Rakesh Enterprise Ltd.,, Dist.Anand v. The Addl.CIT., Circle-3,, Baroda

IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HONBLE SH RI N.S. SAINI A.M.) I.T.A. NO. 3912/AHD./2007 ASSESSMENT YEAR : 2001-2002 RAKESH ENTERPRISES LTD. ANAND -VS.- ADDITIONA L COMMISSIONER OF INCOME TAX (PAN : ABOPC 2410 K) RANGE-3 BARODA (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.N. DIVETIA RESPONDENT BY : SMT. NEETA SHAH SR. D.R. O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 10.07.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-I BARODA CONFI RMING THE PENALTY OF RS.95 34 600/- LEVIED BY THE ASSESSING OFFICER UNDER SECTION 271D OF THE INCOME TAX ACT FOR ALLEGED CONTRAVENTION OF THE PROVISIONS OF SECTION 269SS OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2001-02. 2. BRIEFLY STATED THE FACTS ARE THAT DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IN HIS CURRENT ACCOUNT OF MERCANTILE COOPERATIVE CREDIT SOCIETY LTD. HAD ACCEPTED VARIOUS LOANS ON D IFFERENT DATES EITHER BY WAY OF CASH OR THROUGH HUNDIES IN CONTRAVENTION OF THE PROVISIONS OF SECTION 269SS. THE ASSESSING OFFICER ISSUED A SHOW-CAUSE NOTICE REQUIRING THE ASSESSEE T O EXPLAIN AS TO WHY PENALTY UNDER SECTION 271D BE NOT LEVIED. IN REPLY BEFORE THE ASSESSING O FFICER THE ASSESSEE EXPLAINED THAT NO TRANSACTION IN CASH HAD TAKEN PLACE WHICH WAS SHOW N BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER AT PAGE 2 AND THE TRANSACTION HAD BEEN EFFEC TED THROUGH ACCOUNT PAYEE HUNDI. IT WAS EXPLAINED THAT HUNDI WAS AN ACCEPTED BILL OF EXCHAN GE UNDER THE NEGOTIABLE INSTRUMENTS ACT 1881. THE SAME IS DEFINED UNDER THE ACT AS A BILL O F EXCHANGE IN VERNACULAR LANGUAGE WHILE A CHEQUE IS DEFINED A BILL OF EXCHANGE DRAWN ON A SPE CIFIC BANKER AND NOT EXPRESSED TO PAYABLE OTHERWISE ON DEMAND. THEREFORE CHEQUE OR HUNDI ARE BOTH BILL OF EXCHANGE. THE ASSESSEE ALSO EXPLAINED THAT THE TRANSACTIONS WERE GENUINE AND IT WAS ONLY A TECHNICAL BREACH OF THE PROVISION. 2 ITA NO. 3912/AHD/200 7 THE TRANSACTIONS DID NOT SHOW THAT THE ASSESSEE ACT ED DELIBERATELY WITH A MOTIVE TO DEFEAT THE OBJECTIVES OF THE PROVISIONS OF SECTION 269SS WHICH WAS PREVENTION OF TAX EVASION. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IT WAS ALSO EXPLAINED THAT THE INTENTION OF THE ASSESSEE IS NOT TO VIOLATE OR DEFEAT THE OBJECTIVES OF INCORPORATION OF SECTION 269SS OF THE STATUTE BOOK I.E. PREVENTION OF TAX EVASION. THE CONTENDED THAT THERE IS NO VIOLATION OF PROVISION CONTAINED IN SECTION 269SS WHICH SHOULD BE ACCEPTE D AS A REASONABLE CAUSE UNDER SECTION 273B AND PENALTY BE CANCELLED. 