Case Law Details
Explore a landmark Income Tax Appellate Tribunal case from Chennai where a penalty under Section 271D of the Income-tax Act was successfully deleted. The tribunal found that the undisclosed income, as declared in the block return, remained the assessed income. Discover the rationale behind the tribunal’s decision, emphasizing the genuine nature of credits, the agricultural background of creditors, and the firm’s non-professional management. Learn how the tribunal concluded that the acceptance of cash loans was due to business exigencies, establishing a reasonable cause for the exemption from penalties. #IncomeTax #LegalCase #ChennaiTribunal
ORDER M.K. Chaturvedi, Vice President
1. This appeal by the Revenue is directed against the deletion of penalty amounting to Rs. 1,65,85,000/- levied Under Section 271D of the Income-tax Act, 1961 (hereinafter called as ‘the Act’) and relates to the block period from 1.4.1988 to 2.9.1998.
2. We have heard the rival submissions in the light of material placed before us and precedents relied upon. The assessee is a firm comprising of 4 partners. It is engaged in the business of real estate. The firm is constructing and selling flats at Trichy. Search and seizure operations Under Section 132 of the Act were conducted in the business premises of the assessee as well as the residential premises of its partners. During the course of search certain books of account and diaries were found and seized. In response to notice issued Under Section 158BC on 4.1.1999 assessee filed its block Return on 15.3.2000 declaring undisclosed income at Rs. 59,07,160/-. AO finalized the block assessment proceedings on 29.7.2000 determining the total undisclosed income at Rs. 99,5 8,020/- as under:
Total investments Rs. 3,07,29,064
Add : Difference in value of cost of 34,44,736
Construction as per Valuation
Cell (later rectified as
Rs. 47,66,000)
Interest paid to loan creditors 5,07,888
Bank balance as on date of search 17,832
Cash found at the time of search 2,38,000
----------
Rs. 42,08,456
----------------
Rs. 3,49,37,520
Less: Admissible loan creditors 1,29,10,000
Advances received from
Clients 1,14,00,000
Opening capital assessed
In individual assessment of
Shri D. Virudhachalam is
Allowed since it is explained. 5,00,000
------------ Rs. 2,48,06,000
------------------
Rs. 1,01,31,520
Less : Income already disclosed and assessed Rs. 1,73,500
------------------
Taxable undisclosed income Rs. 99,58,020
------------------
(Later rectified as Rs. 1,12,27,2847-)
3. Assessee contested before the CIT(A) the additions towards undisclosed income. CIT(A) allowed relief to the extent of Rs. 5,07,888/- Under Section 36(1)(iii) of the Act and another relief to the extent of Rs. 10,67,150/- towards self-supervision. Against the part relief assessee preferred appeal before the ITAT. Tribunal vide its order dated 28.2.2002 deleted the balance addition of Rs. 47,66,000/- made towards the difference in cost of construction. Ex consequenti, undisclosed income of Rs. 59,07,160/- as declared in the Block Return remained the assessed income as on date.
4. For the entire block period assessee claimed aggregate loans to the extent of Rs. 2,65,85,000/- out of which loans to the extent of Rs. 36,75,000/- were stated to have been paid. AO gave credit to the balance claims of loans to the extent of Rs. 1,29,10,000/- as on the date of the search. Assessee has claimed in the return of income a sum of Rs. 1,18,75,607/- as outstanding loans as on 31.3.1998. The assessee has not claimed the loan taken from 1.4.1998 to the date of search to the extent of Rs. 14,45,000/- since this period was outside the purview of the block assessment as submitted by the assessee earlier.
5. Assessee furnished the names and addresses of the creditors. Out of the 70 creditors 61 persons have responded to the summons issued Under Section 131 of the Act and confirmed the credits to the extent of Rs. 1,09,00,000/-. Assessment was based on investment as per entries upto the date of search. As per the diary entries upto the date of search loan creditors were to the extent of Rs. 1,29,10,000/-.
6. AO had accepted the entire claim relating to loan transactions as genuine. He referred the matter Under Section 271D of the Act to the Addl. CIT as the assessee had accepted loans/deposits in cash exceeding Rs. 20,000/- in violation of the provisions of Section 269-SS of the Act. The Addl. CIT initiated proceedings Under Section 271D by issuing show cause notice Under Section 274 read with Section 271D on 29-3-2001 requiring the assessee to show cause as to why penalty thereunder should not be levied for the defaults committed.
7. In its reply the assessee stressed the genuineness of the loan. Business exigencies were explained for obtaining the loan. It was submitted that once the genuineness of the transaction is not disputed, the disallowance is uncalled for. It was further stated that most of the persons from whom the assessee had borrowed were agriculturists residing in remote villages and many of them were not having any bank account. Besides assessee firm was not professionally managed. Partners were not conversant with the intricacies of tax laws and the default, if any, was caused due to the ignorance of law. It was not intentional. It was not wilful act of the assessee-firm. Assessee proved the bona fide of the transaction and genuineness of the credits. On these facts the non-acceptance of loan by cheque or draft amounts to only technical or venial breach.
8. Based on the dictum de minimis non curat lex (the law takes no notice of trivialities), it was submitted that it is only a technical or venial mistake. Assessee should therefore be exonerated from the rigour of penalty. Adverting our attention to the healing aspects of justice, it was prayed that lenient view be taken in the matter. Reliance was placed on some precedents.
9. In the case of Asst. Director of Inspection v. Kumari A.B. Shanthi 255 ITR 258, 266 (S.C.), Hon’ble Supreme Court has held that “The undue hardship of the provisions of Section 271D, which replaced Section 276DD constituting the failure to comply with the provisions of Section 269SS into an offence, is substantially mitigated by the inclusion of Section 273B providing that if there was a genuine and bona fide transaction and if for any reason the taxpayer could not get a loan or deposit by account payee cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty as a discretionary power not to levy the penalty.
10. When Section 271D is read with Section 273B, which begins with the non obstante clause ‘Notwithstanding anything contained 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 reasonable cause for the said failure’, will have its full operation. Under Section 273B a judicial discretion is left with the assessing authority not to levy a penalty under Section 271D if the authority is satisfied that there was a reasonable cause for not complying with the provisions of Section 269SS.
11. Hon’ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa 83 ITR 26, 29 (S.C.) has held that “Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to we exercised judicially and on a consideration of all the relevant circumstances. Even if a penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute”. The power to impose penalty has to be exercised judicially with due regard to all the facts and circumstances. It cannot be exercised mechanically.
12. 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 favour or prejudice, but clear to see which way lies the truth and the less dust there is about the better. We made attempt to examine the truth. We found that the undisclosed income as declared in the Block Return remained the assessed income. Revenue did not doubt the veracity of the creditors. AO did accept the credits as genuine. Most of the creditors were agriculturists, residing in remote villages and many of them were not having any bank account. Assessee firm was not professionally managed. From this it can be concluded that breach flowed from a bona fide belief. Ex facie it is a venial breach. Cash appears to be accepted because of the business exigencies. As such there exists a reasonable cause in accepting cash loans from various parties. Assessee may therefore be exonerated from the rigour of penalty. We uphold the order of CIT(A).
13. In the result, appeal of the Revenue stands dismissed.
