Penalty not leviable for cash loan taken/paid to comply re-settlement scheme of BIFR

Monarch Dyestuff Industries And Exports Ltd. Vs JCIT (ITAT Ahemdabad)

Conclusion: Assessee was not liable for penalty under section 271D and 271E for availing cash loans/deposits in violation of section 269SS and 269T as it had availed the facility in order to re-establish itself, and for fulfilment of promises given for the purpose of BIFR which was a reasonable cause foe not levying penalty.

Held: Assessee had obtained loan/deposits in cash and repaid alleged loan/deposits in cash, thus, violated provisions of section 269SS and 269T. AO had imposed penalty under section 271D and 271E. It was held no doubt breach was there, but assessee had a plausible explanation. It had been in the business since 1980 in exporting dyes and intermediaries. Thus, in order to re-establish itself, it had availed certain cash loans which had been used for fulfilment of promises given for the purpose of BIFR. therefore, assessee had been able to demonstrate reasonable cause for not visiting the penalty under section 271D and 271E.

FULL TEXT OF THE ITAT JUDGEMENT

Present two appeals are directed at the instance of the assessee against separate orders of the ld.CIT(A) dated 6.11.2015 passed for the Asstt. Year 2009-10.

2. Though the assessee has taken four grounds of appeal in each appeal, but its solitary grievance relates to confirmation of penalty under section 271D and 271E of the Income Tax Act amounting to Rs. 1,74,99,700/- and Rs.5 1,16,065/- respectively.

3. The facts on all vital points are common. Penalty has been imposed for violation of section 269SS and 269T of the Income Tax Act, 1961. In other words, according to the ld.AO the assessee has obtained loan/deposits in cash and violated provisions of section 269SS, therefore, deserves to be visited with penalty under section 271D. Similarly, it has repaid alleged loan/deposits in cash and alleged to have violated section 269T. The ld.AO has imposed penalty of Rs.5 1,16,065/- under section 271E of the Act. Thus, short controversy involved in both appeals relates to, whether the assessee is able to establish reasonable cause for accepting alleged loans or deposits in cash and making repayment of such loans/deposits in cash for absolving it from vigor of penalty imposable under section 271D and 271E of the Act.

4. Brief facts of the case are that on perusal of the audit report in form no. 3CD for the F.Y. 2008-09, it revealed to the AO that at clause (3) of item no.24, the assessee had shown loans/deposits received by it which fall within the ambit of section 269SS, as sum accepted or taken otherwise by crossed- The list of such amounts is as under:

5. Similarly, it revealed to the AO that it has made payment of alleged loans/deposits in cash. Details of such payment noticed by the AO read as under:

6. The ld.AO vide show cause notice dated 11.6.2014 issued under section 274 r.w.s. section 271D and 271E invited explanation of the assessee as to why the assessee should not be visited with penalty under sections 27 1D and 27 1E for violation of sections 269SS and 269T of the Act. The assessee made detailed written submissions which were considered by the AO, but somehow the ld.AO did not convince with the contentions of the assessee and imposed penalty of Rs.1,74,99,700/- under section 271D and Rs.55,16,065/- under section 271E of the Act.

7. Dissatisfied with the penalty order, the assessee had filed two separate appeals before the ld.CIT(A). It filed written submissions in both the appeals, which have been reproduced by the ld.CIT(A). The ld.CIT(A) has gone through the submissions of the assessee but did not accept them. The CIT(A) concur with the AO and confirmed penalty by way of impugned orders passed independently on each appeals of the assessee.

