Repayment of cash loan by cheque doesn’t exonerate levy of penalty u/s 271D

Ramakrishna Murali Vs ITO Ward-6(3)(1) (ITAT Bangalore)

ITAT Bangalore held that penalty u/s 271D of the Income Tax Act is leviable on loan taken by way of cash. Notably, repayment of cash loan by way of cheque wouldn’t exonerate the assessee from levy of penalty.

Facts-

The assessee is an individual engaged in the business of wholesale trading in wines, liquor and other related products as a proprietor and under the name & style of M/s. Nanjundeshwara Wines. During assessment proceedings, it was noticed by the AO that assessee has taken unsecured loan by way of cash at Rs.1,64,70,000/- by various parties.

AO issued a show cause notice on 1.4.2015 requiring the assessee to show cause as to why an order imposing penalty should not be made u/s 271D of the Act. The notice was duly served on the assessee. There was no response from the assessee to the said notice since the change of jurisdiction from Range-6(2) to 6(3), again one more letter dated 14.8.2015 was issued as a final opportunity and the said letter was duly served on 14.8.2015 itself and the acknowledgement was brought on record by AO and there is no response from the assessee for the said letter.

Consequently, AO levied penalty of Rs. 164.70 Lakhs u/s 271D. The same was confirmed by CIT(A). Being aggrieved, the present appeal is filed.

Conclusion-

Mere fact that the physical delivery of the notice was made to a person other than the addressee and a person who had no authority to receive the letter on the addressee’s behalf, would not be sufficient to prove that there has been no proper service.

The repayment of said cash loan by way of cheques would not exonerate the assessee from levy of penalty u/s 271D of the Act and this is not stipulated in the provisions of section 273B of the Act. Accordingly, in our opinion, there is no reasonable cause so exist at the time of taking this impugned amount of cash loan from various parties otherwise than by crossed cheque or demand draft. In view of the above discussion, we confirm the levy of penalty u/s 271D of the Act to the tune of Rs.1,64,70,000/-.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This appeal by assessee is directed against order of CIT(A), NFAC passed u/s 250 of the Income-tax Act,1961 [‘the Act’ for short] dated 4.8.2022, wherein the Ld. CIT(A) confirmed the levy of penalty u/s 271D of the Act at Rs.1,64,70,000/-. The assessee has raised following grounds of appeal:-

1. The Id. Commissioner of Income Tax (Appeals) has grossly erred in upholding the penalty order u/s 271D of the Act under the facts and circumstances of the case.

2. The Id. Commissioner of Income Tax (Appeals) has grossly erred in upholding the of Rs.1,64,70,000/- under the facts and circumstances of the case.

3. The penalty order passed by the learned assessing officer under section 271D of the Act is barred by limitation and consequently penalty order is liable to be quashed on the facts and circumstances of the case.

4. The assessing officer has grossly erred in serving the impugned penalty order dt. 28.10.2015 on 16.01.2018 which is barred by limitation and the penalty order is liable to be quashed in full under the facts and circumstances of the case.

5. The appellant denies himself regarding the acknowledgement for service of penalty order [as given personally by the ACT, Circle — 6(2)(1), Bangalore] inasmuch as the same is not delivered on the appellant and accordingly the penalty order is liable to be quashed in full under the facts and circumstances of the case.

6. The assessing officer has grossly erred in not serving the impugned penalty order in accordance with law under the facts and circumstances of the case.

7. The appellant denies himself from being served with the impugned penalty order inasmuch as date of acknowledgement of receipt as shown in the photocopy given by the Assessing Officer is 28.10.2015; whereas date of despatch of order from the Assessing Officer’s office control is 30.10.2015 and accordingly the impugned order could never have been served upon the appellant under the facts and circumstances of the case.

8. The assessing officer has grossly erred in not mentioning as to, what prevented him from serving the impugned penalty order to the appellant by way of RPAD which is duly recognised under the Act under the facts and circumstances of the case.

9. The assessing officer has grossly erred in alleging that the impugned penalty order is served personally on the appellant’s wife who is neither a party to the assessment/ penalty proceedings nor is authorized by the appellant to receive the impugned penalty order under the facts and circumstances of the case.

10. The assessing officer has grossly erred in making false allegations that the impugned penalty order is served on the appellant’s wife under the facts and circumstances of the case.

11. Without prejudice to the above, the appellant denies himself liable to be levied with penalty amounting to Rs.1,64,70,000/- u/s 271D of the Act under the facts and circumstances of the case.

