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TMI Blog2009 (7) TMI 870X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009 - Member(s) : R. V. EASWAR., T. K. SHARMA., P. K. BANSAL. ORDER-P.K. BANSAL, A.M.: This appeal has been filed by the assessee against the order of the CIT(A) dt. 6th April, 2006 for asst. yr. 2002-03, by taking the following effective ground of appeal: "(1) On the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that the assessee is not covered under s. 273B of the IT Act, 1961 and confirming the levy of penalty." 2. The brief facts of the case are that the assessment in the case of the assessee-company was completed under s. 143(3) of the IT Act, 1961 ("the Act" for short) determining the net loss at Rs. 1,92,274 on 23rd Feb., 2005. During the course of assessment proceedings, it was noticed by the AO that the assessee-company had taken a loan of Rs. 15,00,000 from N.K. Chemist of 5urat in cash. According to the AO, this was confirmed by 5hri Harshvadan Raanallal Chokhawala, Prop. of N.K. Chemist in response to summons issued to him. The loan was given by Shri Chokhawala out of his cash balance as explained by him. The AO, therefore, initiated penalty proceedings under s. 271D for the violation of the provisions of s. 269SS o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 was not actually used in the month of March, 2002 and the cash amount was shown in the balance sheet on 31st March, 2002. This cash was not even used in the month of April, 2002. Finally, the AO observed as under: "9 Tests have been provided for reasonable cause under s. 273B by Hon'ble Supreme Court [Asstt. Director of Inspection (Inv.) vs. Kum. A.B. Shanthi (2002) 174 CTR (SC) 513 : (2002) 255 ITR 258 (SC)] for s. 271D r/w s. 269SS, which are as under- (a) reasonable cause to take a loan otherwise than by account payee cheque or draft and, (b) transaction is bona fide. Assessee does not fulfill both of these tests of reasonable cause, assessee fails to substantiate with evidences, bona fide need of taking this loan in cash and that he was unable to procure loan by account payee cheque or account payee demand draft. 10. In view of the above, it is clear that assessee has contravened the provisions of s. 269SS of the IT Act. I hereby levy penalty of sum of Rs. 15,00,000 equal to the amount of loan taken in cash, as per provision of s. 271D of the Act." 5. The assessee went in appeal before the CIT(A). Before the CIT(A), the assessee filed the additional evidence by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the concerned parties to the aforesaid loan transaction, viz., the appellant and N.K. Chemist, were having bank accounts. The said transaction should appropriately have been made through account payee cheque or bank draft, as stipulated in the mandatory provisions of s. 269SS of the Act, which was not done. In justification of the aforesaid default committed in contravention of the provisions of s. 269SS, it has been contended by the appellant that the said loan was taken in cash because the same was urgently required in connection with negotiations for an ongoing land deal. The appellant was, however, unable to furnish any cogent or reliable evidence during the course of the penalty proceedings to justify the urgency of its requirement for obtaining the loan in cash, especially in view of the fact that both the parties to the transaction had regular bank accounts and the further fact that no such land deal was finalized till the end of the financial year or even in the following two months, nor was the urgent utilization of the said loan amount proved by the appellant. It is also noted that sufficient time and opportunity was provided by the Addl. CIT to the appellant to adduce sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther plea of the appellant that, as a borrower, it was not in a position to decide the mode of receipt of the loan is also unacceptable. The statutory provision of s. 269SS of the Act are mandatory in nature and are required to be strictly adhered to. 8. In view of the aforesaid facts and circumstances of the case, it is held that the appellant has been unable to justify the existence of any reasonable cause for the default committed by it in terms of the provisions of s. 271D of the Act. The action of the Addl. CIT in levying a penalty of Rs. 15,00,000, being equal to the amount of cash loan taken, is thus found to be in order and is accordingly confirmed." 6. Before us, the learned Authorised Representative vehemently contended that there was a reasonable cause for borrowing the money in contravention of s. 269SS of the Act. The assessee is in the business of developing the lands and the transaction in this line of business takes place instantly. The payments are made mostly on the spot in cash. Availability of ready cash puts the purchasing party in a commanding position. The assessee obtained the cash loan of Rs. 15 lacs from N.K. Chemist for the purchase of the land. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ductors Electricals Ltd. (2008) 301 ITR 328 (Guj); (10) Shivabhai Khodabhai Patel vs. CIT (2000) 161 CTR (Guj) 93 : (2000) 244 ITR 457 (Guj); (11) CIT vs. Manoj Lalwani (2003) 180 CTR (Raj) 394 : (2003) 260 ITR 590 (Raj); (12) CIT vs. R. Sridhar (2003) 182 CTR (Mad) 68 : (2003) 263 ITR 586 (Mad); (13) Kothari Company vs. CIT (2006) 204 CTR (MP) 298 : (2007) 294 ITR 644 (MP); (14) Omec Engineers vs. CIT (2008) 217 CTR (Jharkhand) 144 : (2007) 294 ITR 599 (Jharkhand); (15) Rajiana Kheti Store vs. ITO (2006) 99 TTJ (Asr) 576; (16) Karnataka Ginning Pressing Factory vs. Jt. CIT (2001) 72 TTJ (Mumbai) 307 : (2001) 77 ITD 478 (Mumbai). 