Sri. MAHABAL S. SHETTY, DOMBIVLI (W) v. ADDL.CIT CENT. CIR, -THANE, THANE

ITSSA 238/MUM/2006 | 1996-1997
Pronouncement Date: 25-02-2011 | Result: Allowed

Appeal Details

RSA Number 23819916 RSA 2006
Assessee PAN AQSPS3119E
Bench Mumbai
Appeal Number ITSSA 238/MUM/2006
Duration Of Justice 4 year(s) 6 month(s) 4 day(s)
Appellant Sri. MAHABAL S. SHETTY, DOMBIVLI (W)
Respondent ADDL.CIT CENT. CIR, -THANE, THANE
Appeal Type Income Tax (Search & Seizure) Appeal
Pronouncement Date 25-02-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 25-02-2011
Date Of Final Hearing 13-12-2010
Next Hearing Date 13-12-2010
Assessment Year 1996-1997
Appeal Filed On 21-08-2006
Judgment Text
1 IT(SS)A.NOS.238 TO 247/MUM/2006. MAHABAL S. SHETTY. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI N.V. VASUDEVAN JUDICIAL MEMBER AND SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER S. NO. I.T.(SS)A. NO. ASSTT. YEAR. 1. 238/MUM/2006 1996-97. 2. 239/MUM/2006 1997-98. 3. 240/MUM/2006 1998-99. 4. 241/MUM/2006 1998-99. 5. 242/MUM/2006 1999-2000 6. 243/MUM/2006 1999-2000 7. 244/MUM/2006 2000-2001 8. 245/MUM/2006 2000-2001 9. 246/MUM/2006 2001-2002 10. 247/MUM/2007 2001-2002 MAHABAL S. SHETTY ADDL. COMMISSIONER OF C/O K.B. AMLANI (C.A.) VS . INCOME-TAX CENTRAL CIRCLE 14 MALKANS DR. LAZRUS ROAD THANE. OPP. RUPEE BANK CHARAI THANE (W)-400602. PAN : AQSPS 3119E APPELLANT. RESPONDENT. APPELLANT BY : SHRI REEPAL G. TRALSHAWALA. RESPONDENT BY : SHRI N.K. BALODIA. O R D E R PER J. SUDHAKAR REDDY A.M. : ALL THESE 10 APPEALS ARE FILED BY THE ASSESSEE. SI X APPEALS CHALLENGE THE CONFIRMATION OF PENALTY LEVIED U/S 271D OF THE INCO ME-TAX ACT BY THE CIT(APPEALS)-I THANE FOR THE ASSESSMENT YEARS 1996 -97 TO 2001-2002. THE OTHER 2 IT(SS)A.NOS.238 TO 247/MUM/2006. MAHABAL S. SHETTY. FOUR APPEALS PERTAIN TO CONFIRMATION OF THE PENALT Y LEVIED U/S 271E OF THE INCOME- TAX ACT BY THE CIT(APPEALS)-I THANE FOR THE ASSESS MENT YEARS 1998-99 TO 2001- 2002. 2. FACTS IN BRIEF : THE ASSESSEE IS AN INDIVIDUAL AND IS IN THE BUSINE SS OF FINANCE AND TRANSPORTATION. A SEARCH AND SEIZURE ACTION WAS CON DUCTED ON 14-12-2000 ON THE RESIDENTIAL AS WELL AS BUSINESS PREMISES OF THE ASS ESSEE. THE SEARCH REVEALED THAT THE ASSESSEE HAD UNDERTAKING MONEY LENDING BUSINESS . A NOTICE WAS ISSUED U/S 158BC AND IN RESPONSE THE ASSESSEE FURNISHED RETURN OF INCOME IN FORM NO. 2B ON 29-8-2002 DECLARING UNDISCLOSED LOSS OF RS.1 50 00 244/-. A BLOCK ASSESSMENT ORDER WAS PASSED BY THE AO ON 31 ST DECEMBER 2002 ACCEPTING THE UNDISCLOSED LOSS DECLARED BY THE ASSESSEE. IN THIS ORDER THE AO OBSE RVED THAT THE ASSESSEE IS NOT MAINTAINING REGULAR BOOKS OF ACCOUNT. AT PARA 9 IT IS OBSERVED THAT DURING THE ACTION U/S 132 VOLUMINOUS RECORD WAS SEIZED WHICH INCLUDES RECEIPTS ISSUED TO LOAN CREDITORS WHICH ARE SERIALLY NUMBERED AND PERS ONAL LOAN LEDGER BOOKS IN RESPECT OF CREDITORS. OTHER DOCUMENTS SUCH AS LOAN AGREEMENT FORM PROMISSORY NOTES POST DATED CHEQUES REGISTERS ETC. WERE FOUND . AT PARA 13 IN THE BLOCK ASSESSMENT ORDER THE AO HELD AS FOLLOWS : DURING THE COURSE OF BUSINESS ACTIVITIES THE ASS ESSEE HAS OBTAINED LOANS FROM VARIOUS PARTIES. THE LOANS ARE OBTAINED THROUG H CHEQUES AND BY CASH ALSO. ON ACCEPTING THE LOAN THE