Sri P Mallikharjuna Rao., Eluru v. The Ad CIT, Range-,, Eluru

ITA 351/VIZ/2007 | 2003-2004
Pronouncement Date: 05-02-2010 | Result: Allowed

Appeal Details

RSA Number 35125314 RSA 2007
Assessee PAN AENPP0679P
Bench Visakhapatnam
Appeal Number ITA 351/VIZ/2007
Duration Of Justice 2 year(s) 6 month(s) 18 day(s)
Appellant Sri P Mallikharjuna Rao., Eluru
Respondent The Ad CIT, Range-,, Eluru
Appeal Type Income Tax Appeal
Pronouncement Date 05-02-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 05-02-2010
Assessment Year 2003-2004
Appeal Filed On 18-07-2007
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SRI B.R. BASKARAN ACCOUNTANT MEMBER I.T.A. NOS.350&351/VIZAG/2007 ASSESSMENT YEARS : 2002-03 & 2003-04 P. MALLIKHARJUNA RAO ELURU VS. ADDL. CIT ELURU RANGE ELURU (APPELLANT) (RESPONDENT) PAN NO.AENPP 0679P I.T.A. NOS.353&354/VIZAG/2007 ASSESSMENT YEARS : 2002-03 & 2003-04 ADDL. CIT ELURU RANGE ELURU VS. P. MALLIKHARJUNA RAO ELURU (APPELLANT) (RESPONDENT) PAN NO.AENPP 0679P APPELLANT BY : SHRI G.V.N. HARI CA RESPONDENT BY : SHRI G.S.S. GOPINATH DR O R D E R PER BENCH: 1. THESE CROSS APPEALS ARE DIRECTED AGAINST TH E ORDER DATED 07-05-2007 PASSED BY LD CIT(A) RAJAHMUNDRY AND THEY RELATE TO THE ASSESSMENT YEARS 2002-03 AND 2003-04. SINCE ISSUES IN THESE APPEALS ARE IDENTICAL IN NATURE BASED UPON SAME SET OF FACTS WE FIND IT CONVENIENT TO DISPOSE THEM OF BY THIS COMMON ORDER. 2. THE PENALTY LEVIED U/S 271D OF THE ACT IN BOTH THE YEARS FOR VIOLATION OF THE PROVISIONS OF 269SS WAS PARTLY DELETED BY THE LD CI T(A). HENCE THE REVENUE IS 2 IN APPEAL BEFORE US CONTESTING THE RELIEF GIVEN WH ILE THE ASSESSEE IS IN APPEAL CONTESTING THE PENALTY SUSTAINED. 3. THE FACTS OF THE CASE ARE STATED IN BRIEF. THE ASSESSEE AN INDIVIDUAL IS CARRYING ON THE BUSINESS OF MONEY LENDING WINE SHO P AND FILM SCREENING. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS ACC EPTED LOANS FROM VARIOUS PERSONS IN VIOLATION OF SECTION 269SS IN HIS FINANC E BUSINESS. HENCE THE ADDL. COMMISSIONER OF INCOME TAX INITIATED PENALTY PROCEE DINGS FOR ASSESSMENT YEARS 2002-03 AND 2003-04 U/S 271D OF THE ACT FOR VIOLATI ON OF SECTION 269SS AND LEVIED A PENALTY OF RS.10 72 000/- FOR ASSESSMENT Y EAR 2002-03 AND RS.4 50 000/- FOR ASSESSMENT YEAR 2003-04. IN THE APPEAL PREFERRED BY THE ASSESSEE LD CIT(A) PARTIALLY ALLOWED THE APPEAL OF THE ASSESSEE BY DELETING PENALTY TO THE TUNE OF RS.8 44 000/- FOR ASSESSMENT YEAR 2002-03 AND RS.3 30 000/- FOR ASSESSMENT YEAR 2003-04. AGGRIEV ED BY THE ORDER PASSED BY LD CIT(A) BOTH THE PARTIES ARE IN APPEAL BEFORE US . 4. THE LD AR SUBMITTED THAT THE ASSESSEE IS CAR RYING ON THE MONEY LENDING BUSINESS AND HENCE ACCEPTED DEPOSITS FROM THE PUBLI C TO AUGMENT HIS WORKING CAPITAL. THE AO DURING THE SCRUTINY PROCEEDINGS H AVE ACCEPTED THE GENUINENESS OF THE DEPOSITS. THE ASSESSEE WAS IGNORANT OF LAW AND HE WAS UNDER BONA FIDE BELIEF THAT THE DEPOSITS COULD BE ACCEPTED IN CASH SINCE THE DEPOSITS WERE ACCEPTED FROM PUBLIC AND ARE GENUINE IN NATURE. THE ASSESSEE ACCEPTED DEPOSITS IN SUCH A MANNER TILL SEPTEMBER 2002 WHEN THE CONT RAVENTION OF