IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER ITA No. 283/JP/2016 Assessment Year : 2008-09 Shri Sushil Kumar Meena cuke Addl. CIT C-29, Saraswati Nagar, Gaitor Road Vs. Range-6 Malviya Nagar, Jaipur Jaipur PAN/GIR No.: AHKPM 1304 J Appellant Respondent Assessee by: Shri Manish Agarwal, CA Revenue by:Shri Raj Mehra, JCIT - DR Date of Hearing : 30/09/2016 Date of Pronouncement : 5/10/2016 ORDER PER BHAGCHAND, AM assessee has filed appeal against order of ld. CIT(A)-5, Jaipur dated 18-01-2016 for assessment year 2008-09 raising therein following grounds of appeal. 1. On facts and in circumstances of case, ld. CIT(A) has grossly erred in sustaining penalty of Rs. 5.00 lac levied by AO u/s 271E of I.T. Act, 1961 arbitrary, without considering facts of case. Hence, penalty so levied deserves to be deleted. 2 ITA No. 283/JP/2016 Shri Sushil Kumar Meena vs. Addl. CIT, Range-6, Jaipur . 1.1 That ld. CIT(A) as well as AO have erred in not appreciating submission made to effect that amount was repaid by assessee to his grandfather who being old and ignorant/ illiterate man, had no bank account, therefore, amount had to be paid in cash which amounts to reasonable cause within meaning of Section 273B of I.T. Act. Therefore, penalty so levied deserves to be deleted. 1.2 That ld. CIT(A) has further erred in ignoring fact that transaction between assessee and his grandfather was purely family transaction and not related in any manner to his business, therefore, same cannot be treated as transaction of loan/ deposit. Therefore, penalty uu272E of Rs. 5 lac deserves to be deleted. 2.1 Brief facts of case are that assessee had filed his return of income declaring total income of Rs. 1,07,500/- for A.Y. 2008-09. case of assessee was selected for scrutiny. Accordingly, assessment u/s 143(3) was completed by AO at income of Rs. 6,68,000/- on 18-11-2010. During assessment proceedings, AO noticed that assessee had taken loan of Rs. 5.00 lacs from his grandfather Shri Raghunath Prasad Meena on 25-02-2007 which was returned by assessee on 02-08-2008. AO asked assessee to explain source of Rs. 5.00 lacs in hands of Shri Raghunath Prasad Meena and also explain source of repayment. assessee furnished affidavit dated 20-11-2010 of his grandfather Shri Raghunath Prasad 3 ITA No. 283/JP/2016 Shri Sushil Kumar Meena vs. Addl. CIT, Range-6, Jaipur . Meena confirming above transaction of loan claimed by assessee. AO observed that since assessee had accepted and repaid loan in violation of provisions of Section 269SS and 269T, AO referred matter to Addl. CIT, Range 6, Jaipur for considering penal proceedings u/s 271D and 271E of Act. Addl. CIT Range6, Jaipur taking into consideration all facts relating to loan of Rs. 5.00 lacs and repayment thereof considered it that assessee had clearly violated provisions of Section 269T which resultantly attract penalty provisions of Section 271E of Act in respect of repayment of loan otherwise than by account payee cheque or account payee bank draft to Shri Raghunath Prasad Meena in contravention to provisions of Section 269T of I.T. Act, 1961. Thus Addl. CIT Range-6, Jaipur observed that it is fit case for levy of penalty u/s 271E for repayment of loan in cash in contravention to provisions of Section 269T without any reasonable and justified cause and thus imposed penalty of Rs. 5.00 lacs u/s 271E of Act which has been confirmed by ld. CIT(A) by observing as under:- 2.3 I have considered facts of case, penalty order and submissions of appellant. appellant has contended that amount of Rs. 5.00 lacs was repaid in cash to his grandfather on 02-02-2008 since his grandfather did not have any bank account. It is further contended that said transaction was 4 ITA No. 283/JP/2016 Shri Sushil Kumar Meena vs. Addl. CIT, Range-6, Jaipur . family transaction in urgency without being aware of implications. It is also contended that transaction was not in nature of loan or deposit but it was current account. Several case laws have been cited by appellant in support of his contentions. However, I find that case laws cited are distinguishable on facts of cases since appellant has not been able to show that there was reasonable cause for such repayment in cash. He has not submitted any evidence to show that his grandfather lived in unbanked area. Further plea of ignorance of law is also not valid excuse. Moreover, just because transaction is between family members, it does not spare appellant from rigours of provisions of Section 269T and Section 269E. other contention that nature of transaction was not that of loan or deposit is also not acceptable. There is no doubt that appellant was under obligation to repay amount to his grandfather and indeed paid back said amount within year. There are no further transactions between them. In these circumstances amount of Rs. 5,00,000 indeed represented loan or deposit which was ultimately repaid. Thus provisions of Section 271E are applicable considering nature of transaction. appellant has also not submitted any evidence regarding urgency in repaying amount in cash. appellant has thus contravened provisions of Section 269T by repaying loan/ deposit in cash without any reasonable cause. Accordingly, penalty of Rs. 5,00,000/- levied u/s 271E is upheld.. 