LOAN CREDITORS WER E GIVEN RECEIPTS ALONGWITH PROMISSORY NOTE AND LOAN AGREEMENT AND POST DATED C HEQUES IN TERM OF GUARANTEE OF REPAYMENT OF LOAN. THE LOAN CREDITORS ARE GIVEN INTEREST @ 4% P.M. SUCH FUNDS WERE USED FOR GIVING LOANS AT THE I NTEREST RATE OF 10% P.M. IT IS SEEN THAT THE ASSESSEE HAS ACCEPTED LOANS ABOVE RS.20 000/- IN CASH FROM VARIOUS PARTIES LIST OF WHICH IS ALSO SUBMITTED. B Y ACCEPTING LOANS ABOVE 3 IT(SS)A.NOS.238 TO 247/MUM/2006. MAHABAL S. SHETTY. RS.20 000 IN CASH PROVISIONS OF SECTION 269 SS ARE VIOLATED FOR WHICH PENALTY PROCEEDINGS U/S 271D ARE INITIATED SEPARATE LY. THEREAFTER AT PARA 18 IT IS STATED THAT PENALTY PR OCEEDINGS U/S 271D ARE INITIATED. 3. THE ADDL. CIT CENTRAL CIRCLE THANE VIDE HIS O RDER DATED 30-06-2005 PASSED U/S 271D OF THE I.T. ACT CONSIDERED THE VAR IOUS SUBMISSIONS MADE BY THE ASSESSEE AND REJECTED THE SAME ON THE GROUND THAT T HE ASSESSEE HAS ACCEPTED DEPOSITS IN EXCESS OF RS.20 000/- WITHOUT REASONAB LE CAUSE IN VIOLATION OF PROVISION OF SECTION 269SS AND HENCE LEVIED PENALTY U/S 271D. SIMILARLY THE AO ALSO LEVIED PENALTY U/S 271E ON THE GROUND THAT THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 269T BY REPAYING DEPOSITS OTH ERWISE THAN BY ACCOUNT PAYEE CHEQUES IN EXCESS OF RS.20 000/-. IT IS NOTED THAT THIS WAS THE FIRST TIME WHEN THE AO TERMED THE RECEIPT IN QUESTION AS A DEPOSIT AND NOT AS A LOAN. ON APPEAL THE FIRST APPELLATE AUTHORITY CONFIRMED THE PENALTY. FU RTHER AGGRIEVED THE ASSESSEE IS BEFORE US. 4. MR. REEPAL G. TRALSHAWALA LEARNED COUNSEL FOR T HE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS STUDIED UPTO ONLY 3RD STANDARD IN A SMALL VILLAGE IN KARNATAKA AND THEREAFTER CAME TO MUMBAI AND WAS SELLING VADA-PAV ON THE ROAD IN DOMBIVALI. HE SUBMITTED THAT THESE FACTS ARE NOT IN DISPUTE AN D COULD BE FOUND AT PAGES 61 AND 62 OF THE PAPER BOOK. HE TOOK THIS BENCH THROUGH VA RIOUS PAPERS SUCH AS BLOCK ASSESSMENT ORDER THE EXPLANATION GIVEN BY THE ASSE SSEE ORDERS U/S 271D AND U/S 271E AS WELL AS THE ORDER OF THE CIT(APPEALS) AND C ONTENDED THAT THE PENALTY IS WRONGLY LEVIED. HE CONTENDED THAT THE AO AFTER DUE VERIFICATION IN SEARCH PROCEEDINGS HAS ACCEPTED THAT ALL THE LOANS IN QUE STION ARE GENUINE AND THIS IS EVIDENT FROM PAGE 5 OF THE ASSESSMENT ORDER WHICH I S AN OFFICE NOTE. HE SPECIFICALLY DREW OUR ATTENTION TO PARA 4 THEREIN W HICH IS AT PAGE 8 OF THE 4 IT(SS)A.NOS.238 TO 247/MUM/2006. MAHABAL S. SHETTY. ASSESSMENT ORDER AND SUBMITTED THAT THE AO HAS ISSU ED SUMMONS U/S 131 TO CERTAIN CREDITORS ON TEST CHECK BASIS AND HAS CONFIRMED THE GENUINENESS OF THE LOANS. HE SUBMITTED THAT ONCE THE GENUINENESS OF THE TRANSACT ION IS NOT DOUBTED THEN PENALTY CANNOT BE LEVIED U/S 269SS. HE RELIED ON THE FOLLOW ING CASE LAWS : I) CIT VS. LAKSHMI TRUST CO. 303 ITR 99 (MAD.). II) DILLU CINE ENTERPRISES VS. CIT 80 ITD 484 (HYD ). 