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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR, & SHRI SAKTIJIT DEY
Date of Hearing – 12.09.2019 Date of Order – 05.12.2019
O R D E R PER SAKTIJIT DEY, J.M.
The captioned appeal has been filed by the assessee challenging the order dated 18th January 2017, passed by the learned Commissioner of Income Tax (Appeals)–28, Mumbai, confirming penalty imposed of ` 11 lakh, under section 271D of the Income Tax Act, 1961 (for short "the Act") for the assessment year 2012–13.
2 Surendra Engineering Corporation
Brief facts are, the assessee is a partnership firm. While completing the assessment under section 143(3) of the Act, the Assessing Officer having noticed that the assessee has accepted cash loan of ` 11 lakh from one of its partners, Shri Surendra Parikh, was of the view that the assessee has violated the provisions of section 269SS of the Act. Accordingly, he intimated the prescribed authority for initiation of penalty proceedings under section 271D of the Act. Thus, on the basis of such intimation, proceedings under section 271D of the Act was initiated against the assessee for having accepted cash loan amounting to ` 11 lakh in violation of section 269SS of the Act. In response to the show cause notice issued, the assessee, vide its reply dated 1st June 2015 submitted that the cash loan was availed from one of the partners. Referring to the definition of “Firm” and “Partner”, as per section 2(23) of the Indian Partnership Act, 1932, it was submitted, though, under the Income Tax Act, 1961, a “Firm” and “Partner” are considered to be separate taxable entities, however, as per the general law, they are not considered to be separate and distinct entities. Rather, they are considered to be carrying on business jointly. It was submitted by the assessee, it had a bona fide belief that the firm not being a legal entity, the provisions of section 269SS and 269T of the Act are not applicable with reference to the transaction between a “Firm” and a “Partner”. Further, to demonstrate
3 Surendra Engineering Corporation business exigencies which required availing of cash loan, it was submitted that the firm has deposited a substantial part of its money in the bank account and had issued a cheque, therefore, for complying to an immediate necessity of paying to a creditor, it had to avail cash loan from the partner. Thus, it was submitted, the violation, if any, arising from availing the cash loan was due to a reasonable cause. In support of such explanation, the assessee relied upon certain judicial precedents. However, the explanation offered by the assessee did not find favour with the officer concerned and he proceeded to impose penalty under section 271D of the Act for an amount of ` 11 lakh alleging violation of section 269SS of the Act. Assessee challenged the imposition of penalty before the first appellate authority without any success.
Reiterating the stand taken before the Departmental Authorities the learned Authorised Representative submitted, the assessee had a bona fide belief that provisions of section 269SS of the Act would not be applicable in relation to a transaction between firm and partners. He submitted, even otherwise also, since the assessee had to immediately make payment to a creditor, it had no other option but to avail cash loan from one of the partners. Thus, he submitted, there was a reasonable cause for availing cash loan. Hence, imposition of penalty under section 271D of the Act is not justified. To demonstrate
4 Surendra Engineering Corporation the aforesaid fact, the learned Authorised Representative drew our attention to the ledger account copy of the concerned creditor placed at Page–53 and 54 of the paper book. Thus, he submitted, the penalty imposed should be deleted. In support of his contention, the learned Authorised Representative relied upon the following decisions:– i) CIT v/s Muthoot Financers & Muthoot & Ors., [2015] 371 ITR 408 (Del.); ii) CIT v/s V. Sivakumar, [2013] 354 ITR 9 (Mad.); iii) CIT v/s Lokhpat Film Exchange (Cinema), [2008] 304 ITR 172 (Raj.); iv) CIT v/s Ajitnath Hi–Tech Builders Pvt. Ltd., [2019] 412 ITR 316 (Bom.); and v) Soundarya Textiles v/s ACIT, [2014] 362 ITR 488 (Ker.).
Relying upon the observations of the Assessing Officer and learned Commissioner (Appeals) the learned Departmental Representative submitted, the assessee was unable to demonstrate the business exigencies for availing the cash loan. Therefore, the assessee having violated the provisions of section 269SS of the Act, imposition of penalty under section 271D of the Act is justified.
We have considered rival submissions and perused the material on record. We have also carefully examined the decisions cited before us. There is no dispute that the assessee had availed cash loan of ` 11 lakh from one of its partners during the year. In reply to the show
5 Surendra Engineering Corporation cause notice issued under section 271D of the Act, the submissions of the assessee is twofold. Firstly, the loan transaction between the firm and partner does come within the purview of section 269SS of the Act, as they cannot be treated as different entities. Secondly, it is submitted that due to business exigencies arising out of immediate payment to be made to a creditor, the assessee was compelled to avail the cash loan from one of the partners. From the material on record, it appears that availing of cash loan from one of the partners was for making payment to creditors. The ledger account copies of two creditors placed in the paper book support assessee’s claim. Further, the judicial precedents cited before us have also laid down the ratio that cash loan received from partner would not attract the provisions of section 269SS and section 271D of the Act since a “Firm” and “Partner” are not to be considered as different entities. Keeping in perspective the relevant facts and the ratio laid down in the judicial precedents cited before us, it can be said that the assessee with a bona fide belief that the provisions of section 269SS of the Act are not applicable has availed the cash loan from the partner. Further, Section 273B of the Act, which also covers section 271D of the Act, makes it clear that if the failure to comply to the relevant provision is due to reasonable cause, no penalty should be imposed. Keeping in view the overall facts and circumstances of the case, we are of the considered
6 Surendra Engineering Corporation opinion that the assessee has made out a case of reasonable cause for availing cash loan from the partner, therefore, the assessee would be protected by the provisions of section 273B of the Act. Thus, we do not find any justifiable reason to sustain the imposition of penalty under section 271D of the Act. Accordingly, penalty imposed is hereby deleted. Grounds raised are allowed.
In the result, appeal stands allowed. Order pronounced in the open Court on 05.12.2019