JAIKRISHNA D PATHAK,MUMBAI vs. CIT(A) 24, MUMBAI

On the other hand, the learned Departmental Representative submits that there is no reasonable cause in re-payment the loan in cash by the assessee to his wife and therefore the authorities below are justified in imposing penalty u/s 271E of the Act.

We have heard the rival submissions, perused the orders of the authorities below and the case law relied on. In this case penalty was levied u/s 271E of the Act on the amount re-paid by the assessee to his wife for the contravention of the provision of Sec. 269T, by the Addl. Commissioner of Income Tax, Range-13(1), Mumbai. The Assessing Officer in the course of assessment proceedings noticed that assessee has re-paid loan to his wife partly in cheque and partly in cash and, therefore, he initiated penalty proceedings u/s 271E for the contravention of provision of Sec. 269T of the Act on the re-payment of loan in cash. Assessee contended that he has re- paid this amount to his wife from out of cash balance available with his proprietary concern M/s Punit Yarn Agency which is doing business in trading of yarn brokerage and commission agency. Assessee contended that this amount is not undisclosed money finding its way through loan or deposit as envisaged in provisions of Sec. 269SS and 269T of the Act. It was further contended that since this amount was paid (A.Y: 2009-10) M/s. Jaikrishna D Pathak Vs.CIT(A)24 by the assessee to his wife to enable her to clear her personal obligations on an urgent basis, the assessee was under bona fide belief that the provision of Sec. 269T are not attracted to funds made available to his wife as the transaction is between husband and wife only. It was also contended that there is reasonable cause in repaying the loan by the assessee to his wife.

However, the authorities below rejected this contention of the assessee and penalty was sustained. We have noted that the transactions in this is not cause of paying transactions between assessee of his wife the amount was not undisclosed but it was generated by the assessee in his business which had already suffered tax. The contention of the assessee that since the transaction was between himself and his wife he was under the bona fide impression that provisions of Sec. 269T are not attracted cannot be brushed aside. We also find reasonable cause in payment of the amount in cash by the assessee to his wife as this amount was to be utilized for discharging her debts on an emergency basis.

The Pune Bench of Tribunal in the case of M/s Deepali Mandar Joshi considered the situation where assessee has taken loan and repaid the loan from his mother-in-law and the Tribunal deleted the penalty observing as under :-

We find some force in the above arguments advanced by the Ld. counsel for the assessee. Admittedly, the transactions are between close family members. The assessee has accepted loans in cash from her husband and mother-in-law and has repaid the same in cash. The genuineness of the transactions has not been doubted. We find the Hon’ble Punjab & Haryana High Court in the case of Sunil Kumar Goel (Supra) while deciding an identical issue has observed as under : “10. 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 penalising 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 the case of I. T. A. No. 777 of 2008) and section 269T of the Act (in the case of I. T. A. 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 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 CIT v. Saini Medical Store [2005] 277 ITR 420 that bona fides 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.

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 Saini Medical Store's case [2005] 277 ITR 420, wherein, this court has, inter alia, held as under (page 425) : “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, bonafide belief coupled with the 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."

We find the Hon’ble Punjab & Haryana High Court in the case of Saini Medical Store (Supra) while dealing with an identical issue has observed as under : “10. Section 273B of the Act provides that no penalty is imposable for any failure referred to in the said provisions, if the assessee proves that there was "reasonable cause" for the said failure.

In the present case, the Commissioner of Income-tax (Appeals) while deleting the penalty in its order dated January 18, 1999, had accepted the explanation of the assessee that breach of the provisions of the Act was on account of bona fide belief of the assessee and the same was not with any intention to avoid or evade the tax. The observations of the Commissioner of Income-tax (Appeals) in paras. 6 and 6.1 are relevant and are reproduced as under : "6. I have carefully considered the conspectus of this matter and facts on record. No loss of revenue has occurred in this case and the genuineness of the transaction has not been doubted. The apex court in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 had long ago settled the law that penalty is not to be ordinarily imposed unless the party either acted deliberately in defiance of law and was guilty of conduct contumacious or dishonest or acted (A.Y: 2009-10) M/s. Jaikrishna D Pathak Vs.CIT(A)24 in conscious disregard of its obligations. Penalty will also not be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. The authority competent to impose the penalty will be justified in refusing to do so, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.

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.”

So far as the decisions relied on by the Ld. Departmental Representative are concerned they are distinguishable and not applicable to the facts of the present case. In the case of P. Muthukaruppan (Supra) the Hon’ble High Court has upheld the penalty levied u/s.271D and 271E on the ground that assessee was taking and giving back amounts exceeding Rs.20,000/- to the money lender through cash repeatedly though entire transactions took place in major city and the assessee had neither explained as to the urgency, compulsion or any other important circumstances for breach. Similarly, in the case of Charan Dass Ashok Kumar (Supra) the Hon’ble High Court upheld the penalty levied u/s.271D on the ground that assessee failed to establish any reasonable cause in taking or accepting such loan or deposit otherwise than by account payee cheque/account payee bank draft.

Since in the instant case the assessee had taken cash loan from her husband and mother-in-law which has been repaid in cash and there is no repeated transactions and the assessee has explained the reasonable cause for accepting such loans and (A.Y: 2009-10) M/s. Jaikrishna D Pathak Vs.CIT(A)24 repayment thereof in cash, therefore, in our opinion, the expression “reasonable cause” in section 273B for non imposition of penalty u/s.271D and 271E would have to be construed liberally. Accordingly we hold that penalty u/s.271D and 271E are not imposable in the facts of the present case. We, therefore, set aside the order of the CIT(A) and direct the AO to cancel the penalty. Grounds raised by the assessee are accordingly allowed.”

Respectfully following this decision, we hold that the present case also is not a fit case for levy of penalty u/s 271E of the Act. Thus, we delete the penalty levied u/s 271E of the Act by reversing the order of the Commissioner of Income Tax (Appeals). Grounds raised by the assessee are allowed.

In the result, appeal of the assessee is allowed.