The Commissioner Of Income Tax vs Sunil Kumar Goel ---Respondent

I.T.A.No.777 of 2008 1

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH.

1.I.T.A.No.777 of 2008

The Commissioner of Income Tax, Faridabad ---Appellant

Versus

Sunil Kumar Goel ---Respondent

2. I.T.A.No.778 of 2008 Date of Decision:- 3.3.2009

The Commissioner of Income Tax, Faridabad ---Appellant

Versus

Sunil Kumar Goel ---Respondent

CORAM:- HON'BLE MR.JUSTICE J.S.KHEHAR HON'BLE MR.JUSTICE NAWAB SINGH

Present:- Mr.Yogesh Putney, Advocate for the appellant.

Mr.Kashmiri Lal Goel, Advocate for the respondent.

J.S.KHEHAR, J. (ORAL)

Through the instant order, we propose to dispose of ITA

Nos.777 and 778 of 2008. The issue which arises for consideration is the

validity of the order passed by the Income Tax Appellate Tribunal, Delhi

Bench on 19.1.2007, whereby, the penalty imposed on the respondent-

assessee under Sections 271D and 271E of the Income Tax Act, 1961

(hereinafter referred to as "the Act") was ordered to be set aside.

The basis of the controversy raised in the instant appeals

emerges from the order dated 11.10.1993 (Annexure A1) passed the Deputy

Commissioner of Income Tax, Rohtak Range, Rohtak, showing that the I.T.A.No.777 of 2008 2

respondent-assessee Sunil Kumar Goel had taken the following loans in

cash:-

26.4.90 Rs.25,000/-

05.5.90 Rs.30,000/-

11.5.90 Rs.10,000/-

19.5.90 Rs.10,000/-

28.6.90 Rs.20,000/-

16.7.90 Rs.15,000/-

6.6.90 Rs.20,000/-

12.6.90 Rs.15,000/-

The aforesaid cash loans were taken during the financial year 1990-91

(assessment year 1991-92). According to the appellant-revenue, the action

of the respondent-assessee in taking the aforesaid cash loans was in clear

violation of Section 269SS of the Act. Section 269SS of the Act is being

extracted hereunder:-

"Section 269SS. No person shall, after the 30th day of June,

1984, take or accept from any other person (hereafter in this

section referred to as the depositor) any loan or deposit

otherwise than by an account payee cheque or account payee

bank draft if, -

(a) the amount of such loan or deposit or the aggregate amount

of such loan and deposit; or

(b) on the date of taking or accepting such loan or deposit, any

loan or deposit taken or accepted earlier by such person from

the depositor is remaining unpaid (whether repayment has I.T.A.No.777 of 2008 3

fallen due or not), the amount or the aggregate amount

remaining unpaid; or

(c) the amount or the aggregate amount referred to in clause (a)

together with the amount or the aggregate amount referred to in

clause (b), is [twenty] thousand rupees or more :

Provided that the provisions of this section shall not apply to

any loan or deposit taken or accepted from, or any loan or

deposit taken or accepted by, -

(a) Government;

(b) any banking company, post office savings bank or co-

operative bank;

(c) any corporation established by a Central, State or Provincial

Act;

(d) any Government company as defined in section 617 of the

Companies Act, 1956 (1 of 1956);

(e) such other institution, association or body or class of

institutions, associations or bodies which the Central

Government may, for reasons to be recorded in writing, notify

in this behalf in the Official Gazette :

Provided further that the provisions of this section shall not

apply to any loan or deposit where the person from whom the

loan or deposit is taken or accepted and the person by whom

the loan or deposit is taken or accepted are both having

agricultural income and neither of them has any income

chargeable to tax under this Act.

Explanation--For the purposes of this section-- I.T.A.No.777 of 2008 4

(i) "banking company" means a company to which the Banking

Regulation Act, 1949 (10 of 1949), applies and includes any

bank or banking institution referred to in section 51 of that Act;

(ii) "co-operative bank" shall have the meaning assigned to it in

Part V of the Banking Regulation Act, 1949 (10 of 1949);

(iii) "loan or deposit" means loan or deposit of money."