8. Dissatisfied with the orders of the ld.CIT(A) assessee has come up in appeals before the Tribunal. While impugning order of the ld.CIT(A), the ld.counsel for the assessee raised multi-fold submissions. With regard to the penalty imposed under section 271D, he contended that penalty order is time barred. According the ld.counsel for the assessee, action under section 271D has been taken in the assessment year 2009-10. Penalty order has been passed on 8.12.2014. Though, according to the ld.counsel for the assessee, there is no time limit prescribed under statute for passing penalty order under section 271D, but must be passed within a reasonable time. On the strength of following decisions:

• NHK Japan Broadcasting Corpn., 305 ITR 137 (Del);
• CIT Vs. Hutchison Essar Telecom Ltd., 323 ITR 230 (Del);
• ITO Vs. Vishal Fabrics P.Ltd., ITA No.448/A/2007;
• Leela Ship Recycling P.Ltd., ITA No.201 1/Ahd/2015;
• Ajitbhai & Co., Vs. ACIT, 45 ITD 262 (Ahd)

He contended that where no time limit has been prescribed in the Income Tax Act, for taking action by the authorities, then Hon’ble Courts have contemplated a reasonable time period of four years. In the present case, four years would expire on 3 1.3.2014 i.e. four years from 3 1.3.2010 when the assessment year 2009-10 ended. Penalty order has been passed on 8.12.2014 which is time barred. In his second fold of contentions, he appraised us reasonable cause available with the assessee within the meaning of section 273B of the Act for accepting alleged amount in cash as well as payment in cash. For buttressing this contentions, he took us through written submissions filed before the ld.CIT(A) whose copy is available at page nos. 180 to 214 of the paper book. He contended that these submissions have been extracted by the ld.CIT(A) while dealing penalty imposed under section 271D of the Act. The ld.counsel for the assessee has sub-divided his contentions on the second fold of submissions i.e. reasonable cause. He pointed out that out of nine persons from whom alleged loans have been accepted by the assessee, three are directors viz. (i) Kirtipal K. Shah, (ii) Bhartiben K. Shah, and (iii) Niraj K. Shah. They were maintaining current account with assessee company. They have deposited cash and also withdrawn the amount in cash. Penalty under section 271E has also been imposed qua the sums taken by them in cash. It was also contended that amounts were received by the assessee either from relatives or associated concerns, and in case funds are received from relatives or associated concerns, then such transactions are not hit by section 271D of the Act. For buttressing his contentions, he made reference to the following decisions:

i) CIT Vs. Sunil Kumar Geol, 315 ITR 163 (P&H);

ii) Mahmood Associates P.Ltd. vs. JCIT, ITA No.11 12/Kol/2012;

iii) Zodiac Developers P.Ltd. Vs. ACIT, ITA No.31/Mum/201 1.

9. Further, the ld.counsel for the assessee relied on the written submissions filed before the ld.CIT(A). Along with case laws submitted before us, he filed a brief note demonstrating reasonable cause available with the assessee for accepting these loans in cash and repayment of such in cash. Taking into consideration the detailed submission filed before the ld.CIT(A) for brevity of repetition, we deem it appropriate to take note of these submissions submitted by the ld.counsel for the assessee at the time of hearing. It reads as under:

• “Assessee is a Public limited company. Initially, assessee carried out its business as a Partnership Firm in the name and style of “Monarch Dyestuffs Industries”. The then firm was exporting dyes and dyes intermediaries since 1980. There were no local sales. It was following mercantile system of accounting and its accounts were also audited u/s 44AB of the Act.
• Later, the firm was converted into company which came to be incorporated on 25.09.94 under Part IX of the Companies Act. 1956. After incorporation of the company, appellant continued the business earlier carried out as a partnership firm. As stated earlier, there were no local sales.
• Owing to revaluation of currency in 1995 in Eurugave, Brazil and other latin American country, assessee could not recover money from its debtors in time and certain funds have not been received till date. Non-realization of funds from debtors resulted into serious financial crisis coupled with following consequences:

♦ Bank of Baroda and Bharat Overseas bank stopped various facilities and tried to recover advances from LC payment received by the company;

♦ GIIC had sanctioned loan of Rs.1.5 crore of which a sum of Rs. 75 lacs was released but on account of the above explained set back, it refused to issue further sanctioned loan amount;

♦ Some of the NBFCs filed liquidation proceedings before Hon’ble the Gujarat High Court;

♦ Various suits were filed by NBFCs and some of the creditors before City Civil Courts and Metropolitan Magistrate Courts;

♦ Concentration of stock on hand eroded and the same became almost worthless since reactive dyes have a short span of life after which it starts decomposing.

