Prakash Harinarayan Mantri,, Jalna vs Assessee

This appeal filed by the assessee is directed against the order

dated 14.08.2013 of the CIT(A), Aurangabad relating to

Assessment Year 2006-07.

2. Levy of penalty of Rs.1,00,000/- under section 271D of the

I.T. Act by the Assessing Officer and confirmed by the CIT(A) is

the only issue raised by the assessee in various grounds of appeal.

3. Despite service of notice none appeared on behalf of the

assessee. However, a written submission has been filed on behalf

of the assessee. Therefore, this appeal is being decided on the basis 2

of written submission filed by the assessee and after hearing the Ld.

Departmental Representative.

4. Facts of the case, in brief, are that the assessee is an

individual and proprietor of M/s Jagdamba Agro Engineering,

Jalna. A search action under section 132 of the I.T. Act was

conducted in the case of Rudranee Group of cases of Aurangabad.

On the basis of material found, a survey action under section 133A

of the I.T. Act was conducted in the case of Shri Kachrulal Nathmal

Mutha (K.N. Mutha) engaged in money lending activity. Shri K.N.

Mutha has given cash loan on hundies and has obtained

dated/undated duly signed cheques of the borrowers as security.

One such cheque duly signed by the assessee dated 06.08.2005

bearing Cheque No.997116 of the Chikhali Urban Cooperative

Bank Ltd. was found with Shri K.N. Mutha. The Assessing Officer,

therefore, was of the opinion that the assessee has accepted cash

loan of Rs.1,00,000/- from Shri K.N. Mutha in violation of the

provisions of section 269SS of the I.T. Act. He, therefore, referred

the matter to the Addl. CIT, who issued notice to the assessee to

explain the case. It was submitted by the assessee that he has not

taken any cash loan from Shri K.N. Mutha. He has signed the

cheque and hundi and has given the same to Shri K.N. Mutha for

obtaining loan. However, no such cash loan was given by Shri

K.N. Mutha.

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5. The Addl. CIT was not satisfied with the explanation given

by the assessee. He observed that Shri K.N. Mutha has accepted

the above modus operendy and admitted that his business is of

giving loans in cash and accepting the repayment in cash. He has

accepted that the entire money so given, against the cheques

deposited with him, was unexplained income. According to the

Addl. CIT, if the assessee accepts loans/deposits in cash and repays

the same in cash it would be impossible to accept that the entry of

the same would be made in the books of accounts of the assessee.

The cheques would be returned when the hundies were cancelled or

money was repaid. If the loan was extended for a further period

then the cheque received as security would be revalidated for a

period covering the tenure of debt by making a change in the date

of issue of the cheque. If any invalidated cheque remained with

Shri K.N. Mutha and the time period for presentation vis-à-vis the

date mentioned on cheque expired, then it meant that the debtor had

repaid the amount borrowed undated. Rejecting the explanation

given by the assessee and observing that assessee had taken loan

aggregating to Rs.1,00,000/- in cash from Shri K.N. Mutha and

since the cheque was not cancelled and the period of validity

subsists the amount could not have been returned by the assessee to

money lender Shri K.N. Mutha. He therefore levied penalty of

Rs.1,00,000/- under section 271D for contravention of provisions of

section 269SS of the I.T. Act.

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6. Before the CIT(A), the assessee submitted that he has

approached Shri K.N. Mutha with the proposal of loan and he has

handed over a cheque of Rs.1,00,000/- as security to Shri K.N.

Mutha. However, after due enquiries with banks etc. Shri K.N.

Mutha refused the loan proposal. It was claimed that Shri K.N.

Mutha has not returned the said cheque even after various requests

and visits to his office by the assessee.

6.1 However, the CIT(A) was also not satisfied with the

explanation given by the assessee and upheld the penalty of

Rs.1,00,000/- levied by the Addl. CIT. While doing so, he

observed that the submission of the assessee that he has given duly

signed cheque of Rs.1,00,000/- to Shri K.N. Mutha without

obtaining cash loan of Rs.1,00,000/- appears to be improbable and

therefore cannot be accepted. Further, when the loan was not

sanctioned by Shri K.N. Mutha, there was no question of not

returning the cheque despite the requests of the assessee.

Therefore, he held that the Assessing Officer was justified in

holding that the assessee has accepted cash loan of Rs.1,00,000/-

from Shri K.N. Mutha. Since assessee has violated the provisions

of section 269SS therefore penalty levied under section 271D of the

I.T. Act is justified.

7. Aggrieved with such order of the CIT(A), the assessee is in

appeal before us.

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8. The assessee in his written submission has stated that before

the Addl. CIT it was categorically stated that the assessee had

approached Shri K.N. Mutha for seeking loan and for this purpose

he had handed over a signed cheque. However, at that point of time

the assessee was having existing loan liability of Chikli Urban

Cooperative Bank to the tune of Rs.16,00,000/-. Shri K.N. Mutha

after discreet enquiries with the said bank and on having come to

know of this fact refused to grant loan to the assessee. However, he

did not return the same and the validity of the said cheque was over.

Therefore, the assessee did not pursue the matter with Shri K.N.

Mutha since the cheque became stale. It is stated in the written

submission that the Revenue did not furnish any cogent direct

evidence to substantiate that the assessee had in-fact accepted cash

loan in violation of the provisions of section 269SS of the I.T. Act.

The assessee had categorically denied receiving any cash loan from

Shri K.N. Mutha. There is nothing on record to suggest that any

such statement has been recorded from either of the persons so as to

prove that such cash loan has been given or taken. The entire

process is on the basis of surmises and presumptions. It has further

been submitted by the assessee in his written submission that under

identical facts and circumstances, the Tribunal in the case of Late

Shri Madanlal N. Singalkar, Through Legal Heir Shri Manjeet M.

