AMIT BAJAJ ADVOCATE

Ashutosh Rajhans for the Appellant  

M. D. Shah for the Respondent  

ORDER  

D. K. Tyagi, Judicial Member:-  

The appeal preferred by the Revenue is directed against the order of the learned Commissioner of Income-tax (Appeals), Siliguri dated February 17, 2010 for the assessment year 2006-07 on the sole ground of deleting the imposition of penalty for Rs. 7 lakhs under section 271D in contravention of the provisions of section 269SS of the Act.

Briefly stated the facts of the case are that the Assessing Officer in the course of proceedings under section 143(3) of the Income-tax Act, 1961 found that the assessee had received cash loan exceeding Rs. 20,000 from 7 persons totalling Rs. 7,50,000 in contravention of the provisions of section 269SS of the Act. In the course of penalty proceedings, the authorised representative of the assessee submitted that a sum of Rs. 50,000 taken from Sri Shyamal Sarkar was a brought forward balance. On examination of case records, the Assessing Officer accepted this claim of the assessee. But in respect of remaining amount of Rs. 7,00,000, the Assessing Officer after considering the written submission of the assessee observed that the argument of the assessee was not tenable. The assessee had taken cash loan for payment of salary to his employees. Paying salary is not a business exigency but a routine payment which being a regular feature of any business, is not a business exigency. There was no urgent business need in paying the routine salary which was being paid every month. For this reason he needs to plan accordingly. Salary payment occurs on regular basis and any prudent businessman would plan accordingly and all of a sudden not take cash loans when he fully knows it is in contravention of the provisions of section 269SS of the Act. In view of the above, the Assessing Officer imposed penalty of Rs. 7,00,000 under section 271D on receipt of cash loan exceeding Rs. 20,000 from the six persons. In appeal, the learned Commissioner of Income-tax (Appeals) deleted the penalty as imposed by the Assessing Officer. Aggrieved by the said order, the Revenue is in appeal before us.

At the time of hearing before us, the learned Departmental representative relied on the order of the Assessing Officer and submitted that the Assessing Officer has rightly levied penalty on the assessee under section 271D of the Act on the ground that the assessee had contravened the provisions of section 269SS of the Income-tax Act by accepting cash loans exceeding Rs. 20,000. On appeal, the learned Commissioner of Income-tax (Appeals) deleted the said penalty holding that the receipt of cash loan exceeding Rs. 20,000 was raised for the payment of salary and wages to his employees and security personnel, which is not justified as there was no business exigency, but the payment of salary is a routine payment, which is paid every month for which the assessee needs to plan accordingly. Since all the transactions were done in cash by violating the provisions of section 269SS of the Act, the action of the Assessing Officer in imposing penalty was fully justified. He lastly prayed before the Bench to set aside the order of the learned Commissioner of Income-tax (Appeals) and restore that of the Assessing Officer.

On the other hand, learned counsel for the assessee while reiterating his same submissions as submitted before the lower authorities relied on the order of the learned Commissioner of Income-tax (Appeals). He further submitted that the assessee was engaged in providing security guards to various Government and non-Government organisations and regular payment to the employees was essential to provide better services. As on May 9, 2005, the assessee had to pay Rs. 9,21,310 immediately for payment to the staff, whereas the opening cash balance on that date was only Rs. 3,98,787. Under this compelled situation, the assessee had to take cash of Rs. 7,00,000 from his friends and relatives to make the payment. He also submitted that due to extreme business exigency, the assessee had to accept cash loan. He also cited the following decisions in support of his contention stating that due to urgent business need, the assessee accepted cash loan, the penalty under section 271D was not leviable:-

(a) CIT v. Ratna Agencies [2006] 284 ITR 609 (Mad),
(b) CIT v. Parma Nand [2004] 266 ITR 255 (Delhi); 135 Taxman 100,
(c) CIT v. Kharaiti Lal and Co. [2004] 270 ITR 445 (P and H); [2005] 144 Taxman 178,
(d) Director of Income-tax (Exemption) v. All India Deaf and Dumb Society [2006] 283 ITR 113 (Delhi) ; 153 Taxman 1,
(e) CIT v. Balaji Traders [2008] 303 ITR 312 (Mad); 167 Taxman 27,
(f) OMEC Engineers v. CIT [2007] 294 ITR 599 (Jharkhand) ; [2008] 169 Taxman 158,
(g) CIT v. Maheshwari Nirman Udyog [2008] 302 ITR 201 (Raj); 170 Taxman 502,
(h) CIT v. Bombay Conductors and Electricals Ltd. [2008] 301 ITR 328 (Guj) ; 173 Taxman 434,
(i) Karnataka Ginning and Pressing Factory v. Joint CIT [2001] 77 ITD 478 (Mum),
(j) JITU Builders Pvt. Ltd. v. Addl. CIT [2010] 124 ITD 134 (Ahd),
(k) Joint CIT v. Luchman Das Surajmull in I. T. A. No. 848/Kol/2006 dated December 29, 2006, and
(l) Tarai Transport Corporation v. Joint CIT in I. T. A. No. 325/Kol/2007 dated April 20, 2007.

