SH. RAJESH KUMAR,NEW DELHI vs. JCIT, NEW DELHI

ORDER PER O.P. KANT, A.M.: This appeal of the assessee is directed against order dated 31st of October 2013 of the Commissioner of income tax (Appeals)-XXVII, New Delhi for assessment 2009-10 raising following grounds of appeal:

1. That the penalty of Rs. 8, 71, 200/-as sustained by the Ld. CIT (A) under section 271D of the Income tax Act, is arbitrary, unjust and illegal on various facts and legal grounds. 2.that the provisions of section 269SS in terms had no application to the facts of this case and consequently, the penalties imposed was wholly illegal. 3.that there was no justification on the part of the Ld. CIT (A) to confirm imposition of penalty of Rs. 8, 71,200/-under section of 271D of I. T. Act.

Sh Rajesh Kumar, New Delhi Various observations made by the authorities below in their respective orders are either incorrect or are legally untenable. Facts stated and submissions as made by the appellant had not been properly appreciated. 4. that the appellant reserves its right to add, amend/modify the grounds of appeal

. 2.1 The facts in brief are that in the relevant year, the assessee was engaged in real estate development and he filed his return of income for declaring income of Rs. 2, 61, 518/-. In the scrutiny proceedings, the Assessing Officer noticed that the assessee had taken loans in cash from five persons as follows in violation of provisions of section 269SS of the Income-Tax Act, 1961 (for short the Act): serial Amounts received from Amount received in number cash

1. Sh. Banwer Singh Rs. 2,00,000/- 2. Sh. Gopal RS.1, 06, 200/- 3. Mrs Anjana Sinha RS.1, 75, 000/- 4. M/S Pooja builders RS.2, 60, 000/-

5. The committee RS.3, 40, 000/- Total RS.10, 81, 200/- 2.2 During penalty proceedings, before the Joint Commissioner of Income- tax, the assessee pleaded that he was unaware of the provisions of section 269SS of the Act and loans in cash were taken from close relatives and friends. The submission of the assessee was not accepted by the Joint Commissioner of Income-tax and he held that the assessee was an existing taxpayer from last many years and no evidence to prove that cash loans received were from close relatives, thus, he levied penalty of Rs. 10, 81, 200/-under section that 271D of the Act on 25 -6-2012. 2.3 On appeal before the Ld. Commissioner of income tax (A), the assessee reiterated his pleadings made before Joint Commissioner of Income-tax and further submitted that loans in cash were taken due to business expediency of purchasing a property on 29-9-2008 and payment 2 Sh Rajesh Kumar, New Delhi of stamp duty of rupees 2, 10, 000/-and cash payment to the seller of the property. The Ld. Commissioner of income tax appeals accepted in part the contention of having a reasonable cause under section 273B of the Act in respect of loan of Rs. 2, 10, 000 from the “committee” and paid towards stamp duty and deleted the penalty of Rs. 2, 10, 000/-. But he confirmed the balance penalty of Rs. 8,71,200/-. Aggrieved, the assessee is in appeal before the Tribunal.

4.2 Further in support of his submission, the Ld. A/R also relied on the following judgements of the Hon’ble court’s: (i) CIT V/s Saini medical store (P& H High Court) 277 ITR 420 (ii) CIT V/s Luxmi trust company (Madras High Court) 303 ITR 99 4.3 Further the Ld. AR submitted that the assessee is a graduate in bachelor of arts and was unaware of the technicalities of Income tax law and the assessee was not liable for tax audit, he engaged services of part time accountant for maintaining his books of accounts and for filing of returns. The Ld. AR submitted that loans were accepted in cash due to business exigencies and without knowing the stringent provisions of section 269SS and there was a reasonable cause for accepting such loans in cash. The Ld. AR in support of his contention relied on the judgement in the case of Concord of India insurance Co Ltd V/s Smt.Nirmal Devi (SC) 118 ITR 507 and other judgements listed in written submission.

