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TMI Blog2023 (1) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... corded. The bench noted that cashier makes payment on behalf of both the company, i.e. assessee and M/s. Rajasthan Lok Vikas Finance Resources Ltd. The cashier made the payment without ascertaining the cash balance of each company. Based on this action it has happen that in one company there is excess cash and in another it is in short and vice versa. Cashier has completed the cash book and this excess cash receipt or paid to each company is accounted in cash as per the availability of cash in each company. There is no question about the source of cash in each company by the revenue. Merely, the amount paid or received is in cash and interest is paid the same is considered as advances in violation of section 269SS/T and consequent thereupon considered it for levy of penalty u/s. 271D/E of the Act. These transactions are made during the course of business and just to avoid the deficit of cash which is arisen on account of the common cashier. This regular transaction out of the disclosed sources and is not recorded with an intent to considered it as loan or deposit. Merely on the regular balance interest paid the transaction recorded by the cashier to settle the deficit in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d despite various notices issued through RPAD. Consequent to this fact, the coordinate Bench decided the appeal of the assessee on merits vide order dated 09.08.2019. Thereafter, the assessee again filed miscellaneous application in MA No. 11/JP/2021 and expressly demonstrated the reason behind non compliance and prayed that the purpose of this appeal as directed by the Hon ble High Court which is to hear the contentions on its merits for which the reasons were stated in the affidavit filed, in support of MA filed. Considering the direction of the Hon ble Jurisdictional High Court direction and filling of the detailed reasons by the assessee the MA was allowed and therefore, this appeal is decided after hearing of both the parties on merits with the above back ground. 3. The assessee has assailed following ground in this appeal:- 1. Under the facts and circumstances of the case the ld. CIT(A) is not justified in confirming the penalty of Rs. 4054247/- levied u/s 271D of IT Act 1961, for alleged violation of section 269SS of the Act. 2. Under the facts and circumstances of the case the ld. CIT(A) is not justified in confirming the penalty of Rs. 5395338/- levied u/s 271E o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities on two separate defaults. 7. The ld. DR pointed out from the paper book filed by the assessee that in the case of M/s Lok Vikas House Funds Ltd. vs. Addl. CIT, Range-1, Jaipur in ITA No. 452/JP/1999 dated 07.12.2001 wherein the ld. AR Mr. A. K. Sharma quoted to the Bench that the company is under liquidation. Based on this observation bench raised a question to the ld. AR of the assessee to clarify the fact and file a detailed affidavit to this fact. The ld. AR of the assessee submitted that the company is not under winding up and petition filed earlier on 20.03.2001 has been withdrawn on 31.10.2008. Therefore, the company is not under liquidation and still operating and thus, this appeal is maintainable. The ld. AR of the assessee filed the affidavit and relevant proof for the same. Considering this fact the appeal is thus maintainable on this aspect too. 8. The fact as culled out from the records is that the assessee company is non banking Housing finance Company and running under the same management along with M/s Rajasthan Lok Vikas Finance Resources Ltd., another company belonging to the same group company having same office premises, common managerial, comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of ld. CIT(A) on the issue is as under:- 24 In view of the above detailed discussion on the subject, I have come to the conclusion that for levying penalty u/s 271D of the 1.T.Act for violation of the provisions contained in Sec. 269SS, Expl. (iii) under that section says, loan or deposit means that loan or deposit of money . In this case, it has amply been proved by the facts mentioned in the order that the transaction between the two sister concerns partake the character of loan or deposit. Therefore, penalty u/s 271D of the 1.T.Act had correctly been levied by the Addl. CIT, Range-1, Jaipur 25 As regards the penalty levied u/s 271E of the IT Act for violation of the provisions contained in sec 269T of the IT Act, Expl. (ii) under that section lays down that deposit means any deposit of money which is repayable after a notice or repayable after a period. A period has not specifically been defined under the Act. Deposit can be for any length of period - say for a few days or a month or a year. The distinction between a loan or a deposit is that in the case of the former, it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of assessment proceedings, AO in the assessment order u/s 143(3) dt. 12.01.1998 observed that assessee has accepted cash loans and deposits from M/s Rajasthan Lok Vikas Finance Resources Ltd. of Rs.40,54,247/- and repaid loan of Rs.53,95,338/- in cash which is in violation of section 269SS and section 269T of the Act. Interest is also paid on the amount of deposit. He therefore, initiated penalty proceedings u/s 271D and 271E of the Act. 5. After initiating the penalty proceedings, the AO vide letter no.49 dt. 15.01.1998 referred the matter to Additional Commissioner of Income Tax for imposing the penalty. The Additional Commissioner of Income Tax after considering the submission of assessee held that assessee has violated section 269SS/269T and thus, imposed penalty of Rs.40,54,247/- u/s 271D and penalty of Rs.53,95,338/- u/s 271E of the Act. 6. Against the penalty order, assessee