Venkateswara Reddy Kasireddy, ... vs Assessee

These are the appeals preferred by the assessee against the order of the CIT (A) VI Hyderabad, dated 24.09.2014 relating to A.Y 2010-11.

2. Briefly stated, the assessee is an individual deriving income from house property and agriculture. The assessment in the case of Shri Venkata Reddy Kasireddy for A.Y 2010-11 was completed with the Income Tax Officer Ward 9(3) Hyderabad u/s 143(3) of the I.T. Act on 12.3.2013. During the course of the assessment proceedings, it was noticed that the assessee had received a loan of Rs.30.00 lakhs in cash from Shri E. Kotaiah, R/o 16-2-751/A, Flat No.404, BDR Towers, Karanbagh, Asmanghad, Saidabad,

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Hyderabad on 10.05.2009 thereby violating the provisions of section 269SS of the I.T. Act. Accordingly, on a reference made in this regard by the Income Tax Officer Ward 9(3) Hyderabad, penalty notice u/s 271D of the I.T. Act was issued to the assessee on 25.04.2013 which was duly served on the assessee. The assessee filed reply dated 17.05.2013 as under:

"During the course of assessment proceedings the AO required to prove the genuineness of the cash credit of Rs.30.00lakhs. The assessee filed a letter of confirmation from Sri E. Kotaiah on 30.01.2012. In the said letter he confirmed the fact that an amount of Rs. 30.00 lakhs was given on 10.05.2009. It was stated by the creditor that he is an income-tax assessee. He confirmed the fact that he received interest of Rs.3,15,000 during the financial year 2009-10 on the said loan. He also stated that he filed the return of income for A.Y 2010-11 admitting the said interest. The AO while completing the assessment accepted the cash credit as genuine.

Therefore, the assessee humbly submits that it is a genuine cash credit. There is no doubt with regard to the genuineness of the transaction. It is further submitted that:

(a) On 10.05.2009 the assessee was in urgent need of the said amount. The day 10.05.2009 happened to be a bank holiday being Sunday and there was no banking operations on the said day.

(b) The amount was required for the immediate business needs of the assessee i.e. the assessee were to make payment for purchase of apartment.

(c) There was a requiement to borrow the funds on a bank holiday; and

(d) The assessee was having close business relatinship with the said person.

Therefore, the assessee submits that he was prevented by sufficient reason in not complying with the provisions of section 269SS of the I.T. Act. It is

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submitted that the appellant was in immediate need of the money".

3. The Add. CIT Range-9, Hyderabad after considering the reply of the assessee held that while making addition u/s 68 of the I.T. Act, the genuineness of the loan/transaction has to be established and in the present case the assessee has placed undue reliance on the fact that Shri E. Kotaiah has confirmed that he has given a loan of Rs.30.00 lakhs in cash to the assessee on 10.05.2009. It was observed by the Add. CIT that the assessee has claimed that the loan in cash was taken to pay advance to M/s. Progressive Hotels Pvt Ltd as the assessee had executed a sale deed dated 05.02.2010 with them as vendor and M/s Choice Infrastructure Projects Pvt Ltd as Developer for purchase of Flat No.1408 in Sree Mahalaxmi Meadows and making advance payment to the builder by no stretch of imagination can be considered to be a reasonable cause for obtaining loan in cash.

4. The Add. CIT held as follows:

" The assessee stated that the day 10.05.2009 happened to be a bank holiday being Sunday and the amount was required for immediate need to make payment for purchase of apartment. As the sale deed was executed on 05.02.2010 after a gap of nearly 8 months, the assessee could have very well waited for one more day to allow the banking operations to run and should have obtained the loan by means of an account payee cheque/ account payee bank draft, so as not to contravene the provisions of law. Hence, the claim of the assessee that he was prevented by sufficient reason in not complying with the

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provisions of section 269SS of the I.T. Act, cannot be accepted".