3. THE ASSESSING OFFICER FOUND THE AFORESAID EXPLAN ATION OF THE ASSESSEE AS UNACCEPTABLE. THE DETAILED REASONS GIVEN BY THE ASSESSING OFFICER IS AS UNDER :- SECTION 269T CLEARLY MENTIONS THAT NO PERSON SHALL AFTER THE 30 TH DAY OF JUNE 2002 REPLY TO ANY OTHER PERSON ANY LOAN OR DEPOSIT OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR BANK DRAFT IF (A) THE AMOUNT OF SUCH LOAN OR DEPOSIT OR THE AGGREGATE AMOUNT OF SUCH LOAN AND DEPOSIT IS TWENTY THOUSAND RUPEES OR MORE :- A PERUSAL OF THE PROVISION REVEALS THAT THE WORD U SED IN THIS SECTION IS CHEQUE OR A/C. PAYEE DRAFT. THERE IS NO DOUBT THAT CHEQUE AS WELL AS HUNDI ARE BOTH BILL OF EXCHANGE. HOWEVER CHEQUES ARE DRAWN O N SPECIFIED BANK. THE WORD ISSUED BY THE BANK IS IMPLIED AS IN THE CASE O F RECEIPT OF LOAN FOR DRAFT THE WORDS USED ARE BANK DRAFT. THEREFORE ISSUING A UTHORITY FOR BOTH THE INSTRUCTIONS I.E. CHEQUE AND THE DRAFT IS THE BANK . UNDER THE EXPLANATION TO SEC. 269T I.E. BANKING CO MPANIES AND COOPERATIVE BANKS HAS BEEN DEFINED AS PER BANKING REGULATION AC T. THESE DEFINITIONS ARE REQUIRED AS LOAN/ DEPOSIT ACCEPTED FROM THE BANKING COMPANY OR COOPERATIVE BANKS ARE EXEMPTED FROM THE MAIN PROVISIONS OF SECT ION 269T OF THE ACT FOR REPAYING LOAN EXCEEDING RS.20 000/- OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR DRAFT. THE MOST IMPORTANT THING TO NOTE IS THAT THE COOPERATIVE SOCIETIES ARE NOT EXEMPTED UNDER THIS CATEGORY FROM WHOM ANY PERS ON CAN TAKE LOAN EXCEEDING RS.20 000/- OTHERWISE THAN BY WAY OF ACCO UNT PAYEE CHEQUE OR DRAFT. THEREFORE IN SECTION 269T BANKING CO. HAS DIFFERENT FOOTINGS THAN THE COOPERATIVE SOCIETY CARRYING ON BUSINESS OF GIVING FACILITIES TO ITS MEMBERS. (II) THE HON'BLE GUJARAT HIGH COURT HAS HELD IN TH E CASE OF SUKHDEV RATHI VS.- UNION OF INDIA THAT THE PROVISIONS OF SECTION 269SS & 269T OF THE ACT CANNOT BE REGARDED AS AN UNREASONABLE RESTRICTION O N THE RIGHT TO CARRY ON TRADE OR BUSINESS AS ENSHRINED IN ARTICLE 19(1)(G) OF THE CONSTITUTION. 3 ITA NO. 3912/AHD/200 7 (III) THE PERUSAL OF THE ASSESSEES REPLY SHOWS THA T THE ASSESSEE MAINTAINS ACCOUNT WITH BANK OF BARODA BORSAD. THEREFORE THE ASSESSEE WAS NOT IN COMPULSION TO ENTER INTO THESE TRANSACTIONS THROUGH HUNDIS. (IV) A SPECIFIC PROVISION CONTAINED IN SECTION 269 T OVERRIDES THE INTENTION OF BRINGING ANY PROVISIONS OF LAW. ONCE THE PROVISI ONS OF LAW IS CLEAR THEN SUCH INTERPRETATION THAT THE PROVISIONS WERE BROUGH T TO CURTAIL THE EVASION OF TAX WILL NOT LIMIT THE SPECIFIC PROVISION. (V) PENALTY U/S. 271E OF THE ACT IS APPLICABLE ONLY WHEN THE LOAN IS TREATED AS GENUINE. IN CASE OF BOGUS LOAN OR UNEXPLAINED LOAN REPAID ADDITION WILL BE REQUIRED TO BE MADE AS DEEMED INCOME U/S. 68 OF THE ACT. (VI) THE ASSESSEE HAS WILLFULLY VIOLATED THE PROVIS IONS OF SEC. 269T OF THE ACT AS THE ASSESSEE WAS HAVING SEPARATE BANK ACCOUNT WI TH BANK OF BARODA AND SUCH VIOLATION COULD HAVE BEEN AVOIDED BY THE ASSES SEE. PENALTY PROCEEDINGS U/S. 271 DO NOT COME WITHIN TH E PURVIEW OF SEC. 136 OF THE INDIAN PENAL CODE AND THEREFORE NOT JUDICIA L PROCEEDINGS AS HELD IN THE CASE OF S. SANMALA CHETTY & SONS VS.