• On account of the above, assessee suffered heavy losses and, in due course, it became financially sick. Hon ‘ble the Gujarat High Court ordered for provisional liquidation and hence, liquidator took inventory of stock and assets of the appellant and sealed its At the time of further hearing, secured creditors of the appellant objected liquidation of the appellant and upon assurance given by the Managing Director as to paying off dues of creditors in installments, Hon’ble the Gujarat High Court ordered de-liquidation of the appellant company. Copies of orders passed by Hon ‘ble Gujarat High Court as well as various reports of Liquidator, etc. are placed at Pgs.9-22 of P/B.
• Since the appellant defaulted in making payments to secured creditors (viz. Nationalized banks, Private banks and other NBFCs), no other nationalized banks, private banks, NBFC or any other financial institution were ready to advance further funds to the appellant. Hence, it became extremely difficult for the appellant to run the company. The survival of the appellant was at stake.
• In such a scenario, shroffs in the market, in spite of being worst financiers, were the only ray of hope so as revive the appellant company and get it back in good working condition. Assessee started its activities by obtaining job work in the same line of As and when export orders were received, the same were executed. No local sales were ever made. However, situations didn’t improve to the expectations of the appellant. Hence, assessee applied for registration as sick company with BIFR in 1998-99. BIFR registered the assessee as sick industrial unit in February 2000 vide Registration No.68/2000. The assessee was declared sick on 04.048.06. The scheme of BIFR was passed on 07.12.11. Copy of scheme of BIFR dated 07.12.1 1 is placed at Pgs.23-61 of P/B.
• As per the undertaking given to BIFR, assessee had to remit payment being One Time Settlement to both the banks, GIIC, and other NBFCs during the year under consideration. Also the assessee had to improve its productivity so as pay off sundry Thus, it was an extreme situation wherein assessee had to arrange for funds and pay off one time settlement amount to various institutions, as stated above, or else the settlement scheme, as framed by BIFR, would have been cancelled which could have made the scenario even worse. Thus, it was no less than a “Do or die” situation for the appellant.
• Further, appellant was purchasing raw material from local markets as well as foreign markets. Creditors of such raw materials were to be paid within 15-30 days by post-dated cheques only. Appellant had no option but to ensure that such cheque were honored so as to establish credibility in the market. Further, appellant was exporting goods on a credit period of 2-3 months but still, such dues were never received on due dates.
• All such incidents made the situation very grave. On one hand, Nationalized banks, Private banks, and other such players in the organized sector refused to extend a helping hand to the appellant whereas on the other hand, appellant had tremendous pressure to ensure that the cheque drawn by it got honored so as to establish its credibility in the market.
• Hence, management of the appellant was left out with no option but to bring in funds on their own or from shroffs, relatives, etc, so as to honor various legitimate demands. It was in such a scenario, directors, relatives of directors and shroffs pumped in funds in appellant company from time to time so as to honor various cheques drawn by the appellant towards its legitimate dues. Following details/evidences have been placed on record:

Details of funds pumped in by various persons – Pgs.62-70 of P/B;

Bank statements of the assessee – Pgs.71-110 of P/B; Statements showing details of funds received from concerned persons, details of deposit of the same in bank account and details of cheque honored consequent to such cash deposits – Pgs.111-119 of P/B.

Since such funds were received by assessee in violation of the provisions of S.269SS, AO levied penalty of Rs.1,74,99,700/- u/s 27 ID of the Act.

Assessee most respectfully submits that, as explained here-in-above, the sole purpose of accepting funds otherwise than account payee cheque was to ensure that the cheque drawn by the assessee towards its legitimate dues were honored as and when the same was presented before the bank for clearing. There was no scope of fetching money from the organized sector at all. Hence, had the directors, their relatives and shroffs not funded the appellant, appellant company couldn’t have survived in such tuff time. Thus, there was no mala fide intention behind accepting money other-wise then account payee cheque.”

