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TMI Blog2004 (6) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... nuine transactions will attract penalty u/s 271D of the Act for violation of the provisions of section 269SS of the Act. In this case, the assessee himself has admitted these as loans and he was unable to bring on record any reasonable cause with regard to these loans. The assessee has not established the nexus between the business expediency and the borrowals in cash which is necessitated for the purpose of business. Even he has admitted that these transactions are not recorded in the books of account. For all these reasons, we are of the considered opinion that the assessee has contravened the provisions of section 269SS of the Act and therefore, penalty levied u/s 271D of the Act by the JCIT and confirmed by the CIT (Appeals) is justified. We uphold the orders of the authorities below. We take this opportunity to place on record our appreciation of the order of the JCIT which is well reasoned and well-written. In the result, the assessee's appeal is dismissed. - HON'BLE A. KALYANASUNDHARAM, SENIOR VICE PRESIDENT AND MAHAVIR SINGH, JUDICIAL MEMBER For the Appellant : V. Jagadisan, Adv. For the Respondent : K. Anangpal, Adv. ORDER Per Mahavir Singh, Judicial Member. 1. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 133(6) sent by the Assessing Officer, the four creditors denied having lent any money to the assessee and eight creditors from Rajasthan admitted but they were not assessed to tax. As per the communication sent by the Assessing Officer to the Income-tax Officer, Ward-I, Nagaur (Rajasthan), it was informed that none of the cash creditors appeared before him despite his having issued notices under section 131. Shri Dhanraj who arranged the loans from Tirunelveli, was examined by the Assessing Officer who stated that the assessee had asked him for money and he had arranged a sum of Rs. 6.35 lakhs from various agriculturists who were his relatives. The Assessing Officer made the additions of cash credits amounting to Rs. 13,35,000 received from 30 persons. The assessee, therefore, preferred the appeal before the CIT (Appeals) against the action of the Assessing Officer. 4. The CIT (Appeals) directed the Assessing Officer to adjust the amount of Rs. 13,35,000 taken as loan from cash credits against peak credit quantified at Rs. 25,59,000. In view of the CIT (Appeals) direction, the Assessing Officer accepted the claim of the assessee as regards the cash credits from agricul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of section 269SS of the Act and held that the JCIT was right in levying the penalty amounting to Rs. 13,35,000. Aggrieved by this, the assessee is in appeal before the Tribunal. 5. The assessee has raised the following four grounds in this appeal: 1. The Commissioner of Income-tax (Appeals) erred in confirming the penalty levied under section 271D for assessment year 1994-95 in the sum of Rs. 13,35,000. 2. The Commissioner of Income-tax (Appeals) ought to have accepted the factual position that no offence is committed under section 269SS as borrowing is from persons having agricultural income and having no income liable to tax under the Income-tax Act, 1961. 3. The Assessing Officer having accepted that all loans in question are genuine, the Commissioner of Income-tax (Appeals) is not legally justified in confirming the penalty under section 271D. 4. In any event, the order of Commissioner of Income-tax (Appeals) confirming the levy of penalty under section 271D is against law and the facts and circumstances of the case. 6. Before us, the learned counsel for the assessee, Shri V. Jagadisan argued that, the Assessing Officer had accepted all the unsecured loans/cash cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004] 265 ITR 204 (Bom.) 2. Asstt. Director of Inspection (Investigation) v. Kum A.B. Shanthi [2002] 255 ITR 258 (SC) 3. Balaji Traders v. Dy. CIT [2001] 78 ITD 368 (Pune) 8. We have heard the rival submissions and gone through the materials placed before us. The assessee's counsel also filed paper book containing pages 1 to 18. We have also gone through the case laws cited by both the sides. The facts of the case were not disputed either by the assessee or by the Department. Now we have to discuss whether the CIT (Appeals) has erred in confirming the penalty levied by the JCIT under section 271D of the Act for the assessment year 1994-95 amounting to Rs. 13,35,000. The Assessing Officer has accepted all the loans in question as genuine and moreover, the borrowings are from the persons having agricultural income and they have no taxable income under the Act, in view of the facts and circumstances of the case, as argued by both the sides. 9. First of all, we have gone through the penalty order passed by the JCIT. It is seen that all the unsecured loans/cash credits received from 30 persons amounting to Rs. 13,35,000 which have been kept outside the books of account and it is ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . No. 3: You have claimed that you have borrowed Rs. 13,35,000 from outside. How was this money borrowed? This has been borrowed from persons as shown in the list submitted to you. The entire amount was borrowed in cash and has been repaid after the date of survey. The money was borrowed before the date of survey. Q. No. 4: Since the money was borrowed before the date of survey, what records have you maintained for the same? No records have been maintained for the same. All the loans were taken during the financial year 1993-94. Q. No. 5: Why have not recorded these transactions in books? Since these were out of books, I have not maintained any records. 