M/S. LOYAL BANKERS,PATHANAMTHITTA vs. THE ADCIT, THIRUVALLA

PER GEORGE GEORGE K,JM:

These appeals, at the instance of the assessee, are directed against two

orders of the CIT(A), Kottayam, both dated 28.01.2016. The relevant assessment

year is 2006-07.

2 Since common issues are involved in these appeals and they pertain to

the same assessee, they were heard together and are being disposed of by this

consolidated order for the sake of convenience and brevity.

adjudication.

ITA Nos 136&137/Coch/2016

3.1 The only issue raised in ITA No. 136/Coch/2016 is whether the CIT(A) is

justified in confirming the penalty imposed under section 271D of the Act

amounting to Rs.2,85,000/-.

3.2 Briefly stated the facts of the case are as follows:

The assessee is a firm engaged in the money lending business. For the

assessment year 2006-07, the Addl. Commissioner of Income-tax imposed

penalty under section 271D amounting to Rs.2.85 lakhs, for violating the

provisions of Sec. 269SS of the I.T. Act. The relevant finding of the Addl. CIT reads

as follows:

“Section 271D of the Income Tax Act, 1961 stipulates that if a person takes or accepts any loan or deposit in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted. Now on going through section 269SS of the Act, it is evident that the Act does not grant any exemption for loans or deposits accepted to senior citizens, agriculturist, relatives etc. regarding the mode of acceptance of the loans or deposits. I am also not satisfied with the explanation offered by the ass for the default. Under the circumstances the assessee firm is liable for penalty under section 271D on an amount of Rs.2,85,000/- (as per the list in the assessee’s letter dated 23-06-2009).

I am fully satisfied that the assessee firm has without any satisfactory reasons or explanations ignored the requirements as to the mode of acceptance of loans and deposits and that therefore it is liable for penalty under section 271D of the Income Tax Act, 1961. Such penalty being a sum equal to the amount of loan or deposit so taken or accepted amounts to Rs. 2,85,000/-. I therefore levy a penalty of Rs.2,85,000/- u/s. 271D of the Income Tax Act, 1961. This shall be paid as per demand notice and challan enclosed.”

ITA Nos 136&137/Coch/2016

3.3 Aggrieved by the order of the Addl. CIT imposing penalty under section

271D of the Act, the assessee preferred an appeal to the first appellate

authority. The CIT(A) confirmed the penalty imposed under section 271D of the

Act. The relevant finding of the CIT(A) reads as follows:

“I have considered the rival submissions of both sides and observed as follows: It is noted that Assessing Officer rejected the contention of the AR on the ground that the AR was not able to explain the case satisfactorily. The Assessing Officer did not accept the appellant’s contention that these deposits in cash were only in very few instances and only in emergency circumstances especially from relatives/agriculturists/senior citizens etc. who insisted cash deposits or who did not have any bank account facility or those who have brought cash outside banking hours. The undersigned also finds that the appellant was not able to substantiate that there was business exigency forcing the appellant to take cash loans on those particular dates. The issues referred to by the appellant could not be attributed to any similarity with that of the instant case. Hence I hereby confirm the order of the Assessing Officer.”

3.4 The Ld Counsel for the assessee had sought for adjournment. However,

we proceeded to dispose of the issue on merits, since there were no adequate

reasons stated for adjournment of the case. The Ld. DR on the other hand

supported the orders of the Income Tax authorities.

3.5 We have heard the rival submissions and perused the material on record.

The loans from sundry parties during the relevant assessment year is amounting

to Rs.1,56,55,043/-. On going through the list of sundry parties, it is noticed that

only in few instances, cash deposits were accepted, i.e., for Rs.2.85 lakhs, which

is less that 2% of the total loans /deposits accepted by the assessee. The claim

ITA Nos 136&137/Coch/2016

of the assessee is that these deposits are received from relatives, agriculturists,

senior citizens etc. who do not have any banking facility. The assessee is

catering its business to rural population. The turnover of the assessee is not that

large. The claim of the assessee that the deposits received in cash were from

the agriculturists, senior citizens etc. cannot be totally brushed aside as false. It is

a specific case of the assessee that it had reasonable cause as mentioned in

section 273B for not adhering to the provisions of section 269SS. Only in very few

instances, the assessee had received the cash deposits above the prescribed

limit. The depositors in rural/village are mainly agriculturists, senior citizens etc.

and they could have insisted for receiving the deposits in cash. The Hon’ble

Apex Court in the case of Asst. Director of Inspection vs. Kum. A.B. Shanthi (255

ITR 258) held that if for any reason the taxpayer could not get a loan or deposit

by account payee cheque or demand draft for some bonafide reason, the

penalty may be dispensed with as per section 273B. The apex court further held

that Section 273B is intended to mitigate undue hardship that may befall the

assessee on account of penalty under section 271D and 271E. Further, in CIT vs.