5. The Add. CIT relied on the decision of the Hon'ble Supreme Court in the case of Gujarat Travancore Agency vs. CIT (177 ITR

455) and the decision in the case of CIT vs. Capital Electronics (261 ITR 4). The Add. CIT also referred to the decision of the Hon'ble Karnataka High Court in the case of Chamundi Granite Pvt. Ltd vs. DCIT (239 ITR 694).

6. The Add. CIT concluded that there was no reasonable cause to violate the provisions of section 269SS of the I.T. Act and observed that the reasons cited by the assessee did not suggest dire requirement of funds with no exceptional circumstances prevailed which made the assessee accept the cash loan. The Add. CIT levied penalty u/s 271D of the IT Act which is equal to the amount of loan accepted and hence levied a penalty of Rs.30.00 lakhs u/s 271D of the I.T. Act.

7. Aggrieved, the assessee is in appeal before us. The ld Counsel of the assessee Smt. Vijayalakshmi submitted that assessee had entered into negotiations with the builder of the apartment on 10-5-2009 and during the course of the negotiations he realised that payment of a substantial advance to the builder immediately would ensure significant financial gain in terms of a discount and availability of a flat of his choice which might not be available at a later date and therefore. he felt a compelling need to mobilise cash for making payment to the builder. Accordingly, assessee approached Sri E. Kotaiah and

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requested him for a loan of Rs.30.00 lakhs which was. obtained during the course of the day. It was argued that the assessee could not have waited for another day or for the next 3 days which would have been the normal time for encashment of a cheque. It was submitted that if the assessee had not given the payment immediately, the chosen flat could have been sold out or even if was not sold, it might not be available for purchase by the assessee at the amount negotiated on 10-5-2009. It was prayed that on these facts, it may kindly be appreciated that there existed a reasonable cause for obtaining the loan of Rs.30 lakhs in cash.

8. It is reiterated that it was a Sunday and the loan was needed for specific reason that there would be financial gain for the assessee in closing the deal without delay. Therefore, it was submitted that the Addl. C1T erred in levying the penalty despite the assessee's plea of existence of a reasonable cause for the default.

9. The ld Counsel referred to the cases relied on by the Additional CIT. The ld Counsel submitted that the decision of the Hon'ble Supreme Court in the case of Gujarat Travancore Agency vs. CIT (177 ITR 455) is not applicable to the facts of the case. It was argued that penalty u/s.271 D is governed by the provisions of section 273B and this section provides that penalty u/s.27l D cannot be levied if it is proved that the failure was occasioned by a reasonable cause. It was submitted that if the assessee is able to establish the existence of reasonable cause for failure, penalty is not exigible. With reference to the statement of the Add!. CIT

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that even the decision of the Hon'ble Supreme Court in the case of CIT v. Capital Electronics (261 ITR 4) applied to the case of the assessee, it was pointed out by the ld Counsel that the decision in the case of Capital Electronics was in fact in favour of the assessee. The ld Counsel pointed out in the case of Capital Electronics, the Tribunal held that the explanation given by the assessee was not reasonable and yet the Tribunal deleted the penalty on the ground that it was not a case of absolute default. The ld Counsel brought to our notice that the Addl. CIT also relied upon the decision in Chamundi Granites (P) Ltd. v. DCIT (239 ITR 694). It was submitted that question before the Court in the case of Chamundi Granite was whether the provisions of section 269SS and section 271 D were constitutionally valid or not and the Hon'ble High Court held that the provisions are not ultra vires. It was submitted that this decision is not applicable to the case of the assessee.

10. The ld counsel further stressed that the failure in complying with the provisions of section 269SS was occasioned by a reasonable cause and whether a particular cause is reasonable or not has to be judged from the point of view of the persons engaged in the concerned transaction. The ld Counsel stated that the Addl. CIT while levying the penalty has advised that the assessee should have waited for one more day. It was pointed out by the ld Counsel that such advice may not be apt considering that delay would have caused the assessee financial damage and loss of the chosen flat. The ld Counsel submitted that the day on which the cash loan was taken happened to be a bank holiday and as this was a financial transaction of some

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urgency and as there was dire need for money and the bank was closed being Sunday, the assessee, had no choice but to raise a loan from Shri E. Kotaiah. Therefore, it was argued that in the circumstances, the assessee has proved that the default occurred due to a reasonable cause.

