TaxTMI 
TaxTMI 
2015 (2) TMI 212
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....ent assessee in all these appeals are partnership firms involved in the business of banking and registered under the Kerala Money Lending Act. The assessees had filed return of income and it appears that the return of the income was processed accepting the returned income. Thereafter, notice under Section 148 of the Act was issued to the respondent-assessees. During the course of the assessment proceedings, it was found that the firm had accepted payments from the partners, during the relevant year corresponding to the Assessment Years, in cash. The details of the total amounts paid to the individual firm by the partners in all the aforesaid four appeals are as under: Appeal No. Amount of advance made by the partners Assessment Year Amount of Penalty ITA No. 336/2002 Rs. 2,08,45,000/- 1996-97 Rs.2,08,45,000/- ITA No. 338/2002 Rs.2,29,34,000/- 1998-99 Rs.2,29,34,000/- ITA No. 341/2002 Rs.52,600,000/- 1998-99 Rs.5,90,00,000/- ITA No. 345/2002 Rs.66,530,000/- 1998-99 Rs.66,530,000/- 4. It was the case of the assessees before the Assessing Officer (as noted from ITA No. 341/2002) that in the case of a partnership firm, there is no difference between....
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....ness was such where cash transactions are inevitable. The assessee is engaged in the business of building/road construction. The nature and type of the business, is not such, which may necessitate sudden or immediate or unforeseen requirement of cash. Moreover, it has not been substantiated with the aid of cash book and other books of account that on the dates on which the questioned transaction took place the assessee, in the case of cash receipts and also in the case of cash payments, was in dire need of money. Taking the totality of the relevant facts and circumstances there was no reasonable cause for the failure of the assessee to comply with the provisions of s.269-SS and 269-T. 41. In the present case, I find that the appellant has no where made out a case that there was a reasonable cause for taking cash payment from its partners in the discharge of his business. The appellant was aware as early as for assessment year 1989-90 in the case of his sister concern M/s. Muthoot M. George Bankers that penalty u/s 271D was leviable in the case of cash loans taken from sister concern. The appellant has a ground of m....
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....t in cash cannot be said to have violated the terms ofstatute." 7. Mr.Rohit Madan, learned counsel appearing for the appellant-revenue would contend that the Tribunal was wrong in allowing the appeal of the respondent-assessee by construing the payments made by one of its partner, cannot be regarded as loan advanced to the firm. According to him, the firm and its partners are separate legal entities for the purpose of the Act and the amount advanced is a loan and further the amount being over Rs. 20000/- could not have been given in cash. He relied upon the judgment of this Court in the case of Commissioner of Income Tax Vs. Nagpur Golden Transport Co., [1998] 233 ITR 389 (Delhi) and Soundarya Textiles Vs. Assistant Commissioner of Income Tax, [2014] 362 ITR 488 (Ker) in support of his contentions. 8. On the other hand, Mr.Rajat Navei, Advocate appearing for the respondent-assessees in these appeals would contend that the amount advanced being from a partner to the firm cannot be regarded as a loan but, is a capital of the firm and the transaction cannot be taken as an independent transaction as the partnership firm has no separate legal entity nor is there a separate identificat....
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....as a business of the partner and the profits of the firm, were the profits of the partners and the expenditure incurred by partners in earning such shares was admissible for deduction in arriving at the total income under Section 10(1) of the Act. The Supreme Court quoted from the commentary of well-known author namely A.C.Sampath Iyengar, 6th Edn. 1973-pp. 1063-1064 (Vol. II), gave the following summary as under: "Any interest, salary, bonus, commission or remuneration paid by a firm to any of its partners cannot be deducted by the firm as an expenditure in its profit-computation. The reason is this: The partners in a firm are ultimately entitled to the entire profits of the firm, according to their shares in the business. Therefore, the entirety of such profits should be brought to charge and no portion be exempted by giving' the same away to a partner as his salary, bonus, commission, remuneration or interest. A partner is bound to find the necessary finances for the partnership and hence any interest on capital supplied by the partner is not deductible. A partner's rendering services to the ....
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....SS of the Act. The further appeal preferred by the revenue was dismissed by the Tribunal which resulted in the revenue filing an appeal before the High Court. The High Court dismissed the appeal filed by the revenue, upholding the conclusion of the Tribunal that there is no separate legal entity for the partnership firm and the partner is entitled to use the funds of the firm. 11. We further note that even the Rajasthan High Court in the case of Commissioner of Income Tax Vs. Lokhpat Film Exchange (Cinema), (2008) 304 ITR 172 (Raj), relying upon the decision of the Supreme Court in R.M.Chidambaram Pillai (supra), dealing with identical facts, wherein, the firm during the relevant Assessment Year, received deposits from its partners. The Assessing Officer, considering it be a intra-party transactions of deposit, otherwise, than by way of a cheque or by bank draft, considered the payment and repayment in violation of Section 269-SS and 269-T of the Act, imposed penalty, for receiving deposits in cash and payment in cash. The Court after consideration, has held that the partnership firm being not a juristic person, the inter-se transaction between the firm and the partners are not go....
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....cause in a given case for not invoking Section 271-D and 271-E of the Act. Section 273B of the Act would come to the aid and help of the respondent-assessee. In this regard, we refer to the judgment of the Punjab and Haryana High Court in the case of Saini Medical Store (supra), as under: "6.1 As pointed out earlier, there is no doubt about the genuineness of the transactions which have been fully accepted in the assessment made for the year under consideration. Even if, there is any ignorance, which resulted in the infraction of law, the default is technical or venial which did not prejudice the interests of the Revenue as no tax avoidance or tax evasion was involved. To my mind, bona fide belief coupled with the genuineness of the transactions would constitute reasonable cause under Section 273B for not invoking the provisions of Section 271E of the Act, The impugned order of penalty is cancelled." 13. The findings of the Commissioner of Income Tax (Appeals) have been confirmed in appeal by the Tribunal.  ....