transaction of loan of ₹ 15 crores received by the assessee from/through Shri DP Sehgal but it was at the initial stage of request made by the assessee and, therefore, the alleged acknowledgement and security in the shape of cheques and promissory notes were given by the assessee in advance as a condition for grant of loan but there was no loan taken by the assessee as against these documents found from Shri DP Sehgal. Once the assessee has not taken any alleged cash loan from Shri DP Sehgal, the question of violating the provisions of section 269SS of the IT Act does not arise and consequently levy of penalty under section 271D is not sustainable. The ld. A/R has submitted that the impugned penalty order passed by the AO is clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould reckon from the completion of such proceedings. Only those proceedings which are relevant for the purposes during the course of which the AO felt satisfied regarding the default for which the penalty was provided to be imposed will be relevant proceedings. Thus in case of the assessee when no proceedings were initiated by the AO during which the AO was satisfied about the violation of provisions of section 269SS, then the initiation of the proceedings are illegal. He has relied upon the decision of Hon ble Rajasthan High Court in case of CIT vs. M.A. Presstressed Works, 220 ITR 226 (Raj.). The ld. A/R has also relied upon the following decisions :- Noble Pictures vs. Jt. CIT 84 TTJ 718 (Coch.) CIT vs. Hissaria Bros 291 ITR 244 (Raj.) Kailashben Manharlal Chokshi vs. CIT 328 ITR 411 (Guj.) Thus the ld. A/R has submitted that the impugned order passed by the AO is barred by limitation and liable to be quashed. Even on the merits, when there is no default on the part of the assessee of violating the provisions of section 269SS as the assessee has not taken any cash loan alleged by the AO, then the levy of penalty on the basis of suspicion is not justified. The ld. A/R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of mens rea or presumption of existence of a state of affairs. There cannot be, and there is no presumption in respect of offending act prescribed under section 269SS / 271D. Therefore, it was the burden of penalizing authority to prove that the said offending act was committed. He having failed to do so, and instead casting the burden on the appellant to prove his innocence, committed a grave mistake of law. The ld. A/R submitted that the provisions of section 269SS are specific and categorical. They unmistakably and unambiguously require the concerned authority to establish that the noticee has taken or accepted a loan in cash. Taking or accepting a loan, presupposes a valid contract under the provision of India Contract Act, 1872 and the basic minimum requirement of there being a valid contract therefore, must exist, as per Sec. 2(a) of India Contract Act, 1872, when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal. In other words, there has got to be two contracting parties who have come together and the lender has on its own volit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osal made by the assessee to his close friend who was helping him out in arranging the finance. The documents which were found in the possession of Shri DP Sehgal were required to be submitted in advance for the proposed loan but finally when no loan was taken by the assessee, these documents itself do not prove the transaction of loan. These are all undated documents, not even indicating the transaction of loan. The department has presumed that the assessee has taken loan in the month of May June 2014 based on the statement of Shri DP Sehgal as well as statement of the assessee recorded under section 132(4) which was immediately retracted by the assessee. The presumption under section 132(4A) can be raised only against the person from whose control or possession the document was found and, therefore, it is he, who is answerable. Once Shri DP Sehgal has denied having given any loan to the assessee, then there cannot be second presumption against the assessee. In support of his contention, he has relied upon the decision of Hon ble Jurisdictional High Court in case of CIT vs. SMS Investment Corporation Pvt. Ltd., 207 ITR 364 (Raj.). The ld. A/R then submitted that once the documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri DP Sehgal. However, the assessee subsequently retracted the statement by writing a letter dated 30th September, 2017 to the CBDT. The alleged retraction has no evidentiary value as it is sent to the CBDT and not to the Investigation Wing. Further, when the assessee in the statement on oath has admitted the fact of receiving the loan of ₹ 15 crores, then the subsequent retraction without explaining the cogent reason for any mistake in the statement is not acceptable. Even otherwise, the assessee has not alleged any coercion, undue pressure or threat at the time of statement recorded under section 132(4) of the Act. The said admission/confession on the part of the assessee is based on the seized material which was confronted to the assessed at the time of statement recorded under section 132(4) of the Act. The ld. D/R has also referred to the report conducted by the department during the proceedings under section 245D of the Act as well as the order of the Settlement Commission wherein the so called retraction and denial of the assessee was rejected having any evidentiary value. The ld. D/R has also relied upon the decision of Hon ble Jurisdictional High Court in case of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f documentary facts gathered and legal position as laid down in various decisions, it is clear that the assessee has committed the default of taking cash loan in violation of section 269SS and consequently liable for penalty under section 271D of the IT Act. He has relied upon the orders of the authorities below. 