11. The ld Counsel relied upon various decisions in support of his claim that the failure arose on account of a reasonable cause. He relied on CIT v. Maheswari Niram Udyog (2008) 302 IT 201 (Raj.). In this case, the assessee was a contractor and he needed cash to make payment to the labourers on site for which he raised a cash loan. The High Court held that the explanation was reasonable and therefore penalty was not exigible. The ld Counsel relied on CIT v. Bombay Conductors and Electronics Ld. (2008) 301 ITR 328 (Guj.), the High Court held in this case that penalty u/s.271 D is not automatic and that since breach in the case was only technical, penalty not was not leviable. The ld Counsel also relied on CIT v. Triumph International Finance (1) Ltd. (2012) 345 ITR 270 (Born.), wherein the High Court held as below:

The cause which is reasonable may not be sufficient. Thus, the expression 'reasonable cause' would have wider connotation than the expression sufficient cause. Therefore, the expression' reasonable cause' in section 2738 for non-imposition of penalty u/s.27IE would have to be construed liberally depending upon the facts of each case."

12. The ld Counsel further relied on CIT v. Sri Krishna Promoters & Builders (2011) 16 Taxmann.corn 138 (Kar.) the assessee received deposits in cash to meet the exigencies of the

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situation. In this case, the High Court held that the explanation constituted a reasonable cause and the penalty was deleted. The ld Counsel further relied on the following decisions:

a) CIT v. Saini Medical Stores (2006) 150 Taxmann 246 (P&H).

b) Dillu Cine Enterprise (P) Ltd. v. CIT (2002) 80 ITD 484 (Hyd.Trib.)

c) Hindustan Steel Ltd. v. State of Orissa (83 ITR 26),

d) CIT (Addl) v. Durgapandarinath Tuljayya & Co (1977) 107 ITR 850 (AP) (FB),

13. The ld Counsel relied on in the case of CIT v. Balaji Traders (2008) 303 ITR 313 (Mad.), wherein the High Court held as under:

"If there was a genuine and bona fide transaction and the taxpayer could not get loan or deposit by account payee cheque for some reason, the authority vested with power to impose penalty has a discretion not to levy penalty."

14. The ld Counsel further relied on in the case of CIT v. Lakshmi Trust Co. (2008) 303 ITR 99 (Mad.), the High Court upheld cancellation of penalty on finding that the transactions were genuine and the identity of lenders was established and there was no intention to avoid tax.

15. The facts are that on 10.05.2009, the assessee stated that he was in urgent need of an amount of Rs.30.00 lakhs for booking the flat and had borrowed Rs.30.00 lakhs in cash from Shri E. Kotaiah. It was submitted that the payment of advance to the builder immediately on a Sunday was due to the financial

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gain which would be obtained in terms of discount and availability of flat of assessee's choice and hence there is reasonable cause for the default on the part of the assessee.

16. The copy of the sale deed is filed at pages 11 to 31 of the paper book. At page 24, it was stated that Rs.25,58,829 is to be paid by cash.

17. The confirmation letter from the creditor has been produced. The assessee brought out the need for taking loan in cash by giving reason that financial loss would be incurred if the deal had not been concluded immediately and also the flat chosen by him could not be available later. The ld Counsel for the assessee explained as to what constituted reasonable cause and hence prayed for the penalty to be deleted.

18. However, we also notice that there has been a long gap from the time of taking the cash loan i.e. 10.05.2009 and the Registration of the Sale Deed which was only on 5th day of February, 2010.

19. We are of the opinion that the issue needs further verification by the AO as to whether the amount has been received by M/s. Progressive Hotels Ltd (Land owner) or M/s. Choice Infrastructure Projects (P) Ltd and call for the production of receipt from the vendors. The AO shall examine the entire issue after giving reasonable opportunity to the assessee and decide the issue in accordance with law.