5. THE SECOND LIMB OF HIS ARGUMENT HE SUBMITTED TH AT THE FACT THAT THE ASSESSEE IS AN ILLITERATE AND HAS NO KNOWLEDGE OF TAX LAWS A ND THAT HE HAS COME FROM A SMALL VILLAGE IN KARNATAKA AND HAD NO CAPITAL OF HIS OWN ETC. AND OTHER REASONS DEMONSTRATE THAT THE ASSESSEE HAD REASONABLE CAUSE INASMUCH AS HE HAS TAKEN THE LOANS IN CASH UNDER THE BONAFIDE BELIEF THAT HE IS NOT VIOLATING ANY LAW OF THE LAND. FOR THE PROPOSITION THAT NO PENALTY CAN BE LE VIED WHEN THERE IS REASONABLE CAUSE HE RELIED ON THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS. JAYASAKTHI BENEFIT FUND LTD. 303 ITR 29 (MAD). THE NEXT PROPOSITION IS THAT THE ASSESSEE WAS IGNORANT OF THIS PARTICULAR PROVISION OF LAW AND FOR THE PROPOSITION THAT NO PENALTY CAN BE LEVIED WHEN THE ASSESSEE IS IGNORANT OF THE LAW HE RELIED ON THE FOLLOWING CASE LAW : I) MOTILAL PADMPAT SUGAR MILLS CO. LTD. VS. STATE O F UTTAR PRADESH AND OTHERS 118 ITR 326. II) ITO VS. PRABHULAL SAHU 99 TTJ (JD) 177. 6. THE LEARNED COUNSEL FOR THE ASSESSEE TOOK THIS B ENCH THROUGH THE COPY OF THE LOAN AGREEMENT WHICH IS AT PAGE 94 OF THE ASSESSEE S PAPER BOOK TO DEMONSTRATE THAT WHATEVER WAS TAKEN BY THE ASSESSEE WAS A LOAN AND NOT A DEPOSIT. THEREAFTER HE SUBMITTED THAT REPAYMENT OF THE LOAN IS NOT COVERED U/S 271E PRIOR TO ITS 5 IT(SS)A.NOS.238 TO 247/MUM/2006. MAHABAL S. SHETTY. AMENDMENT BY THE FINANCE ACT 2003 WITH EFFECT FROM 01-06-2003. IN ADDITION TO THE PROPOSITIONS RELIED UPON WHILE ARGUING THE PENA LTY LEVIED U/S 271D THE LEARNED COUNSEL RELIED ON THE FOLLOWING CASE LAWS: I) BINDYA NATH PLASTIC INDUSTRIES (P) LTD. AND OTHE RS VS. K.L. ANAND ITO 230 ITR 522 (DEL). II) MULLER AND PHIPPS (I) LTD. VS. ACIT & OTHERS 24 9 ITR 266 (MAD). III) ITO VS. SUDESH KUMAR SAREEN 5 ITR (TRIB) 829 ( DEL). HE REITERATED HIS CONTENTIONS THAT THE ASSESSEE BEI NG AN ILLITERATE AND IGNORANT OF THE LAW AND AS THE GENUINENESS OF THE TRANSACTIONS ARE NOT DOUBTED PENALTIES LEVIED SHOULD BE CANCELLED. 7. THE LEARNED DR MR. BALODIA ON THE OTHER HAND STRONGLY OPPOSED THE CONTENTIONS OF THE ASSESSEES COUNSEL AND DREW THE ATTENTION OF THE BENCH TO THE ASSESSMENT ORDER TO SHOW THAT THE ASSESSEE WAS DEAL ING IN HUGE VOLUMES OF TRANSACTION. HE POINTED OUT THAT THE ASSESSEE HAD R S.9.71 CRORES OF CREDITS AND RS.5.79 CRORES OF DEBTS. HE ALSO POINTED OUT THAT T HE ASSESSEE HAD BORROWED FROM MORE THAN 3500 PERSONS AND THAT HE HAD EMPLOYEES AN D UNDER THOSE CIRCUMSTANCES IT WAS NOT CORRECT TO HOLD THAT THE ASSESSEE HAS A REASONABLE CAUSE FOR VIOLATING THE LAW. HE RELIED HEAVILY ON THE ORDER OF THE AO AS WE LL AS THE ORDER OF THE CIT(APPEALS). HE CITED THE FOLLOWING CASE LAWS: I) NARSINGH RAM ASHOK KUMAR VS. UNION OF INDIA AND OTHERS 234 ITR 414 (PATNA). II) KASI CONSULTANT CORPORATION VS. DCIT 311 ITR 41 9 (MAD). III) DHANJI R. ZALTE VS. ACIT 265 ITR 204 (BOM). 6 IT(SS)A.NOS.238 TO 247/MUM/2006. MAHABAL S. SHETTY. 8. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE CASE A PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED W E HOLD AS FOLLOWS: 9. THE EXPLANATION OF THE ASSESSEE IS BROUGHT OUT A T PARA 2 OF THE ORDER LEVYING PENALTY U/S 271D. THE SAME IS EXTRACTED BELOW FOR R EADY REFERENCE : IN RESPONSE TO THE SHOW CAUSE NOTICE THE ASSESSEE FURNISHED HIS EXPLANATION VIDE HIS LETTER DATED 22.12.04. IN HIS EXPLANATION DATED 22.12.04 THE ASSESSEE HAS STATED AS UNDER :- I STUDIED UPTO 3 RD STD. ONLY IN VILLAGE IN KARNATAKA. UP TO 1994 I W AS SELLING PAV VADA ON ROAD IN DOMBIVALI. WITH THIS IL LITERATE & POOR BACK GROUND IN 1994/95 I STARTED MONEY LENDING BUSINESS THAT TOO HAVING NO OWN CAPITAL BY