No Section 271D Penalty for cash received from commission agent against sale of crops

Hardeep. Singh Vs JCIT (ITAT Chandigarh)

The issue under consideration is whether CIT is correct in charging penalty u/s 271D and 271E?

In the present case the Cash amount received or repaid by the assessee from the commission agent against the sale of the crops so it was neither the loan nor the deposit, therefore the provisions of Section 269SS and Section 269ST of the Act were not applicable and as such penalty levied by the A.O. and sustained by the Ld. CIT(A) under section 271 D and 271E of the Act was not justified, accordingly the same is deleted.

Hence, Appeal filed by assessee is allowed.

FULL TEXT OF THE ITAT JUDGEMENT

These two appeals by the Assessee are directed against the separate orders dt. 12/11/2018 and 13/11/2018 of the Ld. CIT(A)-1 Chandigarh.

2. These appeals relating to the same assessee were heard together, so these are being disposed off by this common order for the sake of convenience and brevity. At the first instance I will deal with the appeal in ITA No. 70/Chd/201 9 wherein following grounds have been raised:

1. That the Ld. CIT(A) has erred in confirming the penalty of Rs 8,50,000/- u/s 271-D of the Income Tax Act, 1961.

2. That the Ld. CIT(A) has also erred in considering the fact that the cash transaction as made by the assessee is so called loan taken from the M/s Kundan Lal & Sons, (Commission Agent).

3. That the Ld. CIT(A) has erred in not considering the submissions of the assessee.

4. That the penalty as confirmed by the CIT(A) is against the facts and circumstances of the case.

5. That the Appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.

3. Facts of the case in brief are that the assessee, e-filed the return of income on 19/02/2015 declaring an income of Rs. 2,32,600/- + agriculture income of Rs. 4,55,000/- which was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’). Later on the case was selected for scrutiny and the assessment was framed under section 143(3) of the Act, at the returned income. Thereafter the A.O. noticed from the assessment record that the assessee had accepted cash loan from M/s Kundan Lal & Sons, Panchkula otherwise than by an account payee cheque or bank drafts as required under the provisions of Section 269SS of the Act as per following details:

4. The A.O. issued the notice under section 271 D r.w.s 274 of the Act. In response the assessee submitted that the amount was not received as a loan but in normal course of business in anticipation that the crop during the period shall be sold and the amount so realized on sale of crop shall be adjusted against the amount received in account which was a common practice in agriculture sector where Commission Agent gave money on account to the agriculturists so that the crop was sold through them. It was further submitted that against the receipt of Rs. 8,50,000/- received in advance, the assessee sold crop wroth Rs. 1,02,354/- to the Commission Agent namely M/s Kundan Lal & Sons and in order to settle the account, balance amount of Rs. 7,47,646/- was paid back, the Assessee also furnished the account statement from the Commission Agent. The reliance was placed on the following case laws:

• CIT Vs. Maheshwari Nirman Udyog (2008) 302 ITR 201 (Raj)
• CIT Vs. Idhayam Publications Ltd. (2006) 285 ITR 221 (Mad)

5. The A.O. however did not find merit in the submissions of the assessee and levied the penalty of Rs. 8,50,000/- under section 271 D of the Act.

6. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and furnished the written submissions which read as under:

^“In this case the assessee filed his return electronically declaring an income of Rs.2,32,600/- and agricultural income of Rs.4,55,000/- on 19.02.20 15 which was processed u/s 143(1) of the Income Tax Act. The case was selected for scrutiny through CASS under limited scrutiny. The Assessing Officer, Ward-3(5), Chandigarh passed the assessment order on 22.08.2016 accepting the return as it is.

After that on 19.09.20 16 assessee received notice under section 271D read with section 274 of the Income Tax Act, 1961 from JCIT, Range-3, Chandigarh stating that assessee has accepted cash loan of Rs. 4,50,000/- on 08.05.20 13 and Rs.  4.00.000/- on 11.05.2013 from M/s Kundan Lal & Sons. Panchkula for which the  reply was submitted on 06.06.2016 in which it was explained in detail that this was a normal business transaction between Mr. Hardeep Singh (agriculturist and small property dealer and aggrieved assessee) and M/s Kundan Lal & Sons (Commission Agents).

The facts of this case were that assesssee sold agricultural produce worth Rs. 1,02,354/- on 20.04.2013 to MIs Kundan Lal & Sons, commission agent and further promised to sell the whole produce to them and took Rs.8,50,000/- advance. But, due to natural calamity he could not get the enough produce  and the balance amount of Rs. 7.47.646/- (Rs.8,50,000/- -Rs. 1,02,354/-) was returned by aggrieved assessee to the commission agent on 15.06.2013. Copy of ledger a/c as given by M/s Kundan Lal & Sons is attached with reply for your reference.