10. On the other hand, the ld.DR relied upon the orders of the ld.Revenue authorities. He contended that persons who have given loans to the assessee were having bank account. The assessee is also having bank account. What prohibited the assessee to obtain loans through banking channel ? Why the assessee has accepted the cash and deposited the same in the bank accounts and cleared cheque issued by it. All these transactions could be carried out through banking channel.

11. We have duly considered rival submissions and gone through the record. It is imperative upon us to take note of relevant provisions viz. sections 269SS, 269T, 271D and 271E which reads as under:

Section 269SS

‘269SS. Mode of taking or accepting certain loans, deposits and specified sum.—No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, if,—

(a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or

(b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or

(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b),

is twenty thousand rupees or more:

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Section 269T

269T. Mode of repayment of certain loans or deposits.—No branch of a banking company or a co-operative bank and no other company or co-operative society and no firm or other person shall repay any loan or deposit made with it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the loan or deposit if—

(a ) the amount of the loan or deposit together with the interest, if any, payable thereon, or

(b ) the aggregate amount of the loans or deposits held by such person with the branch of the banking company or co-operative bank or, as the case may be, the other company or co-operative society or the firm, or other person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such loans or deposits,

is twenty thousand rupees or more:

*****

*****

Section 271D

(1) If a person takes or accepts any loan or deposit in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted.

Section 271E

271E. (1) If a person repays any loan or deposit or specified advance referred to in section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified advance so repaid.

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12. A bare reading of section 269SS would indicate that it was introduced by the Finance Act, 1984 w.e.f. 1-4-1984. It provides that after 30.6.1984 no person shall accept any loans or deposits from any other person of Rs.10,000/- or more (which has been enhanced to Rs.20,000/- w.e.f. 1-4-1989) except by account payee cheque or account payee bank draft. Thus, it prohibits acceptance of any loan or deposits from any other person of more than Rs.20,000/- except by account payee cheque or draft. At the time of introduction, section 276DD provided consequences for violation of section 269SS. It provided for an imprisonment which may extend upto two years. However, while making amendment in section 269SS by Finance Act, 1987 section 276DD was omitted and new section 271D was brought into the statute book which provides for visiting assessee with penalty by equal amount. Similar are the facts with regard to violation of section 269T, and if the assessee repaid loans or deposits by any other mode, than the account payee cheque/draft, he will be visited with penalty as provided in section 271E. The contravention to section 269SS and Section 269T would not automatically authorise the AO to visit the assessee with penalty under section 271D and 271E, because sections 273B provided that in case assessee demonstrate “reasonable cause” for violating this provision, then he could be absolved from visiting with penalty.

13. Before we embark upon an inquiry on the facts of the present case, in order to ascertain that appellant has demonstrated “reasonable cause” for absolving itself from levy of penalty under section 271D and 271E, we deem it appropriate to appraise ourselves with proposition laid down in various authoritative pronouncements referred to by the ld.counsel for the assessee in analyzing various fact situation, wherein reasonable cause demonstrated by the assessee were accepted. In other words, how different facts situations have been taken as “reasonable cause” by the Hon’ble Supreme Court, High Courts and ITAT.

14. First decision referred by the ld.counsel for the assessee is of Hon’ble Punjab and Haryana High Court in the case of CIT Vs. Sunil Kumar Geol, 315 ITR 163. In this case, the assessee has taken loan in cash on seven occasions, during the financial year 1990-91 (Asstt.Year 1991-92). The AO has initiated penalty proceedings under section 271D of the Income Tax Act. The assessee contended that on account of his bona fide needs, he has taken loans, but his contention was rejected by the AO and penalty was imposed. Appeal to the ld.CIT(A) did not bring any relief to the assessee. However, on further appeal, the Tribunal has deleted the penalty. Revenue took the matter to the Hon’ble High Court and contended that imposition of penalty under section 271D is mandatory, if an assessee has violated section 269SS of the Act is concerned. The Hon’ble High Court has rejected the appeal of the Revenue and observed that during the course of penalty proceedings, the assessee has produced his cash book depicting loan taken by him. The transaction of the assessee was not doubted. It is found to be genuine. Hon’ble High Court further observed that these transactions were between family and due to business exigency, there was no mala fide intention at the end of the assessee for evading taxes. The Tribunal has made reference to background in which sections 269SS and 269T were introduced in the Act. Thus, according to this decision, if an assessee has demonstrated bona fide of the transaction and business exigency for taking cash loans, then on account of this technical breach, he would not be visited with penalty.

