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TMI Blog2024 (7) TMI 1605X X X X Extracts X X X X X X X X Extracts X X X X ..... f law, we find that penalty proceedings are included in the expression "assessment" and the true nature of a penalty is the imposition of an additional tax. But, one of the principal objects is to provide a deterrent against recurrence of default on the part of the assessee. Therefore, the relevant sections 269SS read with section 271D and 271E of the Act is a penal provision and the proceedings imposing penalty are quasi- criminal in nature. The onus is heavy on the Department to not only establish the facts with categorical finding, independently of the assessment order but to also successfully canvass that due process of law was strictly followed. The penalty orders as passed in the case in hand show that the AO has drawn conclusion on the basis of 'elaborate discussion' in the assessment order without making a specific examination of the issues, independently. It is for this reason the discrepancies with regard to the name of the borrower or lender being Shri Asharam ji Ashram or Shri Asharam Bapu or stating violator to be assessee company while the assessee is individual have crept in. In this background, if we consider the purport of the CBDT Circular dated 26.04.2016 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 022 - Do - 271E r.w.s. 269T 616/Del/2022 - Do - - Do - - Do - - Do - 617/Del/2022 - Do - - Do - - Do - - Do - 618/Del/2022 - Do - - Do - - Do - - Do- 2. On hearing both the sides, it comes up that assessment in the relevant assessment years was completed by the AO u/s 153A r.w.s. 143(3) of the Act and, during the course of assessment proceedings, the AO allegedly noticed that the assessee had received loan from Shri Asharamji Bapu in cash or repaid the but the same was exceeding Rs. 20,000/-, and was through a mode other than by account payee cheque or account payee draft which is in violation of provisions of section 269SS of the Act and by the said infringement, the assessee was found to be liable to penalty u/s 271D and u/s 271E of the Act for which notice was issued to the assessee. The AO made identical observations for all the four assessment years involved. Thus appeals are taken up together and facts wherever relevant are taken up of AY 2013-14 in ITA no 618/D/22. We consider it beneficial to reproduce the findings of AO in penalty order para no. 8.3 to 9, for AY 2013-2014 (supra) as follows:- "8.3 The nexus of the assessee with Shri Asharam Bapu an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Shri Asharam Bapu by Surat Police and requisitioned by the Department u/s 132A of the I.T. Act, 1961. It has been contended that no action can be taken in the case of the assessee in the proceedings u/s 153A or present penalty proceedings. This contention of the assessee is also devoid of any merit. In this regard, a reference is made to the decision of Hon'ble Delhi High Court in the case of CIT Vs Sonal Constructions reported in 359 ITR 532 (Delhi)[2013] wherein Hon'ble High Court has held that "Where during search certain documents were seized from possession of a partner of assessee-firm, merely because partners were not examined by Assessing Officer at time of assessment, it could not be stated that no reliance could be placed on seized materials for purposes of making additions". 8.6 The assessee has also taken a plea that as evident from the alleged seized ledger incorporated in the assessment order and reproduced in the submissions, it is clear that there is credit first, and then debit has been mentioned which would mean that the alleged sums were first given by the assessee and then received back on the same date and in such a situation the provisions of section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The Ld. CIT (A) has erred on facts and in law in treating the material seized by the Police long before search in the case of the appellant to be the material seized in the case of the appellant and has further erred in applying presumption u/s 292C of the Income Tax Act, 1961 on the same. 4. The Ld. CIT (A) has erred on facts and in law in confirming the erroneous inference drawn by the AO on the material seized by the Police which is not coming out from the seized material even if the material is presumed to be correct. 5. The Ld. CIT (A) has erred on facts and in law in confirming the additions made in gross violation of principles of natural justice without providing an opportunity to cross examine the persons on whose statements the reliance was placed and without providing the copies of the material relied upon. 6. The Ld. CIT (A) has erred on facts and in law in treating the statement made by unrelated third parties to be the statement by the appellant and treating the same to be confessions made by the appellant. 7. The Ld. CIT (A) has erred on facts and in law in making inferences/assumptions/references which are beyond the material on record and even cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detailed ledgers referred and relied by the AO. 14. The Ld. CIT (A) has erred on facts and in law in in confirming the penalty levied by the Assessing Officer assuming the alleged transactions recorded in the ledger 'Vishwa-Cash Vs Cheque' and 'Vishwa-Cheque Vs Cheque when the ledger title itself does not indicate that it is likely to represent any repayment of loan. 15. The Ld. CIT (A) has erred in facts and law in confirming the penalty levied by the Assessing Officer on account of alleged ledgers titled 'Vishwa Cash Vs Cheque' and 'Vishwa-Cheque Vs Cheque' even though there were no such cheque transactions in the appellant's account. 