filed appeal before Ld. CIT(A) who upheld the levy of penalty as per Para 12 to 26 at Pg 15-22 of his order by holding that there is no unintentional intermingling of cash of the two sister concerns, interest has been paid on the outstanding amount of loan or deposit and therefore, there is viola ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are of same group having common management. Therefore, such transaction are not loan or deposit but only current account transaction. The meaning of term deposit and loan has been explained at Pg 5735 of Chaturvedi Pithisaria's Income Tax Law, 4th Edition, Volume 5 which is as follows:- Deposit and loan -These two are not identical in meaning. It is true that both in the case of a loan and in the case of a deposit there is a relationship of a debtor and a creditor between the party giving money and the party receiving money. But in the case of a deposit, the delivery of money is usually at the instance of the giver and it is for the benefit of the person who deposits the money-the benefit normally being earning of interest from a party who customarily accepts deposits. Deposits could also be for safe-keeping or as a security for the performance of an obligation undertaken by the depositor. In the case of a loan, however, it is the borrower at whose instance and for whose needs the money is advanced. The borrowing is primarily for the benefit of the borrower although the person who lends the money may also stand to gain thereby by earning interest on the amount lent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the copies of the accounts furnished before us all that can be gathered is that funds have been transferred from and to the sister concerns as and when required and since the managing partner is common to all the sister concerns, the decision to transfer the funds from one concern to another concern or to repay the funds could be said to have been largely influenced by the same individual. In other words, the decision to give and the decision to take rested with either the same group of people or with the same individual. In such circumstances of the case, we hold that the transactions inter se between the sister concerns and the assessee cannot partake of the nature of either deposit or loan , though interest might have been paid on the same. Excepting for the transfer of funds being witnessed in the books of accounts of the concerned firms, no material is on record to show issue of receipt or pronote in evidence of accepting a deposit or accepting a loan. Therefore, we hold that the transactions as are found in the books of accounts of the assessee cannot be termed as deposits or loans as understood in common parlance. It only represents diversion of funds from one concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istribution of financial assets over a time between the lender and the borrower. In a loan, the borrower initially receives or borrows an amount of money, the principal amount, from the lender and is obliged to repay an equal amount with a cost referred to as the interest at a later time. Usually, the money is paid back in regular installments or partial repayments. In some places, the meaning of loan is supplied by in the shape of agreement, which may be express or implied to repay the principal amount with or without interest. Thus, for a loan there has to be a lender and a borrower and the subject of loan in an express or implied contract between them for a return of this subject of loan with or without further cost [interest]. It is true that when a loan is taken it creates a debt but there are debts even without a loan. Thus, every loan is a debt but every debt may not be a loan. That is why Explanation appended to section 269SS of the Act defines the term loan or deposit as loan or deposit of money . The Chapter in which section 269SS falls reads as mode of taking or accepting certain loans or deposits . Thus, only loans/deposits fall under the definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h are situated in the same premises, namely, Ujjawal Apartments, Udaipur. The main Director, namely, Shri Mahendra Tak holds 80% shares in the company alongwith his wife and son; and he is also the main member of AOP holding 64.25% share in the profits along with wife and son. Thus Shri Mahendra Tak controls and manages the activities of both the concerns in such a manner that the transactions between the assessee and its AOP can surely be treated as a transaction between the two sister concerns. The A.O. has not disputed and doubted the genuineness of the transaction. Therefore, when a genuine transaction is undertaken between the two sister concerns, by way of cash payments, in contravention of provisions of section 269SS, penalty u/s 271D is not leviable. Accordingly, on the cash transaction of Rs. 3.25 crores between the assessee and its AOP penalty u/s 271D is not leviable. 9. Moreover, no tax evasion is either noticed or pointed out in this case and main intention of the provisions of sections 269SS and 269T is to check the inflow of unaccounted money. Further all penalty provisions, including section 271D of the Act admit reasonable cause as a defence against penalty as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Orissa (1972) 83 ITR 26 (SC) The Hon ble Supreme Court at Para 5 of the order held as under:- 5. Under the Act penalty may be imposed for failure to register as a dealer : s. 9(1), r/w s. 25(1) (a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi- criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment in cash and there was no mens rea on the part of the assessee. This aspect has also been examined by the Gauhati High Court in the case of CIT vs. Bhagwati Prasad Bajoria (HUF) (2003) 183 CTR (Gau) 484. While relying upon the decision of the hon'ble Supreme Court, the