DR. SANJIV KESHAV KARANDE,,PUNE vs. INCOME-TAX OFFICER, WARD - 11(1),, PUNE

This appeal filed by the assessee is against the order of the CIT(A)-1, Pune dated 27.03.2017 for the assessment year 2013-14. The Jt.CIT levied the penalty u/s 271D of the Act. The CIT(A) confirmed the same.

Before us, at the outset, ld. Counsel for the assessee submitted that this is a case where the penalty order dated 29.11.2016 is time barred. Referring to the provisions of clause (c) of section 275(1) of the Act, ld. Counsel for the assessee submitted that the penalty order passed on 29.11.2016 is a time barred one. Otherwise, on merits of levy of penalty, ld. Counsel fairly relied upon the submissions made by the assessee before the lower authorities. 3. Briefly stated the relevant facts include that the assessee is a medical professional and a Gynecologist. The assessee took loans from the following creditors in cash and also through NEFT i.e. Electronic Transfer amounting to Rs.61,67,114/-. The details of cash loans as well as Electronic Transfer loans are tabulated as under :- Sr. Name of the creditor Cash (Rs.) NEFT/Electronic Total No. Transfer (Rs.) 1 Shri Rajiv Keshav Karande 7,50,000/- 26,78,400/- 34,28,400/- 2 Shri Anil Keshav Karande 9,50,000/- 12,522/- 9,62,522/- 3 Shri Ganesh Bharat Vyawahare 9,00,000/- 26,192/- 9,26,192/- 4 Shri Rahul Katariya 7,94,459/- 55,541/- 8,50,000/- 33,94,459/- 27,72,655/- 61,67,114/- 4. In response to the Assessing Officer’s show-cause notice for invoking the provisions of section 271D r.w.s. 269SS of the Act, ld. Counsel for the assessee replied and submissions revolve around the urgency and compulsion to take loan in cash. However, there is no evidence to establish the said reply/arguments. Rejecting the same, the Assessing Officer rejected the claim of the assessee and invoked the provisions of section 271D of the Act. The contents of para 6 and 7 of the penalty order are relevant and the same are extracted hereunder :- “6. The submission of the assessee has been duly considered but is not found acceptable in view of the facts and legal provisions. The assessee has stated that he has received loans in contravention of provisions of section 269SS as he was not aware of the legal provisions. The assessee is a qualified professional and has been assessed to Income Tax since long. His books of accounts are also being audited under section 44AB of the Income Tax Act, 1961. Hence, the contention that it was unaware of the section 269SS is not acceptable. 7. The settled legal position on penalty u/s 271D is that once it is proved that a person has received loans otherwise than by account payee cheque or account payee bank draft, penalty is exigible unless it is proved that there was a reasonable cause for failure to adhere to the provisions of law. In practical sense, it has been held by various courts that if the loans are genuine and there was a urgency or compulsion to accept them in contravention of provisions of section 269SS, then the assessee can get protection under reasonable cause as per section 273B. But the assessee would have to prove both things a. Loans were genuine. b. There was urgency or compulsion for contravention of provisions of section 269SS. However, the assessee has failed on both the counts. He has not been able to prove the genuineness of the loans nor the urgency or compulsion for contravention of provision of section 269SS. The discussion in the paragraphs below clearly brings out this fact.”

Further, the Assessing Officer analyzed each of these cash loans in his order involving all the three creditors and also examined the reasonable cause issues provided to the assessee u/s 271B of the Act. Eventually, the Assessing Officer held that it is fit case for levy of penalty u/s 271D of the Act. The contents of para 13 and 14 of the penalty order are relevant and the same are extracted hereunder :- “13. It is also to be noted that not only loans in cash but also those received through NEFT/electronic transfer are hit by the provisions of section 269SS as it was applicable to A.Y. 2013-14. The transfers through electronic clearing system were given protection from rigours of section 269SS only from A.Y. 2015- 16. Hence, the loans received by the assessee through NEFT/electronic transfers are considered as hit by provisions of section 269SS. 14. In view of the above discussion, I hold that the assessee has accepted loans amounting to 61,67,114/- otherwise than by account payee cheque or account payee bank draft in violation of provisions of section 269SS without any reasonable cause. A penalty is therefore imposed of 61,67,114/- u/s 271D of the I.T. Act 1961, which is equal to the amount of loan taken otherwise than by account payee cheque or account payee bank draft.”

