PRINCIPAL COMMISSIONER OF INCOME TAX - 4 vs. NAYANABEN H KOTECHA

Feeling aggrieved and dissatisfied by the impugned judgment and order passed by the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, Ahmedabad dated 24.01.2018 passed in ITA No.3383/Ahd/2015 for the Assessment Year 2011-2012, by which the learned Tribunal has allowed the said Appeal preferred by the Assessee and has deleted the penalty under Section 271D of the Income Tax Act, the Revenue has preferred the present Appeal with the following proposed questions of law :- “[A] Whether the Tribunal is correct in law and on facts in holding that the penalty u/s. 271D was not leviable in view of the particular facts of the case? [B] Whether the exception envisaged u/s. 273B of the Act is applicable to the business exigency of close relatives also as held by Appellate Tribunal?”

The facts leading to filing of the present Appeal in a nutshell are as under :- a) That the assessee filed a return of income for the assessment year 2011-2012 declaring total income of Rs.1,51,200/=. Subsequently, the case was selected under scrutiny by issuing a notice under Section 143(2) of the Act. The Assessing Officer completed the assessment under Section 143(3) and determined the total income at Rs.1,52,522/=. It appears that the Assessing Officer referred the case for penalty for initiation of penalty under Section 271D of the Act for accepting the loan in cash. It was noticed that the assessee has obtained cash loan of Rs.39,50,000/= from six persons. It was noticed that the said amount was taken by way of loan as there was an urgent requirement of funds for M/s. J.K. Enterprise, whose proprietor was Mr. Jignesh Rasiklal Kotecha, who happened to be a nephew of the assessee. The Assessing Officer accepted the genuineness of the aforesaid loan during the course of the assessment made in the case of the assessee. However, the Joint CIT issued a showcause notice dated 24.03.2014 to the assessee calling upon the assessee to showcause as to why penalty under Section 271D of the Act may not be imposed for violation of Section 269SS of the Act. The assessee replied to the showcause notice regarding acceptance of the loan in cash by stating that the persons from whom the loan were taken were not having any bank accounts and that the persons to whom the loans were given were in urgent requirement of funds so she had to accept loans in cash to repay them. It was further stated that the assessee has made repayment of the loan. The Joint CIT did not accept the explanation of the assessee and stated that there was no reasonable cause that compelled her to accept the loan otherwise than by account payee cheque / draft. Therefore, the learned Joint CIT  levied penalty of Rs.39,50,000/= under Section 271D of the Act. b) Feeling aggrieved and dissatisfied with the order passed by the learned Joint CIT imposing penalty under Section 271D of the Act, the Assessee preferred an Appeal before the CIT   (Appeals). The CIT   (Appeals) sustained the penalty imposed by the Assessing Officer. c) Feeling aggrieved and dissatisfied with the order passed by the learned CIT (Appeals) confirming the levy of penalty under Section 271D of the Act, the assessee preferred an Appeal before the learned Tribunal and by the impugned judgment and order, the learned Tribunal has allowed the Appeal preferred by the Assessee and has deleted the penalty levied under Section 271D of the Act. (d) Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the Tribunal deleting the penalty levied under Section 271D of the Act, the Revenue preferred the present Appeal with the aforesaid proposed question of law.

We have heard learned Advocate Mrs. Mauna M. Bhatt appearing on behalf the appellant, at length. We have perused the orders passed by the Joint CIT, the order passed by the CIT   (Appeals) as well as the impugned judgment and order passed by the learned Tribunal.

Having heard learned Advocate Mrs. Mauna M. Bhatt and considering the facts on record, we are of the view that the case would fall under 2nd Proviso of Section 269SS of the Income Tax Act, 1961. 2nd Proviso to Section 269SS of the Income Tax provides 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.