Sir, assessee received advance on 08.05.20 13 and 11.05.2013 and returned the  balance on 15.06.2013. In this case the assessee returned the money in less than  one month^<s time period. So. it is just a normal business transaction between an  agriculturist and a commission agent and not an unsecured loan. According to basic principles of accounting definition of business is – it refers to activities and events that affect the financial position of a business and are capable of being assigned monetary values and an unsecured loan is a loan that is issued and supported only by the borrower^<s creditworthiness, rather than by any type of collateral. So, from this we can derive that in this transaction between agriculturist and commission agent there is financial activity which makes it a normal business transaction and no reference of borrower^<s creditworthiness & collateral which can make it an unsecured loan.

Further we would like to submit that cash transaction between agriculturist and commission agent is normal trade practice. Besides this, we would like to bring to your kind notice that if the agriculturist receive money in cash, money lender also gave him the money in cash and vice versa. These figures can be reconfirmed from Kundan Lal and Sons books and income tax returns.

To prove this point we put reliance on the cases of-

• Pr. CIT vs. M/s Tehal Singh Khara & Sons, village Changli Jaded PO Sherkahanwala, Distt. Ferogepur, CIT vs. M/s Idha yam Publications and CIT vs. Bombay Conductors & Electricals Ltd.

7. The Ld. CIT(A) after considering the submissions of the assessee sustained the penalty by observing in para 5.3 of the impugned order as under:

5.3. It is in the common parlance that Khasra Girdawari is a document, in which the patwari enters the name of owner, name of cultivator, land/khasra number, area, kind of land, cultivated and non-cultivated area, source of irrigation, name of crop and its conditions, revenue and rate of revenue, minimum twice in a year. On perusal of Girdawri dated 20.07.20 18, it is apparent that the name of the appellant i.e. Sh Hardeep Singh nowhere figures in Column No.3 under the head Name of Cultivator . There is a cLalm in the affidavit that Sh. Jarnail Singh, Sh. Ajaib Singh and Sh. Gurbhag Sing have given land of 20 Acre to the appellant for cultivation on rent amounting to Rs.22,000/- per annum for five years and one year rent about Rs.2,64,000/- has been received in advance. No such evidence has been submitted. The absence of appellant^<s name in the Girdawri and any further corroborating evidence clearly establishes that explanation of the appellant is an afterthought. Further, explanation of the appellant that he has sold agricultural produce worth Rs. 1,02,354/-on 20.04.2013 to M/s Kundan Lal & Sons, Commission Agent and further promised to sell the whole produce to them and took Rs.8,50,000/- advance in cash, but, due to natural calamity he could not get the enough produce and the balance amount of Rs.7,47,646/- (Rs.8,50,000/- – Rs. 1,02,354/-) was returned by him to the commission agent on 15.06.20 13 also does not hold good for the reason that no evidence of natural calamity has been filed before the JCIT/CIT(A). Even if for the sake of argument it is accepted that there is natural calamity, then how come he was able to return amount of Rs.7,47,646/- to the Commission Agent on 15.06.20 13 that too after paying alleged advance payment of Rs.2,64,000/- to owners of the 22 Acre Land. It is clear that the appellant who is in fact a PROPERTY DEALER has not come clean on explanation to cash receipt from the Commission Agent with any cogent evidence. The case laws relied by the appellant are on different footings. The appellant has failed to establish that there was any business exigency to make the transaction in cash. The Ld. JCIT has rightly held that acceptance of cash loan by appellant amounting to Rs.8,50,000/- from M/s Kundan Lal & Sons, Panchkula during the FY 2013-14 is in contravention of the provisions of section 269SS of the Act and imposed penalty u/s 271D of the Act at Rs.8,50,000/-. The Ground of Appeal No.3 is dismissed.