16. The Ld. CIT (A) has erred in facts and law in confirming the penalty levied by the Assessing Officer without dealing with numerous case laws referred and relied by the appellant. 17. The aforesaid grounds are without prejudice to each other and appellant craves for liberty to add fresh ground(s) of appeal and also to amend, alter, modify any of the grounds of appeal. 4. Heard and perused the record. The ld. AR has extensively argued on the facts of the case claiming that the incriminating evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how cause notice stating the assessee to be assessee company whereas it is undisputed that the assessee is an individual. ● The JCIT issued cryptic show cause notice without any satisfaction and without even detailing the transactions on which alleged infringement of section 269SS/269T had taken place. ● The amount on which the show cause notice was issued was at variance in some of the assessment years from the amount with regard to which observation alleged infringement was made by the AO. For instance, in the assessment year 2013-14 the AO alleged infringement of Rs. 4,75,05,329/- and Rs. 8,20,00,000/- u/s 269SS and Rs. 7,37,05,329/- and Rs. 8,20,00,000/- u/s 269T whereas the JCIT issued show cause notice for Rs. 26,95,97,131/- u/s 269SS and Rs. 19,48,97,131/- u/s 269T and levied penalties accordingly. ● The AO did not make any adverse observation with regard to breach of section 269T for alleged interest payment with regard to amounts of Rs. 1,40,57,541/- Rs. 4,24,29,346/- Rs. 2,62,05,329/- and Rs. 5,52,42,377/- for AY 2010-11 to AY 2013-14 respectively. The JCIT also did not issue any show cause notice w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalties. In particular kind attention was drawn to para 4 which runs as follows; "accordingly, the assessing officers (below the rank of Joint commissioner of Income Tax) may be advised to make a reference to the Range Head, regarding any violation of the provisions of section 269SS and section 269T of the Act, as the case may be, in the course of the assessment proceedings (or any other proceedings under the Act). 5.4 Ld. Counsel, emphasized that the reference for levy of penalty u/s 271D/271E is required to be made during the course of assessment proceedings. It was further pointed out from the penalty order that the references for the levy of penalty were made by the AO to the JCIT on 15.02.2018. The indisputable fact is that the assessments were completed on 29.12.2017, hence it was submitted that the reference for the penalties was made by the AO to the JCIT more than 45 days after the conclusion of the assessment proceedings and the same was in gross violation of the CBDT Circular referred above. On the basis of the aforesaid it was humbly submitted that the subsequent action of issuing notices as well as levying penalties was bad in law and deserves to be quashed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted and admitted by the assessee. The aforesaid penalties would get triggered only when the transactions are either parts of the books of account or otherwise accepted by the assessee for the purposes of explaining any of his assets or transaction. In the case of the appellant the alleged transactions were neither part of the books of account nor the assessee tried to explain any of the transaction or asset under the basis of cash loans taken or given. In the case of the appellant no unaccounted cash was found or seized. The sole basis for levy of penalty was certain scanned sheets apparently seized from the place of an unrelated third party. Copies of the following judgements were filed during the course of hearing to support this contention. ● ITO Vs. M/s Muez hest India (P) Ltd. [ITA No. 6889- 6890/MUM/2016] ● Shri Ram Kishan Verma Vs. Addl.CIT [ITA No. 405/JP/2019] ● CIT(Central-II) Vs. Home Developers (P) Ltd. [2015] 54 taxmann.com 159 (Delhi) 5.8 On the basis of the aforesaid judgments it was pointed out that Tribunal and Jurisdictional High Court have laid down the proposition that the penalties u/s 271D and 271E cannot be levied unless an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts in the case of assessee; ● no cash was found or seized during the course of search which is being sought to be explained by the appellant or the alleged counter party by any entries. ● The assessee made no entry in the books of account incorporating the cash loans given or taken to explain any transaction. ● During the course of search no asset/expenditure was sought to be explained by the assessee invoking cash loan take or given. 5.11 It was submitted that the assessee could not be infested with huge liability u/s 271D/271E in gross violation of principles of natural justice without giving any opportunity of cross examination. It was also submitted that the AO did not himself have the relevant material on which huge reliance was placed. The penalties were levied solely by mechanically following the borrowed opinion of the DDIT(Inv.) or the Investigation wing without any independent application of mind. The penalties levied, therefore, are not sustainable in law or on facts. A compilation of the relevant cases is made available in the case law synopsis for the aforesaid proposition. 