2.2 Aggrieved, assessee is in appeal and ld. AR of assessee prayed for deletion of penalty of Rs. 5.00 lacs confirmed by ld. CIT(A) for which ld. AR of assessee filed following written submission . assessee belongs to rural agriculture family. During F.Y. 2006-07, assessee received sum of Rs. 5,00,000/- from his grandfather on 25.02.2007. His grandfather is very old age person aged about 89 years during relevant year. His only source of income was from agriculture activity and was not maintaining any bank account. assessee has 5 ITA No. 283/JP/2016 Shri Sushil Kumar Meena vs. Addl. CIT, Range-6, Jaipur . received said amount from his grandfather for purchase of piece of land for residential purposes and as assessee could not find suitable piece of land therefore, he returned amount back to his grandfather on 02.02.2008 in cash as his grandfather was not having any bank account. said amount was received from grandfather of assessee without charging any interest which fact is further fortified from affidavit of grandfather of assessee filed during course of assessment proceedings thus genuineness of transaction is proved by assessee beyond doubt. Ld. AO had not doubted genuineness of transactions and without considering reason for repaying amount in cash due to fact that no bank account was maintained by grandfather of assessee as same constitute reasonable cause in terms of provisions of section 273B read with section 271E and grossly rejected plea of assessee without considering reasonable cause as explained by assessee, which was further confirmed by Ld. CIT(A). It is pertinent to note here that while imposing penalty, Ld. AO neither established that there was malafide intention of assessee in receiving amount in cash nor brought on record any material to prove that transaction was false with intention to evade tax. amount was received by assessee under personal urgency from his family member under bonafide belief without knowing implications of violation of section 269T as assessee cannot be presumed to know complexities of laws. Since default was technical and venial in nature which constitutes reasonable cause u/s 273B because in present circumstance transaction entered by assessee cannot be said as fake transaction which attracts penalty u/s 271E as per intention of law. In this regard reliance is placed on decision of Hon ble Punjab and Haryana High Court in case of Commissioner of Income-tax v. Sunil Kumar Goel reported in [2009] 315 ITR 0163- wherein Hon ble court has held as under: Penalty Acceptance and return of loans exceeding specified limit in cash Penalty under section 271D and 271E not mandatory Cash transactions with sister concern Finding that there was no attempt to evade tax Deletion of penalty Valid Income Tax Act, 1961, SS. 269SS, 271D, 271E, 273B. Hon ble Court has further observed that: Section 273B of Income-tax Act, 1961, envisages non obstante clause as against sections 271D and 271E of Act. In exceptional situation envisaged in section 273B of Act, it is permissible for assessee to substantiate "reasonable cause" for his failure to comply with provisions on basis whereof penalty is sought to be imposed upon him. If assessee successfully discharges this obligation, it is open to him to raise claim that he should be excused from consequential penal effect. Held that there was no dispute about fact that cash transactions of assessee were with sister concern and these transactions were within family and due to business exigency. family transaction, between two independent assessees, based on act of casualness, specially in case where disclosure thereof was contained in compilation of accounts, and which had no tax effect, established "reasonable cause" under section 273B of Act. Since assessee had satisfactorily established "reasonable cause" under section 273B of Act, he must be deemed to have established sufficient cause for not invoking penal provisions of sections 271D and 271E of Act against him. deletion of penalty by Tribunal was valid. It is further submitted that contention of assessee regarding reasonable cause under section 273B of act remained uncontroverted and amount was received in cash due to urgent family needs of funds. transaction between assessee and his grandfather should be viewed as financial help in family and assessee could not be presumed to have knowledge of intricacies of tax laws thus penalty u/s 271E of Act cannot be levied for technical breach of provisions of Act. It is further submitted that transaction between assessee and his grandfather was not loan or deposit and it was only current account in nature and no interest was 6 ITA No. 283/JP/2016 Shri Sushil Kumar Meena vs. Addl. CIT, Range-6, Jaipur . being charged for above transaction. Further reason for receiving amount in cash has been mentioned above is under bonafide belief and not deliberate act against any specific provision of law. It is further submitted that penalty under Section 271D and 271E are of compensatory in nature and leviable as equal to amount of loan or deposit taken / repaid in cash. provisions of Section 269SS and 269T were brought on statute book to counter evasion of tax in certain cases, as clearly stated in heading of Chapter XXB which reads 'Requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax.' Legislative intention in bringing Section 269SS and 269Twas to avoid certain circumstances of tax evasion, whereby huge transactions are made