15. Next judgment referred by the ld.counsel for the assessee is ITAT, Calcutta Bench in the case of Mahmood Associates P.Ltd. JCT, 1 12/Kol/2012 order dated 29.4.2015. In this case also assessee took a cash loan and violated section 269SS of the Act. The AO has imposed penalty of Rs.3,98,719/- under section 271D which was confirmed by the ld.CIT(A). The Tribunal while deleting penalty made reference to the decision of Hon’ble Madras High Court in the case of CIT Vs. Ibdhayam Publications Ltd. (2006 285 ITR 221 (Mad) wherein the Hon’ble High Court has held as under:

“4. We heard the arguments of the learned counsel for the Revenue. We have perused the materials available in record. Admittedly Mr.S. V. S.Manian was one of the Directors. Therefore the order of the lower authority clearly shows that there was a running current account in the books of account of the assessee in the name of Mr.S. V.S.Manian. Mr.S. V.S.Manian used to pay the money in the current account and used to withdraw the money also from the current account. The Revenue should establish that what was received by the assessee is a loan or deposit within the meaning of Section 269SS. The deposit and the withdrawal of the money from the current account could not be considered as a loan or advance. Further it was also found that the assessee filed a letter dated 29.09.97 and in that letter he explained that the amount received from Mr.S. V.S.Manian had been shown as “unsecured loan from directors” in the Balance Sheet. As per the Companies Act, under Companies (Acceptance of Deposit) Rules 1975, under Rule 2(b)(ix), deposit does not include any amount received from a Director or a share holder of a Private Limited Company. Therefore the transaction between the appellant and the Director cum Share holder is not a loan or deposit and it is only current account in nature and no interest being charged for the above transaction.

5. In the foregoing conclusions, we are of the view that, since the said transaction does not fall within the meaning of loan or advance, there is no violation of Section 269SS of the Income Tax Act. We find no error in the order of the Tribunal the same requires no interference. Hence, no substantial question of law arises for consideration of this Court. Accordingly, we dismiss the above tax case.

16. The Hon’ble High Court was of the view that if directors are having running account in the books of accounts of the assessee-company, then the transactions between the directors of the company would not be considered as of loan and deposits. In the present case also there were three directors who have advanced money to the assessee-company and they have been repaid in cash. Thus, qua these transactions, this decision of the Hon’ble Madras High Court is directly applicable.

17. Next decision referred by the ld.counsel for the assessee is ITAT, Mumbai Bench in the case of Zodiac Developers P.Ltd. Vs. ADCIT, ITA No.31/Mum/2011 order dated 10.10.2014. In this case also assessee has accepted cash loan of Rs.19.90 lakhs. The AO has initiated penalty under section 271D and imposed penalty of Rs.19.90 lakhs which has been confirmed by the ld.CIT(A). The Tribunal has deleted the penalty. The Tribunal put reliance upon the decision of Hon’ble Jharkhand High Court in the case of OMEC Engineers Vs. CIT, 294 ITR 599. The Hon’ble High Court observed that if transaction is genuine the penalty under section 271D would not be imposed.

18. Next decision referred by the ld.counsel for the assessee is ITAT, Ahmedabad Bench in the case of Maruti Nandan Finance Cap. P.Ltd. Vs. ACIT, 114 TTJ 142 (Ahd). In this case cheque of Rs.10 lakhs was issued. However, since there was a shortage of fund in the account, sum of Rs. 5 lakhs was taken in cash from the directors, which was deposited in the account. Reason for such act was that cheques should not bounce. According to the assessee, had it not deposited money then its cheque could be bounced. Thus, considering genuineness of the transactions and loan taken from the directors, Tribunal deleted penalty.

