Loan accepted from father though bearer cheque and penalty under the Income Tax Act – 1961

Short Overview : Where loan accepted by assessee through bearer cheque, was taken from his father for meeting his urgent business needs, the said transaction between father and son would not attract imposition of penalty under section 271D and hence, the penalty levied under section 271D would not be sustainable.

AO noticed that assessee accepted loan through bearer cheque. Accordingly, he levied penalty under section 271D for violating provisions of section 269SS. Assessee submitted that the said loan was taken from his father, which was required for his urgent business needs i.e. for purchase of petroleum products. Accordingly, he submitted that as the transaction was between the father and the son and as the amount was received through bearer cheque to meet the urgent needs, therefore, the penalty would not be leviable.

It is held : Assessee demonstrated that he took impugned loan from his father due to urgent business needs, which was not considered by Revenue. Further, both the father and the son were assessed to tax and were maintaining regular books of account and except technical violation there was no escapement of income or suppression of income in the instant case. Further, though the transaction was between two independent business organizations but the same remained between father and son, which would not attract imposition of penalty under section 271D. Hence, the penalty levied under section 271D would not be sustainable.

Decision: In assessee’s favour.

Followed: Deepika, v. Addl. CIT [in ITA No.561/Bang/2017, dt. 13-10-2017].

IN THE ITAT, BANGALORE BENCH

N.V. VASUDEVAN, V.P. & D.S. SUNDER SINGH, A.M.

Mohammadyusuf R. Dargad v. Addl. CIT

ITA Nos.288 & 289/Bang/2019

3 January, 2020

Appellant by: Preeti S. Patel, Advocate

Respondent by: R. Premi, JCIT

ORDER

D.S. Sunder Singh, A.M.

These two appeals filed by the assessee are directed against the common order of the Commissioner (Appeals), Hubballi (hereafter referred as “CIT(A)”) in ITA Nos.CIT(A), Hubli/10065 & 10064/2018-19, dt. 7-12-2018 for the assessment year (AY) 2014-15. since, the issues involved in both the appeals are identical, these appeals are clubbed, heard together and disposed off by a common order as under:

2. The brief facts of the case are that the assessee filed E-return of income declaring total income of Rs. 3,45,800 for the assessment year 2014-15 and the same was processed under section 143(1) of the Income Tax Act, 1961 (“the Act”) and the case was selected for scrutiny. During the course of assessment proceedings the assessing officer(AO) noticed that the assessee had accepted the loans otherwise than account payee cheque of Rs. 50,000 (bearer cheque) on 13-3-2013 and a sum of Rs. 4,00,000 was repaid in cash on 13-4-2013. The Additional Commissioner of Income Tax,Range-2,Hubbali had issued the notice under section 271D of the act for accepting the loan of Rs. 50000 initiating penalty for violating the provisions of section 269SS of the Act and called for explanation from the assessee. In response to the notice, the assessee submitted the explanation stating that the loan was accepted by the bearer cheques due to exceptional circumstances for making the payment to Bharat Petroleum Corporation Ltd. (BPCL). Not being convinced with the explanation of the assessee, the assessing officer levied the penalty of Rs. 50000 under section 271D of the Act.

2.1. Similarly, the assessee made repayment of the loans in cash on 13-4-2013 for a sum of Rs. 4,00,000 to Industrial Protection Force (IPF) in violation of the provisions of section 269T of the act. The payment of Rs. 4.00.000 was made directly in the bank account of IPF. The Addl Commissioner initiated the penalty under section 271E of the act and called for explanation of the assessee and the assessee explained that no cash payment was made directly to the assessee, since the payment was made in the bank account and the transactions were accounted in the books of accounts of both the assessees, hence, the assessee requested to drop the penalty proceedings.

The Addl. Commissioner not being impressed with the explanation levied the penalty of Rs. 4,00,000 under section 271E of the Act.

3. Aggrieved by the order of the assessing officer, the assessee went on appeal before learned Commissioner (Appeals) and argued that the loan was accepted by bearer cheque due to business expediency, therefore, requested to cancel the penalty.

Similarly, the AR argued before the learned Commissioner (Appeals) that repayment was made directly in the bank account but not to the assessee, the transactions were duly recorded in the books of accounts, hence, argued that there is no case for the penalty. Not being convinced with the argument of learned AR, learned Commissioner (Appeals) confirmed the penalties levied by the Addl.CIT under section 271D and 271E of the act. Aggrieved by the orders of the learned Commissioner (Appeals), the assessee filed appeal before this Tribunal.