5. We have considered the rival submissions as well as the relevant material on record. Since the assessee has raised a legal issue regarding validity of the order passed under section 271D as barred by limitation, therefore, we first take up the issue of limitation. The Additional CIT has initiated the penalty proceedings under section 271D by issuing the show cause notice dated 1st September, 2017 as under :- The said show cause notice was issued by the Additional CIT on the basis of the letter dated 09.08.2017 of the Assistant Commissioner of Income-tax, Circle-1, Kota being the reference for levy of penalty. For ready reference, we reproduce the reference letter of the Asstt. CIT for levy of penalty as under :- This reference was made on the basis of the documents seized from the possession of Shri DP Sehgal during the course of search and seiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Commissioner (Appeals) is received by the 45[Principal Chief Commissioner or] Chief Commissioner or 45[Principal Commissioner or] Commissioner, whichever is later;] (b) in a case where the relevant assessment or other order is the subject-matter of revision under section 26346[or section 264], after the expiry of six months from the end of the month in which such order of revision is passed; (c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.] Thus no order imposing a penalty shall be passed after expiry of financial year in which the proceedings in the course of which action for imposition of penalty has been initiated are completed or 6 months from the end of the month in which the action for imposition of penalty is initiated whichever period expires later. The plain reading of this clause reveals that in case the proceedings in the course of which action for imposition of penalty has been initiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is to succeed on all counts such as ; (i) In the present case, it is an admitted fact that neither the assessee had furnished any return for the asst. yr. 1996-97, nor any assessment was made nor any proceedings under the IT Act relating to the assessee was pending before the IT authorities on 12th June, 2003, or later on, till the date of levy of penalty under s. 271D, i.e., on 12th June, 2003, when the proceedings were initiated or on 11th Dec., 2003, when the penalty order was passed and therefore, the penalty proceedings having not been initiated during the course of any proceedings, the same were illegal and bad in law. It is also an admitted fact that the penalty proceedings in question were initiated after a lapse of a period of more than seven years. Consequently, we are unable to uphold the levy of penalty. Our conclusion is supported by the decision of Tribunal, Cochin Bench, in the case of Noble Pictures (supra), wherein it has been held that the penalty proceedings under s. 272A having been initiated after a period of more than 6 years were barred by limitation, and also by the decision of Delhi High Court in the case of CIT vs. Rajinder Kumar Somani (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... late Tribunal under sub-section (2) of section 253, after the expiration of the period of- (i)two years from the end of the financial year in which the proceedings, in the course of which the action for imposition of penalty has been initiated, are completed, or (ii)six months from the end of the month in which the order of the Deputy Commissioner (Appeals) or the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later; (b)in any other case, after the expiration of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. Section 275 divides the cases into two categories : the first category of cases is where the assessment order or the order to which proceedings for imposition of penalty relate, was the subject-matter of appeal under section 246 or an appeal under section 253. The limitation for the cases falling under this category, is two years from the end of the financial year in which the proceedings, in the course of which the action for imposition of penalty ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30th April, 2016 being the period of 6 months from the end of the said month of October, 2015. The penalty order passed under section 271D in the case of assessee is dated 11.10.2017 which is barred by limitation and, therefore, the same is liable to be quashed. We make it clear that the subsequent search and seizure action under section 132 of the IT Act conducted in the case of assessee on 7th September, 2017 would not extend the period of limitation when the penalty proceedings were already initiated by issuing show cause notice dated 01.09.2017 which is based on the satisfaction vide letter dated 23rd October, 2015. It is not understandable as to why the AO has not initiated the proceedings under section 271D after receiving the said information and documents vide letter dated 23rd October, 2015 till he has made the reference on 09.08.2017. Accordingly, we hold that the impugned penalty order passed under section 271D dated 11.10.2017 is illegal being barred by limitation. On the merits of levy of penalty : 6. On careful perusal of the penalty order passed under section 271D of the IT Act, we find that the said order is based on the documents found and seized from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 crores when the same contents and details of the cheques are given in the second letter which is treated as acknowledgement of receipt of loan by the department. It appears that this letter acknowledging the loan along with the collateral cheques and promissory notes were submitted by as a proposal for grant of loan. Even otherwise, the acknowledgement letter does