- ITO (197 0) 76 ITR 177 (MAD.). THEREFORE MENS REA NEED NOT BE PROVED BY THE DEPAR TMENT FOR LEVY OF PENALTY. FINALLY THE ASSESSING OFFICER HELD THAT THE ASSESS EE ACCEPTED THE LOAN IN CONTRAVENTION OF PROVISIONS OF SECTION 269S. THEREFORE HE LEVIED TH E PENALTY OF RS.95 34 600/- UNDER SECTION 271D OF THE INCOME TAX ACT 1961. 4. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS) THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE LEVY OF PENALTY O F RS.95 34 600/- BY OBSERVING THAT ASSESSEE WAS HAVING A BANK ACCOUNT WITH THE BANK OF BARODA BORSAD THEREFORE COULD HAVE EASILY ACCEPTED THE LOAN THROUGH EITHER THE CROSSED CHEQUE OR BANK DRAFT. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO OBSERVED THAT THE EXPLANAT ION OF THE ASSESSEE THAT IT WAS UNDER THE HONEST AND BONAFIDE BELIEF THAT IT COULD ACCEPT LOA N/ DEPOSIT BY ACCOUNT PAYEE HUNDI UNDER SECTION 269SS IS FALLACIOUS BECAUSE IT HAS BEEN SEE N THAT THE ASSESSEE HAD A REGULAR AND SEPARATE BANK ACCOUNT WITH THE BANK OF BARODA BORSAD. AGGRI EVED BY THIS ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THE ASSESSEE I S IN APPEAL BEFORE US. 4 ITA NO. 3912/AHD/200 7 5. AT THE TIME OF HEARING BEFORE US SHRI S.N. DIVE TIA APPEARING ON BEHALF OF ASSESSEE PRODUCED A COPY OF DECISION DATED 23.04.2008 OF ITA T B BENCH AHMEDABAD IN ITA NO. 632/AHD/2008 FOR ASSESSMENT YEAR 2001-02 IN ASSESSE ES OWN CASE WHEREIN PENALTY LEVIED UNDER SECTION 271E FOR THE ASSESSMENT YEAR 2001-02 WAS CANCELLED IN RESPECT OF REPAYMENT OF LOAN BY WAY OF HUNDI. THE LD. COUNSEL OF THE ASSESS EE EXPLAINED THAT IN THAT DECISION THE PLEA OF THE ASSESSEE TO MAKE REPAYMENT THE LOAN THROUGH HUN DI CONSTITUTES A REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273B OF THE INCOME TAX ACT 1961 . HE SUBMITTED THAT SINCE THE MATTER IS SQUARELY COVERED BY THE DECISION DATED 23.04.2008 O F ITAT B BENCH AHMEDABAD IN ITA NO. 632/AHD/2008 IN ASSESSEES OWN CASE (SUPRA) THEREF ORE FOLLOWING THE SAID DECISION IT MAY BE HELD THAT THE ASSESSEE WAS UNDER THE BONAFIDE BELIE F THAT HUNDI WAS A BILL OF EXCHANGE WHICH WAS DRAWN ACCOUNT PAYEE WHICH CONSTITUTES REASONABLE C AUSE WITHIN THE MEANING OF SECTION 273B OF THE INCOME TAX ACT 1961. 6. ON THE OTHER HAND SMT. NEETA SHAH SR. D.R. APP EARING ON BEHALF OF REVENUE COULD NOT CONTROVERT THE AFORESAID SUBMISSIONS OF THE LD. COU NSEL OF THE ASSESSEE. 7. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW AS WELL AS THE DECISION DATED 23.04.2008 OF I TAT B BENCH AHMEDABAD IN ITA NO. 632/AHD/2008 (SUPRA). FROM THE RECORD WE FIND THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF LAND DEVELOPMENT. IT IS A MEMBER OF COO PERATIVE SOCIETIES VIZ. THE MERCANTILE COOPERATIVE CREDIT SOCIETY LTD. AND SHREE SARVODAYA COOPERATIVE HOUSING FINANCE (CREDIT) SOCIETY LIMITED WHICH PROVIDE CREDIT FACILITY TO I TS MEMBERS. IN THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE HAS ACCEPTED TO REPAY LOANS BY WAY OF HUNDI IN CONTRAVENTION OF PROVISIONS OF SECTION 269T. THE REPAYMENT OF LOAN THROUGH HUND I HAS BEEN HELD BY THE TRIBUNAL IN ITA NO. 632/AHD/2008 ORDER DATED 23.04.2008 (SUPRA) AS REA SONABLE CAUSE UNDER SECTION 273B. THE RELEVANT PORTION IS CONTAINED IN PARA 5 WHICH READS AS UNDER :- 5. AFTER HEARING THE LEARNED DR WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSING OFFICER HAS LEVIED THE PENALTY U/S. 271E ON THE GROUND OF CONTRAVENTIO N OF SECTION 269T OF THE ACT. HON'BLE SUPREME COURT IN THE CASE OF HI NDUSTAN STEEL LTD. VS.- STATE OF ORISSA (83 ITR 26) HAS HELD THAT PEN ALTY WILL NOT ALSO BE IMPOSED MERELY BECAUSE IT IS LAWFUL TO DO SO. WHETH ER PENALTY SHOULD BE IMPOSED FOR FAILURE TO PERFORM A STATUTORY OBLIG ATION IS A MATTER OF 5 ITA NO. 3912/AHD/200 7 DISCRETION OF THE AUTHORITY TO BE EXERCISED JUDICIA LLY AND ON A CONSIDERATION OF ALL THE RELEVANT CIRCUMSTANCES. EV EN WHEN THE MINIMUM PENALTY IS PRESCRIBED THE AUTHORITY COMPET ENT TO IMPOSE THE PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE PEN ALTY WHEN THERE IS A TECHNICAL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT OR WHERE THE BREACH FLOWS FROM A BONAFIDE BELIEF THAT THE PARTIE S INVOLVED AND ALSO THE TRANSACTION ARE NOT UNGENUINE. IT IS THE CONTEN TION OF THE ASSESSEE THAT THE ASSESSEE WAS UNDER BONAFIDE BELIEFS THAT H UNDI WAS A BILL OF EXCHANGE WHICH WAS DRAWN ACCOUNT PAYEE. IN OUR CONS IDERED VIEW THIS BONAFIDE BELIEF CONSTITUTE A REASONABLE CAUSE WITHIN THE SECTION 273B OF THE INCOME TAX ACT 1961. IN VIEW OF THIS THE PENALTY OF RS.6 56 061/- LEVIED BY THE ASSESSING OFFICER AND C ONFIRMED BY THE CIT(A.) CANNOT BE SUSTAINED AND AS SUCH THE SAME I S HEREBY DELETED. 8. IN OUR OPINION THE ASSESSEE WAS UNDER BONAFIDE BELIEF THAT HUNDI IS A BILL OF EXCHANGE WHICH WAS DRAWN ACCOUNT PAYEE. THIS BONAFIDE BELIEF IN OUR OPINION CONSTITUTES REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273B. WE THERE FORE FOLLOWING THE DECISION DATED 23.04.2008 IN ASSESSEES OWN CASE IN ITA NO. 632/AH D/2008 (SUPRA) CANCEL THE PENALTY OF RS.95 34 600/- LEVIED BY THE ASSESSING OFFICER UNDE R SECTION 271D OF THE INCOME TAX ACT 1961. 9. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 16.04.2010 . SD/- SD/- (N.S. SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 16 / 04 /2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD LAHA/SR.P.S.