5.12 During the course of hearing, it was also submitted that the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on the basis of the aforesaid statement was not in accordance with the settled law in this regard. A compilation of the relevant cases was made available in the case law synopsis for the aforesaid proposition. 5.18. During the course of hearing, it was also submitted that the limitation for levy of penalties u/s 271D/271E should be reckoned from the date from which reference was made by the DDIT (Inv.) to the AO. The date on which reference was made by the DDIT(Inv.) to the AO was 18.03.2016. If limitation is counted in accordance with section 275(1)(c) then the penalties were required to be levied by 30th September 2016. In the case of the appellant the penalties have been levied in June 2018. For the aforesaid proposition reliance was placed on the case of Shri Ram Kishan Verma Vs. Addl.CIT [ITA No. 405/JP/2019] wherein the Tribunal examined the aforesaid issue in details and held that the relevant date for counting the limitation was from the date when the communication was made by the DDIT(Inv.) to the AO. 6. This all was extensively rebutted by Ld. DR by contending that the case at hand involves the Assessee who had received loans/deposits in cash, exceeding the thres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t), have also been discussed in detail in the order. The fact that the requisitioned documents pertain to the Ashram is proved beyond doubt by the above said correlations, the statements of various persons discussed in the order, and the nature of documents themselves. In his statement to the Police Authorities, Shri Prahlad Bhai Sevani from whose flat these documents were requisitioned has submitted that the flat was in possession of the Ashram (pages 145-147 of the order). The documents have been explained in detail by Shri Devidas Chattani @ Dev Kumar, a key Sadhak of the Ashram. The documents were subject to special audit u/s 142(2A) of the Act. The assessments in this case are currently sub-judice before the ITAT, Ahmadabad Bench. 6.1.2 The requisitioned material consisted of documents and soft/digital data pertaining to cash loan transactions and the corresponding interest ledgers since 1992-93 onwards. On the basis of the requisition material and the material seized in cases of consequential searches an addition of Rs 380.30 crore has been made in AY 2010-11 in the case of Ashram on account of the principal amount of cash loans (refer to page 308 of the said assessment orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group concern of appellant. Additionally, a letter written by Dev Kumar to Sh. Asharam Bapu explained the necessity of purchasing the flat on the pretext of being safe for keeping the papers of Ashram. The letter also mentions that the cheque consideration for the flat is Rs 13.50 lakhs, the remaining consideration was to be decided. During the course of search in case of the appellant from the premises of M/s Kalawati Builders Pvt Ltd at Palam, New Delhi, along with other documents a copy of the cheque issued by M/s Arjun Nav Nirman for Rs 13.50 lakhs was found, along with another handwritten page outlining the computation of the remaining payment for the flat. These documents conclusively establish the relationship between the appellant and the Ashram. 6.1.7 The seized documents have been explained in detail by Sh. Devidas Tikamdas Chattani, one of the Sadhaks in the Ashram, in his statement dated 25.09.2015, running into 46 pages and containing 39 questions. He explained the complete modus operandi, functions and methods of business activities of the Ashram in reference to the seized documents. He specifically identified the appellant as the individual engaged in cash loan tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed documents including the documents seized in the case of appellant. They have been explained by Sh. Devidas Tikamdas Chattani, who has also identified the appellant as a beneficiary of cash loan transactions. Further, the Ld. CIT (A) while sustaining the penalties has comprehensively discussed the nexus and linkage between the Appellant & the Ashram and the reliability of the seized documents on the basis of which penalties have been imposed. Based on the comprehensive analysis of these documents in the assessment order and the penalty orders, it is clear that the penalties have been levied based on credible and substantial evidences indicating that the appellant was involved in the receipt and repayment of cash loans from the Ashram, contravening the provisions outlined in sections 269SS and 269T of the Act. 6.10 Further, it is submitted that Sections 269SS and 269T were introduced in the Income Tax Act, 1961, as part of the Finance Act, 1984. The primary objective of these provisions was to curb the generation and circulation of unaccounted money in the economy, which was often facilitated through large cash transactions. To enforce the provisions of Sections 269SS and 269T ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. Conversely, Sections 27ID and 27IE are tailored to address violations related to the acceptance and repayment of high- value loans or deposits in cash, thereby promoting transparency and discouraging cash transactions above a certain threshold. Moreover, the