Case Law Details
CIT Vs Panchsheel Owners Associations (Gujarat High Court)
While completing the assessment, the Assessing Officer has noticed that the assessee, an AOP, borrowed loan of Rs. 40,00,000/- from Smt. Shantaben A. Patel, main promoter of the AOP, in cash for expeditious acquisition of land, in violation of section 269SS of the I.T. Act. Therefore, penalty of Rs. 40,00,000/- was levied under section 271D of the I.T. Act.
CIT(AI deletes the penalty.
ITAT observed that Genuineness of the transaction has not been disputed by the lower authorities, so also importance and urgency of raising cash loan, its payment to farmers for acquiring regranted land from “GHB” and conveyance of the same land by these farmers in favour of the assessee on the same day, has also not been disputed. We are of the view that there were compelling circumstances for the assessee to raise cash loan as raising funds by way of demand draft would have delayed the realization of payment, defeating the purpose of AOP in acquiring the land. We hold that the assessee has reasonable cause in raising cash loan. Our views are fortified by the above case laws. We see no infirmity in the order of CIT(A) on this issue which is upheld.
HC held that We have perused the orders of the Commissioner (Appeals) as well as the Tribunal. In this case the transaction was found to be genuine. The Assessing Officer has not doubted the transaction. In that view of the matter, both the Commissioner (Appeals) and the Tribunal have rightly deleted the penalty.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
By way of this appeal under section 260A of the Income-tax Act, 1961, the appellant-revenue has challenged the order of the Income-tax Appellate Tribunal (hereinafter referred to as “the Tribunal”) whereby the Tribunal has dismissed the appeal of the revenue by confirming the order of the Commissioner of Income-tax (Appeals).
2. While admitting the appeal, this court framed the following substantial questions of law:
(A) Whether on the facts and in the circumstances of the case and in law Appellate Tribunal is right in deleting the penalty under section 271D of the I.T. Act?
(B) Whether on the facts and in the circumstances of the case and in law Appellate Tribunal is right in treating the deposit/loan of Rs. 40,00,000/- as capital contribution of the member of AOP, for the AOP and not violation of the provisions of section 269SS of the I.T. Act?”
3. The facts of the case are the assessee filed return of income for assessment year 1994-95 on 9.3.1998 declaring total income at Rs. Nil. The Assessing Officer passed order under section 143(3) r.w.s. 147 of the Income-tax Act on 20.3.1998. While completing the assessment, the Assessing Officer has noticed that the assessee, an AOP, borrowed loan of Rs. 40,00,000/- from Smt. Shantaben A. Patel, main promoter of the AOP, in cash for expeditious acquisition of land, in violation of section 269SS of the I.T. Act. Therefore, penalty of Rs. 40,00,000/- was levied under section 271D of the I.T. Act.
4. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals) who vide order dated 28.1.2002 deleted the penalty. The Commissioner of Income-tax (Appeals), while deleting the penalty, in paragraph Nos. 7 and 8 of his order, has observed as under:
“7. I have considered the submissions made on behalf of the appellant and have carefully perused the order of the Additional CIT imposing the penalty. There is no doubt about the fact that Smt. Shantaben was the main promoter of the AOP along with her husband and the sum of Rs. 40.00 lacs was their contribution for acquisition of the land at Valsad for the business purposes of the AOP. Smt. Shantaben had borrowed the funds from Pari Laxminarayan Tulsidas, HUF and South Indian Bank Ltd., through, account payee cheques. These two credits have not been doubted by the Assessing Officer and the Addl. CIT and no addition appears to have been made on this ground. Thus, existence of the money is proved. From these facts, I am of the view that it cannot be held that capital contribution by a member of an AOP in the account of AOP can be treated as a deposit or loan in its true sense. The Ahmedabad ITAT in the case of Shrepak Enterprises Vs. DCIT 60 TTJ (Ahd) 199 has held that amount paid by firm to partners and vice-versa is payment to self and does not partake the character of loan or deposit in general law. Therefore, provision of section 269SS are not applicable to such facts. In this case there is deposit from a member of AP in the account of AOP, therefore, this case is squarely covered by the decision of I.T.A.T. Ahmedabad. Following the decision of the I.T.A.T., it cannot be held that the member had given any deposit to the AOP so as to attract provisions of sec. 269SS.