20. In the result, appeal in ITA No.1930/Hyd/2014 is allowed for statistical purposes.

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ITA No.1931/Hyd/2014:

1. The assessee is an individual deriving income from house property and agriculture. Assessee obtained cash loan of Rs.30.00 lakhs from one Mr. E. Kotaiah on 10.05.2009 which was shown to have been repaid Rs.10.00 lakhs on 09.08.2009 in cash and Rs.20.00 lakhs through cheque on 20.02.2010. Though the genuineness of the loan were accepted by the AO, penalty proceedings were initiated u/s 271D and 271E for violations of provisions of section 269SS and 239T of the I.T. Act, separately for obtaining the cash loan of Rs.30.00 lakhs and repayment of loan in cash to the tune of Rs.10.00 lakhs respectively. In the absence of reasonable cause for violation of provisions of section 269T of the I.T. Act, Add. CIT levied penalty of Rs.10.00 lakhs as per the provisions of section 271E of the I.T. Act.

2. Assessee preferred appeal before the CIT (A) and stated that part of the loan i.e. Rs.10.00 lakhs was repaid in cash on 9.8.2009 from Shri E. Kotaiah from whom cash loan of rs.30.00 lakhs was obtained, since the amount was urgently needed by Shri E. Kotaiah and the amount could not be repaid by cheque since it was a Sunday. Hence, assessee pleaded that there was a reasonable cause for delay in returning the cash. The assessee stated that the urgency of the need emphasized by Mr. Kotaiah was the reason that the cash was given on Sunday, instead of payment by cheque on subsequent day. Assessee relied on the

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judicial decision which laid down that the penalty can be deleted in case there appeared a reasonable cause for payment in cash. The CIT (A) held as follows:

"5.2...........In the instance, the appellant borrowed the amounts on 10.05.2009 for the purpose of paying advance urgently for purchase of property which was fetching him the advantage of choice and price, which could be registered much later date of 05.02.2010. With regard to the cash loan obtained, the reasonable cause, held to be not existing for the reason that exigency of cash loan was not indicated either through the agreement of sale of with the help of date of payment of cash indicated in the sale deed. Similarly, the appellant could not prove with reasonable evidence/ground for explaining the re- payment of loan in cash, within a short notice of one day, that too knowing that the day requested for return of loan was Sunday. It is also not indicated whether the assessee was equipped with cash balance in bank, and but for the Sunday, the amount could have been paid through cheque".

3. The CIT (A) was of the opinion that the assessee could not be expected to commit a double violation and held that there was no reasonable cause for the assessee for repayment of loan in cash in a short notice of one day that too knowing that the assessee is paying interest for loan and the date demanded for repayment of loan is on Sunday. The CIT (A) confirmed the levy of penalty of Rs.10.00 lakhs u/s 271E of the I.T. Act.

4. Aggrieved, assessee is in appeal before us.

5. While we are of the opinion that the assessee should have been prudent enough not to repeat violating the provisions of the Act, we deem it fit to give one more opportunity to the assessee

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to present his case. The AO shall verify with respect to the repayment of the amount which according to the assessee has been made for an amount of Rs.10.00 lakhs on 9.8.2009 and Rs.20.00 lakhs on 20th February, 2010 to Shri E. Kotaiah. The AO shall examine the entire issue after giving reasonable opportunity to the assessee and decide the issue in accordance with law.

6. In the result appeal in ITA No.1931/Hyd/2014 is allowed for statistical purposes.

7. To sum up, appeals of the assessee are allowed for statistical purposes.

Order pronounced in the Open Court on 17th June, 2015.

Sd/- Sd/- (B. Ramakotaiah) (Asha Vijayaraghavan) Accountant Member Judicial Member

Hyderabad, dated 17th June,2015.

Vnodan/sps Copy to:

1. Shri Venkateswara Reddy Kasireddy, 2-3-181 Adarshnagar, Nagole Saroornagar, Hyderabad

2. Income Tax Officer Ward 9(3) Hyderabad

3. CIT(A)-VI Hyderabad

4. Add.CIT Range 9 Hyderabad

5. The DR, ITAT, Hyderabad

6. Guard File

By Order

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