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2008 (2) TMI 494 - AT - Income TaxPenalty proceedings u/s 271E - contravention of provisions of section 269T for repaying loan - assessment proceedings are necessary to levy penalty u/s 271E ? - Difference of opinion between Learned members - Third Member Order - Whether the cancellation of the penalty imposed under section 271E is justified by the CIT(A) under the facts and circumstances of the case or not? - cross objections filed by the assessee are to be allowed or not? - claim of ignorance of provisions of law. Order AM - HELD THAT - In our opinion, the plea that the assessee was not aware of about the provisions of Law cannot be reasonable ground for not complying with the provisions of section 269T. The assessee has committed a default. No reasonable cause was explained; all the four parties were putting up in Srikakulam where proper banking facilities were available. Even no evidence was filed either before the tax authorities or before us which may prove that no banking facilities were available where the parties were putting up. The Assessing Officer in our opinion was fair enough not to impose penalty in respect of the sum of Rs. 11,30,934 where he found that the repayment of deposit related to the depositors putting up in remote area. The assessee is a Finance and Leasing Public Limited Company, and, therefore, it is duty bound to abide by the provisions of the Income-tax Act. We, therefore, set aside the order of the CIT(A) and restore the order of the Assessing Officer imposing penalty on the assessee in respect of cash repayment of the deposit for a sum of Rs. 3,80,000. Penalty is deterrent so that a person may abide by the Law of the country. In the result, the appeal of the revenue is allowed. Assessee has taken the plea that as long as the transaction is a genuine one and when the assessee is able to substantiate that there was a reasonable cause, penalty under section 271E is not justified - We have already held that the assessee has not substantiated that the default was made due to reasonable cause. The genuinety of the transaction can be proved only when the additions are to be made under section 68 of the Act when the repayment is being made as Assessing Officer cannot make any addition deeming to be the income of the assessee. Although in the cross objection the assessee stated that in the recent judgment the Hon'ble Hyderabad Bench Tribunal has held in this regard, but no copy of such judgment was filed before us. We, therefore, do not find any merit in the cross-objection of the assessee, we accordingly dismiss the same - In the result, the appeal of the revenue stands allowed, while the cross objection of the assessee stand dismissed. Order JM - Assessing Officer has not initiated the penalty proceedings under section 271E of the Act while finalising the assessment, therefore, it is beyond the jurisdiction of the Assessing Officer to initiate penalty proceedings. The assessee has relied on the decision i.e., Shreenath Builders' case 1998 (12) TMI 97 - ITAT AHMEDABAD-C and Bhagwati Prasad Bajoria (HUF) 2003 (7) TMI 66 - GAUHATI HIGH COURT which are in favour of the assessee. The Bench in Shreenath Builders' case has opined genuineness of transaction is not doubted by the department in such circumstances ignorance of relevant provisions of the law constituted a reasonable cause within the meaning of section 273B, the penalty provisions of sections 271D and 271E read with section 273D confirm discretion on authorities to levy or not to levy the penalty . Transactions in question where bona fide made in the course of the business penalty cancelled. The views get support from the order of jurisdictional High Court in ITO v. Lakshmi Enterprises 1990 (6) TMI 68 - ANDHRA PRADESH HIGH COURT . In the result, we dismiss the appeal of the revenue while allowing the appeal of the assessee - Since the appeal of the revenue is dismissed, the CO filed by the assessee on the same ground supporting the order of learned CIT(A), the CO is allowed. Third Member Order - Even the plea of the assessee with regard to ignorance of provisions of law was rejected by the Assessing Officer on the limited ground that the Directors of the Company are well-educated and they ought to be aware of the provisions of the Act. Further, the plea of non-availability of the banking facility was in itself taken as the pointer to hold that the assessee was conscious of the provisions of the Act, ignoring the fact that though the assessee pleaded ignorance of the provisions of the Act, in response to the penalty proceedings he was advised to take the benefit of the factual matrix with regard to non-availability of the banking facility as a reasonable cause. It is evident from the order passed by the Assessing Officer as well as the order passed by the Accountant Member that the plea of non-availability of banking facility as well as ignorance of the provisions of the Act were brushed aside without any evidence to prove to the contrary. Here is a case where the assessed income is Rs. 59,210 only. It is difficult to presume that assessee had received deposits and repaid them in cash, totalling to Rs. 25 lakhs (approximately), with the knowledge and threat of exposing itself to levy of penalty equivalent to the amount transacted, which works out to more than 40 times of the assessed income. Under the circumstances, I agree with the conclusions of the learned Judicial Member that in view of the claim of ignorance of provisions of law coupled with the bona fide reasons for making payment in cash, no case was made out for levy of penalty since the explanation constitutes a reasonable cause within the meaning of section 273B of the Act. In other words, the penalty imposed under section 271E is not justified and the cross-objections filed by the assessee deserve to be allowed. The matter now be placed before the Regular Bench for giving effect to this order in accordance with the majority opinion.