7. The learned Departmental Representative, on the other hand, vehemently contended that the order of the CIT(A) must be upheld. The assessee has duly failed to prove the reasonable cause. The assessee has failed without any reasonable cause to comply with the provisions of s. 269SS of the Act. There was a clear breach of the statutory provisions of s. 269SS of the Act. The provisions of s. 269SS are complete code in itself and the decisions relied on by the assessee before the CIT(A) are of no help to the assessee. The violation of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, 2002 to 1st May, 2002. The said sum has not been utilized by the assessee for any purpose. The main plea of the assessee is that it has taken or accepted the loan in cash from N.K. Chemist as the assessee was negotiating the purchase of the land from one Shri Mukeshbhai N. Desai. The assessee wanted to settle the deal at Rs. 15 lacs but the owner of the land was not ready to part with the land for anything less than Rs. 20 lacs. No evidences were filed by the assessee which may prove that the assessee was carrying on negotiations for the purchase of the said land except the affidavit of Shri Mukeshbhai N. Desai which was also filed before the CIT(A) for the first time. In our opinion, the onus is on the assessee to prove that the assessee was in urgent business needs and that is why the assessee has borrowed the money in cash. The assessee although tried to convince us that the cash borrowed by the assessee was duly recorded in his books of account, therefore, the bona fide of the assessee is proved. In our opinion, there seems to be no reasonable cause in accepting the loan in cash as in this case the money borrowed by the assessee was not at all utilized. Had there been busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty imposed was deleted. Even it was also held that the director of the assessee company is not covered by the expression "any other person" occurring in s. 269SS. The facts in the case of the assessee before us are entirely different. The assessee has not borrowed the funds from the director. Even the funds were borrowed when there was no actual need as has been observed by us in the earlier paras. This decision, in our opinion, will not assist the assessee. 12. In the case of ITO vs. Akik Tiles (P) Ltd. the funds were accepted in cash under the compelling circumstances as the cheque issued by the assessee would have dishonoured. If the cheque gets dishonoured, the assessee had to face the consequences of s. 138 of the Negotiable Instrument Act. Therefore, in that case there was a reasonable cause for accepting the cash deposit. This decision will not apply to the facts of the case before us as in the case of the assessee in our opinion, there was no reasonable cause. 13. In the case of Mrs. Rupali R. Desai vs. Addl. CIT, the assessee took cash from the closely-held company and deposited with no lien account of the bank. The assessee was to deposit certain sum as a pre-conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of L. The assessee purchased goods from time to time from L. The assessee was not in a position to make the payment and an understanding was arrived at. The outstanding purchase price was treated as a loan on Sharafi account after making part payment of the outstanding dues. A sum of Rs. 24,908 was paid by account payee cheque out of Rs. 9,24,908 and the balance of Rs. 9,00,000 was simultaneously transferred to the L account. The balance outstanding liability in goods account was adjusted by way of journal entries. Similarly, out of the total outstanding of Rs. 14,08,165, a sum of Rs. 8,165 was paid through account payee cheque and balance amount of Rs. 14,00,000 was treated as a loan outstanding in Sharafi account. The AO treated the sums of Rs. 9,00,000 and Rs. 14,00,000 as an acceptance of the deposits in violation of s. 269SS and penalty under s. 271D was imposed but was cancelled by the Tribunal. When the matter went before the High Court, the Hon'ble High Court confirmed the order of the Tribunal. If we go to the facts of the case, in this case the assessee has treated the outstanding towards the purchase price to be the loan. The Tribunal has treated it to be reasonable caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee therefore, borrowed the funds in cash. Under these facts it was held that the assessee was having reasonable cause. In the case before us the assessee has not proved that the assessee has actually borrowed the money to purchase the land, as has been held by us in the earlier paras. Thus, there was no reasonable cause in the case of the assessee. Thus, this decision will also not apply to the facts of the assessee's case. 23. In the case of Rajiana Kheti Store vs. ITO the penalty was deleted as the assessee has borrowed the money in cash to meet the precondition imposed by the supplier to make the immediate payment of Rs. 50,000. Thus, the Tribunal took the view that there was a reasonable cause. This decision also, in our opinion, on the facts will not assist the assessee. 