Short Overview : Where there existed reasonable cause for the assessee in accepting the loans in cash and particularly as the loans were repaid by way of RTGS, i.e., via banking channels, penalty levied by AO under section 271D was deleted.

AO initiated the penalty proceedings under section 271D for accepting cash loans. Assessee contended that said cash loans were repaid by him by way of NEFT/RTGS to the vendors. He further contended that he took cash loan on the occasion of his sister’s marriage and this would constitute reasonable cause under section 273B.

It is held that Since the assessee took cash loans on account of his sister’s marriage and as the loans were repaid through banking channels by way of RTGS, therefore, the genuineness of the loan and the identity of the creditor could not be doubted. Moreover, the penalty under section 271D is subject to the provisions of section 273B. As the assessee’s contention that the loans were taken for his sister’s marriage would constitute reasonable explanation section 273B and also as the fact that the loans have been repaid by cheques was not controverted, no penalty could be levied under section 271D.

Decision: In assessee’s favour.

Referred: Asstt. Director of Inspection (Investigation) v. Kumari AB Shanthi (2002) 255 ITR 258 (SC) : 2002 TaxPub(DT) 1375 (SC), CIT v. Smt. Dimpal Yadav (2015) 379 ITR 177 (All.) : 2015 TaxPub(DT) 3493 (All-HC), CIT v. Bhagwati Prasad Bajoria (HUF) (2003) 263 ITR 487 (Gau) : 2003 TaxPub(DT) 1359 (Gau-HC), MS Lokaiah v. Addl. CIT [ITA No. 1272/HYD/2015, dt. 3-8-2016].

IN THE ITAT, HYDERABAD BENCH

P. MADHAVI DEVI, J.M. & S. RIFAUR RAHMAN, A.M.

Venkat Narayana Raju Pasuparthy v. Addl. CIT

ITA No. 229/Hyd/2019

10 May, 2019

Assessee by: K.C. Devdas

Revenue by: M.M. Murthy Naik, DR

P. Madhavi Devi, J.M.

This is assessee’s appeal for the assessment year 2011-12 against the order of the Commissioner (Appeals)-1, Hyderabad, dated 19-12-2018 confirming the levy of penalty under section 271D of the Income Tax Act.

2. Brief facts of the case are that the assessee, a salaried employee, filed his return of income for the assessment year 2011-12 on 25-7-2011 admitting an income of Rs. 2,81,773. During the assessment proceedings under section 143(3) of the Act, the assessee submitted revised computation of income, offering total income of Rs. 4,52,270 thereby offering an additional income of Rs. 1,70,494 under the long-term capital gain on sale of gold jewellery and estimated profit on sale of sarees. The assessing officer accepted the revised computation of income and raised a demand of tax accordingly.

3. Thereafter, the assessing officer initiated the penalty proceedings under section 271D of the Act for accepting cash loans amounting to Rs. 2.00 lakhs from one Shri M. Srinivasa Raju and Rs. 6.00 lakhs from one Shri Pattan Ayub of totaling to Rs. 8.00 lakhs, by issuance of penalty notice. In response to the said notice the assessee, vide Letter, dated 13-3-2017, submitted that he had accepted cash loans from the above two persons in cash and that the loans were returned to them by way of cheques. He further submitted that since the assessee is a salaried employee was not aware of the provisions of section 269SS ad 269T and further that the loans have been repaid by NEFT/RTGS to the vendors and therefore, penalty under section 271D may not be invoked. The assessing officer however, held that the provisions of 269SS were applicable to all the persons, including salaried employees. With regard to the second objection that section 269T cannot be invoked, he observed that in the case of the assessee, the penalty under section 271E is not levied. The assessing officer further held that the assessee has failed to justify taking the loans in cash. Therefore, she levied the maximum penalty of 100% of cash loan which worked to Rs. 8.00 lakhs. Aggrieved, the assessee preferred an appeal before the Commissioner (Appeals), who confirmed the order of the assessing officer and the assessee is in second appeal before us by raising the following grounds of appeal :–

“1. The order of the learned Commissioner (Appeals) in confirming the penalty of Rs. 8.00 lakhs under section 271D is completely erroneous on facts and in law and therefore wholly unsustainable in law.

2. The learned Commissioner (Appeals) failed to consider that the appellant had reasonable and sufficient cause and the exigencies of circumstances which arose on account of the appellant sister’s marriage compelled him to borrow in cash at Rs. 2.00 lakhs from Srinivas Raju and Rs. 6.00 lakhs from Pattam Ayub which were repaid via banking channels and therefore, learned Commissioner (Appeals) erred in confirming the penalty of Rs. 8.00 lakhs under section 271D of the Income Tax Act, 1961.