8. Now the assessee is in appeal.

9. The Ld. Counsel for the Assessee reiterated the submissions made before the authorities below and further submitted that the amount received by the assessee was an advance against the agricultural crops which were to be sold through the Commission Agent, therefore the provisions of Section 269SS were not applicable, since it was neither loan nor a deposit taken by the assessee. It was further submitted that the A.O. himself accepted that the assessee was an agriculturist and accepted the returned income shown by the assessee therefore the penalty was not leviable under section 271 D of the Act. The reliance was placed on the following case laws:

• CIT Vs. Manohar Lal Thakral 93 com156 (P&H)
• Baldev Singh Vs. Addl. CIT 93 com212 (CHD Trib)
• ITO Vs. M/s Shiv Enterprise in ITA No.291 1/Ahd/2009 (AHD-Trib)
• CIT Vs. Hissaria Bros (2007) 291 ITR 0244 (Raj)
• ITO Vs. Bharadiya Trading Co. (2003) 85 ITD 0042 (PU NE Trib)
• ITO Vs. Harpal Singh Jaswant Singh (1995) 81 Taxman 42 (ASR Trib)
• Harpal Singh Jaswant Singh Vs. ITO (1995) 82 Taxman 81 (ASR Trib)
• CIT Vs. Saini Medical Store (2005) 277 ITR 0420 (P&H)
• Mohanjeet Singh Vs. JCIT (2016) 70 com335 (CHD Trib)

10. I have considered the submissions of both the parties and perused the material available on the record. In the present case it is not in dispute that the assessee is an agriculturist and shown the agriculture income of Rs. 4,55,000/- for the year under consideration which has been accepted as such by the A.O. In the present case, copy of the account of the assessee in the books of M/s Kundan Lal & Sons, Panchkula (which is placed at page no. 17 of the assessee’s compilation)revealed that the assessee received in cash Rs. 4,50,000/- and Rs. 4,00,000/- on 08/05/2013 and 11/05/2013. The Assessee also sold crop of Rs. 1,02,354/- on 20/04/2013 and thereafter also the crops amounting to Rs. 2,29,264/-, Rs. 86,560/-,Rs. 69,874/-, Rs. 1,99,878/- and Rs. 2,05,878/- were sold on 07/10/2013, 12/10/2013, 16/10/2013, 23/10/2013 and 04/11/2013 respectively through the aforesaid commission agent. The Assessee from the said party M/s Kundal Lal & Sons also received Rs. 3,00,000/-, Rs. 2,00,000/- Rs. 1,42,437/-, Rs. 2,00,000/- and Rs. 3,70,000/- on 19/10/2013, 22/10/2013, 23/10/2013, 26/11/2013 and 23/10/2013 respectively. The balance outstanding was Rs. 4,20,983/- as on 31/03/2014. From the aforesaid narrated facts it is clear that assessee is an agriculturist selling his crop through M/s Kundan Lal & Sons, Panchkula and he was receiving the amount against the crops from the said Commission Agent, therefore it cannot be said that the assessee received or paid amounts in cash as a deposit or loan rather the amounts received in cash were against the agriculture crops, therefore the provisions of Section 269SS and 269T of the Act were not applicable to the facts of the assessee’s case. On a similar issue the Hon’ble Rajasthan High Court in the case of CIT Vs. Hissaria Bros (2007) 291 ITR 0244 held as under:

“that the assessing authorities were bound by the general instructions contained in the circular issued by the Board in respect of dealings of kachcha adhatiya of the nature found by the Assessing Officer in the present case. Therefore, there was hardly any occasion for invoking sections 269SS and 269T on the supposed omission on the part of the assessee to comply with the requirement of the said provisions for inviting application of penalty provisions. The provisions of sections 271D and 271E could not have been invoked. Even assuming that the provisions of sections 269SS and 269T could be invoked, the findings of the Tribunal that reasonable cause existed for the failure to comply with the provisions of sections 269SS and 269T were findings of fact which did not give rise to any question of law. Penalty under sections 271D and 271E was not imposable and was rightly set aside by the Tribunal.”

11. In the present case also the amount in question was received by the assessee against the sale of the crops so it was neither the loan nor the deposit, therefore the provisions of Section 269SS of the Act were not applicable and as such penalty levied by the A.O. and sustained by the Ld. CIT(A) under section 271 D of the Act was not justified, accordingly the same is deleted.

12. In ITA No. 71/Chd/2019 the penalty amounting to Rs. 7,47,646/- (Rs. 8,50,000.00 – Rs. 1,02,354.00) under section 271 E has been levied for contravention of the provisions of Section 269T of the Act i.e; for making the payments of the amount received by the assessee against the crop from the Commission Agent. As I have already mentioned in the former part of this order while deciding the issue relating to the levy of penalty under section 271 D of the Act, that the transactions between the assessee and the Commission Agent were relating to the sale of agriculture crops, therefore, there was no receipt or repayment of loan or deposit, accordingly penalty levied by the A.O. and sustained by the Ld. CIT(A) under section 271 E of the Act is also deleted.

13. In the result, both the above appeals of the Assessee are allowed. Order pronounced in the open Court on 02/08/2019)