SECTION 269SS WAS POINTED OUT BY THE DEPARTMENT. THERE AFTER THE RE WAS NO VIOLATION OF PROVISIONS OF SECTION 269SS FROM THE ASSESSEES SID E. IN RESPECT OF DEPOSITS WHICH WERE ACCEPTED IN CASH TILL SEPTEMBER 2002 L D AR SUBMITTED THAT MOST OF THE PERSONS FROM WHOM THE DEPOSITS WERE ACCEPTED WE RE SMALL TIME TRADERS HOUSE WIVES ETC. WHO ARE NOT ACCUSTOMED TO THE USE OF BANK FACILITIES AND FURTHER THEY DID NOT MAINTAIN ANY BANK ACCOUNT. IN SUPPORT OF THIS CONTENTION THE ASSESSEE FILED AFFIDAVITS FROM THE MOST OF THE DEPO SITORS BEFORE THE LD CIT(A) DURING APPELLATE PROCEEDINGS. THE LD CIT(A) CONFRO NTED THOSE AFFIDAVITS TO THE ADDL. CIT BUT THE ADDL. CIT FAILED TO FURNISH ANY REPLY. HENCE PRESUMING THAT THE ADDL. CIT DOES NOT HAVE ANY OBJECTION AND BY PL ACING RELIANCE ON THOSE 3 AFFIDAVITS THE LD CIT(A) CAME TO THE CONCLUSION TH AT THERE WAS A REASONABLE CAUSE FOR ACCEPTING THOSE DEPOSITS IN CASH AND WAS PLEASED TO GRANT RELIEF PERTAINING TO THE DEPOSITORS FROM WHOM THE AFFIDAVI TS WERE FILED. LD AR FURTHER SUBMITTED THAT THE ASSESSEE HAS SUBMITTED EXPLANATI ONS LIKE BONA FIDE BELIEF IGNORANCE OF PROVISIONS OF LAW BUSINESS NECESSITY ETC. WHICH ARE REASONABLE CAUSES FOR ACCEPTING THE DEPOSITS IN CASH. LD AR F URTHER SUBMITTED THAT THE PROVISIONS OF SECTION 269SS WAS INTRODUCED TO CURB CERTAIN EXPLANATIONS GENERALLY MADE IN THE COURSE OF SEARCH PROCEEDINGS AND THE PRESENT CASE IS NOT A SEARCH CASE. ACCORDINGLY LD AR PRAYED FOR DELETION OF THE PENALTY THAT WAS CONFIRMED BY THE LD CIT(A). 4.1 LD AR ALSO PLACED RELIANCE ON THE OBSERVATIONS MADE IN THE FOLLOWING CASE LAW:- (A) CIT V JAYASAKTHI BENEFIT FUND LTD. (2008) (303 ITR 29 (MAD)): IN THIS CASE IT WAS HELD THAT THE OBJECT OF INTRODUCING SE CTION 269SS WAS TO CURB THE MENACE OF MAKING FALSE ENTRIES TO EXPLAIN THE U NACCOUNTED MONEY AND IF LOAN TRANSACTION IS A GENUINE AND BONA FIDE TRAN SACTION AND THE ASSESSEE COULD NOT GET A LOAN OR DEPOSIT BY ACCOUNT PAYEE CH EQUES OR DEMAND DRAFT FOR SOME BONA FIDE REASON THE AUTHORITY VESTED WIT H THE POWER TO IMPOSE PENALTY HAS A DISCRETIONARY POWER NOT TO LEVY PENAL TY. (B) CIT V LAKSHMI TRUST CO. (2008) 303 ITR 99 (MAD )): IN THIS CASE THE PENALTY WAS DELETED BY FOLLOWING THE EARLIER DECISI ON OF THE SAME HIGH COURT IN THE CASE OF CIT V KUNDRTHUR FINANCE AND CH IT CO. (2006) 283 ITR 329 AND CIT V RATNA AGENCIES (2006) 284 ITR 609. I T WAS ALSO NOTICED THAT THERE WAS NO INTENTION ON THE PART OF THE ASSE SSEE TO EVADE THE TAX AND THE TRANSACTIONS WERE GENUINE AND THE IDENTITY OF T HE LENDERS WAS ALSO SATISFIED. IN KUNDRATHUR FINANCE AND CHIT CO. TH E COURT HELD THAT IF THERE WAS A GENUINE AND BONA FIDE TRANSACTION AND THE TAX PAYER COULD NOT GET A LOAN OR DEPOSIT BY ACCOUNT PAYEE CHEQUES OR DEMAND DRAFT FOR SOME BONA FIDE REASON THE AUTHORITY VESTED WITH THE POWER TO IMPOSE A PENALTY HAS DISCRETION NOT TO LEVY PENALTY. (C) CIT V SUNIL KUMAR GOEL (2009) 315 ITR 163 (P & H): IN THIS CASE THE COURT FOLLOWED ITS OWN DECISION IN THE CASE OF CIT V SAIN I MEDICAL STORE (2005) 277 ITR 420 WHERE IN IT WAS HELD THAT BONA FIDE BE LIEF COUPLED WITH THE GENUINENESS