Gauhati High Court has observed in paragraph 7 of its judgment as under: Keeping in view the object of introducing s. 269SS the Legislature has given discretion to the assessing authority under section 273B of the Income-tax Act to levy the penalty as provided under s. 271D of the Act or not. Under s. 273B, if the Court finds that there was a reasonable and sufficient cause for not imposing the penalty on the assessee in the given facts and circumstances of the case the penalty shall not be levied. The facts which emerged in the case are that as the result of advancement of the loan by Umadutta Jhunjunwalla on three differ ent dates the assessee has executed the promissory notes in favour of Umadutta Jhunjunwalla. The transaction of loan has found place in the books of account of the assessee as well as the lender of the loan. None of the authorities have reached the conclusion that the transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to levy penalty. 11. In the instant case, the CIT(A) and the Appellate Tribunal found that (i) there was business exigency forcing the assessee to take cash loans for the purpose of honouring the commitment, viz., issuance of cheque on a particular date ; (ii) the creditors were genuine persons and the transactions were never doubted by the authorities below; and (iii) there was no revenue loss to the State exchequer, and satisfied that the assessee has shown reasonable cause for the above transactions. 12. The authorities have also noticed that all the transactions were brought into account of the assessee and there were corresponding entries in the books of account of the respective parties/creditors which satisfied the test of business exigency. 13. Once the said finding is arrived at by the Tribunal on the facts, as held by the Delhi High Court in CIT vs. Parma Nand (2003) 180 CTR (Del) 489 : (2004) 266 ITR 255 (Del), which was followed by this Court in CIT vs. Ratna Agencies (2006) 284 ITR 609 (Mad) that that the finding recorded by the Tribunal as to the reasonable cause is essentially a finding of fact and no question of law much less a substantial question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obvious reason for accounting such transaction. There is no intention to contravene the provision of the Act. The ld. AO and ld. DCIT has not recorded any controverting finding that the cash transactions are unaccounted or were with the motive to manipulate the book result in that aspect of the fact and thus, the reasonableness of the transaction incurred needs to be examined. The identity and genuineness of the transactions incurred not in question the liability of the cash in the respective company s cash book is also not disputed by either company. Merely, the assessee company has paid the interest, transaction between sister concern company cannot be considered as equated with the stern provision of the Act. Based on the arguments, the ld. AR of the assessee heavily relied upon the decision of the Jurisdictional High Court in the case of CIT vs. Maheshwari Nirman Udyog reported in (2008) 302 ITR 201 (HC Raj). 12. Per contra, the ld. DR objected that there should be two separate appeals and the assessee has merely filed a single appeal in respect of two different penalty orders. On merits the ld. DR supported his arguments based on the findings recorded in the orders of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce of cash already explained and there is no adverse observation on these aspects of cash recorded as paid and received from each other. The revenue has not controverted to the factual position that both the companies were operating from same premises and source of cash were out of the disclosed sources. As the cashier was operating for both the company used the cash of the either company and passed necessary entry to complete the books and record the correct state of affairs and there is no doubt about genuineness of the transactions recorded. The bench noted that cashier makes payment on behalf of both the company, i.e. assessee and M/s. Rajasthan Lok Vikas Finance Resources Ltd. The cashier made the payment without ascertaining the cash balance of each company. Based on this action it has happen that in one company there is excess cash and in another it is in short and vice versa. Cashier has completed the cash book and this excess cash receipt or paid to each company is accounted in cash as per the availability of cash in each company. There is no question about the source of cash in each company by the revenue. Merely, the amount paid or received is in cash and interest is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that there was reasonable cause for such failure and if the assessee proves that there was reasonable cause for failure to take a loan otherwise than by account payee cheque or account payee demand draft, then the penalty may not be levied. Therefore, undue hardship is very much mitigated by the Inclusion of s. 273B in the Act, there was a genuine and bona fide transaction and if for any reason the taxpayer could not get a loan or deposit by account payee cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty has got discretionary power. 12. Considering the aforesaid aspect of the matter and considering the fact that the appellate authority as well as the Tribunal has ultimately found that the respondent-assessee has given reasonable explanation for receiving such payment in cash and there was no mens rea on the part of the assessee. This aspect has also been examined by the Gauhati High Court in the case of CIT vs. Bhagwati Prasad Bajoria (HUF) (2003) 183 CTR (Gau) 484. While relying upon the decision of the hon'ble Supreme Court, the Gauhati High Court has observed in paragraph 7 of its Judgment as under: Keeping in ..... 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