BORROWING FROM PEOPLE @ 4% TO 6% P. M. & LENDING & 6% TO 10% P.M. MY MOST OF LENDERS ARE ALL SMALL AND IL LITERATE VILLAGE PEOPLE WHO NEVER MAINTAIN BANK ACCOUNT & CHEQUES/DRAFTS TR ANSACTIONS BUT INSIST FOR GIVING LOAN IN CASH AND SIMILARLY INSIST FOR PA YING THEM INTEREST & REPAYING LOAN IN CASH. VERY FACT IS THAT MY NATURE OF BUSINESS IN MONEY LENDING AND IT DEMANDED FOR BORROWING AND LENDING I N CASH. I HAD NO OPTION BUT TO TAKE AND GIVE IN CASH JUST TO EARN SOMETHING OUT OF MARGIN EARNING AGAINST INTEREST PAYMENT AND AFTER MEETING SALARIE S COMMISSION AND OTHER EXPENSES. I HAVE BEEN LENDING IMMEDIATELY TO EARN T HE INTEREST OUT OF THE SAID INTEREST BEARING FUNDS. I ACTED IN BONAFIDE BELIEF WITHOUT MALAFIDE INTENTION TO VIOLATE THE LAW I HAD TO TAKE AND REPAY LOAN IN WHATEVER WAY I GET FROM PEOPLE. WHERE EVER POSSIBLE I HAVE TAKEN LOAN BY A /C PAYEE CHEQUE & REPAID BY A/C PAYEE CHEQUES ALSO. I ALSO SUBMIT THA T FROM SEIZED RECORDS AND ALSO BY EXTERNAL VERIFICATION DURING ASSESSMENT PR OCEEDINGS THE TRANSACTION OF LOANS TAKEN AND RETURNED ARE PROVED GENUINE. DUE TO HEAVY LOSS AS ASSESSED BY THE ASSESSED BY THE ASSESSING OFFICER. AFTER SEARCH I AM FACING HEAVY RECOVERY PRESSURE FROM LENDERS & AT THE SAME TIME MY ALL DEBTORS ARE BAD DEBTS HAVING NO RECOVERY FROM DEBTORS BEING TH EIR PAPERS & DOCUMENTS ARE SEIZED BY THE DEPARTMENT. DUE TO ALL THESE PROB LEMS I SUFFERED PARALYSIS IN AUGUST 2001 AND SINCE THEN I AM UNABLE TO TALK AND WORK PROPERLY & PERMANENTLY DISABLED. ON SEVERAL COMPLAINTS OF CRED ITORS IN POLICE AND COURTS I WAS IMPRISONED IN THANE JAIN FOR 6 MONTHS AND NOW RELEASED ON 7 IT(SS)A.NOS.238 TO 247/MUM/2006. MAHABAL S. SHETTY. BAIL BUT I HAVE TO ATTEND ALMOST DAILY IN COURTS IN AMPLE OR RECOVERY CASES AGAINST ME. I FURTHER SUBMIT THAT LIST ENCLOSED IS OF CREDITORS ON LAST DAY OF F.Y. ONLY & MOST OF THE LOANS ARE NOT REPAID BUT CONTINU ED SINCE SO MANY YEARS ONLY CHANGING P/L NUMBERS TIME TO TIME. 10. UNDISPUTED FACTS THAT EMERGED ARE: A) THE ASSESSEE HAD STUDIED ONLY UPTO 3 RD STANDARD IN A SMALL VILLAGE OF KARNATAKA AND THEREAFTER MIGRATED TO MUMBAI WHERE H E SOLD VADA-PAV ON ROAD IN DOMBIBALI. B) MOST OF THE LENDERS ARE SMALL AND ILLITERATE VILLAG E PEOPLE WHO NEVER MAINTAIN BANK ACCOUNTS AND DO TRANSACTIONS OF GIVIN G LOANS IN CASH AND SIMILARLY INSISTS FOR REPAYMENT IN CASH. C) THE AO IN THE BLOCK ASSESSMENT ORDER HAS ACCEPTED THE BLOCK RETURN FILED BY THE ASSESSEE WHEREIN HE HAS DECLARED A LOSS OF R S.1.5 CRORES FOR THE PERIOD 1995-96 TO 14-12-2000. D) IN THE OFFICE NOTE PARA 4 THE AO HAS CLEARLY STATE D THAT ON VERIFICATION HE FOUND THAT THE LOANS IN QUESTION ARE GENUINE. E) A PERUSAL OF THE AGREEMENT AT PAGE 94 OF THE ASSESS EES PAPER BOOK SHOWS THAT THE ASSESSEE HAS TAKEN LOANS ON CERTAIN TERMS AND CONDITIONS. THE ASSESSEE HAS ALSO EXECUTED A PROMISSORY NOTE ALONG WITH THE AGREEMENT AND HAS ALSO GIVEN POST DATED CHEQUES. THE PROMISSO RY NOTES STATES THAT THE AMOUNT IS REPAYABLE ON DEMAND. A PERUSAL OF THE SE THREE DOCUMENTS DISCLOSED THAT THE AOS FINDING IN THE BLOCK ASSESS MENT ORDER THAT WHAT WAS BORROWED WAS LOAN IS CORRECT. THE LATTER VERSI ON THAT THIS AMOUNT IS NOTHING BUT DEPOSIT IN OUR OPINION IS NOT SUPPORT ED BY DOCUMENTARY EVIDENCE. 