3. The learned Commissioner (Appeals) failed to note that the assessment proceedings were terminated on 29-3-2014 and the penalty proceedings under section 271D were initiated by the Additional Commissioner of Income Tax on 9-2-2017 after a long delay of 22 months and therefore, the very initiating proceedings were without jurisdiction, bad in law and therefore, is to be quashed.

4. The learned Commissioner (Appeals) failed to observe that the order under section 271D was passed by the Add. CIT as against the Jt. Commissioner of Income Tax, thus rendering the entire proceedings as void-ab-initio.

5. The learned Commissioner (Appeals) failed to note that the assessing officer has initiated proceedings under section 271(1)(c) of the Income Tax Act, 1961 on 29-3-2014 and therefore, initiations of parallel proceedings after 22 months by the ACIT, Hyderabad clearly demonstrates that the pre proceedings under section 271D were unwarranted, excepting invalid, bad in law and not to be quashed.”

4. The learned Counsel for the assessee, Shri K.C. Devdas submitted that the assessment order was passed on 29-3-2014 without making any disallowance or the addition on account of receipt of loans in cash, but the penalty was initiated by issuance of Notice, dated 9-2-2017 which is beyond a reasonable period. Therefore, according to him, the penalty itself is to be held null and void. He submitted that before the Commissioner (Appeals), the assessee had raised the grounds against the initiation of penalty by stating that the assessee had taken the loan in cash on the occasion of his sister’s marriage. He submitted that the Commissioner (Appeals) has failed to consider this issue and therefore, the assessee is in appeal before us. He submitted that the Commissioner (Appeals) has erroneously held that the penalty should have been imposed within six months of issuance of notice under section 274 read with section 271D and therefore, the penalty proceedings are well within the time. Thus, he prayed for the deletion of penalty under section 271D of the Act. He also filed a copy of the order of the Coordinate Bench of this Tribunal in the case of M.S. Lakaiah in ITA No. 1272/Hyd/2015, dated 3-8-2016 in support of his contention.

5. The learned DR, on the other hand, supported the orders of the authorities below and submitted that the assessee has failed to establish reasonable cause for accepting loans in cash and therefore, the penalty levied under section 271D should be confirmed.

6. Having regard to the rival contentions and the material on record, we find that the assessee has stated before the Commissioner (Appeals) that the loans were taken in cash on account of his sister’s marriage and that the loans were repaid through banking channels by way of RTGS and therefore, the genuineness of the loan and the identity of the creditor has been established. We find that the penalty under section 271D is subject to the provisions of section 273B of the Act. Therefore, penalty under section 271D is not automatic and when the assessee provides a reasonable explanation, the penalty is not leviable. The assessee’s contention that the loans were taken for the marriage of his sister has not been found to be incorrect and also the fact that the loans have been repaid by cheques is not controverted. Further, we also find that the notice under section 271D was issued after nearly four years and therefore, it is to be seen if it was within a reasonable period. The Coordinate Bench of the Tribunal in the case of Lokaiah (cited supra) has considered similar issue and after considering the precedents on the issue, held as under :–

“9. We have heard the rival contentions of both the parties and perused the material available on the record. The argument of the learned AR for initiation of penalty within the reasonable time and in any case not beyond for the year is not acceptable, for the simple reason that the issue has already been adjudicated by the Special Bench and therefore, we are bound by the categorical pronouncement of the Special Bench in this regard. Therefore, the proceedings initiated, for violation of section 269SS, under section 271D are within limitation.

In our view, once the assessment order has been passed on the premise of acceptance of cash deposit from various persons and confirmation has been produced by the assessee in the quantum proceedings and penalty proceedings. In our view the revenue has accepted the explanation of cash deposit in the bank account, in the quantum proceedings, therefore no penalty proceeding were initiated in the quantum proceedings. Since the revenue has accepted the explanation of cash in the assessment proceedings, therefore, the same set of facts and documents cannot be made basis for imposition of penalty. The assessee, has submitted the reasons for accepting the cash in the quantum proceedings and the said reasons were accepted by the assessing officer and the same reasoning should have been accepted in penalty proceeding as well. In our view, now in the quantum proceedings under section 271D of the Act, the officer, is not permitted to reopen and reexamine the reasoning given by the assessee. It is correct that the assessment proceedings and proceedings for violation of section 269SS of the Act are independent proceedings but in the cases like in the hand, the revenue is not permitted to take contrary stand. The judgment in the case of Dimple Yadav was sought to be distinguished by the learned DR on the premise that the money after accepting from the creditor was not routed through the banking channel for the payment to the seller. In our view, this argument is not available to the revenue as the revenue has neither challenged the registration of the sale deed in favour of the assessee nor has challenged the cash consideration paid by the assessee to the seller at the time of registration before the Sub-Registrar of sale deed.