not speak about the loan of ₹ 15 crores in cash. These facts along with the undisputed fact of availing loan of ₹ 10 crores by the assessee from AU Finance Ltd. on 30th July, 2014 substantiate the explanation of the assessee that after availing this loan from the AU Finance Ltd. the request for loan of ₹ 15 crores from or through Shri DP Sehgal was not pursued. We further note that this fact is even corroborated by Shri DP Sehgal in his statement recorded under section 132(4) on 19th December, 2014. The relevant part of answer to question no. 12 is as under :- Thus Shri DP Sehgal has explained how two letters were found at the time of search that there were some corrections/amendments in the first letter and, therefore, the second letter was taken from the assessee. He has also specificall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishment of fact beyond doubt that the said transaction has actually taken place. Since the revenue has relied upon the statement of the assessee recorded under section 132(4), therefore, the evidentiary value of the said statement as well as subsequent retraction of the assessee is also relevant for arriving at the conclusion whether there is an actual transaction of loan of ₹ 15 crores in cash received by the assessee from Shri DP Sehgal. The ld. D/R has referred to various cases in support of his contention to say that the retraction made by the assessee has no evidentiary value. However, we find that the retraction of the assessee vide letter dated 30th September, 2017 is not a stand taken by the assessee first time after the admission/confession made by the assessee in the statement recorded under section 132(4) on 7th September, 2017. It is pertinent to note that the assessee in response to the notice issued by the Investigation Wing and even in the proceedings before the Settlement Commission has taken the same stand. The assessee has referred to the reply dated 07.09.2016 which is also referred in the reply filed by the assessee to the show cause notice as rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me and both acknowledging receipt of money unconditionally BUT containing materially and significantly different critical terms go to indicate that the acknowledgement of receipt of money therein was a sort of advance receipt in the hope that Mr. Sehgal would be able to arrange such funds and execute the transaction without referring to me for the purpose of obtaining formal receipt and thereby delaying the transaction. Unfortunately, the transaction did not take place at all and all these undated unnamed documents were forgotten and continued to remain with him unutilized. I hope the above information/explanation answers your queries in the above connection. Thus by considering the earlier stand of the assessee prior to the statement recorded under section 132(4) as well as the subsequent retraction made by the assessee vide letter dated 30th September, 2017, we note that this is not an abrupt after-thought retraction by the assessee from the statement made under section 132(4) but as far as the alleged loan of ₹ 15 crores is concerned, the stand of the assessee right from the beginning was clear that he has not taken any loan from Shri DP Sehgal. This explanation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hours. The person may not be in a position to make any correct or conscious disclosure in a statement if such statement is recorded at such odd hours. Moreover, this statement was retracted after two months. 23. The main grievance of the Assessing Officer was that the statement was not retracted immediately and it was done after two months. It was an afterthought and made under legal advise. However, if such retraction is to be viewed in light of the evidence furnished along with the affidavit, it would immediately be clear that the assessee has given proper explanation for all the items under which disclosure was sought to be obtained from the assessee. So far as amount invested in house property is concerned, the assessee has specifically stated in his explanation dated 28-2-1989 that there was absolutely no basis for making the disclosure on account of bunglow at 68, Sarjan Society, Athwa Lines, Surat. It was in the year 1964 that the assessee took one Plot No. 68 in Sarjan Co-operative Housing Society which was also constructing the bunglow for which the assessee claimed to have been made contribution from time to time. The assessee took possession of the bunglow in 1974 whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence no addition could have been justified on that count. 25. So far as addition of ₹ 1 lakh on account of unaccounted investment in furniture is concerned, it is stated by the assessee that on the ground floor furniture was made before 15 years and assessee had spent ₹ 25,000 for renovation after making withdrawal from the firm's account. It is further submitted that the furniture on the first floor was partly received and paid out of withdrawals from the firm. At the time of the search additional furniture meant for the first floor was just received by way of parcel from Ahmedabad and was lying in bundles. A detailed source of investment of furniture purchased from Ahmedabad with a due confirmation from the party concerned have been filed by the assessee before the Assessing Officer. Since no payment of this additional furniture was made by the assessee till the date of search, no addition could have been made on this count. 26. In view of what has been stated hereinabove we are of the view that this explanation seems to be more convincing, has not been considered by the authorities below and additions were made and/or confirmed merely on the basis of s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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