TaxTMI 
TaxTMI 
2009 (7) TMI 870
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....Prop. of N.K. Chemist in response to summons issued to him. The loan was given by Shri Chokhawala out of his cash balance as explained by him. The AO, therefore, initiated penalty proceedings under s. 271D for the violation of the provisions of s. 269SS of the Act. The AO issued show-cause notice dt. 27th April, 2005. In response to the said show-cause notice, the assessee-company submitted a detailed reply vide letter dt. 26th May, 2005 and explained the reasons for taking this loan in cash. According to the assessee this loan was taken because the company wanted to purchase a piece of land for developing the same as a business proposition. The loan was obtained in cash with a view to enable the company to finalize the negotiations without any loss of time. According to the assessee, this cash loan was obtained in the best interest of business so that the deal could be expedited. It was considered necessary to have the funds in cash form on the ground of business expediency. The assessee also tried to explain the reasonable cause for obtaining this loan in cash so that the violation of the provisions of s. 269SS would not attract any penalty by virtue of the provisions of s. 273B ....
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.... the IT Act. I hereby levy penalty of sum of Rs. 15,00,000 equal to the amount of loan taken in cash, as per provision of s. 271D of the Act." 5. The assessee went in appeal before the CIT(A). Before the CIT(A), the assessee filed the additional evidence by way of an affidavit stating therein that the assessee had borrowed money for the purchase of land which was not ultimately materialized. The AO objected the filing of the affidavit. The CIT(A) ultimately sustained the order of the AO levying the penalty at Rs. 15,00,000 by observing as under: "6 I have carefully considered the facts of the case and the submissions made by the learned Authorised Representative. I have also carefully gone through the report sent by the Addl. CIT, Central Range, Surat and the various judgments relied on by the Addl. CIT as well as by the learned Authorised Representative. Sec. 269SS of the Act stipulates that no person shall, after the 30th June, 1984, take or accept from any person any loan or deposit otherwise than by account payee cheque or account payee bank draft if the amount of such loan or deposit is twenty thousand rupees or more. Certain exceptions to the applicability of the afores....
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....till the end of the financial year or even in the following two months, nor was the urgent utilization of the said loan amount proved by the appellant. It is also noted that sufficient time and opportunity was provided by the Addl. CIT to the appellant to adduce satisfactory evidence in support of its contentions, but the appellant failed to produce any proof or evidence to substantiate its contentions that there was any desperate or urgent requirement for taking the said loan in cash. In support of his contentions an affidavit from Shri Mukeshbhai N. Desai, the owner of the land, was furnished by the appellant during the course of the instant appeal proceedings, which constituted fresh evidence as the same was not produced before the Addl. CIT during the course of the penalty proceedings. In his report under r. 46A, the Addl. CIT has stated that the said fresh evidence in the form of the affidavit was an after thought and that the same should not be admitted for various reasons cited in his report, as already mentioned above. After carefully perusal of the aforesaid affidavit. I find that the averments made therein by Shri Mukeshbhai N. Desai, the owner of the land, do not in any ....
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....f business takes place instantly. The payments are made mostly on the spot in cash. Availability of ready cash puts the purchasing party in a commanding position. The assessee obtained the cash loan of Rs. 15 lacs from N.K. Chemist for the purchase of the land. Since the transaction could not materialize at that time, the assessee paid back the loan through cheque in the month of May, 2002. The transaction is duly recorded in the regular books of account. The assessee had duly deposited the amount in his bank account. The assessee has offered Rs. 15 lacs towards the deal of the land but the owner did not agree to sell the land for a price less' than Rs. 20 lacs. The negotiations continued during March and April and the proposal was finally turned down in April, 2002. Therefore, the money was retained and has duly been shown in the balance sheet as on 31st March, 2002. The affidavit of Shri Mukeshbhai N. Desai with whom negotiations were going on, was filed before the CIT(A). The provisions of s. 271D are subject to the provisions of s. 273B. Since the assessee has duly shown the balance as on 31st March, this proves the bona fides of the assessee. The provisions of s. 271D were int....