OF THE TRANSACTIONS WOULD CONSTITUTE RE ASONABLE CAUSE UNDER SECTION 273B FOR NOT INVOKING THE PROVISIONS OF SEC TION 271E OF THE ACT. (D) OMEC ENGINEERS VS. CIT (2007) 294 ITR 599 (JHAR KHAND): IN THIS CASE THE COURT DELETED THE PENALTY SINCE IN THE FACTS AN D CIRCUMSTANCES OF THAT CASE THE COURT FELT THAT IMPOSITION OF PENALTY MER ELY ON TECHNICAL MISTAKE 4 COMMITTED BY THE ASSESSEE WHICH HAS NOT RESULTED I N ANY LOSS OF REVENUE SHALL BE HARSH AND CANNOT BE SUSTAINED IN LAW. (E) CIT V SHREE AMBICA FLOUR MILLS CORPORATION (200 8) 6 DTR (GUJ) 169.: IN THIS CASE THE COURT HAS TAKEN NOTE THAT THE PROVIS IONS OF SECTION 269SS AND SECTION 269T OF THE ACT HAVE BEEN BROUGHT ON ST ATUTE BOOK WITH A SPECIFIC INTENTION OF CURBING BLACK MONEY AND TAKIN G ADVANTAGE OF CASH TRANSACTION FOR EXPLAINING THE CASH AVAILABLE DURIN G THE SEARCH. 4.2 ALTERNATIVELY LD AR SUBMITTED THAT SINCE T HE PROVISIONS OF SECTION 269SS ARE ATTRACTED IF THE LOAN OR DEPOSIT IS RECEIVED IN EXCESS OF RS.20 000/- AND HENCE NO PENALTY SHOULD BE LEVIED FOR THE INITIAL AMOUNT OF RS.20 000/- IN EACH OF CASES. IN THIS REGARD LD AR PLACED RELIANCE ON THE FOLLOW ING CASE LAW: (A) CIT V RAJ KUMAR SHARMA (2007) 294 ITR 131 (RA J) : IN THIS CASE THE ASSESSEE ACCEPTED LOANS AGGREGATING TO RS.90 000/- IN SIX INSTALMENTS. THE AMOUNT RECEIVED IN EACH INSTALMENT WAS LESS THAN RS .20 000/-. THE COURT HELD THAT THE BONA FIDE BELIEF OF THE ASSESSEE THAT CASH TRANSACTIONS BELOW RS.20 000/- WAS PERMISSIBLE SHALL CONSTITUTE A REASONABLE CAUSE . (B) CIT V MADHUKAR B PAVAR (2009) 319 ITR 255 (B OM): IN THIS CASE THE COURT BY PLACING RELIANCE ON THE CBDT CIRCULAR NO. 572 DATED 03-08-1990 HELD THAT THE PENALTY U/S 271D CAN BE LEVIED ONLY IF THE LOAN AMOUNT ACCEPTED FROM EACH PERSON EXCEEDS RS.20 000/-. 5. ON THE CONTRARY LD DR SUBMITTED THAT THE PR OVISIONS OF SECTION 269SS APPLIES ONLY IN RESPECT OF LOAN OR DEPOSIT WHICH AR E GENUINE AND HENCE MERELY THE GENUINENESS OF THE LOAN IS PROVED ONE CANNOT E SCAPE FROM THE VIOLATION OF SAID SECTION. HE FURTHER SUBMITTED THAT SECTION 273 B MITIGATES THE HARDSHIP CAUSED BY THE PROVISIONS OF SECTION 269SS AND HENCE IT IS THE RESPONSIBILITY TO PROVE THAT THERE EXISTED REASONABLE CAUSE FOR HIS F AILURE TO ADHERE THE PROVISIONS OF SECTION 269SS. ACCORDING TO LD DR THE ASSESSEE HAS FAILED TO PROVE THE REASONABLE CAUSE AND HENCE THE ENTIRE PENALTY LEVIE D BY THE ADDL. CIT SHOULD BE CONFIRMED. IN SUPPORT OF HIS CONTENTION LD DR RE FERRED TO THE OBSERVATIONS MADE IN THE FOLLOWING CASE LAW: (A) ATTAR SINGH GURMIUKH SINGH ETC. VS. ITO (1991) 191 ITR 667 (SC): THIS DECISION HAS BEEN RENDERED ON THE PROVISIONS OF SEC TION 40A(3). IN THIS CASE THE HONBLE APEX COURT HELD THAT THE GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION 40A(3) WHICH PROVIDES FOR DISALLOWANCE OF EXPENDITURE EXCEEDING CERTAIN AMOUNT PAID OTHERWISE THAN BY WAY OF CROSSED CHEQUES OR CROSSED BANK DRAFT. 