12. For the above and other grounds to be urged during the hearing of the appeal the appellant prays that the appeal be allowed in the interest of equity and justice.

2. Facts of the issue are that the assessee is an individual engaged in the business of wholesale trading in wines, liquor and other related products as a proprietor and under the name & style of M/s. Nanjundeshwara Wines. For the assessment year under consideration, the assessee filed return of income declaring total income of Rs.19,41,200/- on 21.11.2012 vide acknowledgement No.532491861211112. The assessee’s case was subject to scrutiny assessment u/s 143(3) of the Act and the assessment order was passed u/s 143(3) of the Act on 27.3.2015 by assessee assessing the total income of assessee at Rs.39,49,290/- as against declared income of Rs.19,41,200/-. It was noticed by the AO that at the time of assessment, assessee has taken unsecured loan by way of cash at Rs.1,64,70,000/- by various parties as below:-

3. The AO issued a show cause notice on 1.4.2015 requiring the assessee to show cause as to why an order imposing penalty should not be made u/s 271D of the Act. The notice was duly served on the assessee. There was no response from the assessee to the said notice since the change of jurisdiction from Range-6(2) to 6(3), again one more letter dated 14.8.2015 was issued as a final opportunity and the said letter was duly served on 14.8.2015 itself and the acknowledgement was brought on record by AO and there is no response from the assessee for the said letter. In the meantime, the AO took note of the assessee’s reply during the course of assessment vide its letter dated 23.3.2015, wherein the assessee stated as follows:-

“As per the unsecured loan herewith I am furnishing confirmation from the parties, the assessee has taken loan by way of cash and subsequently returned the amount by way of cheques of Rs.164.70 lakhs. Since the assessee has itself admitted that he has taken a loan of an amount of Rs.164.70 lakhs by way of cash.”

Consequently, the AO levied penalty of Rs.164.70 lakhs vide order dated 28.10.2015.

3.1 Against this assessee went in appeal before CIT(A) challenging the penalty order so passed beyond the time limit prescribed in the Act. The CIT(A), NFAC observed that as per acknowledgement slip dated 28.10.2015, the assessee has received penalty order from JCIT Range-6(3) by one Mrs. Nethravathi on 28.10.2015 and D/N56 dated 28.10.2015/ITNS50 has been signed by Mrs. Nethravathi. Accordingly, he observed that the penalty order has been passed within due date prescribed in the Act and also served within the time. Against this, assessee is in appeal before us. The Ld. A.R. on legal grounds in ground nos.(3) to (9) regarding validity of service of penalty order as follows:

3.2 At the outset, it is submitted that the assessee was not served with a valid penalty order together with notice of demand u/s 156 of the Act within due date as prescribed under the Act. The assessee was called upon in the first week of January 2018 by the Asst. Commissioner of “Income Tax, Circle – 6(3) (1), Bangalore for payment of certain outstanding demand of taxes which included the impugned penalty order u/s 271D of the Act. The assessee denied that he was not served with any penalty order for the impugned assessment year and accordingly is not aware of the penalty order being passed for the impugned assessment year and subsequently the same was brought to the notice the Assessing Officer. The assessee made oral requests before the Assessing Officer to provide an attested copy of the penalty order in order to verify the demand together with notice of demand; however, the assessee was not provided with a copy of the same. Various requisition letters were written to the Assessing Officer on seven occasions to produce certified copies of assessment and penalty orders on the following dates:

a. 8.03.2018;

b. 9. 03.2018;

c. 10.04.2018;

d. 11. 04.2018;

e. 12. 05.2018;

f. 13.05.2018;

g. 14.05.2018.

3.3 It is further submitted by the ld AR that after making seven requests before the Assessing Officer, the Assessing Officer ‘has considered only the letters dt. 26.04.2018, 03.05.2018, 07.05.2018 & 10.05.2018 which have been clearly mentioned by the Assessing Officer in his reply letter dt. 24.05018. The Assessing Officer has disregarded the assessee’s request and pleas filed on 08.03.2018, 29.03.2018 and 12.04.2018. The assessee had requested the Assessing Officer to provide certified copies of the following orders since none of the following orders were served on the assessee well within time. Only photocopies of the following orders were personally submitted by the Assessing Officer Circle – 6(3)(1) on 16.01.2018 to the assessee’s AR. Following are the certified orders which the assessee had requested the Assessing Officer to provide for:

3.4 It is submitted by the ld AR that even in the letter dt. 24.05.2018, the Assessing Officer has not provided the certified copy of impugned penalty order u/s 271D of the Act. Only a photocopy of the penalty order u/s 271D of the Act was given to the assessee’s AR on 16.01.2018 which clearly indicates that the assessee was never served with the penalty notice and` accordingly no liability is cast upon the assessee and therefore the impugned penalty order passed by the Assessing Officer stands void-ab-initio. In this regard, he placed reliance on the decision of the Hon’ble Karnataka High Court in the case of Maharaja Shopping Complex Vs. DCIT in ITA No. 832/2008 has observed a similar proposition as under:

“Any authority on which power is conferred, the exercise of which power would affect the rights of the parties, is to communicate its order to the party against whom the order would operate. The mere preparation of an order or even keeping the order signed in the files of the office would not render it an effective order, an order which is operative. The exceptions are cases where there is requirement of pronouncing the orders and they are pronounced on notified dates. Then irrespective of the actual presence or otherwise of the parties, notices to the parties is assumed. In other cases, if the authority making the order fails to communicate the order, the order could not be said to have been made, for communication of such order is an essential part of making such order. This is naturally so, for any authority who writes out an order and signs it is free to change it at any time before it is communicated. It is not final at all, for the authority may become wiser on information supplied to it or otherwise and may choose to change order at any time before it is dispatched to the party against whom it operates.”

It is therefore submitted by the ld AR that the assessee was never served with the impugned penalty order to enforce demand and accordingly there is no liability cast upon the assessee.

3.5  It is further submitted by the ld AR that in yet another similar case, the Hon’ble Supreme Court in the case of B.J.Shelat v. State of Gujrat AIR 1978 SC V109 has held as under:

“The Hon’ble Court in the above decision observed that “For the proviso to become operative it is necessary that the Government should not only take a decision but communicate it to the Government servant. It is not necessary that the communication should reach the Government Servant. As held by this Court in State of Punjab Vs. Khemi Ram it will be, 4ufficient if such an order is sent out and goes out of control of the appointing authority before the relevant date. Further it is observed by the Hon’ble Court that “when once issued and sent out to the concerned Government Servant must be held to have been communicated. no matter when he actually received it.”

3.6 Further reliance was placed on the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Purshottamdas T Patel [1994] 209 ITR 52 [Guj] wherein the Hon’ble High Court has held as under:

“In the above case the Hon’ble Court held that the Assessing Officer having failed to determine the tax payable on assessed income within time prescribed under section 153, though the assessment order was passed within time, the assessment had become time barred.”

3.7 Further reliance was placed on the decision of the Hon’ble Kerala High Court in the case of K. Joseph Jacob Vs. Agricultural Income-tax Officer 190 ITR 464 wherein the Hon’ble High Court has held as under:

“The Hon’ble Court held that “an order of assessment comes into force only when it is communicated. This is not only by reason of Section 30, ‘but also for a more fundamental reason, namely, that a party against whom an order is made must be put on notice of that order. The date of making or signing the order is not determinative of its effect. At that stage, the order is only unilateral in a sense and not irrevocable; it becomes bilateral or binding only on communication.”

3.8 Further reliance was placed on the decision of Hon’ble Kerala High Court in the case of Cammi.tsioner of Agricultural Income-tax Vs. Kappumalai Estate 234 ITR 187 wherein the Hon’ble High Court has held as under:

“The Hon’ble Court observed that this court had taken the view that to make the order complete and effective it should be issued so as to be beyond the control of the authority concerned, for any possible change or modifications This should be done within the prescribed period; though the actual service of the order may be beyond that period.”

3.9 In view of the above submissions, the ld AR stated that it is amply clear and unambiguous that the penalty order u/s 271D of the Act for the A.Y: 2012-13 was not served upon the assessee well within time and only a copy thereof was served on 16.01.2018, which indicates that the impugned penalty order is bad in law and is liable to be quashed in total and is barred by limitation.

3.10 In view of the foregoing submissions, elucidations, explanations and having regard to various judicial pronouncements, the ld AR prayed that the penalty order u/s 271D of the Act be quashed and the appeal of the assessee be allowed in the interest of equity and advancement of substantial cause of justice in the eyes of law.