Singalkar vs. Addl. CIT vide ITA No.2183/PN/2013, order dated

19.09.2014 deleted the penalty levied under section 271D of the I.T.

Act, which was upheld by the CIT(A).

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9. The Ld. Departmental Representative on the other hand while

supporting the order of the CIT(A) submitted that the cheque is not

barred by limitation.

10. We have considered the written submission made by the

assessee and argument of the Ld. Departmental Representative. We

have also perused the orders of the Assessing Officer and the

CIT(A). We find in the instant case the Addl. CIT levied the

penalty of Rs.1,00,000/- under section 271D of the I.T. Act on the

ground that the assessee has accepted cash loan of Rs.1,00,000/-

from Shri K.N. Mutha in violation of the provisions of section

269SS of the I.T. Act. The same was based on the basis of a signed

cheque bearing No.997116 of the Chikhali Urban Cooperative Bank

Ltd. dated 06.08.2005 found from the premises of Shri K.N. Mutha

during the course of survey action under section 133A of the I.T.

Act on 02.02.2006. During the course of penalty proceedings, the

assessee submitted that he has not obtained any such cash loan from

Shri K.N. Mutha and that he had only given the signed cheque in

anticipation of loan. However, no such loan was given by Shri

K.N. Mutha since assessee had already obtained loan of

Rs.16,00,000/- from Chikhali Urban Cooperative Bank Ltd..

However, the above submission was rejected by the Addl. CIT who

levied penalty of Rs.1,00,000/- under section 271D of the I.T. Act,

which has been upheld by the CIT(A).

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11. We find identical issue had came up before the Tribunal in

the case of Late Shri Madanlal N. Singalkar, Through Legal Heir

Shri Manjeet M. Singalkar vs. Addl. CIT (supra), wherein the

Tribunal cancelled the penalty so levied under section 271D of the

I.T. Act on the ground that no direct evidence was brought on

record by the Revenue when the assessee was denying categorically

of accepting such loan and no statement was recorded from either

of the persons so as to prove that such cash loan has been given or

taken. The relevant observations of the Tribunal at para 7 read as

under :-

"7. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions relied on by both the sides. We find the AO referred the matter to the Addl.CIT for initiation of penalty proceedings u/s.271D and 271E of the I.T. Act since a number of signed dated/undated cheques were impounded from the premises of one Shri Kachrulal Nathmal Mutha according to which the assessee appears to have taken a cash loan of Rs.6 lakhs from Shri Kachrulal Nathmal Mutha during the A.Y. 2006-07. We find before the CIT(A) the assessee submitted that he has only approached Shri Kachrulal Nathmal Mutha with the proposal of loan for which he had handed over the cheques and hundies of Rs.6 lakhs as security. However, the said proposal did not materialise. However, the said hundies remained with Shri Kachrulal Nathmal Mutha. We find the Ld.CIT(A) did not accept the contention of the assessee on the ground that the same appears to be improbable for which the argument of the assessee was rejected. The other contention of the assessee that there is no entry either in the books of Shri Kachrulal Nathmal Mutha or in the books of the assessee was also rejected by the CIT(A).

7.1 In our opinion, for imposing penalty u/s.271D there must be some direct evidence to substantiate that the assessee has infact accepted cash loan in violation of the provisions of section 269SS. In the instant case, there is no direct evidence brought on record by the Revenue. The assessee was categorically denying of any such cash loan from Shri Kachrulal Nathmal Mutha. There is nothing on record to suggest that any such statement has been recorded from either of the persons so as to prove that such cash loan has been given or taken. The entire process is on the basis of surmises and presumptions. It is also a fact that the assessee is no more and has expired. Considering the totality of the facts of the case, we are of the opinion that it is not a fit 8

case for levy of penalty u/s.271D of the I.T. Act in absence of any direct evidence to show that the assessee, in the instant case, has accepted cash loan in violation of provisions of section 269SS. In this view of the matter, we set-aside the order of the CIT(A) and direct the AO to cancel the penalty levied u/s.271D of the I.T. Act, 1961. Since the assessee succeeds on merit, we refrain ourselves from deciding the legal arguments advanced by the Ld. Counsel for the assessee to the proposition that the penalty order is barred by limitation. The grounds raised by the assessee are accordingly allowed."

12. Since in the instant case the assessee was categorically

denying from the very beginning regarding acceptance of such cash

loan from Shri K.N. Mutha and since there is no direct evidence to

substantiate that the assessee has in-fact accepted the said cash loan

and since no statement was recorded from either of the parties,

therefore, following the decision of the Co-ordinate Bench of the

Tribunal under identical facts and circumstances in the case of Late

Shri Madanlal N. Singalkar (supra), we hold that this is not a fit

case for levy of penalty under section 271D of the I.T. Act. We

accordingly set-aside the order of CIT(A) and direct the Assessing

Officer to cancel the penalty. The grounds raised by the assessee

are accordingly allowed.

13. In the result, the appeal filed by the assessee is allowed.

Pronounced in the open court on 24.06.2015

Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune Dated: 24th June, 2015 Sujeet 9

Copy of the order forwarded to:

1. Assessee 2. Department 3. The CIT(A), Aurangabad 4. The CIT, Aurangabad 5. The D.R., "B" Pune Bench 6. Guard File By order //True Copy//

Sr. Private Secretary ITAT, Pune Benches, Pune