11. ON THIS FACTUAL MATRIX WE EXAMINE THE LEGAL PO SITION. THE HONBLE SUPREME COURT IN THE CASE OF MOTILAL PA DMPAT SUGAR MILLS CO. LTD. VS. STATE OF UTTAR PRADESH AND OTHERS 118 ITR 326 HAS HELD THAT THERE IS NO PRESUMPTION THAT EVERY PERSON KNOWS THE LAW. AT PAG E 339 THE HONBLE SUPREME COURT OBSERVED AS UNDER : 8 IT(SS)A.NOS.238 TO 247/MUM/2006. MAHABAL S. SHETTY. MOREOVER IT MUST BE REMEMBERED THAT THERE IS NO PRESUMPTION THAT EVERY PERSON KNOWS THE LAW. IT IS OFTEN SAID THAT EVERY O NE IS PRESUMED TO KNOW THE LAW BUT THAT IS NOT A CORRECT STATEMENT: THERE IS NO SUCH MAXIM KNOWN TO THE LAW. OVER A HUNDRED AND THIRTY YEARS AGO MAULA J. POINTED OUT IN MARTINDALE V. FALKNER [1846] 2 CB 706: THERE IS NO PRESUMPTIO N IN THIS COUNTRY THAT EVERY PERSON KNOWS THE LAW : IT WOULD BE CONTRARY T O COMMON SENSE AND REASON IF IT WERE SO. SCRUTTON L. J. ALSO ONCE SAI D : IT IS IMPOSSIBLE TO KNOW ALL THE STATUTORY LAW AND NOT VERY POSSIBLE TO KNO W ALL THE COMMON LAW. BUT IT WAS LORD ATKIN WHO AS IN SO MANY OTHER SPHE RES PUT THE POINT IN ITS PROPER CONTEXT WHEN HE SAID IN EVANS V. BARTLAM [19 37] AC 473: . THE FACT IS THAT THERE IS NOT AND NEVER HAS BEEN A PRESUMPTION THAT EVERY ONE KNOWS THE LAW. THERE IS THE RULE THAT IGNORANCE OF THE LAW DOES NOT EXCUSE A MAXIM OF VERY DIFFERENT SCOPE AND APPLICATION. IT IS THEREFORE NOT POSSIBLE TO PRESUME IN THE ABSENCE OF ANY MATERIAL PLACED B EFORE THE COURT THAT THE APPELLANT HAD FULL KNOWLEDGE OF ITS RIGHT TO EXEMPT ION SO AS TO WARRANT AN INFERENCE THAT THE APPELLANT WAIVED SUCH RIGHT BY A DDRESSING THE LETTER DATED 25 TH JUNE 1970. WE ACCORDINGLY REJECT THE PLEA OF WA IVER RAISED ON BEHALF OF THE STATEMENT GOVERNMENT. 12. THE JODHPUR BENCH OF THE TRIBUNAL IN THE CASE O F ITO VS. PRABHULAL SAHU 99 TTJ (JD) 177 HELD THAT WHEN THE ASSESSEE WAS IGNORA NT OF THE RELEVANT PROVISIONS ON WHICH THE ASSESSEE WAS NOT ADVISED BY HIS COUNS EL AND MORE SPECIFICALLY IN THE BACKGROUND WHERE THE ASSESSEE WAS ONLY MATRICULATE AND WAS NOT AWARE OR ENLIGHTEN ABOUT THIS FACT THE IMPOSITION OF PENALT Y U/S 271D WAS NOT JUSTIFIED. 13. THE MADRAS HIGH COURT IN THE CASE OF CIT VS. LA KSHMI TRUST CO. (SUPRA) HELD AS FOLLOWS : IN THE INSTANT CASE THE COMMISSIONER OF INCOME-T AX (APPEALS) AND THE APPELLATE TRIBUNAL FOUND ON THE FACTS THAT THE TRAN SACTIONS WERE GENUINE AND THE IDENTITY OF THE LENDERS WAS ALSO SATISFIED. THE APPELLATE TRIBUNAL ALSO UPHELD THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) THAT THERE WAS NO INTENTION ON THE PART OF THE ASSESSEE TO EVA DE THE TAX. ONCE THE SAID FINDING AS TO THE GENUINENESS OF THE TRANSACTIONS IS ARRIVED AT BY THE TRIBUNAL ON THE FACTS FOLLOWING THE DECISION OF THIS COURT IN 9 IT(SS)A.NOS.238 TO 247/MUM/2006. MAHABAL S. SHETTY. CIT V. RATNA AGENCIES [2006] 284 ITR 609 WHEREIN I T WAS HELD THAT THE FINDING RECORDED BY THE TRIBUNAL IN THIS REGARD IS A FINDING OF FACT AND NO QUESTION OF LAW MUCH LESS A SUBSTANTIAL QUESTION OF LAW WOULD ARISE WE DO NOT HAVE ANY HESITATION TO HOLD THAT IT MAY NOT BE PROPER FOR THIS COURT TO INTERFERE WITH SUCH A FINDING OF FACT. 14. IN THE CASE OF CIT VS. JAYASAKTHI BENEFIT FUND LTD. 303 ITR 29 (MAD) THE HONBLE MADRAS HIGH COURT WAS CONSIDERING A SITUATI ON