ITO v. Chandrakant R. Patel - Taxpublishers.in

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The Tax Publishers2012 TaxPub(DT) 0474 (Ahd-Trib) : (2011) 131 ITD 0001 : (2011) 140 TTJ 0430 : (2011) 056 DTR 0449 : (2011) 011 ITR (Trib) 0317 INCOME TAX ACT, 1961 Penalty under section 271D- Contravention of section 269SS-Accepted loans otherwise than by way account payee cheque Assessee, a partnership firm engaged in business of transport. This partnership firm filed its return of income for relevant assessmen year submiitting certain income. AO found that assessee had accepted loan from different parties in cash in excess of Rs. 20,000. AO thus issued and served a notice under section 271D asking as to why penalty for accepting cash loans in contravention of section 269SS should not be levied. Assessee submitted that it had taken cash loans from its employees whenever there was shortage of cash balance in some of its branches on a particular date and, it had to make immediate payments to the creditors. According to assessee, it constituted a reasonable cause under section 273B for taking loans in cash. AO rejected the submission of assessee and levied penalty under section 271D. Commissioner (Appeals) confirmed the order of AO.Held: The main contention of assessee was that it borrowed cash loans from its employees and the provisions of section 269SS could not be applied to any amount received from assessee`s employees in contravention of provisions of this section. Even assuming that the assessee received cash loans exceeding Rs. 20,000, it could not be excluded from the purview of the words `any other person`appearing in section 269SS. These words denote any person other than the assessee because there was no issue of assessee receiving any money from itself in contravention of this section. Therefore, there was no force in the contention of the assessee. However, as regards the existence of reasonable cause, the assessee stated that one of its partner was under threat from the customers of the co-operative society where he was a director and he was not regularly attending the business of the assessee and he was on run to avoid the harassment from public as well as from police. He was not able to concentrate on the business of the assessee and the assessee was having different branches at different places. Since there was shortage of cash balance in some of the branches on a particular date, the assessee was forced to pay the dues to the creditors who were troubling in and out of the day and the employees sitting in such office having no option used their own money to pay the dues of the customers to escape from their clutches and to avoid unpleasant situation. Further, the contention of the assessee was that though there was positive cash balance in centralised account when the assessee consolidated all the accounts of the branches, actually there was cash shortage in particular branches where the cash loan was taken and this was reasonable cause as provided under section 273B. [Para 13] There was force in the argument of the assessee. It was not possible for the assessee to predict with precision the exact requirement of money for discharging its obligation connected to the business and sometimes it was not possible to keep exact amount of cash in each branch as they were situated in different parts of the country. It may not also be possible for it to anticipate the exact date on which it would be required to discharge such obligation. There could be some difference between what was anticipated and what was actually required. In assessee's case the partner avoiding the public in view of a problem in a co-operative society where he was a director. The employees were actually involved in the business of the assessee; to save their skin they might have introduced their own cash and this could not be construed as deliberate attempt by the assessee to introduce unaccounted money in assessee's business. The object of introducing section 269SS is to ensure that the taxpayer is not allowed to give false explanation for his unaccounted money, or if he makes some false entries he shall not escape by giving false explanation for the same. During the search and seizure, unaccounted money is unearthed and the taxpayer would usually give the explanation that he had borrowed or received deposits from friends, relatives and it is easy for the so called lender also to manipulate his records to suit the plea of the taxpayer. The main objective of section 269SS is to curb this menace of making false entries in account books and later on giving explanation for the same. The provisions of section 271D is substantially mitigated by the inclusion of section 273B providing that if there was a genuine and bona fide transaction and the taxpayer could not get a loan by account payee cheque or demand draft for some bona fide reasons the authority vested with the power to impose penalty has a discretionary power not to levy penalty. AO while levying the penalty had to see the entire facts and circumstances of the case and shall take judicious view of the facts. It had not been brought on record by the Department nor by the assessee that the assessee had sufficient money or cash balance on each day of borrowal in a place where it had borrowed cash loan from its employees. If there was shortage of cash balance in a particular branch where the cash loan was taken exceeding Rs. 20,000 from its employees then the assessee was having reasonable cause for taking such cash loans and penalty could not be levied. Further, while interpreting the provisions of section 269SS, one has to bear in mind the objective for which it was introduced. If the assessee is able to lead evidence to show that not only was there reasonable cause for taking the money in cash, but the amount did not also represent unaccounted money either of the assessee or of the persons from whom they were taken, normally that should be sufficient to hold that the penalty is not justified. As regards the genuineness of the borrowing in the instant case, there did not appear to be any doubt. The authorities herein had raised no doubt about the genuineness as it was clear from the facts of the case. Apparently, the revenue authorities were satisfied with the assessee`s explanation regarding the nature and source of the amount. Thus, the transactions between the assessee and the employees did not fall within the mischief sought to be remedied by the section. As already pointed out, if the assessee was prevented by reasonable cause from taking the money through account payee cheques or demand draft the penalty cannot be levied. The assessee also made a plea that most of the payments were made to drivers or owners of the transport vehicles either before the beginning of the banking hours or at the close of the banking hours. The assessee submitted that usually the transport vehicles started from a particular place before the banking hours and the assessee had to make payment to the drivers or owners of the vehicles towards hire charges. This was regarding vehicles going out from the assessee's place. The vehicles which were usually coming into assessee's place were usually coming after the banking hours and the assessee had to make payment to the drivers or the owners of the vehicles. In such circumstances the assessee had to make payment and the assessee`s partner was not available and the assessee's employees had made the payments. This was also a reasonable cause for not levying penalty. [Para 14] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0474 (Ahd-Trib) : (2011) 131 ITD 0001 : (2011) 140 TTJ 0430 : (2011) 056 DTR 0449 : (2011) 011 ITR (Trib) 0317