imposition of penalties under Sections 27ID and 27IE is contingent upon the contravention of specific statutory provisions governing cash transactions. These penalties are not contingent upon the outcomes of assessments or reassessments conducted pursuant to Section 153A. Therefore, even if no additions are made to the income of the Assessee under Section 153A, it does not absolve them from liability under Sections 27ID and 271E if they are found to have contravened the provisions of Sections 269SS and 269T. As such, the penalties prescribed under Sections 27ID and 27IE serve a distinct regulatory function, which is independent of the objectives and procedures outlined in Section 153A. 6.13 As with regard to the CBDT Circular 09/DV2016, dated 26.04.2016, it was submitted by Ld. DR that the penalty proceedings are timely, as stipulated u/s 275(l)(c) of the Income Tax Act, 1961. Further, no such contention was raised by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culated its position regarding the initiation of penalty proceedings. The Department's view aligns with the judgment of the Hon'ble Kerala High Court, which states that penalty proceedings under Section 271D of the Act commence with the issuance of a show cause notice by the JCIT. However, the subsequent Para No. 5 of the Circular explicitly indicates that when any High Court renders a decision contrary to the Department's view, such Department view shall not be operative in that High Court Jurisdiction. 8. During the course of hearing the attention of this Bench was drawn towards Para No. 5. In this context, reference was made to the jurisdictional High Court decision in the case of Principal Commissioner of Income Tax (Central)-2 Vs. Mahesh Wood Products Pvt. Ltd. [2017] 82 taxmann.com 39 (Delhi)(2017) wherein the Hon'ble HC addressed the issue of starting point of limitation, it was held - "7. Mr. Sanjay Kumar, learned counsel for the Revenue has sought to place reliance on the decision of this Court in CIT (TDS) v. IKEA Trading Hong Kong Ltd. [2011] 333 ITR 565/[2009] 179 Taxman 309 (Delhi) to urge that it is the date of issuance of the Show Cause Notice (& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the assessing officer, which advised referencing the JCIT during assessment proceedings, was predicated on the Department's understanding as stated therein. Following the jurisdictional High Court's ruling, the act of making a reference to the JCIT itself constitutes the initiation point for penalty proceedings in this matter. 10. Furthermore, reliance waw placed on the judgement of Hon'ble High Court of Rajasthan in its decision in the case of Commissioner of Income Tax v Hissaria Bros (169 Taxman 262)(2008) and it was submitted that hon'ble High Court has categorically held that the penalty proceedings for defaults u/s 269SS and 269T are independent of assessment proceedings. The Hon'ble Court held that; "On such penalty proceedings, independent of the assessment proceedings, clause (c) of section 275(1) has been made applicable. In this category, the period of limitation for completing the penalty proceedings is linked with the initiation of the penalty proceedings itself. In such cases, the penalty proceedings can be initiated independent of any proceedings, but obviously, the penalty proceedings can be initiated only when the default is brought to the notice o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial authority functioning of the authorities under the Act. ". 13. Reference was made to the Hon'ble Supreme Court judgement in the case of Sanjeev Coke Manufacturing Company v. M/s Bharat Coking Coal Limited and Anr., (1983) 1 SCC 147 where it was held that - "25. Shri Ashoke Sen drew pointed attention to the earlier affidavits filed on behalf of Bharat Coking Coal Limited and commented severely on the alleged contradictory reasons given therein for the exclusion of certain coke oven plants from the Coking Coal Mines (Nationalisation) Act. But, in the ultimate analysis, we are not really to concern ourselves with the hollowness or the self-condemnatory nature of the statements made in the affidavits filed by the respondents to justify and sustain the legislation. The deponents of the affidavits filed into court may speak for the parties on whose behalf they swear to the statements. They do not speak for the Parliament. No one may speak for the Parliament and Parliament is never before the court. After Parliament has said what it intends to say, only the court may say what the Parliament meant to say. None else. Once a statute leaves Parliament House, the Court is the only authe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Subramaniam Thanu in ITA No. 785, 786, 787 & 788/ Chny/2023, for A.Y 2015-16 & 2016-17 relied on by Ld. AR, it was submitted that the operating part of the decision is reproduced below - "Para 11.6 We have considered the judicial pronouncements and principles laid down by the Hon'ble Supreme Court and also the judgement of various Hon'ble High Courts and as per the above judicial pronouncements, the Assessing Officer has to record his satisfaction before initiating penalty under section 271D of the Act in respect of violation of the provisions of section 269SS of the Act. In this case, the assessment order was passed on 20.12.2017 and reference was made by the Assessing Officer to the Addl. CIT on 14.03.2021 to initiate penalty proceedings. There is a time gap of more than three years In the assessment order dated 30.12.2017, the Assessing Officer has noted that penalty proceedings under section 271(1)(c) of the Act has to be initiated separately. However, the Assessing Officer has made a reference to the Addl. CIT to initiate the proceedings under section 27ID of the Act for violation of section 269SS of the Act. Once the Assessing Officer decided to initiate penalty unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO did not record the satisfaction, accordingly the reference was treated as void. Coupled with the fact the reference was also made after a gap of more than 3 years. 