8. It is a fact on record that the Govt. of Gujarat acquired the land for the purposes of Government from the five farmers. The farmers had filed a suit against such acquisition of land. Thereafter, the Govt. of Gujarat decided to give back the land to the farmers provided they made the payment before 28.2.1993. After knowing the order of the Government regarding the land to the farmers, the appellant had only about 5 days to make the payment. If the money was deposited through Demand Draft, it would have taken possibly more days to be cleared and the appellant would have lost a golden opportunity of acquiring a good piece of land for its business. The appellant has filed before me a letter from a Bank which suggests that clearing of draft from one station to another station takes about 3 days. It was a case, of Rs. 40 lacs, therefore, the clearing Bank would have tried to seek confirmation from the draft isuing bank and such process would have taken more time. From the facts brought on record, I find that the appellant was in a hurry to make the payment to the farmers in order to acquire the property and it was done by bringing cash and paying the same to the farmers and getting the documents executed from, the farmers in favour of the AOP on 25.2.1993. There was a possibility, if the appellant had, not acted, urgently, some other party would have got the opportunity to acquire the land. Thus, I am of the view that there was pressing need for paying the sum of Rs. 40 lacs in cash to the farmers. The Ahmedabad ITAT in the case of Vir Sales Corporation has held that `the bona fide of the transaction in question has not been disputed at any stage of the proceedings, there is no material whatsoever on the records giving any inkling of the transaction being of the dubious nature. The urgency about the business necessity or the commercial exigencies are solely within the domain of the trade’s own decision. Ordinarily a plea as to ignorance of law cannot support the breach of a statutory provision. But then an innocent mistake due to ignorance of the relevant provisions of law, coupled with the facts that the transactions are genuine and bonafide transaction and had to be made for meeting the urgent business necessity will constitute a reasonable cause. Thus, in my opinion, there was reasonable cause for accepting the sum of Rs. 40.00 lacs in cash by the AOP from Smt. Shantaben. Therefore, no penalty is leviable on the facts and in the circumstances of the case.”
4.1 Against the order of the Commissioner of Income-tax (Appeal), the revenue preferred appeal before the Tribunal. The Tribunal dismissed the appeal vide order dated 12.10.2007 by observing in paragraph Nos. 3 and 4 of its order as under:
“3. Learned DR supported order of AO. Learned counsel for the assessee reiterated the facts and contends that genuineness of the transaction has not been doubted. It has not been disputed in material terms by AO that but for the cash loan; assessee would not have been in a position to purchase the land from farmers, which was essentially for the AOP and its members. Facts about the payment to various farmers and in turn their payment to “GHB” for regranting of land and conveyance in favour of the assessee has not been disputed. These facts clearly indicate the importance and urgency of the situation; land deal would have been defeated without cash payments. It was contended that the assessee had reasonable cause in accepting cash loans, reliance was placed on –
i) Shreenathhji Corporation Vs. ACIT, 58 TTJ 0611
ii) Karnataka Ginning & Pressing Factory Vs. JCIT, 77 ITD 478
iii) Chamundi Granites P. Ltd. Vs. DCIT, 112 Taxman 417
iv) Jay Builders Vs. ACIT. Case Digest 211.
For the proposition that when reasonable cause is established penalty under section 271B cannot be imposed.
4. We have heard rival contentions and perused material available on record. Facts have been narrated above. Genuineness of the transaction has not been disputed by the lower authorities, so also importance and urgency of raising cash loan, its payment to farmers for acquiring regranted land from “GHB” and conveyance of the same land by these farmers in favour of the assessee on the same day, has also not been disputed. We are of the view that there were compelling circumstances for the assessee to raise cash loan as raising funds by way of demand draft would have delayed the realization of payment, defeating the purpose of AOP in acquiring the land. We hold that the assessee has reasonable cause in raising cash loan. Our views are fortified by the above case laws. We see no infirmity in the order of CIT(A) on this issue which is upheld. Revenue’s appeal is dismissed.”
5. Learned counsel for the revenue Mr. Mehta has contended that the Tribunal has committed serious error in dismissing the appeal of the revenue. He has further contended that the Tribunal has failed to consider the fact that introduction of provisions of section 269SS was to prevent dubious cash transactions. In this case the Non-Trading Corporation itself is a dubious formation as the members of the AOP are not based at Valsad. In that view of the matter, the order of the Tribunal is bad in law.
6. We have heard learned counsel for the revenue. We have perused the orders of the Commissioner (Appeals) as well as the Tribunal. In this case the transaction was found to be genuine. The Assessing Officer has not doubted the transaction. In that view of the matter, both the Commissioner (Appeals) and the Tribunal have rightly deleted the penalty. We do not find any infirmity in the orders passed by the Tribunal. We are, therefore, of the opinion, that the question referred to us is required to be answered in favour of the assessee and against the revenue. The appeal is dismissed accordingly. We answer the question in favour of the assessee and against the revenue.