A perusal of the aforesaid provisions reveals, that it is not open to an

assessee to accept a loan or a deposit (the aggregate whereof, is in excess of

Rs.20,000/-) by way of cash. It is apparent from the factual position noticed

from the extract of the order dated 11.10.1993 that the respondent -assessee

had taken loans in excess of Rs.10,000/- by way of cash. This action of the

respondent-assessee was sought to be penalized by invoking Section 271D

of the Act. Section 271D of the Act is also being extracted hereunder:-

"271D (1) If a person takes or accepts any loan or deposit in

contravention of the provisions of section 269SS, he shall be

liable to pay, by way of penalty, a sum equal to the amount of

the loan or deposit so taken or accepted.

(2) Any penalty imposable under sub-section (I) shall be

imposed by the Joint Commissioner."

It is the vehement contention of the learned counsel for the appellant-

revenue that Section 271D of the Act is a mandate, in as much as,every

violation of Section 269SS of the Act, is liable to be penalized by imposing

a penalty (equal to the amount of the loan/deposit taken or accepted by the

assessee in cash). It is, therefore, the submission of the learned counsel for

the appellant-revenue that it was not open to the Income Tax Appellate

Tribunal to set aside the penalty imposed on the respondent-assessee under I.T.A.No.777 of 2008 5 Section 271D of the Act for the violation of Section 269SS of the Act.

The facts noticed here-in-above are relevant for Income Tax

Appeal No.777 of 2008.

In so far as I.T.A.No.778 of 2008 is concerned, it pertains to

penalty imposed on the respondent-assessee on the return of the aforesaid

loans taken in cash. Undisputably, the alleged loans depicted here-in-above,

were returned by way of cash. On this occasion, the appellant-revenue

arrived at the conclusion that the respondent-assessee had violated the

mandatory provisions of Section 269T of the Act. Section 269T of the Act

is being extracted hereunder:-

"269T. No branch of a banking company or a co-operative bank

and no other company or co-operative society and no firm or

other person shall repay any loan or deposit made with it

otherwise than by an account payee cheque or account payee

bank draft drawn in the name of the person who has made the

loan or deposit if--

(a) the amount of the loan or deposit together with the interest,

if any, payable thereon, or

(b) the aggregate amount of the loans or deposits held by such

person with the branch of the banking company or co-operative

bank or, as the case may be, the other company or co-operative

society or the firm, or other person either in his own name or

jointly with any other person on the date of such repayment

together with the interest, if any, payable on such loans or

deposits,

is twenty thousand rupees or more:

I.T.A.No.777 of 2008 6

Provided that where the repayment is by a branch of a banking

company or co-operative bank, such repayment may also be

made by crediting the amount of such loan or deposit to the

savings bank account or deposit has to be repaid:

Provided further that nothing contained in this section shall

apply to repayment of any loan or deposit taken or accepted

from--

(i) Government;

(ii) Any banking company, post office savings bank or co-

operative bank;

(iii) Any corporation established by a Central, State or

Provincial Act;

(iv) Any Government company as defined in section 617 of the

Companies Act, 1956 (1 of 1956);

(v) Such other institution, association or body or class of

institutions, associations or bodies which the Central

Government may, for reasons to be recorded in writing, notify

in this behalf in the Official Gazette :

Explanation--For the purposes of this section--

(i) "banking company" shall have the meaning assigned to itin

clause (i) of the Explanation to Section 269SS;

(ii) "co-operative bank" shall have the meaning assigned to it in

Part V of the Banking Regulation Act, 1949 (10 of 1949);

(iii) "loan or deposit" means any loan or deposit of money

which is repayable after notice or repayable after a period and,

in the case of a person other than a company, includes loan or I.T.A.No.777 of 2008 7

deposit of any nature."

It is apparent from the aforesaid provisions that return of loan/deposit by

way of cash (which aggregates a sum in excess of Rs.20,000/-), violates

Section 269T of the Act. The penal provisions for imposing penalty on

account of the aforesaid violation is in the form of Section 271E of the Act.

Section 271E of the Act is also being extracted hereunder:-

"271E (1) If a person repays any [loan or] deposit referred to in

section 269T otherwise than in accordance with the provisions of

that section, he shall be liable to pay, by way of penalty, a sum

equal to the amount of the [loan or] deposit so paid.]

(2) Any penalty imposable under sub-section (1) shall be

imposed by the Joint Commissioner."

On the same analogy as has been noticed in Section 271D of the Act, it is

the contention of the learned counsel for the appellant-revenue that the

action of the respondent-assessee in returning loans (the aggregate of which

was, more than Rs.20,000/-) by way of cash, has the effect of mandatory

penal action. Inasmuch as the assessee is required to pay by way of penalty

a sum equal to the amount of loan repaid in cash.