17. She thus contended that the above noted decision is not binding as the facts of the present case are clearly distinguishable from the S. Thanu Case (cited Supra). She submitted that in the present case assessment order was passed u/s 153A r.w.s 143(3) on 29.12.2017 and due satisfaction was drawn by the AO with regard to initiating penalty proceedings u/s 271D & 271E as mentioned in Para 5.2, 5.3, and 6.3 of the order. Even though it is not mandatory, the reference to the JCIT/ Addl. CIT was duly mentioned/ made before passing of the order as evident from the last Para of the assessment order as - "Issue penalty notice u/s 271(1)(c), as discussed in Para 5.4.1, 5.5.1, and 6.5 of this order. Refer the matter to the Jt.CIT, C.R-5, New Delhi for initiating penalties proceedings u/s 271D & 271E as discussed in Para 5.2, 5.3 & 6.3 of this order." 18. She submitted that thus, as seen from the above a reference was duly made/ mentioned in the assessment order and as the order was passed u/s 153A after due appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regard, it was submitted before the Hon'ble Bench that the seized documents have been confronted to the appellant during assessment proceedings. On the basis of material available, the AO has drawn his satisfaction regarding violation of provisions of section 269SS & 269T attracting penalty u/s 271D & 271E. In light of the same, the appellant has clearly understood the SCN and was well aware of the nature of proceedings against him and submitted a reply of more than 15 pages to the JCIT. 21. Taking aforesaid submissions into consideration and the material before us we find that as the entire issue about validity of penalty orders revolves around the CBDT Circular No. 09/DV/2016, the same is reproduced as under: "Circular No. 09/DV/2016 (Departmental View) F.No.279/Misc./M-116/2012-IT J Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, 26th April, 2016 Subject:- Commencement of limitation for penalty proceedings under sections 271D and 271E of the Income tax Act, 1961 - reg. It has been brought to the notice of the Central Board of Direct Taxes (hereinafter referred to as the Board) that there are conflict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rank of Joint Commissioner of Income Tax.) may be advised to make a reference to the Range Head, regarding any violation of the provisions of section 269SS and section 269T of the Act, as the case may be, in the course of the assessment proceedings (or any other proceedings under the Act). The Assessing Officer, (below the rank of Joint Commissioner of Income Tax) shall not issue the notice in this regard. The Range Head will issue the penalty notice and shall dispose/complete the proceedings within the limitation prescribed under section 275(1)(c) of the Act. 5. Where any High Court decides this issue contrary to the "Departmental View", the "Departmental View" thereon shall not be operative in the area falling in the jurisdiction of the relevant High Court. However, the CCIT concerned should immediately bring the judgment to the notice of the Central Technical Committee. The CTC shall examine the said judgment on priority to decide as to whether filing of SLP to the Supreme Court will be adequate response for the time being or some legislative amendment is called for." 22. After giving thoughtful consideration to the matter on record, we are of the considered view that wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. In this background, if we consider the purport of the CBDT Circular dated 26.04.2016 which is heavily relied by the ld. counsel of the assessee that reference for the purpose of penalty u/s 271D and 271E of Act should be made during the course of assessment proceedings itself. We find that directions were not complied. The ld. DR has although tried to defend by submitting that these directions of CBDT are only advisory, but, when the question is with regard to proceedings in the nature of levy of penalty, which are quasi criminal in nature, the Circular of CBDT which lays down a specific procedure to be followed by AO, has to be considered to be mandatory in a way that it creates a procedural right in favour of the assessee who is likely to undergo the penal repercussions of levy of penalty and consequential prosecution even. Since, in the Act, there is no specific provision about the stage at which the reference for penalty is to be made during assessment, therefore, the initiation of the reference is akin to filing of complaint before JCIT and same has to be as per due procedure, laid down under the law. Since there is no specific provision in the Act, this circular shall prev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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