In our view the case of the Dimple Yadav is squarely applicable to the facts and circumstances of the case. In the light of the above, we are of the view, the assessee has shown the reasonable cause within the meaning of section 273B of the Act, therefore, the penalty order of the lower authorities is quashed and the appeal of the assessee is allowed.”

7. For coming to the above conclusion, the Coordinate Bench relied upon the judgment of the Hon’ble Allahabad High Court in the case of Dimple Yadav (2015) 379 ITR 177 (All.) : 2015 TaxPub(DT) 3493 (All-HC) wherein the High Court considered the rigours of section 271D and also the provisions of section 273B to hold as under :–

“10. The object of introducing section 269SS of the Act was to ensure that a tax payer was not allowed to give false explanation for his unaccounted money or if the tax payer made some false entries, he would not escape by giving false explanation for the same. It was found that during the search and seizure, unaccounted money was found and the tax payer usually gave an explanation that he had borrowed or received deposits from his relatives or friends and, consequently, it became easy for the so called lender to manipulate his record to suit the plea of the tax payer. In order to curb this menace, section 269SS of the Act was introduced to do away with the menace of making false entries in the account books and later give an explanation for the same. Section 269SS of the Act consequently, required that no person shall take or accept any loan or deposit, if it exceeds more than Rs. 20,000 in cash.

11. Section 271D of the Act provided that a person who takes or accepts any loan or deposit in contravention of the provision of section 269SS of the Act, he would be liable to pay by way of penalty a sum equal to the amount of the loan or deposit so taken or accepted.

12. Section 271D of the Act caused undue hardship to the tax payers where they took a loan or deposit in cash exceeding Rs. 20,000 even where there was a genuine or bona fide transaction. The legislature accordingly, introduced section 273B of the Act, which provided that if there was a genuine and bona fide transaction and the tax payer could not get a loan or deposit by an account payee cheque or demand transaction for some bona fide reason, the authority vested with the power to impose penalty had a discretion not to levy the penalty.

13. In Chamundi Granites (P.) Ltd. (supra) the Supreme Court considered the provision of section 271D and 273B of the Act and held :–

“It is important to note that another provision, namely section 273B was also incorporated which provides that notwithstanding anything contained in the provisions of section 271D, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision is he proves 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 section 273B in the Act. If 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.”

14. In Bhagwati Prasad Bajoria’s (HUF) (supra) the Gauhati High Court held :–

“…..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 transaction of the loan was not genuine and it was a sham transaction to cover up the unaccounted money. It appears to us that the assessee felt need of money and thus he approached the money-lender for advancement of the money, the transaction is reflected in the promissory notes executed by the assessee in favour of the lender. When there is an immediate need of money the person cannot get such money from the nationalised bank to satisfy the immediate requirement……”

15. In the instant case, we find that the Tribunal has given a categorical finding that the assessee had established a reasonable cause for failure to comply with the provision of section 269SS of the Act. The Tribunal further found that the loan given by the Samajwadi Party was a genuine loan, which was reflected in the books of accounts on account of the Samajwadi Party as well as in the books of account of the assessee and that the cash given by the party was deposited in the bank of the assessee and, thereafter, used for the purpose of converting the nazul land into free hold. The Tribunal found that the genuineness of the transaction was also not disputed by the assessing officer.

16. In the light of the aforesaid, we find that even though the assessee had taken a loan in cash, nonetheless, the loan transaction was a genuine transaction and was routed through the bank account of the assessee which clearly shows the bona fides of the assessee.

The cash given by the lender was not unaccounted money but was duly reflected in their books of account. The assessing officer also accepted the explanation and found the transaction to be genuine.

The contention of the learned counsel for the appellant that since there was no urgency, the assessee could have taken the loan through cheque and should have processed the matter through regular banking channels is immaterial, inasmuch as the genuineness of the transaction has not been disputed by the assessing officer. Further, we find that the cash was deposited in the bank account of the assessee and the money was thereafter, routed through the banking channel for payment to the government for converting the land into free hold property.

17. In the light of the aforesaid, we are of the view that reasonable cause had been shown by the assessee and the provisions of section 273B of the Act was applicable. The appellate authorities were justified in holding that no penalty could be imposed since a reasonable cause was shown by the assessee.”

8. Therefore, we are satisfied that there existed reasonable cause for the assessee accepting the loans in cash and particularly since the loans have been repaid by way of RTGS. Therefore, we delete the penalty levied by the assessing officer under section 271D of the Act and confirmed by the Commissioner (Appeals).

9. In the result, assessee’s appeal is accordingly allowed.