19. The next decision referred by the ld.counsel for the assessee is of ITAT, Mumbai Bench (Third Member). In this case, the assessee-company took a cash loan in violation of section 269S. The assessee was visited with There was a difference of opinion between the members and ultimately dispute referred for the opinion of Third Member. The ld.Third Member has opined that transaction was genuine and under business exigency cash loan was taken. It is pertinent to take note of some of the facts. M/s.Tensile Steel Ltd. (“TSL” for short) is a public limited company registered under the Companies Act, 1956. Assessee, Mrs. Rupali R. Desai is daughter of Shri Ramesh R. Desai, who is chief promoter and Managing Director of TSL. The assessee is also one of the promoters and directors. TSL was a sick industrial unit and registered with Board for Industrial and Financial Reconstruction (“BIFR” for short). According to the scheme of re-settlement, the assessee has to deposit Rs. 1 crore in a no-lien account in Bank of India. The TSL had only one month time to deposit Rs. 1 crore with BOI in no lien account. Thus, it was decided by the management that instead of making deposits with nationalized bank it should be deposited in the name of one of the promoters/directors who was not a guarantor to the bank. In this background cash was deposited in account of Mrs.Rupali R. Shah on whose violation penalty under section 271D was imposed. This penalty was deleted by the Tribunal and observation of the ld.Third Member in this background is worth to read. It reads as under:

“10. Section 269SS of the Act put an interdict against taking or accepting certain loans and deposits in cash. Testing the provisions on the touchstone of Heydon ‘s rule, it transpires that prior to the insertion of Section 269SS of the Act, it was open to the assessee to explain the cash found in the course of searches representing loans taken from the deposits made by various persons.

11. The mischief or the defect for which the law did not provide remedy was that unaccounted income so brought into the books in the form of loans and deposits was easy to explain. Because there was no restriction on the cash deposits, it was not difficult to get confirmatory letters from such persons in support of their explanation.

12. To curb this mischief, Section 269SS of the Act was enacted, by which prohibition was laid against taking or accepting certain loans and deposits in cash. It debars persons from taking or accepting, after 30th June, 1984, from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of such loan or deposit or the aggregate amount of such loan and deposit is Rs. 10,000 (raised to Rs. 20,000 w.e.f. 1st April, 1989) or The true reason for enacting Section 269SS of the Act was to counter the device of tax evasion, which enabled the taxpayers to explain away unaccounted cash or unaccounted deposits.

13. A statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. It is very important to keep the stream of justice clear and pure. Innocents should not suffer and recalcitrant should not go scot-free, Let justice be not a riddle and get lost in the labyrinth of procedure. Justice demands fairness. Fairness itself is a flexible, pragmatic and relative, concept, and not a rigid, ritualistic or sophisticated abstraction. The prime object of law is to secure justice to the people. In view of this the legislature took proper safeguard under Section 273B of the Act, which enumerates the cases where penalty is not to be imposed. In such enumeration, Section 271D of the Act also finds a place. It is prescribed under Section 273B of the Act that penalty is not to be imposed on the assessee if he proves that there existed a reasonable cause for not complying with the provisions.

14. Black’s Law Dictionary define the word “reasonable” as under:

“Reasonable Fair, proper, just, moderate, suitable under the circumstances. Fit and appropriate to the end in view. Having the faculty of reason; rational; governed by reason; under the influence of reason; agreeable to reason. Thinking, speaking, or acting according to the dictates of reason. Not immoderate or excessive, being synonymous with rational, honest, equitable, fair, suitable, moderate, tolerable. Cass v. State 124 Tex. cR. R. 208, 61 S.W. 2d 500″

15. Reasonable cause means genuine belief based on reasonable grounds. TSL was on the verge of winding up. The assessee was the promoter and director of TSL. Her father was the chief promoter and managing director of TSL. It was a closely-held company. The-assessee-was concerned with the revival of TSL. In the process of revival, the assessee took the cash loans from TSL. Genuineness of the loan was not doubted. The circumstances under which the loan was taken were not disputed. The assessee felt that, the delay may defeat the As such, to comply with the Court orders and to furnish the deposits as per the direction of AAIFR to TSL, the assessee took the loan. The purpose was not tax evasion. There was no animus to defile the provision of law. It was to revive a sick company in which the assessee was interested. The assessee proved the bona fide beyond the shadow of doubt. Once the bona fide is proved, what remains is only procedural default, which is of a venial nature. “De minimis non curat lex” (law takes no notice of trivialities) is the well known tenet, of law. The procedure should be the maid and not the mistress of, the legal justice.