Issues Involved:
1. Violation of Section 269T of the Income-tax Act. 2. Imposition of Penalty under Section 271E. 3. Applicability of Section 273B regarding reasonable cause. 4. Validity of the CIT(A)'s order canceling the penalty. 5. Cross objections by the assessee supporting the CIT(A)'s order. Issue-wise Detailed Analysis: 1. Violation of Section 269T of the Income-tax Act: The assessee, a finance company, repaid deposits in cash exceeding Rs. 20,000, totaling Rs. 15,10,934, violating Section 269T of the Income-tax Act. The Assessing Officer (AO) identified this during the assessment proceedings and imposed a penalty under Section 271E for four specific transactions totaling Rs. 3,80,000. 2. Imposition of Penalty under Section 271E: The AO levied a penalty of Rs. 3,80,000, equivalent to the amount of cash repayment, citing the mandatory nature of Section 269T which requires repayment via account payee cheque or draft. The AO found no reasonable cause for the cash payments, especially since the parties were from urban areas with available banking facilities. 3. Applicability of Section 273B regarding reasonable cause: The assessee argued that the depositors, being from rural areas with no banking facilities, insisted on cash payments. The CIT(A) accepted this explanation and deleted the penalty, considering the payments were made without knowledge of the penalty provisions and were a bona fide mistake. However, the Tribunal found that the plea of ignorance of the law was not a reasonable ground for non-compliance with Section 269T. The Tribunal emphasized that the assessee, being a finance company, was duty-bound to adhere to the Act's provisions. 4. Validity of the CIT(A)'s order canceling the penalty: The Tribunal reversed the CIT(A)'s order, reinstating the AO's penalty. It noted that the CIT(A) erred in deleting the penalty as the assessee failed to provide a reasonable cause for the cash repayments. The Tribunal highlighted that the AO had fairly not imposed a penalty for repayments to depositors in remote areas but correctly imposed it for those in urban areas with banking facilities. 5. Cross objections by the assessee supporting the CIT(A)'s order: The assessee's cross objections, arguing that the transactions were genuine and the penalty was not justified, were dismissed. The Tribunal reiterated that genuine transactions do not exempt the assessee from complying with Section 269T. The plea of ignorance of the law was not accepted as a reasonable cause under Section 273B. Separate Judgment by Judicial Member: The Judicial Member dissented, arguing that the penalty proceedings initiated after the assessment were invalid and that the transactions were genuine, made out of ignorance of the law. This view was not upheld by the Third Member, who supported the Tribunal's majority opinion that the penalty was justified. Conclusion: The Tribunal allowed the revenue's appeal, reinstating the penalty of Rs. 3,80,000, and dismissed the assessee's cross objections, emphasizing the necessity of compliance with Section 269T and rejecting ignorance of the law as a reasonable cause.
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