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TMI Blog2013 (12) TMI 1735X X X X Extracts X X X X X X X X Extracts X X X X ..... en sisters concern, penalty under section 271E and 271D cannot be imposed. Appeals filed by the assessee are allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... olated the statutory provisions. The lapse, if at all there is any, is solely due to ignorance of law on the part of the Directors as they are not well educated. The AO however did not accept the explanations submitted by the assessee and proceeded to pass orders imposing penalty of Rs.12,86,000/- under section 271D and Rs.30,000/- under section 271E of the Act by holding that various explanations submitted by the assessee do not fall within the meaning of 'reasonable cause' as defined in section 273B of the Act. Being aggrieved by the penalty orders, assessee filed appeal before ld CIT(A). 5. For the same reason, penalty of Rs.1,76,000/- and Rs.25,000/- under section 271D was also imposed by the AO for the assessment years 2005-06 and 2008-09 and penalty of Rs.2,29,000/- and Rs.23,180/- under section 271E was imposed for assessment years 2006-07 and 2007-08 and appeals were filed by the assessee before ld CIT(A). 6. Before the first appellate authority, assessee reiterating the stand taken before the AO, submitted that the loans with regard to which penalty was imposed were taken by the assessee either from the sister concern i.e. M/s. Shree Surya Finance or from the directors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid basis, ld CIT(A) confirmed the imposition of penalty for the assessment years under consideration. Hence, assessee has filed appeals before us. 8. At the time of hearing, ld A.R. referring to the incorporation certificate placed at page 1 of PB submitted that though the company was incorporated on 17.4.2001, but actually it started its operation during financial year 2003-04 relevant to assessment year 2004-05. In earlier assessment years, there was no operation by the assessee. In this context, ld A.R. drew our attention to profit and loss account of the assessee for assessment year 2004-05, which is placed at page 28 of PB. Ld A.R. submitted that assessee is a very small company and all along its turnover remained between Rs.10 lakhs to Rs.12 lakhs. Since it was a start up period, it could not avail loan from any other sources except its sister concern and directors. Ld A.R. submitted that since assessee continuously sustained loss, ultimately it become defunct. Ld A.R. referring to page 18 of PB, which is a memorandum of Article of Association of the company, wherein, the directors name have been mentioned and also the partnership deed of Shree Surya Finance placed at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cilities are available in the area of operation. Ld D.R. referring to the penalty order submitted that the AO has dealt with each of the contention raised by the assessee and has come to a reasonable conclusion by holding that none of the reasons shown by the assessee constitute reasonable cause as per section 273B of the Act. Ld D.R therefore urged that in the given circumstances, assessee having violated the provisions of section 269SS, imposition of penalty is correct. 10. We have considered submissions of ld representatives of parties and orders of authorities below. 11. Ld A.R. has argued for deletion of penalty broadly on the following grounds: (1) It is a transaction between the sister concern or the directors. (2) It is the first year of operation, hence, assessee was not well aware of the statutory provisions. (3) Assessee has proved its bonafide by disclosing unsecured loans in the financial statement alongwith return of income. Since there is neither reopening of assessment nor any addition of the unsecured loan, the genuineness of the transaction has not been doubted. 12. It is a fact that as per certificate of incorporation, assessee company was incorporated o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en either from sister concern or directors, who are closely related to the assesse, secondly the AO has also not doubted the genuineness of the transaction, as he has accepted the unsecured loan without making any addition in this regard. It is also a fact that in all these assessment years, assessee has also returned loss. In these circumstances, as held by the Third Member Bench of this Tribunal in the case of Vinman Finance & Leasing Ltd (supra), it has to be presumed that assessee knowingly would not have exposed itself to penalty of Rs.12,86,000/- under section 271D and Rs.30,000/- under section 271E for assessment year 2004-05. In our considered view, there is no case of imposition of penalty as the reasons shown by the assessee in its explanation for non-compliance to the provisions of section 269SS and 269T of the Act constitute reasonable cause within the meaning of section 273B of the Act. In the aforesaid view of the matter, we delete the penalty imposed u/s.271D of the Act. For the same reason, we also delete the penalty imposed u/s.271E also for the impugned assessment year. Ground No.2 in I.T.A. No.261/Viz/2013 since does not relate to the subject matter of appeal, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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