B. VALIDITY OF SIGNATURE, DATE OF SERVICE OF PENALTY ORDER READ WITH DATE OF DISPATCH OF PENALTY

ORDER:

3.11 The ld AR for the assessee submitted that the assessee was provided with a photocopy of the penalty order u/s 271D of ^.the Act for the A.Y: 2012-13 on 16.01.2018. As can be seen from the photocopy of the penalty order, the impugned penalty order is passed on 28.10.2015 by the Joint Commissioner of Income Tax, Range – 6(3), Bangalore. As per the dispatch stamp affixed by the office of the Joint Commissioner of Income Tax Range – 6(3), Bangalore, the penalty order was dispatched on 30.10.2015. He stated that it is to be noted here that once the order is dispatched, the same should have been acknowledged by a postal authority and not by hand delivery by obtaining signature on the acknowledgement slip available with the department. In other words, the photocopy of the penalty order provided by the Assessing Officer on 16.01.2018 is coupled with acknowledgement slip, wherein it was seen that the impugned penalty order was received in person and it was alleged that the order was served on the assessee’s wife.

3.12 It was further submitted by the ld AR that the penalty order u/s 271D of the Act is not properly served on the assessee inasmuch as, if the order is dispatched, it should have been served on the assessee by post. However, the assessee has neither served with the order by post nor in person. On the other hand, there appears a signature in the name of Nethravathi. It is pertinent and important here to note that the wife of the assessee, Smt. Nethravathi is nowhere connected to the case of the assessee and the ld AR strongly submitted that the wife of. the assessee has also not signed the acknowledgement slip.

3.13 The ld AR for the assessee further submitted that as per the procedure to be followed for communication of an order, the Assessing Officer ought to have served the order on the assessee either through a registered post or in person to the assessee or through assessee’s authorized representative. Here, in the present case, assessee’s wife is neither the assessee nor is authorized by the assessee to receive the order and accordingly the impugned penalty order is never served upon the assessee. He further submitted that even though Smt. Nethravathi is the wife of the assessee, insofar as the income tax case is concerned, she is in no way connected to the assessee’s present case since Smt. Nethravathi is altogether a different person within the ambit of, the income tax law. The signature appearing on the acknowledgement slip together with the impugned penalty order, does not match with the signature of Smt. Nethravathi (assessee’s wife).

3.14 The ld AR further submitted that the impugned penalty order passed on 28.10.2015 and the dispatch seal on the order was 30.10.2015. However, the signature appearing on the acknowledgement slip was in the name of Smt. Nethravathi (signature does not belong to Smt. Nethravathi) and the same was dt. 28.10.2015. From this it is amply clear that the order was never served on the assessee since the date of receipt of order in the acknowledgement slip cannot be prior to date of dispatch. He further submitted that, if the order is dispatched, there was no necessity to take a signature on the acknowledgement slip which by itself means that the documents are fabricated by the person who is in-charge of serving the orders which is beyond the control of the assessee and the assessee was never served with the penalty order. 3.15 Further to the above, the following averments made by the assessee, the following facts are brought out by the ld AR before this Tribunal for consideration and favourable orders:’

a. The Assessee wishes to submit that the impugned order of penalty passed by the learned Assessing Officer dated 28.10.2015 was received by the Assessee only on 16.01.2018 [personally given by the ACIT Circle – 6(2)(1), Bangalore to the AR of the assessee Sri. B.Gopal].

b. The Assessee in view of the above submitted that the order passed under the provisions of section 271D of the Act in the instant case is barred by limitation as per the provisions, of the Act.

c. The assessee submitted that though the order is dated on 28.10.2015, it was received by the assessee only on 16.01.2018. The penalty order has been passed by the learned Assessing officer after 30.09.2015, as per the requirement of the Act the order ought to have been passed on or before 30.09.2015 and the said impugned order ought to have been served on or before 30.09.2015, which in the instant case, the said order of assessment is served only on 16.01.2018.

d. The assessee submitted that the order of any authority could not be said to be passed unless it was in some way pronounced or published. It was not enough if the order was made, signed and kept in the file. To make the order complete and effective, it should be issued, so as to be beyond the control of the authority concerned, for any possible change or modification. Thus, the ld AR submitted that the order of assessment ought to have left the office of the learned Assessing officer on or before 30.09.2015 but in the instant case the order has been served on the assessee only after the specified date i.e., 30.09.2015, thus the order is passed in violation of section 275 of the Act and cannot stand the test of law.

e. The assessee submitted that the Assessing Officer ought to have passed the order before 30th September, 2015 and ought to have served the penalty order on the assessee. The impugned order of assessment is served on 16.01.2018 which is clearly barred by limitation.

f. The assessee placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of M/s. Maharaja Shopping Complex Vs. DCIT in ITA No.832/2008 dated 14/10/2014.

g. The assessee places relianceon the reasoning of the following decisions with \regard to the above proposition:

B.J.Shelat v. State of Gujrat AIR 1978 SC 1109:

The Hon’ble Court in the above decision observed   that “For the proviso to become operative it is necessary that the Government should not only take a decision but communicate it to the Government servant. It is not necessary that the communication should reach the Government Servant. As held by this Court in State of Punjab Vs. Khemi Ram it will be, sufficient if such an order is sent out and goes out of control of the appointing authority before the relevant date. Further it is observed by the Hon’ble Court that “when once issued and sent out to the concerned Government Servant must be held to have been communicated no matter when he actually received it.