INCOME TAX ACT, 1961

Penalty under section 271D- Contravention of section 269SS-Accepted loans otherwise than by way account payee cheque

Assessee, a partnership firm engaged in business of transport. This partnership firm filed its return of income for relevant assessmen year submiitting certain income. AO found that assessee had accepted loan from different parties in cash in excess of Rs. 20,000. AO thus issued and served a notice under section 271D asking as to why penalty for accepting cash loans in contravention of section 269SS should not be levied. Assessee submitted that it had taken cash loans from its employees whenever there was shortage of cash balance in some of its branches on a particular date and, it had to make immediate payments to the creditors. According to assessee, it constituted a reasonable cause under section 273B for taking loans in cash. AO rejected the submission of assessee and levied penalty under section 271D. Commissioner (Appeals) confirmed the order of AO.Held: The main contention of assessee was that it borrowed cash loans from its employees and the provisions of section 269SS could not be applied to any amount received from assessee`s employees in contravention of provisions of this section. Even assuming that the assessee received cash loans exceeding Rs. 20,000, it could not be excluded from the purview of the words `any other person`appearing in section 269SS. These words denote any person other than the assessee because there was no issue of assessee receiving any money from itself in contravention of this section. Therefore, there was no force in the contention of the assessee. However, as regards the existence of reasonable cause, the assessee stated that one of its partner was under threat from the customers of the co-operative society where he was a director and he was not regularly attending the business of the assessee and he was on run to avoid the harassment from public as well as from police. He was not able to concentrate on the business of the assessee and the assessee was having different branches at different places. Since there was shortage of cash balance in some of the branches on a particular date, the assessee was forced to pay the dues to the creditors who were troubling in and out of the day and the employees sitting in such office having no option used their own money to pay the dues of the customers to escape from their clutches and to avoid unpleasant situation. Further, the contention of the assessee was that though there was positive cash balance in centralised account when the assessee consolidated all the accounts of the branches, actually there was cash shortage in particular branches where the cash loan was taken and this was reasonable cause as provided under section 273B. [Para 13]

There was force in the argument of the assessee. It was not possible for the assessee to predict with precision the exact requirement of money for discharging its obligation connected to the business and sometimes it was not possible to keep exact amount of cash in each branch as they were situated in different parts of the country. It may not also be possible for it to anticipate the exact date on which it would be required to discharge such obligation. There could be some difference between what was anticipated and what was actually required. In assessee's case the partner avoiding the public in view of a problem in a co-operative society where he was a director. The employees were actually involved in the business of the assessee; to save their skin they might have introduced their own cash and this could not be construed as deliberate attempt by the assessee to introduce unaccounted money in assessee's business. The object of introducing section 269SS is to ensure that the taxpayer is not allowed to give false explanation for his unaccounted money, or if he makes some false entries he shall not escape by giving false explanation for the same. During the search and seizure, unaccounted money is unearthed and the taxpayer would usually give the explanation that he had borrowed or received deposits from friends, relatives and it is easy for the so called lender also to manipulate his records to suit the plea of the taxpayer. The main objective of section 269SS is to curb this menace of making false entries in account books and later on giving explanation for the same. The provisions of section 271D is substantially mitigated by the inclusion of section 273B providing that if there was a genuine and bona fide transaction and the taxpayer could not get a loan by account payee cheque or demand draft for some bona fide reasons the authority vested with the power to impose penalty has a discretionary power not to levy penalty. AO while levying the penalty had to see the entire facts and circumstances of the case and shall take judicious view of the facts. It had not been brought on record by the Department nor by the assessee that the assessee had sufficient money or cash balance on each day of borrowal in a place where it had borrowed cash loan from its employees. If there was shortage of cash balance in a particular branch where the cash loan was taken exceeding Rs. 20,000 from its employees then the assessee was having reasonable cause for taking such cash loans and penalty could not be levied. Further, while interpreting the provisions of section 269SS, one has to bear in mind the objective for which it was introduced. If the assessee is able to lead evidence to show that not only was there reasonable cause for taking the money in cash, but the amount did not also represent unaccounted money either of the assessee or of the persons from whom they were taken, normally that should be sufficient to hold that the penalty is not justified. As regards the genuineness of the borrowing in the instant case, there did not appear to be any doubt. The authorities herein had raised no doubt about the genuineness as it was clear from the facts of the case. Apparently, the revenue authorities were satisfied with the assessee`s explanation regarding the nature and source of the amount. Thus, the transactions between the assessee and the employees did not fall within the mischief sought to be remedied by the section. As already pointed out, if the assessee was prevented by reasonable cause from taking the money through account payee cheques or demand draft the penalty cannot be levied. The assessee also made a plea that most of the payments were made to drivers or owners of the transport vehicles either before the beginning of the banking hours or at the close of the banking hours. The assessee submitted that usually the transport vehicles started from a particular place before the banking hours and the assessee had to make payment to the drivers or owners of the vehicles towards hire charges. This was regarding vehicles going out from the assessee's place. The vehicles which were usually coming into assessee's place were usually coming after the banking hours and the assessee had to make payment to the drivers or the owners of the vehicles. In such circumstances the assessee had to make payment and the assessee`s partner was not available and the assessee's employees had made the payments. This was also a reasonable cause for not levying penalty. [Para 14]