4. During the appeal hearing, the learned AR submitted that the assessee has taken the loan from his father Mr. Mohammad Yousuf, which is a transaction between two entities within the family. The assessee is a Proprietor of M/s. Jabbar Petroleum, Dharwad and Shri R.M. Dargad is a Proprietor of M/s Industrial Security Force and M/s. Aliya Petroleum at Hubli. Mr. RM Dargad is the father of the assessee. The AR further submitted that in petroleum dealership business there is a heavy inflow of cash to the extent of Rs. 5 to 6 lakhs daily. Therefore, as and when it was necessary, the assessee was taking the loans from his father to meet the exigencies of the business. Except the couple of occasions all the transactions were made through banking channels. The assessee has received a bearer cheque of Rs. 50,000 on 15-6-2013 from his father from the account of IPF, Dharwad in the name of Mr. Hussian R. Dargad, the Manager of Jabbar Petroleum and the same was withdrawn from the bank account and deposited in the assessee’s cash book. The amount was required for urgent business needs of the assessee to make the payment to BPCL for purchase of petroleum products therefore, submitted that the transaction was between the father and the son and the amount was received through bearer cheques to meet the urgent needs therefore, requested to drop the penalty. Similarly, in the case of repayment of the loan the assessee stated that out of daily collection on 13-4-2013 the assessee has directly deposited the cash of Rs. 4 lakhs into IPF Bank account and he has not made cash payment directly to his father. The learned AR further submitted that all the transactions were duly accounted in the books of accounts of both the assessees. The AR argued that since the transactions were between father and son, there is no case for penalty under section 271D/271E. The learned AR relied on the decision of this Tribunal in the case ofDeepika v. ACIT [in ITA No.561/Bang/2017, dt. 13-10-2017].
5. On the other hand, the learned DR vehemently opposed and argued that the transactions were between two independent business concerns therefore, argued that there is no case for dropping the penalty and hence requested to uphold the order of learned Commissioner (Appeals).
6. We have heard the rival contentions and perused the material placed on record. Though the transactions were between two entities both the entities are proprietary concerns of father and son. This fact was not disputed by the department. The assessee has accepted the loan through bearer cheque and similarly deposited the cash into the bank account of IPF which is the proprietary concern of the father. In the case of acceptance of loan the assessee has demonstrated that he has taken the loan due to urgent business needs which was not considered by the learned Commissioner (Appeals). From the statements of facts, it is observed that the deposit was also made directly into the bank account and both the transactions were duly accounted in the books of accounts. Both the father and the son are assessed to tax and maintaining the regular books of accounts and except technical violation there is no escapement of income or suppression of income in the instant case. Therefore, we find that the transactions are duly reflected and there is no unaccounted cash transactions involved in the instant case. Though the transactions were between two independent business organizations the transactions were remained between father and son which does not attract imposition of penalty under section 271E/271D of the Act. The Co-ordinate Bench of ITAT, Bangalore in the case ofDeepika (supra) considered the identical issue and held that there is no case for imposition of penalty under section 271D of the Act in the case of near relatives. For the sake of clarity and convenience, we extract the revenant portion in para No.7 to 14 of the order of this Tribunal in the cited case.

“7. We have considered the rival submissions. The facts as decided by ITAT Kolkata in the case of Dr.B.G.Panda were that loan transactions were carried out in cash in violation of the provisions of section 269SS of the Act between husband and wife. On the question of levy of penalty under section 271D of the Act, the Tribunal held as follows :–

“Section 269SS is applicable to the deposits or loan. It is true that both in the case of a loan and in the case of a deposit, there is a relationship of debtor or creditor between the party giving money and the party receiving money. In the case of 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 and the benefit normally being the earning of interest from the party who customarily accepts deposit. In the case of loan it is the borrower at whose instance and for whose needs the money is advanced. The borrowing is primarily for the benefit of a borrower although the person who lends the money may also stand to gain thereby earning interest on the money lent. In the instant case, this condition was not applicable because there was no relationship of the depositor or a creditor as no interest was involved.

This was neither a loan nor a deposit. At the same time. the words ‘any other person’ are obviously a reference to the depositor as per the intention of the Legislature. The communication/transaction between the husband and wife are protected from the legislation as long as they are not for commercial use. Otherwise, there would be a powerful tendency to disturb the peace of families. to promote domestic broils, and to weaken or to destroy the feeling of mutual confidence which is the most enduring solace of married life. In the instant case, the wife gave money to husband for construction of a house which was naturally a joint venture for the property of the family only. This transaction was not for commercial use. The amount directly received by the husband. i.e. the assessee. was to the extent of Rs. 17.000 only and the balance amount of Rs. 26.000 was given by payment directly to the supplier of the material required for the construction of the house. Though the expenditure was apparently incurred by the husband being the karta/head of the family, it could not be said that the wife could not have any interest of her own in this house being constructed. The transaction was neither loan nor any gift as no ‘interest’ element was involved and there was no promise to return the amount with or without interest. It was clear that the money given by the wife was a joint venture of the family. Taking into consideration overall facts and circumstances of the case, it could be said that the aforesaid piece of legislation was not applicable in the instant case. By taking the liberal view and applying the golden rule of interpretation, the assessee had a reasonable cause within the meaning of section 27 3B. Therefore. the penalty should be deleted.