WHERE THE ASSESSEE WAS IN RECEIPT OF DEPOSITS OVER AND ABOVE RS.20 000/- IN C ASH FROM AGRICULTURISTS WHO HAD DEPOSITED THE AMOUNT FROM THEIR SAVINGS OF AGRICULT URAL INCOME. IT WAS ALSO STATED THAT NONE OF THE PERSONS FROM WHOM THE DEPOSITS WER E RECEIVED IN CASH WERE HAVING ANY BANK ACCOUNT. THE CONFIRMATIONS IN THIS REGARD WERE FILED. THE HONBLE COURT OBSERVED AS FOLLOWS : THE CIRCUMSTANCES UNDER WHICH SUCH DEPOSITS RECEI VED HAVE ALSO BEEN EXPLAINED BY THE ASSESSEE BY SUBMITTING THAT THE AS SESSEE WAS LOCATED IN MARAIMALAI NAGAR WHICH IS A SUBURB OF CHENNAI CITY AND THE RESIDENTS IN THAT AREA ARE MOSTLY AGRICULTURISTS AND HARDLY HAVING AN Y BANK ACCOUNT THAT THE ASSESSEE CATERS THE NEEDS OF THE AGRICULTURISTS LA BOURERS AND HOUSE-WIVES WHO DO NOT HAVE BANK ACCOUNT AND THE ASSESSEE ALSO STATED THAT THERE WAS A TURMOIL IN THE FINANCE BUSINESS WITH THE NUMBER OF FINANCE COMPANIES BREAKING DOWN UNABLE TO REPAY THE DEPOSITS TAKEN FR OM THE PUBLIC AND IN THOSE COMPELLING CIRCUMSTANCES THE ASSESSEE HAD TO OBLIGE HIS CUSTOMERS BY ACCEPTING THE DEPOSITS IN CASH AND REFUNDING DEPOSI TS IN CASH IN ORDER TO ESTABLISH CREDIBILITY IN BUSINESS AMONG THE ASSESSE ES CUSTOMERS AND FURTHER EXPLAINED THAT THE ASSESSEE WAS FINANCING TO AGRIC ULTURIST MAINLY AND TO PEOPLE OF VERY SMALL MEANS. THE ASSESSEE COULD NOT INSIST ON CHEQUE PAYMENTS FOR DEPOSIT AS THE DEPOSITORS WERE NOT AWA RE OF THE BANKING OPERATIONS. EACH OF THE DEPOSITOR HAS ALSO CONFIRME D THE DEPOSIT MADE BY THEM OUT OF THEIR AGRICULTURAL INCOME OR SMALL SAVI NGS AND THAT THEY WERE NOT HAVING ANY BANKING TRANSACTIONS. THUS IT COULD BE SEEN THAT THE TRANSACTIONS WERE N OT CAMOUFLAGED TRANSACTIONS OR OUT OF ACCOUNT TRANSACTIONS BUT BO NA FIDE TRANSACTIONS BY PERSONS OF THE VOCATION OF AGRICULTURE AND SMALL TR ADERS AND THUS THERE WAS A REASONABLE CAUSE FOR THE FAILURE. 10 IT(SS)A.NOS.238 TO 247/MUM/2006. MAHABAL S. SHETTY. THE HONBLE HIGH COURT FURTHER OBSERVED AS FOLLOWS: THERE IS NO MATERIAL AVAILABLE ON RECORD FOR US TO SUSPECT OR REJECT THE TRANSACTION AS NOT BONA FIDE. FURTHER THE TRIBUNAL S DECISION RELIED UPON BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AS WELL AS THE TRIBUNAL I.E. KUNDRATHUR FINANCE AND CHIT CO.S CASE [2006] 283 ITR 329 AND UPHELD THE CASE OF CIT V. KUNDRATHUR FINANCE AND CHIT CO. [200 6] 283 ITR 329 AND UPHELD THE ORDER OF THE TRIBUNAL WHICH CONCLUDED T HAT THE REASONING GIVEN BY THE FINANCE COMPANY FOR ACCEPTING DEPOSITS IN CA SH WAS A GENUINE AND BONA FIDE TRANSACTIONS AND HELD THAT IF THE TRANSAC TION WAS A GENUINE AND BONA FIDE TRANSACTION THAT THE TAXPAYER COULD NOT GET LOAN OR DEPOSIT BY ACCOUNT PAYEE CHEQUE OR DEMAND DRAFT FOR A BONA FID E REASON THE AUTHORITIES ARE VESTED WITH THE DISCRETION NOT TO LEVY PENALTY. THE ABOVE DECISION OF THE DIVISION BENCH REPORTED IN CIT KUNDRATHUR FINANCE A ND CHIT CO. [2006] 283 ITR 329 SQUARELY COVERS THE ISSUE IN THIS CASE ALSO. 15. IN OUR HUMBLE OPINION THIS CASE LAW APPLIES IN ALL FOURS TO THE FACTS OF THIS CASE. ADMITTEDLY THE PERSONS WHO HAVE GIVEN LOANS A RE SMALL AND ILLITERATE VILLAGERS WHO NEVER MAINTAINED BANK ACCOUNTS. THE ASSESSEE BO RROWED MONEY FROM THESE NUMEROUS VILLAGERS AND WAS CONDUCTING FINANCE BUSIN ESS IN THE