For the aforesaid, the finding recorded by the learned Tribunal are required to be considered which are as under :- “7. We have heard both the sides and perused the material on record carefully. We have noticed that the assessee has claimed that the persons from whom loans were accepted in cash were not having any bank accounts and the relatives to whom the loans were given by utilizing the funds received in shape of cash loans were in urgent need of funds. The loans in cash were accepted from six different parties who were agriculturists and her relatives. She had also explained that urgent cash was required in business by her brothers in law and her nephew who was proprietor of M/s. J.K. Enterprises, therefore, the same was taken in cash. M/s. J.K. Enterprises was in the business of trading in Kapas (by purchasing from farmer and sale to ginning mills) and the amount of Rs.25 was withdrawn on 18th March 2011 for payment to 4 different parties. It was also explained that opening cash balance of Rs.11,94,179/= was not enough considering the nature and volume of business because the dealers in cotton are required to keep huge balance on hand during the season so as to meet the payment for the purchase made from the farmers. The lenders in their statement before the assessing officer had stated that they were not having bank accounts. These facts demonstrate that the assessing officer had examined the lenders during the course of assessment proceedings and has not disproved the fact that the parties from whom the amount was borrowed were not having bank a/c. The assessing officer has recorded the statements of lender u/s. 131 of the act during the course of assessment and they have confirmed to have advanced money to the assessee and had also explained their source of income. It is undisputed fact that assessing officer has accepted the genuineness of the loan transaction and he has not brought on record any adverse findings. We have also noticed that the parties from whom the loan were taken by the assessee have admitted before the assessing officer in their statement under section 131 of the act that assessee has returned back the aforesaid amount of loan to them. We have further noticed that assessing officer has accepted these facts and neither controverted these facts while recording the statements under section-1-31 of the act nor in the assessment order passed by him. It is undisputed fact that assessing officer has accepted the genuineness of the transaction and he has not brought on record any adverse findings. We have also considered the nature of business of the relative of the assessee who require huge cash and bank balance during season for purchasing of cotton for which direct payments are made to the farmers. The assessee has also prepared a fund- flow chart and the sequence of transactions carried out by each of the parties which was substantiated by copy of bank statement, ledger account, cash book and bank book etc. We observed that whatever questions have been asked by the assessing officer to the lenders, they have explained the same in their answers to the assessing officer and it appears from the contents of the statements that assessing officer has not raised doubt about the veracity of their responses and assessing officer has not made any query which remained unresponded or proved adversely. During the course of appellate proceedings, the ld. Counsel has also placed reliance on the judicial pronouncements as stated above in this order. We observe that it is demonstrated from the fund flow statement that major part of the funds provided by the assessee to her aforesaid relatives were not towards repayment of existing loans. Therefore, the facts of the case of the assessing are distinguishable from the facts of the judicial pronouncement relied upon by the ld. DR. Similar to the judicial pronouncement relied upon by the assessee, we observe that the assessee has demonstrated that there was reasonable cause existed because of which she compelled to obtain cash loan as there was urgent requirement of funds to the parties who were relatives of the assessee because they were engaged in the business of purchase of cotton from the agriculturists to whom the payment used to be made in cash. In this connection we observe that considering the nature and volume of business these dealers in cotton are required to keep huge balance on hand during the season so as to meet the payment for the purchase made from the farmers. We observe it is demonstrated from the facts that the relative of the assessee M/s. J.K. Enterprise had made payment of about 27 lacs to 4 different parties on 30/3/2011 after receiving aforesaid payment of Rs.25 lacs from the assessee by cheque on 30-03-2011. We have also seen from the copy of ledger a/c of the assessee in the books of M/s. J.K. Enterprises as per page no. 18 that the amount of 25 lacs was repaid back to the assessee by cheque on 04-04- 2011. We also observe that the lower authorities have not brought any material on the record to controvert the claim of the assessee that she was compelled to take cash loan to materialize the business exigency of the close related as elaborated in this order which leads to the conclusion of existence of reasonable cause and bona-fide belief by the assessee thus provision of section 273B was applicable. Accordingly, we are of the opinion that the Ld. CIT(A) is not justified in his findings of sustaining the impugned penalty u/s 271D of the act, therefore, the appeal of the assessee is allowed.”

Thereafter, having considered the above and thereafter, when the penalty levied under Section 271D of the Act has been deleted, it cannot be said that the learned Tribunal has committed any error which calls for interference by this Court. No substantial question of law arises.

Under the circumstances, the present Appeal deserves to be dismissed and is accordingly dismissed. (M.R. SHAH, J) (A.Y. KOGJE, J) Caroline