CIT Vs. Purshottamdas T Patel [1994] 209 ITR 52 [Guj]:

In the above case the Hon’ble Court held that the Assessing Officer having failed to determine the tax payable on assessed income within time prescribed under section 153, though the assessment order was passed within time, the assessment had become time barred.

> Baba Ji Rice Mills Vs. State of Punjab [2012] 41 PHT 197  [PVT]:

In the above case the Hon’ble Tribunal held that since the appeal succeeds on the solitary point of limitation, therefore we need not to go into the discussion on any other point forming part of the grounds of appeal. Virtually the assessment order is void-ab-initio, being barred by limitation.

> K. Joseph Jacob Vs. Agricultural Income-tax Officer 190 ITR 464 [Ker]:

The Hon’ble Court held that “an order of assessment comes into force only when it is communicated. This is not only by reason of Section 30, but also for a more fundamental reason, namely, that a party against whom an order is made must be put on notice of that order. The date of making or signing the order is not determinative of its effect. At that stage, the order is only unilateral in a sense and not irrevocable; it becomes bilateral or binding only on communication.

> Commissioner of Agricultural Income-tax Vs.  Kappumalai Estate 234 ITR 187 [Ker]:

The Hon’ble Court observed that this court had taken the view that to make the order complete and effective it should be issued so as to be beyond the control of the authority concerned, for any possible change or modification. This should be done within the prescribed period, though the actual service of the order may be beyond that period.

√ Shanthilal Godawat & others Vs. ACIT, ITAT, Jodhpur Bench [2009] 30 DTR 413:

√ The Hon’ble Tribunal held that the assessment orders passed in the case of the assessee on 28^th December, 2007 but dispatched on 2^nd January, 2008 are beyond the period of limitation provided under the concerned provisions of law, more so when such orders cannot be taken as orders made in the manner as has been understood by a higher forum.

√ Kanubhai M. Patel [HUF] Vs. Hiren Bhatt or his successors to office 334 ITR 25 [Guj];

√ Government Wood Workshop v. State of Kerala [1998] 69 STC 62;

√ State of Punjab Vs. Khemi Ram AIR 1970 SC 214;

√ CIT Vs. BJN Hotels, 382 ITR 110 [Kar].

3.16 The ld AR further submitted that a copy of the impugned penalty order was provided personally to the authorised representative of the assessee Sri. B.Gopal which was coupled with an acknowledgement for having served the impugned penalty order and the assessing officer alleged that the penalty was duly served. It is pertinent here to note that on verification of the penalty order u/s 271D of the Act as provided by the assessing officer, the acknowledgement contains a signature mentioning “wife” in the brackets in the acknowledgement. The assessing officer further alleged that the penalty order was served on the wife of the assessee [Nethravathi] personally and further alleged assessee’s wife signature was taken on the acknowledgement. It is further pertinent here to note that the signature of the assessee’s wife does in no way match with her original signature as appearing in her PAN card. The ld AR therefore brought to our notice that the assessee is totally unaware as, to whom the impugned penalty order is served upon by the assessing officer. The signature appearing in the acknowledgement as personally given by the assessing officer on 16.01.2018 does not match with the assessee’s wife signature.

3.17 Th ld AR further submitted that without prejudice to the above, assuming but not conceding to the fact that the penalty order is served on the assessee’s wife, the assessing officer has grossly erred in serving the same on the assessee’s wife. The ld AR strongly and vehemently submitted that the assessing officer did not have any powers of whatsoever nature to serve the penalty order on the assessee’s wife who is in no way concerned with the impugned penalty order pertaining to the assessee. It is further stated that the personal service of impugned penalty order is not the way of serving the order; the same had to be served on the assessee by way of registered post acknowledgement due [RPAD]. It is to be noted that when the assessing officer is having the address of the assessee, what prevented the assessing officer by not serving the impugned penalty order on the assessee by way of RPAD. The assessing officer has grossly violated his duties by not serving the impugned order by RPAD. The assessing officer has further violated his powers by serving the impugned penalty order to the assessee’s wife [as alleged by the assessing officer himself on 16.01.2018] inasmuch as the assessee has not given any power to his wife to collect the impugned penalty order on his behalf.

