No Penalty on Return of loan by cash to sister concern under a bonafide belief

AO held that the assessee had accepted Rs.50,000/- in cash as share application from M/s Gagan Buildwell Private Limited in violation of section 269SS. Accordingly penalty u/s 271 D was imposed relying upon the decision of the Hon’ble Jharkhand High Court in the case of Bhalotia Engineering Works (P.) Ltd. vs CIT (2005) 275 ITR 399. The  explanation offered by the assessee in the penalty proceedings was not accepted by the AO.

The assessee carried the issue unsuccessfully before the CIT(A) who confirmed the penalty order.

Aggrieved by this the assessee has came up in appeal in the present proceedings. The Ld. AR inviting attention to the record submitted that the Assessing officer in the order u/s 143(3) has not made any addition u/s 68 on facts and the receipt of the amount in cash from a sister concern received as share application money has been accepted by the AO. In these facts, it was stated that the genuineness and the bonafide of the assessee stand explained and addressed. Thus the penalty it was submitted has wrongly been invoked by the AO and confirmed by the CIT(A). Reliance was placed on the following decisions:-

1. ITO vs M/s Avadh Rubber Ltd. [ITA no.-1853/Kol/2008] Order dated 28.05.2010 (ITAT, Kolkata Bench);
2. CIT vs I.P.India Ltd. 343 ITR 353 (Delhi High Court);
3. CIT vs Samora Hotels (P.) Ltd. [ITA No.313/2006] order dated 23.02.2012 (Delhi High Court);
4. ITO vs M/s Homeland City Projects Ltd.[ITA No.-2043/Del/2012] order dated 08.10.2012 (ITAT, Delhi Bench);
5. JCIT vs M/s Ellora Mercantile (P.) Ltd.[ITA No.1 664/Kol/2012] order dated 18.04.2013 (ITAT, Kolkata Bench);
6. ITO vs M/s Goldman Properties (P.) Ltd, New Delhi [ITA 724/Del/201 2] order dated 24.01.2013 (ITAT, Delhi Bench);
7. ITO vs M/s Nandlala Securities (P.) Ltd. [ITA no.3043/Del/2013] order dated 07.01.2015 (ITAT, Delhi Bench);;
8. CIT vs Raugmini Ram Raghav Spinners (P.) Ltd 304 ITR 417 (2008) (Mad.);
9. CIT vs Speedways Rubber (P.) Ltd. 326 ITR 31 (Punjab & Haryana High Court);
10. CIT vs Kardah Lexoplast (P.) Ltd. [ITA No.-184/99] (Allahabad High Court)

Accordingly relying upon the aforesaid decisions it was submitted that if for a moment it is considered that there is a decision of the Hon’ble Jurisdictional High Court in the case of Bhalotia Engineers Works (P.) Ltd. (cited supra) than considering the plethora of decisions cited before the AO and the CIT(A) there was a difference of opinion which stood established thus relying upon the judgement of the Apex Court in the case of CIT vs Vegetables Products Ltd.   88 ITR 192 (SC) the benefit of decisions in favour of the assessee should have been given by the tax authorities. The said proposition it was submitted  had been upheld by the Hon’ble Delhi High Court in the case of CIT vs I.P.India P.Ltd. 343 ITR 353 (Del.) and it was cited before the CIT(A) and in judicial propriety it should have been followed as being the decision of the Jurisdictional High Court it was binding on the tax authorities. The CIT(A) it was submitted by not following the said decision had committed a judicial improprietary. In support of the said submission reliance was placed on the case Agarwal Warehousing Leasing Ltd. vs CIT (2002) 124 Taxman 440 (M.P). It was further submitted that the Ld. Commissioner has committed judicial indiscipline in terms of the decision of the Apex Court in the case of Union of India vs Kamlakshi Finance Corpn. Ltd. [1992] 7 AIR S.C. 11. Reliance was placed upon K.N.Agarwal vs CIT 189 ITR 769.

Addressing the facts, attention was invited to the submissions made before the CIT(A) found recorded in para 3 of the impugned order. Relying on the same it was submitted that the nature of the assessee’s business was such that a sudden requirement of cash arose due to the business/commercial expediency of the peculiar nature of assessee’s work for which purposes the amount was received in cash from a sister concern and was proposed to be adjusted as share application. The money it was submitted was utilized for making payment of stamp duty and court fee and had to be deposited in cash. On account of these peculiar facts and circumstances and the business compulsions of the Company the amount was necessarily accepted from the sister concern in cash. It was submitted that due to the business compulsions the amount was received in cash under a bonafide belief that available funds from sister concern could be so utilized to tide over the emergency. The said belief based on these facts it was argued constitutes a reasonable cause thus the penalty may kindly be quashed.