5 (B) ASST. DIRECTOR OF INSPECTION (INVESTIGATION) VS . KU. A.B.SHANTHI (2002) 255 ITR 258 (SC) : IN THIS CASE THE HONBLE SUPREME C OURT HAS HELD THAT THE SECTION 273B MITIGATES THE UNDUE HARDSHIP CAUSED BY THE PROVISIONS OF SECTION 269SS. AS PER THE PROVISIONS OF SECTION 27 3B NO PENALTY SHALL BE IMPOSABLE U/S 271D IF THE ASSESSEE PROVES THAT THE RE WAS REASONABLE CAUSE FOR THE FAILURE TO TAKE LOAN OTHERWISE THAN B Y ACCOUNT PAYEE CHEQUES OR ACCOUNT PAYEE DEMAND DRAFT. (C) KHIZARIA LEATHERS VS. DCIT (2006) 99 TTJ (CHENN AI) 616:- IN THIS CASE THE HONBLE TRIBUNAL HELD THAT THERE IS NO SUCH WOR D OCCURRING IN SECTION 269SS THAT IT DOES NOT APPLY TO GENUINE TRANSACTION S AND ACCORDINGLY SUSTAINED THE PENALTY LEVIED U/S 271D OF THE ACT. (D) ITO VS. SUNIL M KASLIWAL (2005) 94 ITD 281 (PUN E)(TM) : IN THIS CASE IT WAS HELD THAT THE PROVISIONS OF SECTION 269SS AND P ENALTY U/S 271D ARE NOT APPLICABLE IN RESPECT OF THE AMOUNT OF GIFT SAI D TO HAVE BEEN RECEIVED BY THE WIFE AND DAUGHTER OF THE ASSESSEE AND LOANED TO ASSESSEE WHICH HAD BEEN TREATED AS INCOME OF THE ASSESSEE FROM UND ISCLOSED SOURCES. IT WAS NOT SUFFICIENT TO SAY THAT SIMPLY THE TRANSACTI ON WAS GENUINE SO SECTION 269SS IS NOT APPLICABLE. ONE CANNOT ACCEPT SUCH PROPOSITION OF LAW. THERE IS NO AMBIGUITY IN THE LANGUAGE OF THE PROVISION. AS SUCH THERE IS NO NEED TO APPLY THE PURPOSIVE THEORY OF I NTERPRETATION. SUBJECT TO THE EXISTENCE OF MITIGATING CIRCUMSTANCES PENALTY C ANNOT BE DELETED. THE ASSESSEE MUST PROVE BEYOND THE SHADOW OF DOUBT THAT THERE EXISTED A REASONABLE CAUSE FOR NOT COMPLYING WITH THE CONDITI ONS CONTAINED IN SECTION 269SS. CIRCUMSTANCES UNDER WHICH THE CASH WAS ACCEPTED MUST BE EXPLAINED. (E) R.K.SINGHAL VS. CIT (2009) 221 CTR (RAJ) 412: IN THIS CASE THE ASSESSEE WAS HAVING SUBSTANTIAL OPENING AND CLOSING BALANCES ON BOTH THE DATES ON WHICH HE TOOK DEPOSIT/LOAN IN CASH. T HIS FACT CLEARLY NEGATED THE EXPLANATION OF THE ASSESSEE THAT HE WAS IN URGE NT NEED OF MONEY IN CASH. THE COURT ALSO HELD THAT THE QUESTION AS TO WHETHER THE ASSESSEE HAS BEEN ABLE TO PROVE REASONABLE CAUSE FOR THE DEF AULT IS A PURE QUESTION OF FACT. (F) KASI CONSULTANT CORPORATION VS. DCIT (2009) 311 ITR 419 (MAD) : IN THIS CASE THE LEVY OF PENALTY WAS CONFIRMED SINCE THE A SSESSEE FAILED TO PROVE THE BUSINESS EXIGENCIES AND FURTHER NO MATERIAL WAS AVAILABLE ON RECORD TO SHOW REASONABLE CAUSE. THE LD DR SUBMITTED THAT THE CIRCULAR NO.572 OF CBD T RELIED UPON BY THE BOMBAY HIGH COURT IN THE CASE OF MADHUKAR B PAVAR SUPRA DEALS WITH THE JURISDICTION FOR LEVY OF PENALTY. ON THE CONTRARY LD DR PLACED RELIANCE ON THE CIRCULAR NO.387 DATED 6-7-84 WHICH EXPLAINED THE P ROVISIONS OF THE FINANCE ACT 6 1984 TO CONTEND THAT THE PENALTY IS LEVIEBLE IF TH E AMOUNT OF LOAN ACCEPTED IN CASH IS RS.20 000/- OR MORE. (AT THE RELEVANT TIME THE LIMIT WAS RS.10 000/-). 6. IN HIS REPLY THE LD AR SUBMITTED THAT THE DE CISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF KASI CONSULTANT CORPORATION SH ALL NOT APPLY TO THE FACTS OF THE INSTANT CASE SINCE IN THAT CASE THE PROCEEDINGS WE RE INITIATED CONSEQUENT TO THE SEARCH CONDUCTED UPON THE ASSESSEE. THE PURPOSE OF INTRODUCING SECTION 269SS IS TO CURB THE PRACTICE OF IDENTIFYING THE CA SH BALANCE FOUND DURING THE COURSE OF SEARCH WITH THE CASH LOANS. HE FURTHER S UBMITTED THAT THE PROVISIONS OF SECTION 40A(3) COULD NOT BE EQUATED WITH SECTION 26 9SS SINCE THEY OPERATE IN DIFFERENT FIELDS AND FURTHER SECTION 40A(3) IS DIRE CTLY CONNECTED WITH THE COMPUTATION OF INCOME. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. ON THE CAREFUL CONSIDERATION OF THE HOSTS OF DECISIONS RELIED UPON BY BOTH COUNSEL WE ARE OF THE OPINION (A) THAT THE GENUINENESS OF THE LOAN TRANSACTION AL ONE CANNOT BE THE SOLE CRITERIA FOR NOT LEVYING PENALTY U/S 271D OF THE AC T. (B) THAT ONE HAS TO SEE WHETHER THE EXPLANATION OFF ERED BY THE ASSESSEE WITH REGARD TO THE VIOLATION OF PROVISIONS OF SECTI ON 269SS WOULD CONSTITUTE A REASONABLE CAUSE OR NOT. (C) THE QUESTION WHETHER THERE EXISTED REASONABLE CAUSE FOR THE DEFAULT IS A PURE QUESTION OF FACT AND HAS TO BE DECIDED ONLY ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE CASE. 7.1 THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MADHUKAR B PAWAR SUPRA PLACED RELIANCE ON THE CIRCULAR NO.572 DATED AUGUST 3 1990 OF CBDT REPORTED IN (1990) 186 ITR (ST.) 81 AT PAGE 111. THE SAID CIRC ULAR PROVIDES EXPLANATORY NOTES ON THE AMENDMENTS MADE BY FINANCE ACT 1990. AT PARA NO.43 THE CIRCULAR EXPLAINS THE AMENDMENTS WERE MADE IN SECTI ONS 271C 271D AND 271E TO PROVIDE THAT PENALTIES FOR CERTAIN DEFAULTS SHOU LD BE LEVIED BY A DEPUTY COMMISSIONER. IN THAT PARAGRAPH IT IS EXPLAINED T HAT PENALTY U/S 271D MAY BE LEVIED FOR FAILURE TO COMPLY WITH THE PROVISIONS OF SECTION 269SS I.E. FOR TAKING OR 7 ACCEPTING ANY LOAN OR DEPOSIT IN EXCESS OF RS.20 000/- OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUES OR BANK DRAFT. THE HONBLE B OMBAY HIGH COURT NOTED THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF N AVNIT LAL C JAVERI V K.K.SEN AAC (1965) 56 ITR 198 203 ELLERMAN LINES LTD. VS. CIT (1971) 82 ITR 913 AND UCO BANK VS. CIT (1999) 237 ITR 889 WHERE IN IT WA S HELD THAT THE BOARD HAS THE STATUTORY POWER U/S 119 TO TONE DOWN THE RIGOUR OF LAW FOR THE BENEFIT OF THE ASSESSEES BY ISSUING CIRCULARS TO ENSURE A PROPER A DMINISTRATION OF THE FISCAL STATUTE AND SUCH CIRCULARS ARE BINDING ON TAX AUTHO RITIES. ACCORDINGLY THE BOMBAY HIGH COURT HAS HELD THAT THE ASSESSING OFFICER COUL D NOT HAVE ACTED CONTRARY TO THE CIRCULAR. 7.2 THE HONBLE HIGH COURT OF JHARKHAND IN THE CASE OF OMEC ENGINEERS SUPRA HAS CONSIDERED HOW THE WORDS REASONABLE CAU SE HAS TO BE INTERPRETED. THE RELEVANT OBSERVATIONS ARE EXTRACTED BELOW:- 21. THE WORDS REASONABLE CAUSE HAVE NOT BEEN DEF INED UNDER THE ACT BUT THEY COULD RECEIVE THE SAME INTERPRETATION WHIC H IS GIVEN TO THE EXPRESSION SUFFICIENT CAUSE. THEREFORE IN THE CONTEXT OF P ENALTY PROVISIONS THE WORDS REASONABLE CAUSE WOULD MEAN A CAUSE WHICH IS BEYO ND THE CONTROL OF THE ASSESSEE. REASONABLE CAUSE OBVIOUSLY MEANS A CAU SE WHICH PREVENTS A REASONABLE MAN OF ORDINARY PRUDENCE ACTING UNDER NO RMAL CIRCUMSTANCES WITHOUT NEGLIGENT OR INACTION OR WANT OF BONA FIDES . BEFORE IMPOSITION OF PENALTY UNDER S. 271 THE AO MUST BE SATISFIED NOT ARBITRA RILY BUT JUDICIOUSLY THAT THE ASSESSEE HAS WITHOUT REASONABLE CAUSE FAILED TO COM PLY WITH THE PROVISIONS SIMILAR VIEW HAS BEEN EXPRESSED BY THE FULL BENCH O F THE PATNA HIGH COURT IN THE CASE OF CWT V SRI JAGDISH PRASAD CHOUDHARY (1995) 2 11 ITR 472 487 IN THE CONTEXT OF SECTION 271 FOR FAILURE TO FURNISH THE R ETURN. 