9.1 It is further noticed from the penalty order that, the amounts were borrowed as cash credits/unsecured loans and the details of the same are very much relevant. Hence, these are reproduced from the penalty order as it is: Rs. 1. J.J. Kanak Raj, Tenkashi 45,000 2. J. Jebraj, Tuticorin 50,000 3. Narayan Ram, PO Panchala Sidha (Raj) 40,000 4. Gururam, PO Panchala Sidha (Raj) 45,000 5. Shankar Lal, PO Panchala Sidha (Raj) 40,000 6. J.A. Dinakaran, Vai Charan Mahadevi Tirunelveli District 50,000 7. J. Chandrasekharan, Tirunelveli Dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestigation Wing of the I.T. Department on 26-10-1994. Even lapse of four to five years until the assessment is framed these transactions were not recorded in the books of account. 4. In reply to show-cause notice for penalty under section 271D of the Act, vide letter dated 26-3-2003 it was pleaded by the assessee that the transactions are genuine as accepted by the Assessing Officer and hence the penalty should not be imposed. However, the assessee has not shown or proved that there exists business expediency or business prudent. 5. In further reply to penalty notice, dated 8-9-2003 it was pleaded that the loans are genuine and the penalty is not called for under section 271D of the Act. Even before the CIT (Appeals) or before the Tribunal, it was pleaded that the Assessing Officer has accepted all the loans as genuine and more particularly, the borrowings are from the persons who are having agricultural income and having no taxable income under the Act. 10. Now, we will go through the provisions of section 269SS of the Act. The relevant provision of section 269SS is reproduced as under: 269SS. No person shall, after the 30th day of June, 1984, take or accept from any other perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by various persons. Unaccounted income is also brought into the books of account in the form of such loans and deposits, and taxpayers are also able to get confirmatory letters from such persons in support of their explanation. 23. With a view to circumventing this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Bill seeks to make a new provision in the Income-tax Act debarring persons from taking or accepting, after 30th June, 1984, from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of such loan or deposit of the aggregate amount of such loan and deposit is Rs. 10,000 or more. This prohibition will also apply in cases where on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), and the amount or the aggregate amount remaining unpaid is Rs. 10,000 or more. The proposed prohibition would also apply in cases where the amount of such loan or deposit, together with the aggregate amount remaining unpaid on the date on which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not exist, invocation of the provisions of section 269SS ipso facto would not arise. In the circumstances, the assessee pleaded that in view of the opportunity of reasonable cause as provided under section 273B, the levy of penalty under section 271D is not obligatory and there is no legal fiction in the scheme for such automatic levy. Before the JCIT, CIT (Appeals) or even during the course of hearing before the Tribunal the assessee has not raised any plea regarding the reasonable cause that his case comes within the purview of section 273B of the Act. The genuineness of the transactions cannot be held as a reasonable cause which is clear from the memorandum explaining the provisions in Finance Bill, 1984. The words 'reasonable cause' have not been defined under the Act but the same could receive the interpretation which is given to the expression 'sufficient cause'. While dealing with the penalty provisions the words 'reasonable cause' would mean a cause which is beyond the control of the assessee. The 'reasonable cause' means a cause which prevents a reasonable man or man of ordinary prudence acting under normal circumstances, without negligence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 15.1 In the case of Patiram Jain v. Union of India [1997] 225 ITR 409 (M.P.) which was relied on by the assessee's counsel, it was held by the Hon'ble High Court as under: Once the proceedings were dropped and the explanations offered by the petitioners were accepted, the same could not be reopened for prosecution of the petitioners after a lapse of two years that the show. Sections 276DD and 276E of the Income-tax Act. Detailed explanations were tendered by the two firms and an opportunity of personal hearing was sought, but the respondents did not hear, the petitioners at all. In view of the fact that section 276DD and 276E of the Income-tax Act were deleted from the Act without any saving clause, prosecution of the petitioners thereafter when already explanations were accepted, was unwarranted and unauthorized by law. The facts of this case are fully covered by the law laid down in the case of Rayala Corporation, AIR 1970 SC 494, referred above. 