2018 (2) TMI 1467 - HC - Income Tax

Penalty u/s 271D - reasonable cause for violation of Section 269SS - Tribunal partly allowed the Appeal by restoring the issue of amounts received in cash from agriculturists to the Assessing Officer to verify whether the agriculturists were not having banking facilities so as to delete the penalty under Section 271 D - Held that - The law provides that the breach of Section 269 SS invites penalty under Section 271 D. The aforesaid breach has no relation to addition and / or deletion of income. The mere fact that a party accepts loans in cash (which are otherwise explainable) would not absolve a party from penalty under Section 271 D of the Act in the absence of reasonable cause. The fact that the Applicant s Appeal in quantum proceedings before CIT(A) deleted addition under Section 68 would have no bearing in respect of penalty imposed under Section 271D of the Act, for breach of Section 269SS of the Act. Even if, the Assessee has explained the identity, the source and genuineness of receipt in cash for the purpose of Section 68 of the Act, would not by itself permit / allow a party to obtain loans in cash in breach of Section 269 SS of the Act. So far as the next submission that reasonable cause made out by the Applicant, was that the Karta of the HUF being educated only upto 4th standard and was ignorant of the provisions of Section 269 SS of the Act. The Tribunal has dealt with the issue of reasonable cause and wherever it found that the reasonable cause has been made out, it restored the issue to the Assessing Officer for the purposes of verification of the facts stated by the Applicant in support thereof. In any case, the education of the Karta of the HUF is upto 4th standard, cannot by itself lead to presumption that he is ignorant of law. This is more particularly when the Karta is dealing with the large amounts of cash. Lack of formal education cannot by itself be the conclusive of ignorance of the law, particularly in respect of men of business. This of course, is without prejudice to the legal maxim that ignorance of law is no excuse. As under Section 260 A (7) the provisions of Code of Civil Procedure are made applicable to the appeals filed under the Act. Therefore, this would necessarily require application of O.41 R.1 and R.5 of the Code of Civil Procedure. The determination of the tax payable by the Assessee is in the nature of money decree and the same should be paid over to the successful party. In case, the applicant finally succeed in the appeal it would get the amounts paid in excess along with interest. However, there is no reason in the present facts to deny the successful party from the fruits of the decision of the Tribunal.

Summary

Issues:
1. Stay application to suspend the order of the Income Tax Appellate Tribunal pending Appeal.
2. Imposition of penalty under Section 271D of the Income Tax Act, 1961 for breach of Section 269SS.
3. Consideration of reasonable cause for receiving loans in cash exceeding a certain amount.
4. Applicability of legal principles and precedents in penalty proceedings.

Stay Application:
The Notice of Motion sought to stay the order of the Income Tax Appellate Tribunal pending the Appeal challenging the order dated 18th March 2015. The urgency arose due to the commencement of recovery proceedings by the Revenue post the impugned order. The Applicant's counsel requested a stay, citing unpreparedness for the Appeal's admission and pressing for interim relief. Despite the Applicant's arguments, the Court decided to fully consider the application on its merits.

Imposition of Penalty:
The dispute originated from the receipt of loans in cash by the Applicant, breaching Section 269SS of the Act, leading to penalty proceedings under Section 271D. The Assessing Officer imposed a penalty after finding no reasonable cause for the violation. The CIT(A) upheld the penalty, leading to further Appeal to the Tribunal, which partially allowed the Appeal by remanding the issue for verification of the agriculturists' banking facilities to determine a reasonable cause for the cash transactions.

Reasonable Cause Consideration:
The Applicant argued for a stay based on two grounds: firstly, the deletion of an addition under Section 68 of the Act in quantum proceedings should preclude penalty under Section 271D, citing a Supreme Court decision. Secondly, the Applicant claimed a reasonable cause due to the Karta's limited education, which the Tribunal did not find sufficient to delete the penalty. The Court elaborated on the distinction between ignorance of law and reasonable cause, emphasizing that lack of formal education does not automatically imply ignorance of the law, especially in business dealings.

Legal Principles in Penalty Proceedings:
The Court clarified that the breach of Section 269SS inviting penalty under Section 271D is independent of income addition or deletion. The decision in CIT Vs. Jai Laxmi Rice Mills was distinguished, emphasizing that the circumstances in the present case differed from those in the cited case. Additionally, the Court highlighted the application of Code of Civil Procedure provisions to appeals under the Act, ensuring the successful party receives any excess amounts paid along with interest. Ultimately, the Court found no reason to stay the Tribunal's order, dismissing the Notice of Motion.

In conclusion, the judgment addressed the stay application, penalty imposition, consideration of reasonable cause, and the application of legal principles in penalty proceedings, providing a comprehensive analysis of the issues involved in the case.