3.18 Further, the ld AR stated that as per the allegations made by the assessing officer that the impugned penalty order is served personally upon the assessee’s wife; assuming but not conceding to that fact, it is very important and pertinent to note that the impugned penalty order u/s 271D of the act was dt. 28.10.2015 and the date of dispatch was 30.10.2015, whereas the acknowledgement as per the copy provided by 16.01.2018 shows that there is a signature (assessing officer alleges that the assessee’s wife personally] which is dt. 28.10.2015. It was vehemently argued by the assessee and brought to our notice that the date of service of impugned penalty order is prior to the date of dispatch. the same is reproduced herein below:

a. DATE OF ORDER :28.10.2015

b. DATE OF DESPATCH :30.10.2015

c. DATE OF SERVICE :28.10.2015

3.19 The ld AR further stated that, from the above, it is very clear without an iota of dispute that the impugned penalty order is not served upon the assessee and the assessing officer has accommodated himself to his convenience so as to recover taxes and penalty from the assessee further to harass and cause undue hardship to the assessee in exercise of ^*his powers. Therefore, the ld AR submitted that where the impugned penalty order u/s 271D of the Act is never served on the assessee, the same is null and void and is unenforceable under the law and accordingly entire order is liable to be quashed and he prayed that the penalty imposed may be dropped and the appeal of the assessee be allowed in the interest of equity and, advancement of substantial cause of justice in the eyes of law.

4. On the other hand, Ld. D.R. submitted that the penalty order has been passed on 28.10.2015 and has been duly served to the assessee in a given address and on 28.10.2015 it is evident from the acknowledgement signed by Mrs. Nethravathi, her mobile number has been recorded as 9845166999 served by N. Sashidhara, which is evident from the ITNS 50/DN156/dated 28.1.2015. Further, the said penalty order also served by way of RPAD by dispatching on 30.10.2015 to the given address and the said RPAD has not been received back from the department. Thus, it seems that there was both manual service of penalty order on 28.10.2015 itself received by Mrs. Nethravathi and also service by RPAD vide dispatch dated 30.10.2015 and RPAD brought on record at page 49 of the appeal paper book and there is no merit in the argument of assessee’s counsel that penalty order has been served to the assessee and barred by limitation.

5. In reply, the Ld. AR submitted that the assessee has filed the appeal before the CIT(A) on 15.2.2018 and stated before the CIT(A), NFAC that he has received the photocopy of the penalty from AO only on 16.1.2018 and same was brought to the notice of the CIT(A) and he has admitted the appeal as the appeal has been filed in time without any delay. This act itself shows that the penalty order has not been served by the AO on time. For this purpose, he relied on the judgement of Hon’ble Karnataka High Court in the case of Maharaja Shopping Complex Vs. Deputy Commissioner of Income-tax in ITA No.832/2008, wherein observed as under:

“Any authority on which power is conferred, the exercise of which power would affect the rights of the parties, is to communicate its order to the party against whom the order would operate. The mere preparation of an order or even keeping the order signed in the files of the office would not render it an effective order, an order which is operative. The exceptions are cases where there is requirement of pronouncing the orders and they are pronounced on notified dates. Then irrespective of the actual presence or otherwise of the parties, notice to the parties is assumed. In other cases, if the authority making the order fails to communicate the order, the order could not be said to have been made, for communication of such order is an essential part of making such order. This is naturally so, for any authority who writes out an order and signs it is free to change it at any time before it is communicated. It is not final at all, for the authority may become wiser on information supplied to it or otherwise and may choose to change order at any time before it is dispatched to the party against whom it operates.”

6. We have heard the rival submissions and perused the materials available on record. To decide the limitation to pass the order u/s 271D of the Act, we need to notice the relevant provisions of section 275 of the Act, which reads as follows:-

“275(1) No order imposing a penalty under this Chapter shall be passed:-

(a) in a case where the relevant assessment or other order is the subject mater of an appeal to the Commissioner (Appeals) under section 246 (or section 246A) or an appeal to the Appellate Tribunal under section 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the (Principal Chief Commissioner or) chief Commissioner of (Principal Commissioner or) Commissioner, whichever period expires later:

[Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A, and the Commissioner (Appeals) passes the order on or after the 1^st day of June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one yar from the end of the financial year in which the order of the Commissioner (Appeals) is received by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner, whichever is later;]

(b) in a case where the relevant assessment or other order is the subject matter of revision under section 263 [or section 264], after the expiry of six months from the end of the month in which such order of revision is passed;

(c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.]”