For violating the mandate of Section 269SS of the Act,

according to the learned counsel for the appellant-revenue, a penalty was

imposed on the respondent-assessee under Section 271D of the Act,

likewise, for violating the mandate of Section 269T of the Act, a penalty

was imposed on the respondent-assessee under Section 271E of the Act by

the Assessing Officer..

In the appellate proceedings initiated at the hands of the

respondent-assessee before the Commissioner of Income Tax (Appeals), I.T.A.No.777 of 2008 8

Faridabad, the respondent-assessee failed, inasmuch as, the appeal preferred

by the respondent-assessee was dismissed by the Commissioner of Income

Tax (Appeals), Faridabad vide order dated 23.12.1994, by upholding the

order dated 11.10.1993 passed by the Deputy Commissioner of Income Tax,

Rohtak. Dissatisfied with the order passed by the first appellate authority,

the respondent-assessee preferred an appeal before the Income Tax

Appellate Tribunal. The instant appeal was allowed by the Income Tax

Appellate Tribunal vide its order dated 19.1.2007. The order passed by the

Income Tax Appellate Tribunal, referred to above, is the subject of

challenge at the hands of the Revenue in the instant appeal.

As against this, the solitary submission advanced by the learned

counsel for the appellant-revenue to the effect that the provisions of

Sections 271D and 271E of the Act are mandatory and that they do not vest

any discretion with the revenue, it is submitted by the learned counsel for

the respondent-assessee on the strength of Section 273B of the Act that

there are circumstances where the Revenue is precluded from imposing a

penalty (under Sections 271D and 271E of the Act) even though there has

been a technical non compliance of Section 269SS and/or 269T of the Act.

Section 273B of the Act which has been relied upon by the learned counsel

for the respondent-assessee is being extracted hereunder:-

"273B. Notwithstanding anything contained in the provisions of

[clause (b) of sub-section (1) of] [section 271, section 271A,

section 271AA] section 271B [section 271BA), [section 271BB],

section 271C [section 271CA] section 271D, section 271E,

[section 271F, [section 271FA] [section 271FB] [section 271G]]

clause (c) or clause (d) of sub-section (1) or sub-section (2) of I.T.A.No.777 of 2008 9

section 272A, sub-section (1) of section 272AA] or [section

272B or [sub-section (1) [or sub-section (1A)] of section 272BB

or] [sub-section (1) of section 272BBB or] clause (b) of sub-

section (1) or clause (b) or clause (c) of sub-section (2) of section

273, 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 if he proves that there was reasonable cause for the

said failure.]"

We have considered the submission advanced by the learned

counsel for the respondent-assessee. We are satisfied that Section 273B of

the Act envisages a non-obstante clause as against Sections 271D and 271E

of the Act (which have been sought to be invoked for penalizing the

respondent-assessee). In the exceptional situation envisaged in Section

273B of the Act, it is permissible for an assessee to substantiate "reasonable

cause" for his failure to comply with the provisions on the basis whereof,

penalty is sought to be imposed upon him. Taken to the logical conclusion

in so far as the present controversy is concerned, it is open to the

respondent-assessee, in the present case, to establish a reasonable cause for

having not complied with the provisions of Section 269SS of the Act (in

case of ITA No.777 of 2008) and Section 269T of the Act (in case of ITA

No.778 of 2008). If an assessee successfully discharges the aforesaid

obligations, then it is open to him to raise a claim that he should be excused

from the consequential penal effect.

The explanation tendered by the respondent-assessee which has

been taken into consideration by the Income Tax Appellate Tribunal was

that the action of the respondent-assessee was bona fide and not aimed at I.T.A.No.777 of 2008 10

avoiding any tax liability. So far as the instant issue is concerned, the

Income Tax Appellate Tribunal arrived at the conclusion, that the action of

the respondent-assessee had not resulted in the infraction of any law,

inasmuch as, the default committed by him was technical and venial in

nature. The Income Tax Appellate Tribunal also expressed the view, that no

prejudice was caused to the Revenue, inasmuch as, there was no avoidance

of tax or tax evasion at the hands of the respondent-assessee. Relying upon

the judgment rendered by this Court in Commissioner of Income-Tax

V.Saini Medical Store, (2005) 277 ITR 420 that bonafides and genuineness

of the transaction, would constitute a "reasonable cause" for not invoking

the provisions of Sections 271D and 271E of the Act, the Income Tax

Appellate Tribunal arrived at the conclusion that the respondent-assessee

has been successful to show "reasonable cause". And accordingly the

Income Tax Appellate Tribunal returned a finding, that acceptance of the

return of payments received by the respondent-assessee, by way of cash, at

the hands of the respondent-assessee, ought to be overlooked, in the facts

and circumstances of this case.