15.2 In another case law relied on by the assessee's counsel in the case of CIT v. Parma Nand [2004] 266 ITR 255 (Delhi), it was held by the Hon'ble Delhi High Court that: Where the Appellate Tribunal held that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in the cases of Karnataka Ginning Pressing Factory v. Jt. CIT [2001] 77 ITD 478 (Mum.), Dillu Cine Enterprises (P.) Ltd. v. Addl CIT [2002] 80 ITD 484 (Hyd.), Ravi Iron Scrap Co. v. Dy. CIT [2001] 118 Taxman 111 (Chd.) (Mag.) and CIT v. Ajanta Dyeing Printing Mills [2003] 130 Taxman 442 (Raj.). 16. We have also gone through the case laws relied on by the learned Departmental Representative. In the case of Dhanji R. Zalte v. Asstt. CIT [2004] 265 ITR 204, the Hon'ble Bombay High Court has held as under: A plea has been taken before us, like it was taken before the Appellate forums below, that most of the parties to whom the assessee had advanced money or taken loans from, were agriculturists and they did not have the benefit of banking operations. In addition, these incriminating documents attached in the inventory on August 22, 1995, could not be termed as books of account and, therefore, there was no case for initiating proceedings for the violation of section 269SS and consequently levying penalty under section 271D of the Income-tax Act. The assessee contended that all the registers maintained show only outgoings and there was no transaction of receipts. At one point of ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,000 with effect from April 1, 1989. Section 276DD stated that if a party-person takes or accepts any loan or deposit in contravention of the provisions of section 269SS, he shall be punishable with imprisonment for a term which may extend to two years and shall also be liable to fine to the extent of equal amount of such loan or deposit subsequent section 271D, which is a penal clause in the Act, which provides for imposition of penalty for failure to comply with the provisions of section 269SS was introduced with effect from April 1, 1989, omitting section 276DD from the said date. Thus, the original section 276DD was replaced by section 271D and the punishment of imprisonment was taken away. The failure to comply with the provisions of section 269SS could only be visited with a penalty of fine equal to the amount of loan or deposit to be taken or accepted. The objections raised by the assessee against the penalty imposed under section 271D have been considered by the authorities below in keeping with the provisions of section 269SS and it has been rightly held that the said objections raised by the assessee against invoking the provisions of section 269SS and thus levying pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for taking loans in cash but in the present case in hand, the assessee is unable to provide any material or evidence to show the urgency on the part of the assessee to procure the loans in cash otherwise than the mode provided under section 269SS of the Act. It is seen that the assessee is doing finance business for a long time. Even, the assessee has admitted that since these transactions were out of books of account and they have not been recorded in the books of account maintained by him as it is evident from the questions and answers recorded by the authorities below which are reproduced at pages 7 8 of this order. It is a fact that in all the cases cited by the learned Counsel for the assessee, the borrowals in cash appears to be due to reasonable cause and they are accounted for in the books of account maintained by the assessee or due to business expediency but that is not the case present before us. It was also argued that all the persons from whom loans taken are agriculturists and not assessed to tax. Therefore, it was stated that as per second proviso to section 269SS of the Act, there is no violation of section 269SS of the Act. It is seen from the said section itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is reasonable cause the penalty under section 271D of the Act for violation of section 269SS of the Act cannot be levied. But where there is no reasonable cause even for genuine transactions will attract penalty under section 271D of the Act for violation of the provisions of section 269SS of the Act. 19. In this case, the assessee himself has admitted these as loans and he was unable to bring on record any reasonable cause with regard to these loans. The assessee has not established the nexus between the business expediency and the borrowals in cash which is necessitated for the purpose of business. Even he has admitted that these transactions are not recorded in the books of account. For all these reasons, we are of the considered opinion that the assessee has contravened the provisions of section 269SS of the Act and therefore, penalty levied under section 271D of the Act by the JCIT and confirmed by the CIT (Appeals) is justified. We uphold the orders of the authorities below. We take this opportunity to place on record our appreciation of the order of the JCIT which is well reasoned and well-written. 20. In the result, the assessee's appeal is dismissed. - - TaxTM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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