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.... the provisions of s. 269SS of the Act. There was a clear breach of the statutory provisions of s. 269SS of the Act. The provisions of s. 269SS are complete code in itself and the decisions relied on by the assessee before the CIT(A) are of no help to the assessee. The violation of s. 269SS are to be penalized in accordance with law contained in s. 271D. The fact that the loans/deposits were genuine, cannot save the assessee from the default committed under s. 269SS. Whether the loans are genuine or not is the criteria for making the addition under s. 68. The assessee cannot plead the ignorance about the provisions of law and it is an existing assessee and is being assisted by the competent chartered accountants, the audit is compulsory under the Companies Act, 1956 and also duly carried out. 8. We have carefully considered the rival submissions, and perused the material on record along with the orders of the tax authorities. We have also gone through various case laws relied upon before us. This is an admitted fact in this case that the assessee has received cash loans above Rs. 20,000. The sum of Rs. 15 lacs was received by the assessee as cash loan from N.K. Chemist on 1st Ap....
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....e assessee was duly recorded in his books of account, therefore, the bona fide of the assessee is proved. In our opinion, there seems to be no reasonable cause in accepting the loan in cash as in this case the money borrowed by the assessee was not at all utilized. Had there been business needs, the assessee must have utilized the money for the purpose of business. We do not agree with the plea of the assessee that the assessee has borrowed the money for entering into the deal for the purchase of land for which he has offered a price at Rs. 15 lacs to the intended seller of the land. It is a known fact that whenever a land deal is entered, only some token amounts are paid varying from 10 per cent to 15 per cent of the total consideration as earnest money at the time of finalization of the deal and full payments are made only when the formal possession is taken from the vendor and the title deeds are executed. The assessee, we noted in this case, was having cash in hand as on 1st March, 2002 Rs. 12,13,515. When the assessee was already holding such huge balance, in our opinion, there seems to be no need of borrowing money in cash amounting to Rs. 15 lacs on 1st March, 2002. 10 per c....
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.... in the case of the assessee in our opinion, there was no reasonable cause. 13. In the case of Mrs. Rupali R. Desai vs. Addl. CIT, the assessee took cash from the closely-held company and deposited with no lien account of the bank. The assessee was to deposit certain sum as a pre-condition for hearing the matter by BIFR. Therefore, the assessee had borrowed the money in cash on account of extreme exigencies and compulsions of the business. Thus there was a reasonable cause and the penalty imposed under s. 271D was deleted. This decision will also not apply to the facts of the case before us as there was no reasonable cause in the case of the assessee. 14. In the case of Shreenathji Corporation vs. Asstt. CIT, the amount was borrowed in cash due to the business expediency as the assessee utilized the amount for making payment towards the labour charges and raw material purchased from, unorganized trading sectors for which the payments were made after the banking hours. in particular on the day of festival. Thus in that case there is a finding by the Tribunal that the money was borrowed in cash and actually utilized for business purpose due to the business compulsions and, ther....
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.... Tribunal. When the matter went before the High Court, the Hon'ble High Court confirmed the order of the Tribunal. If we go to the facts of the case, in this case the assessee has treated the outstanding towards the purchase price to be the loan. The Tribunal has treated it to be reasonable cause and mere technical or venial breach. The Hon'ble High Court also confirmed the order of the Tribunal. In the case before us the assessee has accepted the cash loan when actually there was no business need as has been held in the precedings paras. Thus, this decision will also not help the assessee. 19. In the case of Shivabhai Khodabhai Patel vs. CIT, the issue does not relate to the penalty under s. 271D and therefore, this judgment will not be applicable. 20. In the case of CIT vs. Manoj Lalwani, the Hon'ble High Court has held that s. 273B permits the assessing authority not to impose a penalty under s. 271D if the assessee proves-that there was a reasonable cause. Thus, there was a judicial discretion with the assessing authority. In that case also the Tribunal found that the assessee was in urgent need of money for complying with the time bound supplies as an exporter and, there....
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....ry loan was taken from the sister concern for payment of excise duty which was adjusted out of the sale proceeds. Under these facts, the Tribunal deleted the penalty as there was actual utilization of the part of the money for excise duty. Thus, the Tribunal took the view that there was a reasonable cause. This decision also on the facts is different and will not assist the assessee. 25. In view of the aforesaid discussion, we confirm the order of the CIT(A) sustaining the penalty under s. 271D of the Act. 26. In the result, the appeal stands dismissed. T.K. SHARMA, J.M.: 8th May, 2009 I have carefully gone through the proposed order of learned Brother, but I am unable to agree with the view taken therein that there was no reasonable cause within the meaning of s. 273B of the IT Act, 1961 for accepting cash loan of Rs. 15 lakhs. 2. The assessee company had taken a loan of Rs. 15,00,000 from N.K. Chemist of Surat in cash. The AO held that the assessee has violated the provisions of s. 269SS. He did not accept the explanation of the assessee as reasonable cause for acceptance of such loan within th....