16. Taking into consideration the entire conspectus of the case I am of the opinion that there existed a reasonable cause for accepting the cash loans. As such, the assessee may be exonerated from the rigour of Section 271D of the Act. In my opinion, the learned AM was correct in deleting the penalty. As such, I concur with his order.”

20. Next decision referred by the ld.counsel for the assessee is of Hon’ble Gujarat High Court in the case of JCIT Vs. B.D. Patel & Co., Tax Appeal No.1226 of 2009 and in the case of CIT Vs. Shreenathji Corpn., 56 com439 (Guj). In the case of B.D.Patel (supra), the Hon’ble High Court has accepted business exigency and genuineness of the transaction as reasonable cause. It upheld order of the ITAT and deleted penalty under section 271D. Similarly, in the case of Shreenathji Corpn. (supra), the Hon’ble Court has accepted genuineness of the transactions and business exigency as reasonable cause for accepting cash loans. On the other hand, the ld.DR relied upon the orders of the ITAT in the case of Kalpesh K. Kinariwala Vs. ACIT in ITA No.316/Ahd/2013 order dated 2.3.2016 wherein Judicial Member (herein) is party to the order. According to him, the Tribunal has confirmed the penalty imposed under section 271D of the Act. In this case, the Tribunal has confirmed penalty because there was no reasonable cause demonstrated by the assessee for accepting loans in cash from the sister concern.

21. In the light of the above, let us examine the facts of the present case. We have extracted the explanation of the assessee showing reasonable cause. It has been contended by the assessee that it came into existence in 1980. It has been exporting dyes and inter-mediatories. Business was running smoothly. Somehow in 1995 Latin American countries have revalued their currency, and therefore, it could not recover its dues from those clients. The financial institution put pressure for realization of loans and due to such financial crunch, its business was closed down. It has been declared as a Sick unit and registered with BIFR for resettlement. The assessee has placed details vide which amounts have been deposited and how cheques have been cleared. All these details have been compiled on page nos. 111 to 119 of the paper book. A perusal of these details would indicate that cash loan was deposited in Progressive Mercantile Co-op. Bank and they were used for clearing cheques. For example on 7.4.2008 an amount of Rs.75,000/- was deposited. Simultaneously two cheques bearing no.091199 and 453007 for a sum of Rs.3 1,104 and Rs.47,886 were cleared in the name of M.M. Auxitex and Kirti Import & Export. Thus, contention of the assessee was that had it used through banking channel, more particularly, those banks to whom it has to pay various dues/ outstanding loans, then it would not be able to fulfill its promises with BIFR for its reestablishment. It has to make payment of certain amounts promptly for avoiding adjustment of such cash arrangement by it towards existing loans with financial institutions. These transactions of availing loans and its user by the assessee have not been doubted. These are found to be genuine. Only allegation against the assessee is of venial and technical breach. No doubt breach is there, but the assessee has a plausible explanation. It has been in the business since 1980 in exporting dyes and intermediatries. Thus, in order to re-establish itself, it has availed certain cash loans which has been used for fulfillment of promises given for the purpose of BIFR. An identical situation has been evaluated by ITAT’s Third Member decision in the case of Mrs. Rupali R. Desai (supra). As far as repayment of cash loans is concerned, identical circumstances are available with the assessee, therefore, we are of the view that the assessee has been able to demonstrate reasonable cause for not visiting the assessee with penalty under section 271D and 271E of the Act. We allow both the appeals of the assessee and delete penalty.

22. In the result, the appeals of the Assessee are allowed.