CIT vs Rashmin K. Patel

Challenging the judgment of the income tax Appellate Tribunal (hereinafter referred to as the Tribunal) dated June 08, 2012 by preferring present Tax Appeal u/s 260-A of the income tax Act, 1961 (hereinafter referred to the Act), the Revenue has proposed the following substantial question of law:

Whether Appellate Tribunal has erred in law and on facts in deleting penalty of Rs. 11,75,000 levied u/s 271D of the Income Tax Act?

We have heard learned counsel Mr. K.M. Parikh for the Revenue.

The brief facts are as under:

3.1. The respondent-assessee for the assessment year 2006-2007 declared in the return of income its income at Rs. 4,29,600. He is the proprietor of M/s. Fixo-Fitwell and engaged in the business of Contract for Natural Gas. The assessing officer on scrutiny assessment finalised his income at Rs. 17,00,000 by making certain additions u/s 68 of the Act on account of unexplained cash credit.

3.2. The assessing officer issued notice u/s 271D of the Income Tax Act, 1961 (hereinafter referred to as the Act) on the ground that the assessee had accepted the loan/deposit exceeding the sum of Rs. 20,000 in cash from Shri Ambika Finance and as this was in contravention of Section 269-SS of the Act, the same would fetch penalty u/s 271-D of the Act and it, thus, levied penalty of Rs. 11,75,000.

3.3. Aggrieved by the same, when the Commissioner (Appeals) was approached, it confirmed partly the addition by deleting the sum of Rs. 11,75,000.

3.4. It deleted the penalty relying upon the decision in the case of (2000) 111 TAXMAN 142 . It also relied upon decisions of different High Courts for such deletion.

3.5. When the Tribunal was approached by the revenue challenging such deletion of penalty, it also concurred with the finding of the Commissioner (Appeals) holding that if there was reasonable cause for violation of provisions of Section 269-SS of the Act, the penalty cannot be levied u/s 271-D of the Act.

It is urged by the learned counsel that the assessee in return was taking cash loans from Shree Ambika Finance and when it had not established any pressing need for so doing it in violation of provisions of section 269-SS of the Act, the penalty proceedings need to be invoked.

Chapter XX(B) of the Act speaks of requirement as to the mode of acceptance, payment or repayment in certain cases to counteract evasion of tax. The provision of section 269-SS speaks of certain loans and deposits. The amount of Rs. 20,000 or more when taken or accepted from any other person by way of loan or deposit otherwise than by an account payees cheque or account payees bank draft, unless the transaction falls under proviso provided under the said section, penalty is provided for failure to comply with such provision of section 269-SS. In other words, if a person takes or accepts any loan or deposit above the sum of Rs. 20,000 from any person in contravention of Section 269-SS of the Act by accepting the same without Account Payees cheque or draft, the law provides for levying of penalty of the sum equal to the amount of loan so taken or accepted. This is essentially provided to curb the avoidance by such transactors.

As can be seen in the instant case, the assessee-respondent had accepted from Shri Ambika Finance the sum exceeding Rs. 20,000 in cash. The Commissioner (Appeals) held that the documents submitted by the assessee-respondent indicated that the transactions with Shri Ambika Finance were accepted as genuine while deciding the quantum appeal. It was also accepted that the party was discounting cheques of the assess-respondent and the amount of cash received through cheque discounting was either fully spent on the same day or within two to three days. Thus, such cash was taken by discounting cheques to meet the urgent business needs. It held that Section 269-SS is not applicable in the case of bona fide transactions.

The Tribunal confirmed such view of the Commissioner (Appeals) and held relying on the decision of the Punjab and Haryana High Court in the case of Commissioner of Income Tax Vs. Saini Medical Store, , that if there was reasonable cause for not adhering scrupulously to the requirement of section 269-SS of the Act and when there is no doubt with regard to genuineness of transaction, penalty u/s 271-D of the Act was not leviable. Upon thus hearing the learned counsel for the Revenue and on examination of the material, it can be noticed that on verifying the balance-sheet in scrutiny assessment the assessing officer had found unsecured loan reflected by the assessee-respondent on 31-3-2006. Assessee was asked to furnish the details of unsecured loan, wherein the amount of Rs. 11,75,000 was shown to have been taken from M/s. Ambika Finance. It was mainly contended by the assessee that it had discounted cheques for their working capital. Disbelieving the version of the assessee-respondent, the assessing officer held that it could not prove the genuineness of the transactions and it eventually added the amount u/s 68 to the income of the assessee. Section 68 of the Act permits the revenue to credit any sum which is found credited in the books of an assessee maintained for any previous year where he can offer no explanation about the nature and source thereof or any explanation offered in the opinion of the assessing officer is not satisfactory. Unless the explanation is reasonable and acceptable as regards the sum found credited in the books maintained by the assessee, the assessing officer can add such amount to the income of assessee.

In the instant case of the assessee-respondent, as the assessing officer did not find the explanation reasonable and satisfactory, it added the said sum to the income of the assessee u/s 68 of the Act by way of unexplained cash credit. Therefore also, the question does not arise of insisting for compliance of provisions u/s 269-SS of the Act, which requires the amount of loan or deposit exceeding the sum of Rs. 20,000, to be accepted either by account payees cheque or account payees bank draft. When the assessing officer chose to invoke the provisions of Section 68 of the Act and added to the income of the assessee the said sum treating the same as unexplained cash credit, it cannot thereafter insist upon the invocation of provisions of section 269-SS and in turn, the provisions of section 271-D of the Act for breach of provisions of section 269-SS of the Act. Therefore, the assessing officer was wholly unjustified in invoking penalty provisions.

Even going by the decision of the both, Commissioner (Appeals) and the Tribunal, the cash was received through cheque discounting facility and the same was for meeting the urgent business need. Even then, the logic given by both, the Commissioner (Appeals) and the Tribunal, would not require any interference. The Tax Appeal is, accordingly, dismissed.