During the first appellate proceedings, the CIT(A) gave part relief to the assessee. The relevant discussion given in para 9 of the order of the CIT(A). In this order, the CIT(A) was of the opinion that the assessee gets relief so far (NEFT) transfer is concerned. Thus, he granted relief to the extent of Rs.27,72,655/-. Regarding the balance of Rs.33,94,459/-, the CIT(A) confirmed the penalty as per discussion given in para 9 of his order.

During the proceedings before us, ld. Counsel for the assessee fairly mentioned that the assessee is entitled to relief on the legal ground. On this legal ground, ld. Counsel mentioned that the penalty order passed on 29.11.2016 is time barred and the six months expired on 31st October, 2016. 8. On this issue, ld. DR for the Revenue read out the relevant provisions of section 275(1)(c) of the Act and submitted that the Assessing Officer passed the order in time and he has time to 31st March, 2017 to pass the penalty order. 9. On the other hand, ld. Counsel for the assessee relied on the judgement of the Hon’ble Delhi High Court in the case of Pr.CIT vs. Mahesh Wood Products Pvt. Ltd., 394 ITR 312. Decision of the Tribunal on the legal issue 10. We heard both the parties on this legal issue and perused the orders of the Revenue. For the sake of ready reference, the provisions of clause (c) of section 275(1) of the Act are extracted hereunder :- “Section 275 (1) (a) ……… (b) ……… (c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.”

From the above, it is evident that the clause (c) of section 275(1) of the Act provides that no order u/s 271D of the Act shall be passed after expiry of the financial year, in which the proceedings are completed or six months from the end of the month in which the action for imposition of penalty, is initiated. The relevant financial year, is 2016-17 in this case and the relevant month of initiation of penalty, is April, 2016. Therefore, the order passed by the Assessing Officer on 29.11.2016 is very much valid and not time barred. Accordingly, we order. Thus, the legal issue raised by the assessee in ground no.1 stands dismissed.

Coming to the merits, we find this is a clear case of receipt of cash by the assessee in violation of section 269SS of the Act. Further, we perused the order of the CIT(A) and find para 9 of the CIT(A)’s order is relevant and the same is extracted hereunder :- “9. I have carefully considered the facts of the case as well as reply of the appellant. As far as loan of Shri Rajiv Keshav Karande and Shri Anil Keshav Karande claimed to be brothers of the appellant, I do not find any justification for accepting loans in cash even through banking channels were available and also utilized by these two lenders. The appellant required money for hospital premises but there were no compelling reasons for accepting the cash as such. It must be appreciated that the appellant is well educated doctor and cannot claim to be ignorant of law in this regard. In any case ignorance of law cannot be excuse for non-levy penalty. In other two cases the issue was examined and source of loan could not be explained satisfactorily before JCIT during the course of penalty proceedings u/s 271D. It is true the issue could have been considered u/s 68 of the I.T. Act, 1961 but inability of the same by the AO cannot absolve the appellant from the provisions of section 269SS of the I.T. Act, 1961. In fact provisions of section 269SS were brought into the statute to curb evasion of taxes through cash loans. Therefore, I do not find any fault in levying penalty u/s 271D of the I.T. Act, 1961 in respect of the remaining two parties. Accordingly, penalty of Rs.33,94,459/- u/s 271D of the I T. Act, 1961 is confirmed while the appellant gets relief of Rs.27,72,655/- as held in ground No.2 and 3. Accordingly, ground No. 4 is partly allowed.”