outside books of account by way of cash. intention is also clear from CBDT Circular No. 387, that only if some unaccounted money was involved then section becomes applicable and in case of assessee, there is no dispute whatsoever about source of money in hands of assessee and genuineness of transaction. In such case, therefore, it will be highly technical to hold that there is any default as contemplated under Section 271E. In this regard, reliance is placed on judgment of Supreme Court in case of Hindustan Steel Ltd. v. State of Orissa reported in [1972] 083 ITR 0026 (SC) wherein it has been held that penalty is not to be imposed merely because it is lawful to do so and that it should not be imposed if there is only technical or venial breach of law. Hon ble Gauhati Bench of ITAT in case of Addl. CIT Vs. Smt. Prahati Baruah reported in (2003) 133 Taxman 74 has also of same view and held as under:- It was held that introduction of section 269T and section 271E in statute is to prevent proliferation of black / unaccounted money deposited with banks and other persons by introducing system of repayment through account payee cheques and drafts and, thus, to ensure that identity of payee is established. Where identity of lender to whom repayment had been made was known to department and genuineness of loan transaction was not in doubt, it could not be said that breach of law, if any, was deliberate and default, if any, could be said to be technical default for which no penalty would be leviable. pre-requisite condition for levy of aforesaid penalties is that cash transaction must result in loan or deposit. Transactions between family members wherein there is no obligation to repay or wherein amount is held in trust due to close proximity between parties, payment by partner to firm or repayment of capital amount by firm to partner, temporary advances and withdrawals from joint account do not result in loan / deposit and are therefore outside purview of aforesaid provisions. It is further submitted that these transactions were not made with intention to evade tax or concealment of income. At most, it is case of negligence, but negligent person does not have any intention or mensrea to purposely violate any provision of law so as to be visited with stringent punishment of heavy penalty. Hon ble Supreme Court in case of CIT v. J.H. Gotla (1985) 156 ITR 323 (SC), Hon'ble Supreme Court has held that where plain literal interpretation of statutory provision produces manifestly unjust result which could never have been intended by legislature, Court might modify language used by legislature so as to achieve intention of legislature and produce rational result. 7 ITA No. 283/JP/2016 Shri Sushil Kumar Meena vs. Addl. CIT, Range-6, Jaipur . Reliance is also placed on Delhi ITAT decision in case of Envogue Wood working Pvt. ltd. vs ACIT wherein Hon ble ITAT has held as under:- We have heard rival submissions and perused material available on record. On consideration of entire factual matrix and judicial precedent thereon in facts of present case, we are of view that there was bonafide belief on part of assessee that transaction with Directors and shareholders for meeting urgent cash requirements for running business would not result in any violations. Considering peculiar facts and circumstances of case and pleadings of parties before Bench and mandate of Section 273B of Act, we hold that explanation offered by assessee company being bonafide constitutes reasonable cause and being satisfied by same considering judicial precedent cited, we accept same. Accordingly, impugned orders are I.T.A .No.-293 & 294/Del/2012 set aside in both appeals and penalty imposed u/s 271D and 271E accordingly is quashed. said order was announced in open Court in present of parties. It is worthwhile to mention that harmonious construction of relevant provisions of Sections 271B, 271E and 273B clearly reveal that use of expression 'shall be liable to pay' in Sections 271D and 271E and provisions of Section 273B providing that no penalty would be leviable if person concerned proves that there was reasonable cause for said failure, clearly indicate that these provisions give discretion to authorities to impose penalty or not to impose penalty. Such discretion has to be exercised with wisdom and in just and fair manner having regard to entire relevant facts and material existing on records. It is further submitted that provisions dealing with penalty must be strictly construed. order imposing penalty for failure to carry out statutory obligation is result of quasi-criminal proceeding and penalty will not ordinarily be imposed unless party either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest or acted in conscious disregard of his obligation. Penalty will also not be imposed merely because it is lawful to do so. Even if minimum penalty is prescribed, authority competent to impose penalty will be justified in refusing to impose penalty, when there is technical or venial breach of provisions of Act or where breach flows from bona fide belief that offender is not liable to act in manner prescribed by statute. Section 269T lays down mode of repayment of certain loans and deposits. Section 271Edeals with imposition of penalty for failure to comply with provisions of section 269T. Section 273B provides that no penalty shall be