Even otherwise it was submitted the decision of the Jurisdictional High Court decision supports the view including the decisions of the Punjab & Haryana High Court and the Madras High Court in the case of CIT vs Speedways rubber Limited [2010] 326 ITR 0031 (P&H) which have considered the claim of the assessee as a bonafide claim and while holding the default to be technical in nature decided the issue in favour of the assessee. The view so taken it was submitted was despite the availability of the decision of the Hon’ble Jharkhand High Court in Bhalotia Engineering Works Ltd. (cited supra) and was cited before the Hon’ble High Court by the Revenue. For similar reasons, the decisions of the Madras High Court in the case of Rugmini Ram Ragav Spinners P.Ltd. [2008] 304 ITR 0417 (Madras) which was again on similar facts and circumstances was relied upon. In these circumstances, it was his submission that on facts where the assessee was under bonafide belief that borrowing of cash from a sister concern to tide over the financial urgency which at that point of time was contemplated would be adjusted by allotting share application money and ultimately it was repaid by cheque on 22.06.2007. In these circumstances, it was his submission that the penalty deserves to be quashed.

 It was further submitted that on facts the decision of the Hon’ble Jharkhand High Court in Bhalotia Engineering Works Ltd. (cited supra) was distinguishable.

Ld. AR canvassed that the repayment in cash was made under a bonafide belief that the repayment to a sister concern did not constitute a violation. Thus having addressed the facts of the case in the context of the stand of the parties thereon where the Ld. Sr. DR has heavily relied upon the decision of the Hon’ble Jharkhand High Court in Bhalotia Engineering Works Ltd. (cited supra) and the Ld.AR has relied upon I.P. India Ltd. amongst others of the Jurisdictional High Court (cited supra); CIT vs Raugmini Ram Raghav Spinners (P.) Ltd. (cited supra) and CIT vs Speedways Rubber (P.) Ltd. (cited supra) of the Hon’ble Allahabad High Court. On a consideration of the aforesaid decisions in the facts and considering the view expressed by the Hon’ble Delhi High Court in the case of CIT vs I.P. India Ltd. (cited supra). I find that there is no doubt that there is a cleavage of judicial opinion on the point of reasonable cause u/s 273B thus following the judicial precedent by applying the judgement of the Hon’ble Supreme Court in the case of CIT vs Vegetables Products Ltd. (cited supra), I am of the view that the penalty imposed in each of these cases deserves to be quashed. Nothing has been brought on record by the Revenue to show that the assessee as a result of his business and interactions with the department in the earlier years had been made aware that accepting and repaying in cash to sister concerns in order to tide over financial emergencies were in violation of the provision of the Act. In the absence of any such evidence the plea of bonafide belief in the peculiar circumstances cannot be discarded. It is seen that the assessee has consistently canvassed that there was a bonafide belief that the amount taken from the sister concern in cash is not a violation of any provision. Similarly for the purposes of ITA No.855/Del/2014 the return of loan by cash to the sister concern under a bonafide belief that the transaction with sister concerns is not in violation for similar reasons in the absence of any evidence to the contrary cannot be disbelieved. It is seen that the genuineness of the transactions have not been questioned despite the fact that the group company has been searched accordingly since nothing has been brought on record to canvass that reasonable cause is not constituted and considering the judicial precedent cited the appeals of the assessee, I find have to be allowed. Before parting it is necessary to address the decision of the Hon’ble Jharkhand High Court relied upon by the Revenue. On consideration thereof it is seen that on facts the said decision is entirely distinguishable as the cash in the facts therein had been obtained from 10 persons and not from identified assessee’s like sister concerns of the assessee as is a fact in the present proceedings.

Accordingly considering the judicial precedent cited in the absence of any rebuttal on reasonable cause argued by the assessee in each of these appeals consistently and finding that the decision rendered in Bhalota EngineeringWorks (cited supra) is entirely distinguishable on facts the impugned orders are set aside and the penalties imposed in each of these appeal is quashed.