6.1 The instant case falls in the third category of section 275(1)(c) of the Act and the first part of this section 275(1)(c) of the Act have no application and it was only the period of limitation prescribed in the second part which would apply and since only one period of limitation would be applicable, the expression “whichever period expires later” would have to be read as the very period of limitation. That being the position, the period of limitation for passing the penalty orders starts from date of issue of notice for initiation of penalty u/s 271D of the Act on 1.4.2015. This notice has been duly served to the assessee. There was no response from the assessee to said notice. Since there was change of jurisdiction from Range-6(2) to Range-6(3), again one more letter dated 14.8.2015 was issued as the final opportunity and the said letter was duly served on assessee on 14.8.2015 and acknowledgement also brought on record by the revenue authorities. There is no response from the said notice from the assessee’s side. Finally, the penalty order has been passed on 28.10.2015. In the present case, as enumerated in the second part of provisions of section 271(1)(c) of the Act, period of limitation for passing the penalty order is 6 months from the end of the month in which action for imposition of penalty is initiated. As stated above, the initiation has been by notice dated 1.4.2015. The 6 months commence from end of the month i.e. 30.4.2015 and expires on 31.10.2015. The penalty order has been passed in this case on 28.10.2015 and this was clearly within the time prescribed u/s 275(1)(c) of the Act and the penalty order is valid. Further, from reading of section 275(1) of the Act states that “no order of imposing a penalty under this chapter shall be passed and there is no mention about the “service” of the order, however, it is only mentioned that the order shall be “passed”. With regard to “service” it has clearly been found in section 143(2) of the Act but not in section 275 of the Act regarding service of notice has been mentioned. Therefore, the passing of penalty order is within due date is requirement of law u/s 275 of the Act and there was no necessity of service of penalty order to the assessee within the prescribed time even if we admit the contention of the assessee’s counsel for argument purpose, the penalty order is not served to the assessee within prescribed time limit u/s 275 of the Act, it does not invalidate the penalty order herein. With this observation, we reject the argument of assessee’s counsel on the reason that the penalty order got served by the AO by way of RPAD that was dispatched on 30.10.2015, which was served on assessee i.e. R. Murali on given address.

6.2 Further, under rule 15, as substituted by Act 104 of 1976, of the Code of Civil Procedure, service may be made on any adult member of the family, whether male or female, who is residing with the defendant. But this is so only where (i) the defendant is absent from his residence at the time when the service is sought to be effected on him at his residence, (ii) there is no likelihood of his being found at his residence within a reasonable time and (iii) he has no agent empowered to accept service on his behalf. If all these conditions are not satisfied, it cannot be said that a valid service has been effected as per the provisions of rule 15 as held by the Hon’ble Supreme Court in the case of Smt. Indu Barua v. CWT (1980) 125 ITR 436, 442-43 (Gauh) (SC). In the present case the penalty order was served on Smt. Nethravathi, wife of assessee by notice served by manually.

6.3 There is a valid signature affixed by Smt. Nethravathi and the date was also mentioned as 28.10.2015. Thus, there is a presumption that official acts have been done in due course of discharge of official duty. Consequently, the only inference is that a letter was duly signed and was delivered to the addressee by the notice server i.e. N. Shashidar. The date found on such letter has to be accepted to be correct as held by the Hon’ble Supreme Court in the case of Radha Ballabh v. State of UP (1995) Supp. (3) SCC 119, 127 (SC).

6.4 The penalty order was also served on assessee by RPAD also which was dispatched to given address on 30.10.2015. Section 27 of the General clauses Act, 1897 (10 of 1897), provides that service by post is deemed to have been effected by properly addressing, prepaying and posting by registered post, a letter containing the notice required to be served. Unless the contrary is proved, the service is deemed to have been effected at the time at which the letter would be delivered in the ordinary course of post. Therefore, the considerations for validity of service by post are different from those where service is by hand. In other words, section 27 of the General Clauses Act, 1897 (10 of 1897), deals with the presumption of service of a letter sent by post. The despatcher of a notice has, therefore, a right to insist upon and claim the benefit of such a presumption. But as the presumption is a rebuttable one, he has two options before him. One is to concede to the stand of the sendee that as a matter of fact he did not receive the notice, and the other is to contest the sendee’s stand and take the risk of proving that he in fact received the notice. It is open o the despatcher to adopt either of the options. If he opts the former, he can afford to take appropriate steps for the effective service of notice upon the addressee. For this proposition, we place reliance on the judgement of Hon’ble Supreme Court in the case of Dalmia Cement (Bharat) Ltd. v. Galaxy Traders & agencies Ltd. (2001) 104 Comp Cas 472, 478 (SC).