As against the aforesaid conclusion drawn by the Income Tax

Appellate Tribunal, it was submitted by the learned counsel for the

appellant-revenue, that on eight different occasions different amounts

ranging from Rs.10,000/- to 30,000/- were taken by way of cash, by the

respondent-assessee as loans in conscious and deliberate disregard of

obligation envisaged under Section 269SS of the Act. And the aforesaid

loans were then returned by way of cash, again, in conscious disregard of

the obligation envisaged under Section 269T of the Act. It was also

submitted by the learned counsel for the appellant-revenue, that it had not I.T.A.No.777 of 2008 11

been argued at the hands of the respondent-assessee, that action of the

respondent-assessee was not deliberate, or that, the same was under a bona

fide belief that he could not accept or return a loan(s) in excess of

Rs.20,000/- by way of cash. It is, therefore, the submission of the learned

counsel for the appellant-revenue, that the onus to establish bona fides at the

hands of the respondent-assessee, squarely rests on the shoulder of the

respondent-assessee. In addition to the above, it is submitted that a breach of

the provisions of the Act, cannot be justified on alleged bona fide belief,

which cannot be illustrated through cogent evidence. It is, therefore, the

submission of the learned counsel for the appellant-revenue, that in the facts

and circumstances of the present case, the respondent-assessee, could not be

deemed to have established a reasonable cause for not abiding by the

provisions of Sections 269SS and 269T of the Act.

Having given our thoughtful consideration to the submissions

advanced by the learned counsel for the rival parties, we are of the view that

the finding that there was reasonable cause shown by the respondent-

assessee, is a finding of fact. This emerges from the decision rendered by

this Court in Commissioner of Income Tax's case (supra), wherein, this

Court has inter-alia held as under:-

"As pointed out earlier, there is no doubt about the genuineness

of the transactions which have been fully accepted in the

assessment made for the year under consideration. Even if, there

is any ignorance, which resulted in the infraction of law, the

default is technical and venial which did not prejudice the

interests of the Revenue as no tax avoidance or tax evasion was

involved. To my mind, bona fide belief coupled with the I.T.A.No.777 of 2008 12

genuineness of the transactions would constitute reasonable

cause under section 273B for not invoking the provisions of

section 271E of the Act. The impugned order of penalty is

cancelled.

The findings of the Commissioner of Income tax

(Appeals) have been confirmed in appeal by the Tribunal.

Therefore, the findings recorded by the Commissioner of

Income-tax (Appeals) and the Tribunal that the assessee had

shown reasonable cause for the failure to comply with the

provisions of section 269T of the Act is a finding of fact based

on appreciation of material on record. It does not give rise to any

question of law, much less substantial question of law.

Accordingly, the appeal is dismissed."

The Income Tax Appellate Tribunal was right in recording its

conclusion that a "reasonable cause" had been shown by the respondent-

assessee. The Income Tax Appellate Tribunal relied on the fact that the

respondent-assessee had produced his cash books, depicting loans taken by

him unilaterally before the Revenue. Another fact taken into consideration

was, that no prejudice was caused to the Revenue, in the instant action of

the respondent-assessee inasmuch as, the respondent-assessee did not

attempt by the impugned act to avoid any tax liability. Furthermore, there is

no dispute about the fact, that the instant cash transactions of the

respondent-assessee were with the sister concern, and that, these

transactions were between the family, and due to business exigency. A

family transaction, between two independent assessees, based on an act of

casualness, specially in a case where the disclosure thereof is contained in I.T.A.No.777 of 2008 13

the compilation of accounts, and which has no tax effect, in our view

establishes "reasonable cause" under Section 273B of the Act. Since the

respondent-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 (Sections 271D and 271E of the

Act) against him.

For the reasons recorded here-in-above, we find no merit in

either of the aforesaid two appeals i.e. ITA Nos.777 and 778 of 2008, and

accordingly, the said appeals are hereby dismissed.

(J.S.Khehar) Judge

(Nawab Singh) 3.3.2009 Judge AS I.T.A.No.777 of 2008 14