Commissioner of Income Tax-I vs Baroda Extrusion Ltd.

K.S. Jhaveri, J.—By way of this appeal, the appellant-revenue has challenged the order dated 19.05.2006 passed by the Income Tax Appellate Tribunal [for short "the Tribunal"], in ITA No. 1115/Ahd/2000, whereby the appeal preferred by the assessee was allowed by the Tribunal.

The facts, in brief, are that the assessee had filed its return for the assessment Year 1995-96. In the course of assessment, the Assessing Officer found that the assessee had accepted cash deposits of Rs. 5,21,000/- from five parties otherwise than by account payee cheques or account payee bank drafts and the "aggregate amount" was more than 20,000/- in each case. Therefore, the Assessing Officer imposed penalty of Rs. 5,21,000/- under Section 271D of the Income Tax Act.

2.1. Against the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The CIT(A) partly allowed the said appeal and restricted the penalty to Rs. 4,10,100/-. Being aggrieved by the said order, the assessee filed an appeal before the Tribunal. The Tribunal vide impugned order dated 19.05.2006 allowed the appeal of the assessee. Hence, this appeal is filed at the instance of the revenue.

While admitting this appeal on 11.10.2007, the Court had formulated the following substantial question of law:-

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in cancelling the penalty of Rs. 4,10,100/- imposed under Section 271ID as confirmed by the CIT(A)."

Learned advocate for the appellant revenue has contended that the Tribunal has committed error in allowing the appeal of the assessee and in cancelling the penalty imposed on the assessee. He further submitted that while passing the impugned order, the Tribunal has not properly appreciated the material on record, therefore, he urged that this Court may allow this appeal and answer the question raised in this appeal in favour of the revenue.

We have heard learned advocate for the appellant-revenue and perused the material on record. Admittedly, the assessee had committed breach of Section 269SS of the Income Tax Act, however, in view of the decision dated 28.04.2014 rendered in Tax Appeal No. 325 of 2014, the issue raised in this appeal is required to be answered in favour of the assessee and against the revenue. In Paragraph Nos. 8 to 14 of the above decision, this Court has observed as under:-

"8. Section 269SS of the Act at this stage requires consideration alongwith Sections 271D and 273B of the Act. Any loan or deposit, if accepted by any person otherwise than by an account payee cheque or account payee bank draft from any person exceeding rupees twenty thousand rupees or more. Section 269SS of the Act prohibits the same after the 30th June 1984. Section 271D makes such person who received the amount in contravention of provision of Section 269SS liable for penalty, a sum equal to the amount of loan or deposit so accepted. Section 273B of the Act of course carves out the way in certain cases and provides that no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions which includes Section 271D if he proves that there was reasonable cause for the said failure.

What is therefore necessary to prove is the reasonable cause by the assessee on its having failed to abide by the conditions incorporated in the said provision of Section 269SS.

Reverting to the facts of the instant case, a sum of Rs. 42.75 lakhs has been taken by way of loan by the respondent from ten different persons. Admittedly, this was by way of loan in cash exceeding rupees twenty thousands and the same therefore contravenes the provision of Section 269SS of the Act.

For not inviting the rigour of penalty u/s. 271D of the Act as consequence, on the part of the assessee, the reasonable cause needs to be shown. What is pleaded by the respondent was that all these persons were agriculturists and that the genuineness of the transactions at no point of time had been doubted by the Revenue. They stayed in remote areas. Both the authorities, therefore, were of the opinion that reasonable cause had been sufficiently made out and when the very transactions were never doubted by the Revenue authorities, the breach is to be treated as a mere technical or venial breach.

We notice that the requirement of Section 273B is for the assessee to prove that there was a reasonable cause for its having failed to abide by the provisions of Section 269SS. As emerges from the record, not only the substantiating evidence like 7/12 Extracts were produced, but, also additionally, transactions were reflected in the accounts of assessee and the advancement of loan to the assessee had been reflected in the books of account of those persons from whom the loan had been received. The identity of those persons has also been well established. The assessee also had given satisfactory reason for taking such loan. His bona fide belief that such transactions would not attract provision of Section 269SS on the ground that they were agriculturists and lived in remote villages also was one of the grounds which has weighed with both the authorities.

In view of forgoing discussion, we are of the opinion that no error has been committed by both the authorities below in deleting the penalty. It is true that the respondent has income from other business and these transactions were not between agriculturists having only agriculture income, not liable to tax which have been exempted from such rigor of law and yet, the cause advanced is when found to be sufficiently reasonable, no interference would be desirable.

Reliance placed on the decision in case of Hindustan Steel Limited v. State of Orissa [Supra] also requires a specific reproduction at this stage where the Apex Court has held that,...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 act in conscious disregard to 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 belief that the offender is not liable to act in the manner prescribed by the statute. We find that both the authorities have rightly construed the provisions and applied the law to the facts and the surrounding circumstances aptly. Tax Appeal, resultantly, deserves no further consideration and hence, the same is dismissed.

In view of the aforesaid discussions, we are of the considered opinion that the present appeal deserves to be dismissed. Even otherwise, the Tribunal has rightly held that assessee was under the bona fide believe that the transaction was not covered by Section 269SS of the Income Tax Act. Further, the Tribunal has rightly held that the lower authorities have not given any finding that these deposits represented unaccounted income of the assessee in any manner.

Considering the facts of the case and the decision of this Court in the case of Maa Khoiyar Construction (supra), we are of the considered opinion that the Tribunal has not committed any error in allowing the appeal of the assessee. We are in complete agreement with the view taken by the Tribunal. Hence, this appeal is dismissed. The question raised in this appeal is answered in favour of the assessee and against the revenue. Accordingly, we hold that the Tribunal was right in cancelling the penalty of Rs. 4,10,100/- imposed under Section 217D of the Income Tax Act.