SUBURBS OF BOMBAY. THERE IS REASONABLE GROUND OF BELIEF THAT T HE ASSESSEE WAS IGNORANT OF THE LAW AND THE REVENUE HELD THAT THE TRANSACTIONS WERE GENUINE. THE ASSESSEE WAS UNDER A BONAFIDE BELIEF THAT HE HAS NOT VIOLATED AN Y LAW AS HE WAS NOT AWARE OF THIS SECTION 269SS OR 269T. 16. COMING TO THE JUDGMENT OF THE HONBLE MADRAS HI GH COURT IN THE CASE OF KASI CONSULTANT CORPORATION VS. DCIT 311 ITR 419 (M AD) RELIED UPON BY THE LEARNED DR THE FACTS ARE FOUND DIFFERENT FOR THE R EASON THAT THE ASSESSEE FIRM IN THAT CASE HAD ACCEPTED DEPOSITS FROM THE PUBLIC FOR THE PURPOSE OF BUSINESS IN REAL ESTATE AND PROPERTY DEVELOPMENT CARRIED ON BY THE R ELATED CONCERNS. IT WAS A CASE WHERE THE ASSESSEE HAD NOT PRODUCED ANY MATERIAL WH ATSOEVER TO SUSTAIN THE PLEA OF REASONABLE CAUSE. 11 IT(SS)A.NOS.238 TO 247/MUM/2006. MAHABAL S. SHETTY. 17. THIS CASE LAW IS NOT APPLICABLE FOR THE REASON THAT THE ASSESSEE IN THIS CASE HAS DEMONSTRATED THAT HE WAS UNDER A BONAFIDE BELIE F THAT HE HAS NOT VIOLATED ANY LAW AND HE HAD REASONABLE CAUSE TO TAKE LOANS IN CA SH. 18. COMING TO THE DECISION OF NARSINGH RAM ASHOK KU MAR VS. UNION OF INDIA AND OTHERS 234 ITR 414 (PATNA) THE HONBLE PATNA H IGH COURT WAS CONSIDERING A PETITION UNDER ARTICLE 226 AND 227 OF THE CONSTITUT ION CHALLENGING THE CONSTITUTIONAL VALIDITY OF SECTION 269SS AND SECTIO N 271D. THE HONBLE COURT HELD THAT THE PROVISION IS ENACTED TO CRUMB RAMPED CIRCU LATION OF BLACK MONEY AND IS NOT DISCRIMINATORY AND ARBITRARY AND IS VALID. THIS CASE IS NOT OF MUCH HELP TO THE REVENUE. 19. IN THE CASE OF DHANJI R. ZALTE VS. ACIT 265 ITR 204 (BOM) THE HONBLE BOMBAY HIGH COURT WAS CONSIDERING THE CASE OF AN AD VOCATE WHO CLAIMED TO HAVE SPECIALIZED IN LAND ACQUISITION CASES. IT WAS A CAS E WHERE THERE WAS CERTAIN ADMISSIONS BY THE ASSESSEE. IT WAS NOT A CASE WHERE THE ASSESSEE CLAIMED REASONABLE CAUSE OR IGNORANCE OF LAW. THUS THIS CAS E ALSO DOES NOT HELP THE CASE OF THE REVENUE. 20. IN VIEW OF THE ABOVE DISCUSSION WE ARE OF THE CONSIDERED OPINION THAT THE PENALTIES LEVIED IN ALL THESE CASES HAVE TO BE CANC ELLED FOR THE REASON THAT WE ACCEPT THE STATEMENT OF THE ASSESSEE THAT HE WAS UNDER A B ONAFIDE BELIEF THAT HE HAS NOT VIOLATED ANY LAW AND ALSO FOR THE REASON THAT THE A SSESSEE HAD REASONABLE CAUSE FOR ACCEPTING THE LOANS IN CASH AS THEY WERE FROM CREDI TORS WHO WERE AGRICULTURISTS RESIDING IN REMOTE VILLAGES AND MANY OF THEM WERE N OT HAVING BANK ACCOUNT AND FOR THE REASON THAT THE ASSESSEE WAS NOT PROFESSION ALLY MANAGED NOR PROFESSIONALLY ADVISED AND ALSO FOR THE REASON THAT AN ENQUIRY CON DUCTED BY THE REVENUE IN THE 12 IT(SS)A.NOS.238 TO 247/MUM/2006. MAHABAL S. SHETTY. BLOCK ASSESSMENT PROCEEDINGS SUBSEQUENT TO THE SEAR CH AND SEIZURE ACTION REVEALED THAT ALL THESE TRANSACTIONS WERE GENUINE TRANSACTIO NS. WHEN A TRANSACTION IS GENUINE THEN THE VIOLATION AT BEST CAN BE TERMED A S A TECHNICAL VIOLATION. WHEN THERE IS A TECHNICAL VIOLATION THE REASON GIVEN BY THE ASSESSEE TO DEMONSTRATE THAT HE HAD A REASONABLE CAUSE SHOULD BE VIEWED IN THE CONTEXT OF THE NATURE OF TECHNICAL VIOLATION AND THE BURDEN TO PROVE THAT TH E ASSESSEE HAS NO REASONABLE CAUSE SHOULD LAY ON THE REVENUE. 