7.3 IN THESE BACK GROUND; LET US CONSIDER WHETH ER THE EXPLANATIONS OFFERED BY THE ASSESSEE WOULD CONSTITUTE REASONABLE CAUSE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE IS IN FINANCE BUSINESS. THE FACT PECULIAR TO THIS BUSINESS IS THAT THE CURRENT ASSET OR THE PRODUCT D EALT IN A FINANCE BUSINESS IS MONEY; WHERE AS IN OTHER BUSINESSES THE PRODUCT IS DIFFERENT FROM MONEY AND THE MONEY IS ONE OF THE MEANS TO ACQUIRE ASSETS AND A FORM OF ENTERING INTO THE BUSINESS TRANSACTIONS. FROM THE PENALTY ORDER WE NOTICE THAT THE ASSESSEE HAS OFFERED FOLLOWING EXPLANATIONS BEFORE THE ADDL. CIT . 8 (A) MOST OF THE PERSONS WITH WHOM THE ASSESSEE CAR RIED ON MONEY LENDING BUSINESS WERE SMALL AND MIDDLE CLASS PERSONS LIKE P AN SHOPS KIRANA SHOPS HOUSE WIVES ETC. AND ARE NOT ACCUSTOMED TO THE USE OF BANK FACILITIES. (B) THE LOANS WERE BONA FIDE TRANSACTIONS AND WER E ACCEPTED IN CASH FOR URGENT BUSINESS REQUIREMENTS OF THE ASSESSEE AND IN MOST OF THE CASES THE AMOUNTS WERE IMMEDIATELY DEPOSITED IN ASSESSEES BA NK ACCOUNT WHICH CONSTITUTES A REASONABLE CAUSE U/S 273B. (C) MOST OF THE DEPOSITS WERE RS.20 000/- ONLY AND THE ASSESSEE WAS OF THE OPINION THAT AN AMOUNT UP TO RS.20 000/- COULD BE ACCEPTED IN CASH AT A TIME. (D) THE TRANSACTIONS WERE DULY VERIFIED BY THE A SSESSING OFFICER AT THE TIME OF ASSESSMENT AND FOUND THEM TO BE GENUINE. (E) WITHOUT PREJUDICE TO THE ABOVE EVEN IF THE P ENALTY IS LEVIABLE THE SUM OF RS.20 000/- IN EACH CASE MAY BE REDUCED AND PENA LTY FOR THE SUM ABOVE RS.20 000/- MAY BE CONSIDERED. 7.4 TO SUBSTANTIATE HIS FIRST EXPLANATION THE ASSESSEE HAS FILED AFFIDAVITS BEFORE LD CIT(A) FROM 36 DEPOSITORS OUT OF 46 PERS ONS PERTAINING TO THE ASST. YEAR 2002-03 AND 14 OUT OF 19 PERSONS RELATING TO THE ASSESSMENT YEAR 2003-04. IN THE AFFIDAVITS ALL THE PERSONS HAVE CONFIRMED T HAT THEY DID NOT MAINTAIN ANY BANK ACCOUNT DURING THE RELEVANT TIME AND HENCE THE Y COULD NOT GIVE THE LOAN THROUGH ACCOUNT PAYEE CHEQUE. THOUGH THESE AFFIDAV ITS WERE CONFRONTED WITH THE ADDL. CIT FOR HIS COMMENTS THE ADDL. CIT PREFERRED NOT TO RESPOND ON THOSE AFFIDAVITS. HENCE THE LD CIT(A) PRESUMED THAT THE A DDL. CIT DO NOT HAVE ANY OBJECTION AND ACCORDINGLY DELETED THE PENALTY RELAT ING TO THE DEPOSITORS WHO HAVE FILED AFFIDAVITS. THE RELEVANT OBSERVATIONS OF THE LD CIT(A) ARE EXTRACTED BELOW: (IV) 36 OUT OF 46 DEPOSITORS AND 14 OUT OF 19 DE POSITORS IN RESPECT OF THE ASSESSMENT YEARS 2002-03 AND 2003-04 RESPECTIVELY HAVE FILED AFFIDAVITS DECLARING THAT THEY DID NOT MAINTAIN BANK ACCOUNT D URING THE PREVIOUS YEARS RELEVANT TO THE ASSESSMENT YEARS 2002-03 AND 2003-0 4. SINCE IT IS FACTUALLY ESTABLISHED THAT THE CONCERNED PARTIES DID NOT HAVE BANK ACCOUNT AND THEY BEING SMALL AND MIDDLE CLASS PERSONS IT WAS NOT FEASIBLE AND PRACTICABLE FOR THEM TO HAVE DEPOSITED THE LOANS WITH THE APPELLANT IN ACCO UNT PAYEE CHEQUES AND THEREFORE THE APPELLANT CAN BE SAID TO HAVE PREVEN TED BY REASONABLE CAUSE FROM ACCEPTING SUCH DEPOSITS IN ACCOUNT PAYEE CHEQUES. IN THE ABSENCE OF SUCH POSSIBILITY HE WAS CONSTRAINED TO RECEIVE SUCH DEP OSITS IN CASH ONLY. IN RESPECT OF THE DEPOSITS FROM THE BALANCE OF PARTIES WHO DI D HAVE BANK ACCOUNTS BUT WHO DID NOT MAKE THE DEPOSITS IN ACCOUNT PAYEE CHEQUES OR DRAFTS THERE IS NO SCOPE FOR EXONERATION OF DEFAULT BY THE APPELLANT. 