6.5 Further, where neither the unserved envelope containing notice sent by registered post nor acknowledgement due card has been received back, the notice must be deemed to have been served. For this proposition, we place reliance on the judgements of Hon’ble Supreme Court in the following cases:

1. Chief CIT v. V.K. Gururaj, (1996) 7 SCC 275, 276

2. Attabira Regulated Market Committee v. Ganesh Rice mills, (1996) 9 SCC 471 = AIR (1997 SC 1540;

3. Union of India v. Ujagar Lal, (1996) 11 SCC 116, 117;

4. Shimla Development Authority v. Smt. Santosh Sharma (1997) 2 SCC 637, 638 = AIR 1997 SC 1791;

5. Indian Bank v. Datla Venkata Chinna Krishnam Raju, AIR 1991 SC 908;

6. S. Srikanth v. Sri Lakshmi Financiers (1999) 98 Comp Cas 321, 326-27 (AP)].

In the present case, the penalty order sent by AO by RPAD has not been received back, it is to be presumed that, it has been served on assessee.

6.6 Further, where a notice is sent by registered post, correctly addressed and postage properly paid, there is a presumption of proper service. For this proposition, we place reliance on the judgement of Hon’ble Supreme Court in the case of Bhagwati Prasad v. Union of India (2003) 184 CTR (Cal) 12, 20 (SC)

6.7 Further, section 27 of the General Clauses Act, 1897 (10 of 1897), provides that service by post is deemed to have been effected by properly addressing, pre-paying and sending by registered post, a letter containing the notice required to be served. Unless the contrary is proved, the service is deemed to have been effected at the time when the letter would be delivered in the ordinary course of post. For this proposition, we place reliance on the judgement of Hon’ble Supreme Court in the case of CIT Vs,. Madhsy Films P. Ltd. (2008) 301 ITR 69 (Del) (SC). In the present case, the penalty order sent by AO has not been received back, it is to be presumed that, it has been served on assessee.

6.8 Further, where service is effected by registered post, the mere fact that the physical delivery of the notice was made to a person other than the addressee and a person who had no authority to receive the letter on the addressee’s behalf, would not be sufficient to prove that there has been no proper service. For this proposition, we place reliance on the judgement of Hon’ble Supreme Court in the following case:

1. CIT Vs. Malchand Surana (1955) 28 ITR 684 (Cal);

2. P. Saha v. CIT (1955) 27 ITR 231 (Dacca);

3. Bhopal Trading Co., v. CIT (1955) 28 ITR 478 (All);

4. MX De Noronha & Sons v. CIT (1950) 18 ITR 928 (All.);

5. Bharat Glass Factory v. STO, (1968) 21 STC 445 (All.);

6. Giri Mam Chand & Co. v. ITO (1978) CTR (All) 446, 449). However, in the present case, the penalty order sent by AO, addressed to assessee itself.

6.9 In view of the above discussion, we have no hesitation to hold that the penalty order has been properly passed within due date and has been properly served to the assessee. The grounds raised by the assessee that order passed by AO is barred by time or not served within time are rejected.

6.10 On merit in ground Nos. 2 & 10, the Ld. A.R. submitted that the AO has not given proper opportunity of hearing to the assessee and assessee was not able to put his argument on merit of the issue before AO. At the time of hearing, the Bench asked the Ld AR whether assessee has any reasonable cause to receive the cash advances otherwise than by cheque or demand draft as enumerated in section 273B of the Act. In reply the ld AR made a plea that due to personal exigency, emergency which necessitated the assessee to receive the cash loan and same has been repaid by cheque so that penalty may be deleted. However, we found that assessee has not shown any exigency or emergencies to accept said loan by way of cash by placing any materials or evidences in support of the plea of the assessee’s case. The repayment of said cash loan by way of cheques would not exonerate the assessee from levy of penalty u/s 271D of the Act and this is not stipulated in the provisions of section 273B of the Act. Accordingly, in our opinion, there is no reasonable cause so exist at the time of taking this impugned amount of cash loan from various parties otherwise than by crossed cheque or demand draft. In view of the above discussion, we confirm the levy of penalty u/s 271D of the Act to the tune of Rs.1,64,70,000/-.

7. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open court on 30^th Dec, 2022