Gujarat H.C : No penalty for cash loans exceeding Rs. 20,000 from agriculturists living in remote areas when transaction were not doubted

High Court Of Gujarat

CIT, Ahmedabad-IV vs. Maa Khodiyar Construction

Section : 269SS , 273B And 271D

Assessment Year : 2006-07

Akil Kureshi And Ms. Sonia Gokani, JJ.

Tax Appeal No. 325 Of 2014

April 28, 2014


Ms. Sonia Gokani, J. – Aggrieved by the order of the Income Tax Appellate Tribunal, Ahmedabad [“Tribunal” for short] dated 23rd August 2013, Revenue has challenged the same in the present Tax Appeal preferred under Section 260A of the Income-tax Act, 1961 (“the Act” for short), raising following two questions for our consideration :—

‘(A) “Whether in the facts and circumstances of the case, the ITAT has erred in law in rejecting the Revenue’s appeal against the decision of CIT (A) in dealing the penalty levied u/s. 271D of the Income-tax Act, even though the assessee is not covered by the exception to Section 269SS of the Act provided in second proviso to the said Section 269SS, as the assessee had taxable income under the Act and accepted cash exceeding the limit provided under the said Section 269SS ?”

(B)”Whether ‘genuineness of the loan/deposit’ or ‘bona fide nature of the loan/deposit transaction’ is the criteria for examining the contravention of the provisions of Section 269SS of the Income Tax Act, 1961 for levying penalty u/s. 271D of the Income Tax Act, 1961 ?”‘

2. The assessee firm is engaged in the business of civil construction. For the A.Y 2006-07, assessee filed return of income declaring the total income at Rs. 4.76 lakhs [rounded off]. Revised return thereafter was filed, which was processed and the case of the assessee was selected for scrutiny. It was noticed by the Assessing Officer that assessee had accepted an amount of Rs. 42.75 lakhs by way of cash loan from ten different persons. The assessee was required to furnish confirmation from those parties, which all was provided in writing. It was, however, noticed that the amount had been received in cash from those persons in violation of provisions of Section 269SS of the Act, and therefore, penalty proceedings under Section 271D had been initiated.

3. The Assessing Officer levied the penalty for having found breach of Section 269SS of the Act. He also noted that even if the persons advancing the loan were agriculturists, the assessee was assessable under the Income Tax Act and Section 269SS would not permit him to take recourse to taking the amount in cash and penalty was a must.

4. This was challenged before the CIT [A], who noted the fact that the loan in cash exceeding Rs. 20,000/- had been taken and also recorded the fact that 7/12 extracts in support of these persons being agriculturists were submitted before the Assessing Officer. Having noted that these persons were agriculturists and are staying in remote areas, CIT [A] relying on the decision of the Apex Court in case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 held that a technical or venial breach of provision cannot lead to levy of penalty, and therefore, set-aside the order of Assessing Officer mainly holding that none of the transactions had been doubted by the Revenue.

5. Aggrieved, Revenue preferred appeal before the Tribunal which concurred with the decision of the CIT [A], and therefore, the present appeal raising aforementioned questions of law.

6. It is contended by the Revenue that though the genuineness of the transactions had not been doubted and assuming that these agriculturists were residing in the remote areas that would not permit the respondent to make any breach of provision of Section 269SS of the Act. Any transaction above a sum of Rs. 20,000/- in cash would invite the rigor of levying of penalty. It is also argued that a huge amount of Rs. 42.75 lakhs had been taken in cash, and therefore, both the authorities committed error in deleting the penalty. Reliance is placed on the decisions of Delhi High Court in case of CIT v. Samora Hotels (P.) Ltd. [2012] 19 285/211 Taxman 189 and of Kerala High Court in case of K.V George v. CIT [2014] 42 261.

7. Delhi High Court in case of Samora Hotels (P.) Ltd. (supra) has answered the question in favour of the Revenue and against the assessee in a case where assessee company had entertained a bona fide belief that the loans accepted by it from its Directors and shareholders were not covered by the provisions of Section 269SS of the Act. Such belief also, according to the Court, was not borne out from the record. When asked to furnish the details, the assessee did not take the plea that the said receipts were loans, but, maintained that because they were the receipts from directors and shareholders, they were not covered under section 269SS. In other words, the specific plea was taken by the company that the amounts in question represented the share application money and that these were not loans or deposits at all. When clear stand of the assessee was that the said amounts were not loans or deposits, the Delhi High Court observed that the assessee company could not have entertained a bona fide belief that the loans accepted by it from directors and shareholders were not covered by the provisions of Section 269SS of the Act.

8. In case of K.V George (supra), the Kerala High Court held that the burden is on the assessee to prove that there was reasonable cause for receiving cash from various persons. It was a case where the assessee had accepted loans exceeding the limit specified under the Act from certain creditors. When asked to explain the reasonable cause, the assessee had failed to explain the same and instead had stated that substantial amount was received from the creditors. Nothing was emerging as to why such amount was received by way of cash except that the assessee had to put up an industrial unit. In such factual matrix, the High Court was not convinced about the genuineness of the transactions and hence, held against the assessee and in favour of the Revenue.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. Reliance placed on the decision in case of Hindustan Steel Ltd. (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.”

16. 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.

[Citation : 365 ITR 474]