9 THE LD CIT(A) DELETED PENALTIES TO THE EXTENT OF RS .8 44 000/- AND RS.3 30 000/- FOR THE ASSESSMENT YEARS 2002-03 AND 2003-04 RESPEC TIVELY. 7.5 THE ASSESSEE HAS ALSO EXPLAINED HIS BONA FI DE BELIEF AND ALSO THE CIRCUMSTANCES UNDER WHICH THE ASSESSEE ACCEPTED THE DEPOSITS IN CASH. HE HAS SUBSTANTIATED HIS EXPLANATION CONCERNING THE STATUS OF DEPOSITORS BY FILING AFFIDAVITS FROM THEM. HOWEVER THE ADDL. CIT FOR THE REASONS BEST KNOWN TO HIM FAILED TO RESPOND TO THOSE AFFIDAVITS. ACCORDINGLY THE LD CIT(A) PRESUMED THAT THE ADDL. CIT HAS NO OBJECTION TO THE ADMISSION OF THE AFFIDAVITS AND ACCORDINGLY HELD THAT THERE EXISTED REASONABLE CAUSE IN RESPECT OF T HE DEPOSITORS FROM WHOM THE AFFIDAVITS WERE FILED. CONSIDERING THE NATURE OF BUSINESS AS EXPLAINED EARLIER AND EXPLANATION OF THE ASSESSEE WHICH WAS ALSO SUB STANTIATED WITH AFFIDAVITS FROM THE DEPOSITORS WE ARE IN AGREEMENT WITH THE L D CIT(A) ON THE REASONING GIVEN BY HIM FOR GRANTING RELIEF TO THE EXTENT OF R S.8 44 000/- AND RS.3 30 000/- FOR THE ASSESSMENT YEARS 2002-03 AND 2003-04. HOWE VER WE NOTICE THAT THE SUM TOTAL OF THE DEPOSITS RELATING TO THE ASSESSMEN T YEAR 2002-03 WORKS OUT TO RS.8 54 000/- WHICH SHOULD BE SUBSTITUTED FOR RS.8 44 000/- SINCE IT IS ONLY A CLERICAL MISTAKE. 7.6 WE SHALL NOW DEAL OTHER EXPLANATIONS VIS-A- VIS THE AMOUNT CONFIRMED BY LD CIT(A). THE NEXT EXPLANATION OF THE ASSESSEE WAS THAT THE LOANS WERE OBTAINED FOR URGENT BUSINESS REQUIREMENTS. THE ADDL. CIT O N A TEST CHECK BASIS VERIFIED CERTAIN LOAN TRANSACTION TO FIND WHETHER THERE WAS ANY URGENT BUSINESS REQUIREMENT. ACCORDING TO THE ADDL. CIT THERE WAS NO URGENT BUSINESS REQUIREMENT SINCE THE OUTGOINGS WERE ONE OR TWO DAY S AFTER THE RECEIPT OF THE DEPOSIT AND THE AVAILABLE CASH AND BANK BALANCES E VEN WITHOUT THE NEW DEPOSIT WERE ADEQUATE TO TAKE CARE OF SUCH OUTGOINGS. HOWE VER IT SHOULD BE NOTED HERE THAT IN A RUNNING FINANCE BUSINESS THERE WILL BE C ONTINUOUS TRANSACTIONS OF CASH INFLOW AND CASH OUTFLOW. AS STATED EARLIER IN FIN ANCE BUSINESS THE MONEY CONSTITUTES THE PRODUCT AND HENCE THE ASSESSEE MAY BE REQUIRED TO KEEP SUFFICIENT FUNDS ALWAYS TO CATER TO THE REQUIREMENT OF ANY DEMAND FROM HIS CUSTOMERS JUST LIKE A TRADER IN GOODS IS REQUIRED TO KEEP SUFFICIENT STOCK OF GOODS TO MEET THE DEMANDS OF HIS CUSTOMERS. THE ASSESSEE MAY ALSO BE REQUIRED TO 10 REFUND THE DEPOSITS PREMATURELY. HENCE THE REQUIRE MENT OF FUNDS HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE CONCERNED BUSI NESS MAN SINCE HE IS THE BEST JUDGE IN HIS BUSINESS. PARTICULARLY IN FINANCE AN D BANKING BUSINESS THERE IS NO CERTAINTY ABOUT THE FUND REQUIREMENTS AT ANY POINT OF TIME. HENCE IN