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2018 (5) TMI 1635

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..... fore, we are of the view that the assessee has been able to demonstrate reasonable cause for not visiting the assessee with penalty under section 271D and 271E. We allow both the appeals of the assessee and delete penalty. - Decided in favour of assessee.
SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER For The Assessee : Shri T.P. Hemani, AR For The Revenue : Shri V.K. Singh, Sr.DR ORDER PER RAJPAL YADAV, JUDICIAL MEMBER: Present two appeals are directed at the instance of the assessee against separate orders of the ld.CIT(A) dated 6.11.2015 passed for the Asstt.Year 2009-10. 2. Though the assessee has taken four grounds of appeal in each appeal, but its solitary grievance relates to confirmation of penalty under section 271D and 271E of the Income Tax Act amounting to ₹ 1,74,99,700/- and ₹ 51,16,065/- respectively. 3. The facts on all vital points are common. Penalty has been imposed for violation of section 269SS and 269T of the Income Tax Act, 1961. In other words, according to the ld.AO the assessee has obtained loan/deposits in cash and violated provisions of section 269SS, therefore, deserves to be visited with penalty unde .....

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..... .CIT(A). The ld.CIT(A) has gone through the submissions of the assessee but did not accept them. The ld.CIT(A) concur with the AO and confirmed penalty by way of impugned orders passed independently on each appeals of the assessee. 8. Dissatisfied with the orders of the ld.CIT(A) assessee has come up in appeals before the Tribunal. While impugning order of the ld.CIT(A), the ld.counsel for the assessee raised multi-fold submissions. With regard to the penalty imposed under section 271D, he contended that penalty order is time barred. According the ld.counsel for the assessee, action under section 271D has been taken in the assessment year 2009-10. Penalty order has been passed on 8.12.2014. Though, according to the ld.counsel for the assessee, there is no time limit prescribed under statute for passing penalty order under section 271D, but must be passed within a reasonable time. On the strength of following decisions: • NHK Japan Broadcasting Corpn., 305 ITR 137 (Del); • CIT Vs. Hutchison Essar Telecom Ltd., 323 ITR 230 (Del); • ITO Vs. Vishal Fabrics P.Ltd., ITA No.448/A/2007; • Leela Ship Recycling P.Ltd., ITA No.2011/Ahd/2015; • H.Ajitbhai & .....

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..... submissions submitted by the ld.counsel for the assessee at the time of hearing. It reads as under: o "Assessee is a Public limited company. Initially, assessee carried out its business as a Partnership Firm in the name and style of "Monarch Dyestuffs Industries". The then firm was exporting dyes and dyes intermediaries since 1980. There were no local sales. It was following mercantile system of accounting and its accounts were also audited u/s 44AB of the Act. o Later, the firm was converted into company which came to be incorporated on 25.09.94 under Part IX of the Companies Act. 1956. After incorporation of the company, appellant continued the business earlier carried out as a partnership firm. As stated earlier, there were no local sales. o Owing to revaluation of currency in 1995 in Eurugave, Brazil and other latin American country, assessee could not recover money from its debtors in time and certain funds have not been received till date. Non-realization of funds from debtors resulted into serious financial crisis coupled with following consequences: * Bank of Baroda and Bharat Overseas bank stopped various facilities and tried to recover advances from .....

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..... was passed on 07.12.11. Copy of scheme of BIFR dated 07.12.11 is placed at Pgs.23-61 of P/B. o As per the undertaking given to BIFR, assessee had to remit payment being One Time Settlement to both the banks, GIIC, and other NBFCs during the year under consideration. Also the assessee had to improve its productivity so as pay off sundry creditors. Thus, it was an extreme situation wherein assessee had to arrange for funds and pay off one time settlement amount to various institutions, as stated above, or else the settlement scheme, as framed by BIFR, would have been cancelled which could have made the scenario even worse. Thus, it was no less than a "Do or die" situation for the appellant. o Further, appellant was purchasing raw material from local markets as well as foreign markets. Creditors of such raw materials were to be paid within 15-30 days by post-dated cheques only. Appellant had no option but to ensure that such cheque were honored so as to establish credibility in the market. Further, appellant was exporting goods on a credit period of 2-3 months but still, such dues were never received on due dates. o All such incidents made the situation very grave. On .....

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..... . It is imperative upon us to take note of relevant provisions viz. sections 269SS, 269T, 271D and 271E which reads as under: Section 269SS '269SS. Mode of taking or accepting certain loans, deposits and specified sum.-No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, if,- (a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or (b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more: ***** ***** Section 269T 269T. Mode of repayment of certain loans or deposits.-No br .....