8. In the case ofACIT v. Vardaan Fashion (2015) 60 Taxmann.com 407 (Del-Trib.) : 2015 TaxPub(DT) 0744 (Del-Trib)it was held that where the assessee intended to purchase a property jointly for which assessee’s wife had advanced a sum of money to assessee and when deal for purchase of such house property did not materialize, assessee refunded said amount through cheque to his wife.

On the question whether acceptance of cash by husband from his wife would amount to taking of loan or advance in strict sense of section 269SS , the tribunal held that it cannot be construed as loan attracting provisions of section 269SS of the Act and therefore no penalty under section 271D could be levied.

9. The Income-tax Appellate Tribunal, Amritsar Bench, in the case ofITO v. Tarlochan Singh (2003) 128 Taxman 20 (Mag) : 2003 TaxPub(DT) 0840 (Asr-Trib)was concerned with a case where the husband had taken the cash of Rs. 70,000 from his wife for the purpose of investment in the acquisition of immovable property.

The assessing officer had levied the penalty under section 271D which was cancelled by the Income-tax Appellate Tribunal holding as under :

“Even keeping in view the contents of the Departmental Circular No. 387 (1985) 152 ITR (St.) 1), it was never the intention of the Legislature to punish a party involved in a genuine transaction.

Therefore, by taking a liberal view in the instant case, the assessee had a reasonable cause within the meaning of section 273D. Thus, keeping in view the entire facts of the instant case, and also keeping in view the intention of the Legislature in enacting the provisions of section 269SS, it was to be held that the assessee was prevented by sufficient cause from receiving the money by an account payee cheque or account payee bank draft. In the instant case, the assessee was of the opinion that the amount in question did not require to be received by an account payee cheque or account payee draft. Thus, there was a reasonable cause and no penalty should have been levied. From the above, it would be clear that the assessee had taken plea that firstly there was no violation of the provisions of section 269SS. Secondly, there was a reasonable cause. Thirdly, the assessee was under the bona fide belief that he was not required to receive the amount otherwise than by an account payee cheque or account payee draft. As an alternative submission, it was contended that the default could be considered either technical or venial breach of the provisions of law and, therefore, no penalty under section 271D was leviable. In view of the above discussion, no penalty under section 271D was leviable. It is well-settled that penalty provision should be interpreted as it stands and, in case of doubt, in a manner favourable to the taxpayer. If the court finds that the language is ambiguous or capable of more meaning that the one, then the court has to adopt the provision which favours the assessee, more particularly where the provisions relate to the imposition of penalty. In view of the above, the penalty sustained by the Commissioner (Appeals) was cancelled.”

10. The ratio of the above decision of the Income-tax Appellate Tribunal, Amritsar Bench, would be squarely applicable to the facts of the assessee’s case. Here also, the daughter and member of the HUF have given money for certain specific purpose. The source and genuineness of the loan has been accepted by the assessing officer. The cash loans in question therefore cannot be said fall within the mischief of section 269SS of the Act as near relatives cannot be said to be “Other person” within the meaning of section 269SS of the Act. In any event in the circumstances of the case, there was reasonable cause for accepting loans in cash.
11. In the case ofCIT v. Sunil Kumar Goel (2009) 315 ITR 163 (P&H) : 2009 TaxPub(DT) 1514 (P&H-HC), the Hon’ble Punjab and Haryana High Court held as under :

“A family transaction, between two independent assessees, based on an act of casualness, specially in a case where the disclosure thereof was contained in the compilation of accounts, and which had no tax effect, established ‘reasonable cause’ under section 273B of the Act. Since the assessee had satisfactorily established ‘reasonable cause’ under section 273B of the Act, he must be deemed to have established sufficient cause for not invoking the penal provisions of sections 271D and 271E of the Act against him. The deletion of penalty by the Tribunal was valid.”

12. That the ratio of the above decision of the hon’ble Punjab and Haryana High Court would also be squarely applicable in respect of cash transaction between the assessee and his near relatives.
13. In the case ofM.Yeshodha (2013) 351 ITR 265(Mad) : 2013 TaxPub(DT) 1302 (Mad-HC),the Hon’ble Madras High Court held that transaction of loan between father in law and daughter in law in cash cannot be subject matter of levy of penalty under section 271D of the Act.
14. In the light of the aforesaid judicial pronouncements, we are of the view that imposition of penalty under section 271D of the Act cannot be sustained.

The same is directed to be deleted. The appeal of the assessee is allowed.”

7. Since, the facts are identical respectfully following the view taken by this Tribunal in the case ofDeepika (supra), we hold that the penalty levied by the assessing officer under section 271E/271D is unsustainable and the same are cancelled. Accordingly, we, set aside the orders of the learned Commissioner (Appeals) and cancel the penalties levied under section 271E/271D of the act. The appeals of the assessees are allowed.
8. In the result, both the appeals filed by the assessee are allowed.