OUR OPINION THE TEST CHECKS MADE BY THE ADDL. CIT MAY NOT REVEA L THE REAL FUND REQUIREMENTS AND ON THAT BASIS THE URGENT BUSINESS REQUIREMENTS CANNOT BE DISCOUNTED WITH. 7.7 THE NEXT EXPLANATION OF THE ASSESSEE WAS TH AT THE DEPOSITS UP TO RS.20 000/- COULD BE ACCEPTED IN CASH. THE ASSESSE E HAS STATED THAT ONLY IN SEPTEMBER 2002 HE COULD PROPERLY UNDERSTAND THE PR OVISIONS OF SECTION 269SS WHEN THE SAME WAS POINTED OUT BY THE DEPARTMENT. A FTER THAT THE ASSESSEE CLAIMED THAT HE HAS STOPPED ACCEPTING DEPOSITS IN C ASH. THUS THE ASSESSEE HAS PLEADED IGNORANCE OF PROVISIONS OF SECTION 269SS. THE SUBMISSION OF THE ASSESSEE IS SUPPORTED BY THE FACT THAT THE PENALTY LEVIED IN THE ASSESSMENT YEAR 2003-04 PERTAINS TO THE DEPOSITS ACCEPTED DURING TH E PERIOD FROM 06-05-2002 TO 09-09-2002. THOUGH IT WAS NOT THE FIRST YEAR OF BU SINESS AS CONTENDED BY THE REVENUE YET THE ABOVE FACT SUPPORTS THE CASE OF TH E ASSESSEE THAT HE WAS UNDER BONA FIDE BELIEF THAT THE DEPOSITS COULD BE ACCEPTE D IN CASH. ONCE HE CAME TO KNOW OF THE PROVISIONS HE HAS STOPPED ACCEPTING TH E DEPOSITS IN CASH AND THUS THE BONA FIDES OF THE EXPLANATION IS PROVED. 7.8 THE LD CIT(A) CONFIRMED THE PENALTY IN RESP ECT OF THE REMAINING DEPOSITORS AMOUNTING TO RS.2 18 000/- (WHICH WAS WRONGLY MENTI ONED BY LD CIT(A) AS RS.2 28 000/-) AND RS.1 20 000/- FOR ASSESSMENT YEA RS 2002-03 AND 2003-04 SOLELY ON THE REASON THAT THEY DID HAVE BANK ACCOUN T. OUT OF THOSE DEPOSITS THE AMOUNT ACCEPTED FROM THE FOLLOWING PERSONS INITIALL Y ARE JUST RS.20 000/- ASSESSMENT YEAR 2002-03 :- SL. NO.23 K.DAMODARA RAO 20 000 SL. NO.36 K.S.R.L.N.SASTRY 20 000 SL. NO.39 G.GURU SWAMY 20 000 SL. NO.40 G.VENKATA SUBBAMMA 20 000 ASSESSMENT YEAR 2003-04 : SL.NO.9 NANDIRAJU CHANDRASEKHAR 20 000 11 AS PER THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF MADHUKAR B PAVAR WHICH IS DISCUSSED IN PARA 7.1 SUPRA NO PEN ALTY IS LEVIEBLE IN RESPECT OF DEPOSITS OF RS.20 000/-. BY RESPECTFULLY FOLLOWING THE SAID DECISION WE DIRECT THAT THE PENALTY LEVIED ON THE ABOVE SAID DEPOSITS SHOULD BE DELETED. 7.9 NOW WE ARE LEFT WITH THE PENALTY AMOUNT OF RS .1 38 000/- AND RS.1 00 000/- FOR THE ASSESSMENT YEARS 2002-03 AND 2003-04 RESPEC TIVELY. CONSIDERING THE NATURE OF THE BUSINESS OF THE ASSESSEE AND HIS EXPL ANATION ON THE STATUS OF THE DEPOSITORS THE BUSINESS NECESSITY FROM THE POINT O F VIEW OF THE ASSESSEE HIS BONA FIDE BELIEF IN OUR OPINION THERE EXISTED A REASONABLE CAUSE FOR HIS FAILURE TO COMPLY WITH THE PROVISIONS OF SECTION 269SS. ACCOR DINGLY WE DIRECT THE ASSESSING OFFICER TO DELETE THE PENALTY LEVIED ON T HE ABOVE SAID DEPOSITS ALSO. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 05/02/2010 SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER VISAKHAPATNAM DATE : 05 TH FEBRUARY 2010 A COPY OF THIS ORDER IS FORWARDED TO : 01 POKURI MALLIKHARJUNA RAO PROP: SRI RAMA FINANCI AL SERVICES SOUTHERN STREET NEAR CLOCK TOWER ELURU W.G. DIST. 02 ADDL. CIT ELURU RANGE ELURU 03 CIT (A) RAJAHMUNDRY 04 CIT RAJAHMUNDRY 05 DR ITAT VISAKHAPAATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT VISAKHAPATNAM BENCH