4.4 Alternatively, the Ld. AR submitted that loan of Rs. 1,75,000 received from assessee’s wife Mrs Anjana Sinha was not liable for penalty in view of following case laws: (i) CIT versus Natwarlal Purshottamdas Parekh ( Gujarat High Court) 303 ITR 5 (ii) CIT versus Sunil Kumar Goel ( P & H High Court) 315 ITR 163 (iii) CIT versus Smt. M Yesodha ( Madras High Court) 351 ITR 265 (iv) Ashwini Kumar versus income tax officer (ITAT Delhi) 309 ITR (AT) 69 Sh Rajesh Kumar, New Delhi 4.5 The Ld. AR further submitted that balance loan of Rs. 1,30,000 received from a private committee cannot be considered for levy of penalty as it was a accepted business practice that private committees formed by like-minded people who contributes a predetermined sum to the committee every month and through a draw of chits, a member is entitled to receive all the contributed fund from its members for such month and these transactions are always in cash, hence there was a reasonable cause for receiving be 3,40,000 in cash from the private committee, out of which Rs. 2,10,000/- has already been accepted by the Ld. CIT (Appeal) on the reason of business exigencies for payment of stamp duty. 4.6 On the other hand, the Ld. senior departmental representative relying on the order of the lower authorities submitted that the penalty confirmed by the leaded CIT(Appeal) might be upheld as no documentary evidence in support of persons as relatives and friends except one case of Smt. Anjana Sinha, were filed. He further submitted that the Ld. CIT(Appeal) has already considered the business expediency payment of Rs. 2,10,000 towards stamp duty as reasonable cause under section 273B of the Act and accordingly he has already allowed relief of Rs. 2,10,000 out of the penalty levied by the Joint Commissioner of Income- tax. 5.1 We have considered the rival submissions and perused the material on record. In the case of the assessee the fact that loans are received in cash, which is in contravention of provisions of section 269 SS and liable for penalty under section 270 1D of the Act is not in dispute. However, the penalty is subject to the provisions of section 273B of the Act, where the assessee is able to prove that there was a reasonable cause for the said failure of complying the provisions of section 269 SS of the Act, the penalty may not be levied. Thus we have to examine, whether the reasonable cause for contravention of provisions of section 269 SS of the Act exist in the facts and circumstances of the assessee. We have seen that the ld AR pleaded three main reasons for existence of a reasonable cause as under: (i) that the loans in reference were received due to business exigencies of purchase of land for Rs. 30 lacs, where Rs. 10 5 Sh Rajesh Kumar, New Delhi lacs were paid in cash and stamp duty of Rs. 2,10,000/- was paid in cash to government Department. The Ld CIT(A) already deleted penalty of Rs. 2,10,000/- for payment of stamp duty holding as one of the reasonable cause. (ii) The assessee was not tax expert and could not get advice from his accountants (iii) The loan in reference was received from relative and friends and a private chit fund committee, where entire transactions were done in cash. 5.2 In the case of CIT Vs Saini Medical Store ( supra), the Hon’ble P & H High Court has held that bonafide belief coupled with the genuineness of the transaction would constitute a reasonable cause for not invoking the provisions of section 271D of the Act. In the case of CIT versus Luxmi trust company (supra), the Hon’ble Madras High Court has held that if there was genuine and Bonafide transactions and the taxpayer could not get a loan or deposit by account payee cheques or demand draft for some bonafide reasons, the authority vested with the power to impose penalty has a discretion not to levy penalty. Once we advert to the facts of the assessee, we find that all the person from whom the assessee took loans were having bank accounts and on previous occasion loans have been received through cheque by the assessee from same persons, which is evident from the pages 9 to 18 of the assessee’s paper book. The assessee has also failed to establish the business expediency in taking loan for purchase of property, because , the loans were taken much before actual payment for the purchase of property and within that period the assessee could have got the payment transferred through banking channels also, thus the assessee failed to explain and substantiate the bonafide reason for accepting loans in cash as well as the business expediency in support of his claim of reasonable cause for contravention of the provisions of section 269SS of the Act.

Sh Rajesh Kumar, New Delhi 5.3 In the case of concord of India insurance Co Ltd versus smt. Nirmala Devi (supra), the Hon’ble Supreme Court has held as under: 8. I am of the view that legal advice given by the members of the legal profession may sometimes be wrong even as pronouncement on questions of law by Courts are sometimes wrong. An amount of latitude is expected in such cases for, to err is human and laymen, as litigants are, may legitimately lean on expert counsel in legal as in other Departments, without probing the professional competence of the advice. The Court must, of course, see whether, in such cases there is any taint of mala fides or element of recklessness or ruse. If neither is present, legal advice honestly sought and actually given, must be treated as sufficient cause when an application under s. 5 of the Limitation Act is being considered. The State has not acted improperly in relying on its legal advisers." 5.4 As we advert to the facts of the assessee and examine in the light of the ratio of the above cited judgement and other judgements cited by the assessee, we find that the assessee was filing its returns of income-tax and paying taxes for last many years, thus, he can’t be said to be ignorant with income-tax and further, it is settled that the law does not permit the ignorance of the law as one of the excuse. Further, the assessee has not submitted any evidences that he obtained any legal advice which was found to be wrong or misleading and thus the excuse of the assessee that he was not aware of the provisions of section 269SS is not tenable in the eye of the law. 5.5 As regards to the contention of the Ld AR that loans from relatives and friends should not attract penalty for default under section 269SS of the Act in view of the various judgements of the courts and decision of the tribunal cited by him, we find that except loans from Smt Anjana Sinha, other loans are not from relatives and friends and no evidences in this respect were filed by the assessee also. In the case of CIT V/s Natwarlal Purushottamdas Parekh (Gujarat High Court) (supra) and other cases it is held that accepting loans in contravention of section 269SS from family members in need of Sh Rajesh Kumar, New Delhi hours constitute a reasonable cause, accordingly, following the judgements referred by the ld AR on the issue, we delete the penalty under section 271D of the Act corresponding to the loan of Rs. 1,75,000/- received in cash from Smt. Anjana Sinha, the wife of the assessee. 5.6 With regard to the next argument of the ld AR that the that the penalty corresponding to the loan of Rs. 3, 40,000 received from the committee may be deleted as all the transaction of the committee were in cash, we find that the assessee did not file any documentary evidence in respect of its justification for receiving loan in cash from the committee, therefore, in the circumstances, we are unable to hold that a reasonable cause exist in receiving loan of Rs. 3, 40,000 from the committee. It may be mentioned here that out of the said loan of Rs. 3, 40,000, the CIT(A) has already deleted the penalty of Rs. 2,10,000/-. In the result, the appeal of the assessee is partly allowed. 5.7 The decision is pronounced in the open court on 18th March, 2016.