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..... deposits by any other mode, than the account payee cheque/draft, he will be visited with penalty as provided in section 271E. The contravention to section 269SS and Section 269T would not automatically authorise the AO to visit the assessee with penalty under section 271D and 271E, because sections 273B provided that in case assessee demonstrate "reasonable cause" for violating this provision, then he could be absolved from visiting with penalty. 13. Before we embark upon an inquiry on the facts of the present case, in order to ascertain that appellant has demonstrated "reasonable cause" for absolving itself from levy of penalty under section 271D and 271E, we deem it appropriate to appraise ourselves with proposition laid down in various authoritative pronouncements referred to by the ld.counsel for the assessee in analyzing various fact situation, wherein reasonable cause demonstrated by the assessee were accepted. In other words, how different facts situations have been taken as "reasonable cause" by the Hon'ble Supreme Court, High Courts and ITAT. 14. First decision referred by the ld.counsel for the assessee is of Hon'ble Punjab and Haryana High Court in the case of CIT Vs. .....

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..... of Mr.S.V.S.Manian. Mr.S.V.S.Manian used to pay the money in the current account and used to withdraw the money also from the current account. The Revenue should establish that what was received by the assessee is a loan or deposit within the meaning of Section 269SS. The deposit and the withdrawal of the money from the current account could not be considered as a loan or advance. Further it was also found that the assessee filed a letter dated 29.09.97 and in that letter he explained that the amount received from Mr.S.V.S.Manian had been shown as "unsecured loan from directors" in the Balance Sheet. As per the Companies Act, under Companies (Acceptance of Deposit) Rules 1975, under Rule 2(b)(ix), deposit does not include any amount received from a Director or a share holder of a Private Limited Company. Therefore the transaction between the appellant and the Director cum Share holder is not a loan or deposit and it is only current account in nature and no interest being charged for the above transaction. 5. In the foregoing conclusions, we are of the view that, since the said transaction does not fall within the meaning of loan or advance, there is no violation of Se .....

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..... that transaction was genuine and under business exigency cash loan was taken. It is pertinent to take note of some of the facts. M/s.Tensile Steel Ltd. ("TSL" for short) is a public limited company registered under the Companies Act, 1956. Assessee, Mrs. Rupali R. Desai is daughter of Shri Ramesh R. Desai, who is chief promoter and Managing Director of TSL. The assessee is also one of the promoters and directors. TSL was a sick industrial unit and registered with Board for Industrial and Financial Reconstruction ("BIFR" for short). According to the scheme of resettlement, the assessee has to deposit ₹ 1 crore in a no-lien account in Bank of India. The TSL had only one month time to deposit ₹ 1 crore with BOI in no lien account. Thus, it was decided by the management that instead of making deposits with nationalized bank it should be deposited in the name of one of the promoters/directors who was not a guarantor to the bank. In this background cash was deposited in account of Mrs.Rupali R. Shah on whose violation penalty under section 271D was imposed. This penalty was deleted by the Tribunal and observation of the ld.Third Member in this background is worth to read. It .....

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..... ine the word "reasonable" as under: "Reasonable Fair, proper, just, moderate, suitable under the circumstances. Fit and appropriate to the end in view. Having the faculty of reason; rational; governed by reason; under the influence of reason; agreeable to reason. Thinking, speaking, or acting according to the dictates of reason. Not immoderate or excessive, being synonymous with rational, honest, equitable, fair, suitable, moderate, tolerable. Cass v. State 124 Tex. cR. R. 208, 61 S.W. 2d 500" 15. Reasonable cause means genuine belief based on reasonable grounds. TSL was on the verge of winding up. The assessee was the promoter and director of TSL. Her father was the chief promoter and managing director of TSL. It was a closely-held company. Theassessee- was concerned with the revival of TSL. In the process of revival, the assessee took the cash loans from TSL. Genuineness of the loan was not doubted. The circumstances under which the loan was taken were not disputed. The assessee felt that, the delay may defeat the purpose. As such, to comply with the Court orders and to furnish the deposits as per the direction of AAIFR to TSL, the assessee took the loan .....

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..... . The financial institution put pressure for realization of loans and due to such financial crunch, its business was closed down. It has been declared as a Sick unit and registered with BIFR for resettlement. The assessee has placed details vide which amounts have been deposited and how cheques have been cleared. All these details have been compiled on page nos.111 to 119 of the paper book. A perusal of these details would indicate that cash loan was deposited in Progressive Mercantile Co-op. Bank and they were used for clearing cheques. For example on 7.4.2008 an amount of ₹ 75,000/- was deposited. Simultaneously two cheques bearing no.091199 and 453007 for a sum of ₹ 31,104 and ₹ 47,886 were cleared in the name of M.M. Auxitex and Kirti Import & Export. Thus, contention of the assessee was that had it used through banking channel, more particularly, those banks to whom it has to pay various dues/ outstanding loans, then it would not be able to fulfill its promises with BIFR for its reestablishment. It has to make payment of certain amounts promptly for avoiding adjustment of such cash arrangement by it towards existing loans with financial institutions. These tr .....

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