24. In the case of Karnataka Ginning Pressing Factory vs. Jt. CIT, the facts were that the temporary loan was taken from the sister concern for payment of excise duty which was adjusted out of the sale proceeds. Under these facts, the Tribunal deleted the penalty as there was actual utilization of the part of the money for excise duty. Thus, the Tribunal took the view that there was a reasonable c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money, or if he has given some false entry in his accounts he shall not escape by giving false explanation for the same. While deciding the vires of the provisions of s. 269SS Hon'ble Karnataka High Court took a similar view in Chamundi Granites (P) Ltd. vs. Dy. CIT Anr. (1999) 157 CTR (Kar) 128 : (1999) 239 ITR 694 (Kar), concurring with the Gujarat High Court in Sukhdev Rathi vs. Union of India (1994) 116 CTR (Guj) 620 : (1995) 211 ITR 157 (Guj) observed that s. 269SS has placed restriction in not taking any loans or deposits otherwise than by way of an account payee cheque. It is only reasonable restriction and does not take away the right of any person even to take the loan from other person in the manner prescribed under law. It is the mode prescribed under the section which is to ensure prevention of evasion of tax to avoid fictitious entries to be made in the books of account without there being any actual transaction. There is no infirmity in enactment of such a provision since it carried out its object of prevention of evasion of tax and plug possible loopholes. 4. Keeping in view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssive or immoderate. The word 'reasonable' has in law the prima facie meaning of reasonable with regard to those circumstances of which the actor, called on to act reasonably, knows or ought to know. Reasonable cause can be reasonably said to be a cause which prevents a man of ordinary prudence and average intelligence, acting under normal circumstances, without negligence or inaction or want of bona fides [Azadi Bachao Andolan vs. Union of India (2001) 167 CTR (Del) 154 : (2001) 252 ITR 471 (Del)]. 6. In the present case on hand, the undisputed facts are that the assessee company had taken a loan of Rs. 15,00,000 from N.K. Chemist of Surat in cash. This was confirmed by Shri Harshvadan Raanallal Chokhawala, Prop. of N.K. Chemist in response to summons issued to him. The AO has observed so in the assessment order. Acceptance of loan of Rs. 15,00,000 in cash was explained by the assessee that the company wanted to purchase a piece of land from Mukeshbhai Nanubhai Desai of Surat for developing the same for the purpose of business and therefore, to finalize the negotiations without any-loss of time, the assessee had to take cash loan from N.K. Chemist. But the deal was not materiali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est of my knowledge and belief." From the averments made in the affidavit, the contention of the assessee that negotiation was made with Mukeshbhai Nanubhai to purchase land and since the consideration offered by the assessee was not upto the satisfaction of Mukeshbhai Nanubhai, the latter turned down the proposal for purchase of land. As a matter of fact, this affidavit was produced before the learned CIT(A) for the first time but it contained nothing except whatever earlier stated before the AO. Whether the amount of loan taken by the assessee is adequate or inadequate, cannot be a ground to reject the explanation of the assessee. It is pertinent to note that the land under negotiation was agricultural land situated at village Kamrej, Taluka Kamrej, District Surat. Village Kamrej is situated on the National Highway No. 8 and is 15 kms. away from the city of Surat. But due to proximity to National Highway and fast growth of industrialization the land would fetch fantastic price in near future. A prudent businessman always makes necessary enquiry about proposed land from Gram Panchayat and once satisfied puts the offer and not in the way assumed by the CIT(A) in her order. Moreov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11th May, 2009 As there is a difference of opinion, the matter is being referred to the President, Tribunal, with a request that following question may be referred to a Third Member or pass such order as the President may deem fit: "Whether on the facts and in the circumstances of the case, penalty under s. 271D of the IT Act, 1961 is leviable?" R.V. EASWAR, VICE PRESIDENT (AS THIRD MEMBER): 16th July, 2009 The following point of difference has been referred to me under s. 255(4) of the IT Act for decision: "Whether on the facts and in the circumstances of the case, penalty under s. 271D of the IT Act, 1961 is leviable3" 2. The facts leading up to the levy of penalty have been stated in the dissenting orders and there is no dispute regarding their accuracy. The only question is whether on these facts there was reasonable cause within the meaning of s. 273B preventing the assessee from accepting the sum of Rs. 15,00,000 from N.K. Chemist by account payee cheque or draft as required by s. 269SS. Whereas the learned AM has taken the view that there was no reasonable cause, the learned JM has opined that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on trotted out is so perverse or strange or unusual that it cannot conform to the normal course of human conduct or probabilities, the fact that the transaction can be put through in several other or different ways should not be an, impediment in accepting the explanation as constituting reasonable cause. There is nothing to suggest that the assessee's explanation is in any manner improbable or impossible. It is supported on material facts by the affidavit of Mukeshbhai Desai. In these circumstances it appears to me that the assessee resorted to cash borrowing in violation of s. 269SS only because of the advantages which the ready cash back-up would give. I agree with the view taken by the learned JM and answer the point of difference referred to me in the negative. 3. The appeal will now go back to the Bench for passing orders in conformity with my decision. T.K. SHARMA, J.M.: 7th Aug., 2009 As there was difference of opinion between the Members, following question was referred to the Third Member for opinion: "Whether on the facts and in the circumstances of the case, penalty under s. 271D of the IT Act, 1961 is leviable?" 2. The learned Third Member (Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X
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