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.... It is the mode prescribed under the section which is to ensure prevention of evasion of tax to avoid fictitious entries to be made in the books of account without there being any actual transaction. There is no infirmity in enactment of such a provision since it carried out its object of prevention of evasion of tax and plug possible loopholes. 4. Keeping in view the object of introducing s. 269SS, the legislature has given discretion to the assessing authority under s. 273B of the IT Act to levy the penalty as provided under s. 271D of the Act or not. 5. Under s. 273B, if the Court finds that there was a reasonable and sufficient cause for not imposing the penalty on the assessee in the given facts and circumstances of the case, the penalty shall not be levied. Sec. 273B of the IT Act provides that notwithstanding anything contained in the provisions of s. 271D, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the provisions of s. 269SS of the IT Act, if there is a reasonable cause for such failure and if the assessee proves that there was a reasonable cause for failure to take a loan otherwise than by account p....
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..... Acceptance of loan of Rs. 15,00,000 in cash was explained by the assessee that the company wanted to purchase a piece of land from Mukeshbhai Nanubhai Desai of Surat for developing the same for the purpose of business and therefore, to finalize the negotiations without any-loss of time, the assessee had to take cash loan from N.K. Chemist. But the deal was not materialized because Mukeshbhai Nanubhai turned down the proposal of the assessee in the end of April, 2002. To this effect, the assessee has obtained and filed an affidavit of Mukeshbhai Nanubhai Desai, copy of which is placed on pp. 14 and 15 of the paper book. This affidavit was also produced before the learned CIT(A). In the said affidavit Mukeshbhai Nanubhai Desai has made the following averments. "Affidavit I, the undersigned Mukeshbhai Nanubhai Desai, aged 45 years, residing at 2/4381, Chhapgar Street, Sagrampura, Surat, state the following facts on solemn affirmation: 1. That I am holding ancestral agricultural lands about 13.40 Bighas at village Ovian, Near Kamrej, District Surat. 2. During the year 2001-02, Shri Jitubhai Modi, director of M/s Jitu Builders (P) Ltd., Surat had approached me and inquired....
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....ational Highway No. 8 and is 15 kms. away from the city of Surat. But due to proximity to National Highway and fast growth of industrialization the land would fetch fantastic price in near future. A prudent businessman always makes necessary enquiry about proposed land from Gram Panchayat and once satisfied puts the offer and not in the way assumed by the CIT(A) in her order. Moreover, since it is agricultural land paying token or earnest money is not market practice. For agricultural land entire transaction is to be completed within two/three days. Token money referred by CIT(A) is market practice when there is development contract of land and not in case of outright sale of land. where payments are made on sale of developed property. Ownership is transferred only when documents are executed which may be in favour of third party. Be that it may be, in my opinion, it is for the assessee to decide how much loan is required for buying the land because in case 90 per cent of the price is paid in advance in that event the buyer is always in a better bargaining position. As argued by the learned counsel of the assessee, the amount of loan. was taken so that the assessee could purchase t....
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....en referred to me under s. 255(4) of the IT Act for decision: "Whether on the facts and in the circumstances of the case, penalty under s. 271D of the IT Act, 1961 is leviable3" 2. The facts leading up to the levy of penalty have been stated in the dissenting orders and there is no dispute regarding their accuracy. The only question is whether on these facts there was reasonable cause within the meaning of s. 273B preventing the assessee from accepting the sum of Rs. 15,00,000 from N.K. Chemist by account payee cheque or draft as required by s. 269SS. Whereas the learned AM has taken the view that there was no reasonable cause, the learned JM has opined that there was reasonable cause and hence no penalty was exigible. On a perusal of their orders and after hearing the arguments before me, I am inclined to agree with the learned JM that there was reasonable cause. The assessee-company is a builder and developer of lands. It is natural for it to look for purchase of lands which it can develop and make profits. When an opportunity presents itself, it was natural for the assessee to seize the same. One such opportunity presented itself in the form of lands owned by one Mukeshbha....