Balaji Traders, the Madras High Court has categorically held that the business

exigencies of an assessee would constitute a reasonable cause as envisaged

under section 273B for not imposing penalty under Section 271D. The Madras

High Court has relied on the decision of the apex cout in A.B. Shanthi (supra). In

CIT vs. Sahara India Financial Corp. Ltd. (257 CTR 215 (Delhi)), the Hon’ble High

Court of Delhi has held that existence of inadequate banking facilities and

ITA Nos 136&137/Coch/2016

reluctance of customers to utilize banking facilities due to illiteracy constituted a

reasonable cause so as to delete penalty imposed by Assessing Officer under

section 271D. Similarly the Hon’ble High Court of Gujarat in CIT vs. Maa

Khoodiyar Constructions (365 ITR 474), has held that no penalty can be levied for

cash loans exceeding Rs.20,000/- from agriculturists living in remote areas when

transactions were not doubted.

3.7 In view of the aforesaid reasoning and the judicial pronouncements cited

supra, we are of the view that there is reasonable cause as mentioned in

section 273B of the I.T. Act, for accepting cash deposits to the tune of Rs.2.85

lakhs. Therefore, penalty imposed u/s. 271D of the Act is not warranted and we

delete the same. It is ordered accordingly. Hence the appeal filed by the

assessee in I.T.A. No. 136/Coch/2016 is allowed.

ITA No. 137/Coch/2016 (Assessee’s appeal)

confirming the penalty imposed u/s. 271E of the I.T. Act. The Addl. CIT had

imposed penalty u/s. 271E by observing as follows:

“The following amounts were repaid in contravention of section 269T from various types of deposits as under: 1. Pigmy deposits Rs.1,82,133/- 2. Fixed Deposits Rs.2,96,200/-

ITA Nos 136&137/Coch/2016

4.1 The CIT(A) confirmed the imposition of penalty u/s. 271E of the I.T. Act. The

observation of the CIT(A) in confirming the penalty reads as follows:

“ I have considered the rival submissions of both sides and decided the issue as following: It is noted that Assessing Officer rejected the contention of the AR on the ground that the AR was not able to explain the case satisfactorily. The appellant’s contention that these repayments in cash are exempted to some specified group viz. senior citizens, agriculturists, relatives, retired persons and partners of the firm and that too in very few instances of emergency circumstances only is not sustainable. The fact that the depositors did not have any bank account facility also could not be accepted as sufficient reason. Accordingly, the undersigned also finds that the appellant was not able to substantiate that there was business exigency forcing the appellant to repay the deposits without complying with the provisions of section 269T of the Act. The issues referred to by the appellant could not be attributed to any similarity with that of the cases referred by the assessee. Hence I hereby confirm the order of the Assessing Officer.”

4.2 We have heard the Ld. DR and perused the material on record. Out of the

total repayments of deposit by cash amounting to Rs.7,37,333/-, only a sum of

Rs.2,59,000/- is paid to the outsiders. For deleting the penalty u/s. 271D. we have

stated that the assessee is operating its business in rural/village area and most of

its customers/clients are agriculturists, senior citizens etc. Only on few instances,

ITA Nos 136&137/Coch/2016

repayment of loans has been made by cash. Our reasoning for deleting the

penalty u/s. 271D will hold good for deleting the penalty imposed under the

provisions of section 271E also. Accordingly, we hold that there is reasonable

cause as mentioned in section 273B of the Act for non compliance of the

provisions of section 269T of the I.T. Act. It is ordered accordingly. Therefore, the

appeal filed by the assessee in ITA No. 137/Coch/2016 is allowed.

Order pronounced in the open Court on 5th /10/ 2017.

sd/- sd/- ( P K BANSAL ) (GEORGE GEORGE K ) Vice President Judicial Member

Cochin: Dated 5/10/ 2017 GJ Copy to: 1. M/s. Loyal Bankers, Cherukole, Kozhencherry, Pathanamthitta. 2. Addl. Commissioner of Income Tax, Thiruvalla Range, Thiruvalla. 3. CIT(A), Kottayam. 4. Pr. CIT, Kottayam. 5. DR 6. Guard File

By order

Assistant Registrar ITAT, COCHIN