imposed if assessee proves that there was reasonable cause for said failure. words reasonable cause has not been defined under Act but they could receive same interpretation which is given to expression sufficient cause . Therefore, in context of penalty provisions, words reasonable cause would mean cause which is beyond control of assessee. Reasonable cause obviously means cause which prevents reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides. Before imposition of penalty under section 271D, Assessing Officer must be satisfied, not arbitrarily but judiciously, that assessee has without reasonable cause failed to comply with provisions. Thus in circumstances of case and also on facts it is submitted that there was neither any malafide intention on part of assessee in repaying 8 ITA No. 283/JP/2016 Shri Sushil Kumar Meena vs. Addl. CIT, Range-6, Jaipur . cash to his grandfather nor genuineness of transaction was doubted by authorities, penalty as imposed u/s 271E merely on technical mistake committed by assessee, which had not resulted in any loss of revenue, was harsh and could not be sustained in law thus same be kindly directed to be deleted. 2.3 ld. DR relied on orders of authorities below. 2.4 I have heard rival contentions and perused materials available on record. It is noted from assessment order that assessee had taken loan of Rs. 5.00 lacs form his grandfather Shri Raghunath Prasad Meena on 25-02-2007 which was returned by assessee on 02-02-2008. AO asked from assessee about source of loan of Rs. 5.00 lacs in hands of Shri Raghunath Prasad Meena for which assessee submitted affidavit dated 20-10-11 of his grandfather Shri Raghunath Prasad Meena who confirmed about transaction of loan as claimed by assessee. AO observed that since assessee had accepted and repaid loan in violation of provisions of Section 269SS and 269T, therefore, he AO referred matter to Addl. CIT, Range-6, Jaipur for considering penal proceedings u/s 271D and 271E of I.T. Act. Addl. CIT, Range-6,Jaipur did not find convincing reply of assessee and he taking into consideration facts of case observed that it is fit case for levy of penalty u/s 271E for repayment of loan in cash in contravention to provisions of Section 9 ITA No. 283/JP/2016 Shri Sushil Kumar Meena vs. Addl. CIT, Range-6, Jaipur . 269T without any reasonable and justifiable cause, imposed penalty of Rs. 5.00 lacs u/s 271E of Act which had been confirmed by ld. CIT(A). It is noted from entire facts that said amount was received by assessee from his father without charging of any interest which had been confirmed by grandfather from his affidavit. Hence, transaction is proved by assessee beyond doubt. It is also noted that AO had not doubted genuineness of transactions. It is also observed from records that amount was received by assessee under personal urgency from his family member under bona fide belief without knowing implications of violation of Section 269T as assessee could not be presume to know complexities of law. Since default was technical and venial in nature which constitutes reasonable cause u/s 273B because in present circumstances transaction entered by assessee cannot be said as fake transaction which attracts penalty u/s 271E of Act. It appears from conspectus of case that it was financial help in family i.e. between assessee and his grandfather. Hon'ble Punjab & Haryana High Court in case of CIT vs. Saini Medical Store (2005) 277 ITR 420 held that bona fides and genuineness of transaction would constitute reasonable cause for not invoking provisions of Section 271D and 10 ITA No. 283/JP/2016 Shri Sushil Kumar Meena vs. Addl. CIT, Range-6, Jaipur . 271E of Act. Hon'ble Madras High Court in case of CIT vs. Lakshmi Trust Co. (2008) 303 ITR 0099 observed that if there were genus and bona fide transactions and taxpayer could not get loan or deposit by account payee cheque or demand draft for some bona fide reason, authority vested with power to impose penalty has discretion not to levy penalty. ITAT Gauhati Bench in case of Addl. CIT vs. Smt. Prahati Baruah(2003) 133 Taxman 74 has held that introduction of section 269T and section 271E in statute is to prevent proliferation of black / unaccounted money deposited with banks and other persons by introducing system of repayment through account payee cheques and drafts and, thus, to ensure that identity of payee is established. Where identity of lender to whom repayment had been made was known to department and genuineness of loan transaction was not in doubt, it could not be said that breach of law, if any, was deliberate and default, if any, could be said to be technical default for which no penalty would be leviable. In view of above deliberations and case laws cited (supra), I direct AO to delete penalty of Rs. 5.00 lacs imposed u/s 271E of Act. Thus appeal of assessee is allowed. 11 ITA No. 283/JP/2016 Shri Sushil Kumar Meena vs. Addl. CIT, Range-6, Jaipur . 3.0 In result, appeal of assessee is allowed . Order pronounced in open court on 5/10/2016 Sd/- (Bhagchand) Accountant Member Jaipur Dated:- 5 /10/ 2016 Copy of order forwarded to: s 1. Appellant- Shri Sushil Kumar Meena, Jaipur 2. Respondent- Addl. CIT, Range-6, Jaipur 3. CIT(A). 4. CIT, 5. DR, ITAT, Jaipur 6. Guard File (ITA No. 283/JP/2016) By order, Assistant. Registrar Sushil Kumar Meena v. Addl. CIT Range-6 Jaipur