21. WE DRAW STRENGTH FROM THE DECISION OF THE CHENN AI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT CENTRAL CIRCLE III(1) VS. VIGNESH FLAT HOUSING PROMOTERS 105 ITD 359 (CHENNAI) WHEREIN IT IS HELD AS FOLLOWS : WHEN SECTION 271D IS READ WITH SECTION 273B WHICH BEGINS WITH THE NON OBSTANTE CLAUSE NOTWITHSTANDING ANY THING CONTAINE D IN THE PROVISIONS OF INTER ALIA SECTION 271D IT IS CLEAR THAT IN SPITE OF THE PROVISIONS OF SECTION 271D THE ENACTMENT FOLLOWING NAMELY NO PENALTY SHALL BE IMPOSABLE ON THE PERSON OR THE ASSESSEE AS THE CASE MAY BE FOR ANY FAILURE REFERRED TO IN THE SAID PROVISIONS IF HE PROVES THAT THERE WAS REA SONABLE CAUSE FOR THE SAID FAILURE WILL HAVE ITS FULL OPERATION. UNDER SECTI ON 273B A JUDICIAL DISCRETION IS LEFT WITH THE ASSESSING AUTHORITY NOT TO LEVY A PENALTY UNDER SECTION 271D IF THE AUTHORITY IS SATISFIED THAT TH ERE WAS A REASONABLE CAUSE FOR NOT COMPLYING WITH THE PROVISIONS OF SECTION 26 9SS. THE POWER TO IMPOSE PENALTY HAS TO BE EXERCISED JUD ICIALLY WITH DUE REGARD TO ALL THE FACTS AND CIRCUMSTANCES. IT CANNOT BE EX ERCISED MECHANICALLY. IT IS ALL VERY WELL TO PAINT JUSTICE BLIND BUT SHE DOES BETTER WITHOUT A BANDAGE ROUND HER EYES. SHE SHOULD BE BLIND INDEED TO FAVOU R OR PREJUDICE BUT TO SEE WHICH WAY LIES THE TRUTH AND THE LESS DUES THERE IS ABOUT THE BETTER. IN THE INSTANT CASE THE UNDISCLOSED INCOME AS DECLARED I N THE BLOCK RETURN REMAINED THE ASSESSED INCOME. THE REVENUE DID NOT D OUBT THE VERACITY OF THE CREDITORS. THE ASSESSING OFFICER DID ACCEPT THE CRE DITS AS GENUINE. MOST OF THE CREDITORS WERE AGRICULTURISTS RESIDING IN REMO TE VILLAGES AND MANY OF THEM WERE NOT HAVING ANY BANK ACCOUNT. THE ASSESSEE -FIRM WAS NOT PROFESSIONALLY MANAGED. FROM THAT IT COULD BE CONC LUDED THAT BREACH FLOWED 13 IT(SS)A.NOS.238 TO 247/MUM/2006. MAHABAL S. SHETTY. FROM A BONA FIDE BELIEF. EX FACIE IT WAS A VENIAL B REACH. CASH APPEARED TO BE ACCEPTED BECAUSE OF THE BUSINESS EXIGENCIES. AS SUC H THERE EXISTED A REASONABLE CAUSE IN ACCEPTING CASH LOANS FROM VARIO US PARTIES. THE ASSESSEE MIGHT THEREFORE BE EXONERATED FROM THE RIGOUR OF THE PENALTY. THEREFORE THE ORDER OF THE COMMISSIONER (APPEALS) WAS TO BE UPHEL D. IN THE RESULT THE APPEAL OF THE REVENUE STOOD DIS MISSED. 22. COMING TO THE ARGUMENT THAT NO PENALTY CAN BE LEVIED U/S 271E OF THE ACT PRIOR TO THE AMENDMENT BROUGHT IN WITH EFFECT FROM 1 ST JUNE 2003 WHEN WHAT WAS REPAID WAS LOAN WE HOLD THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE FOLLOWING DECISIONS : I) ITO VS. SUDESH KUMAR SAREEN (2010) 5 ITR (TRIB) 829 (DELHI). II) BAIDYA NATH PLASTIC INDUSTRIES (P) LTD. AND OT HERS VS. K.L. ANAND INCOME TAX OFFICER 230 ITR 522 (DELHI). 23. RESPECTFULLY FOLLOWING THE SAME IN ADDITION TO THE REASONS GIVEN BY US FOR DELETING THE LEVY OF PENALTY U/S 271D WE DELETE TH E LEVY OF PENALTY U/S 271E. 24. IN THE RESULT ALL THE PENALTIES ARE CANCELLED AND THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH FEBRUARY 2011. SD/- SD/ - (N.V. VASUDEVAN) (J. SUDH AKAR REDDY) JUDICIAL MEMBER. ACCOUNTANT MEMBER MUMBAI DATED: 25 TH FEBRUARY 2011. 14 IT(SS)A.NOS.238 TO 247/MUM/2006. MAHABAL S. SHETTY. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR B-BENCH (TRUE COPY) BY ORDER ASSTT. REGI STRAR ITAT MUMBA I.