He lastly submitted that the levy of penalty under section 271D is not justified in this case.
Therefore, the learned Commissioner of Income-tax (Appeals) has rightly deleted the same and his action may be upheld.

We have heard the rival submissions, carefully perused the material available on record and the case law cited by learned counsel for the assessee. We find that the Assessing Officer imposed penalty of Rs. 7,00,000 on the assessee under section 271D of the Act on the ground that the assessee had contravened the provisions of section 269SS of the Income-tax Act by accepting cash loans exceeding Rs. 20,000. The assessee explained that these cash loans were taken to make the payment to the employees to avoid agitation of the employees and to maintain good relations with the employees. The assessee took the said cash loan due to shortage of funds and to meet the emergency needs under bona fide belief that those transactions would not attract any penal provision. We also find that the Assessing Officer has not disputed the fact that the loans were taken for payment of salary/wages to the employees working as security personnel for the assessee. We also find force in the submissions of the assessee that there was business exigency forcing the assessee to take cash loans for the purpose of disbursing salary/wages to the employees of the assessee. We also find that the Assessing Officer did not dispute the fact that the loans were taken for payment of salary to the employees. We also find that the hon'ble Madras High Court in the case of CIT v. Balaji Traders [2008] 303 ITR 312 ; 167 Taxman 27 has held as under:-

"Section 271D of the Income-tax Act, 1961—Penalty—For failure to comply with section 269SS—Assessment year 1993-94—Assessing Officer found that assessee had availed cash borrowings exceeding Rs. 20,000 for about 36 times during year—Considering assessee's act to be in violation of section 269SS, Assessing Officer imposed penalty upon assessee under section 271D—Tribunal found that there was business exigency forcing assessee to take cash loans for purpose of honouring its cheque commitments ; creditors were genuine persons and transactions were satisfactorily explained by assessee ; and there was no revenue loss to State exchequer—Tribunal accordingly, set aside penalty—Whether Tribunal was justified—Held, yes."

The hon'ble Jharkhand High Court in the case of OMEC Engineers v. CIT reported in [2007] 294 ITR 599 ; [2008] 169 Taxman 158 has held as under:-

"Section 271D of the Income-tax Act, 1961—Penalty—For failure to comply with section 269SS—Whether in context of penalty provisions, words 'reasonable cause' would mean a cause which is beyond control of assessee—Held, yes—Assessing Officer imposed penalty under section 271D upon assessee for having received cash deposits in violation of section 269SS—Assessee explained that it was in urgent need of money for making payment to labourers and sufficient cash not being available, it received cash deposits from different persons—Commissioner (Appeals) as well as Tribunal upheld imposition of penalty—Whether since there was no finding of assessing authority, appellate authority or Tribunal that transaction made by assessee in breach of provisions of section 269SS was not a genuine transaction and on contrary, return filed by assessee was accepted after scrutiny under section 143(3), imposition of penalty merely on technical mistake committed by assessee, which had not resulted in any loss of revenue, was harsh and could not be sustained in law—Held, yes."

The hon'ble Rajasthan High Court in the case of CIT v. Maheshwari Nirman Udyog reported in [2008] 302 ITR 201; 170 Taxman 502 has held as under:-

"Section 271D, read with sections 269SS and 273B, of the Income-tax Act, 1961—Penalty—For failure to comply with section 269SS— Assessment year 1993-94—Assessee-contractor had taken certain loans from its sister concern in cash to make payments to labourers at site—Assessing Officer held that transactions were not genuine ones and imposed penalty under section 271D—Commissioner (Appeals) and Tribunal came to a finding that transactions were genuine and there was reasonable cause for accepting loan in cash and, therefore, no penalty was exigible—Whether question as to whether a particular transaction is genuine or otherwise is a question of fact, and if it had been found by Tribunal that assessee had shown a reasonable cause for accepting money in cash, said finding of fact could not be interfered with—Held, yes."

The hon'ble Gujarat High Court in the case of CIT v. Bombay Conductors and Electricals Ltd. reported in [2008] 301 ITR 328 ; 173 Taxman 434 has held as under:-

"Section 271D of the Income-tax Act, 1961—Penalty—For failure to comply with section 269SS—Assessment year 1991-92—Assessee-company purchased goods from time-to-time from creditor company —As it was not able to make payment of outstanding purchase price immediately, it arrived at an understanding with creditor company whereunder outstanding purchase price was to be treated as loan on 'sarafi account' after making part payment of outstanding dues— Assessing Officer, however, treated outstanding amount on 'sarafi account' as acceptance of deposit in violation of section 269SS and imposed penalty upon assessee under section 271D—Tribunal deleted penalty holding that there was no evidence on record to show that infraction of provisions was with knowledge or in defiance of provisions ; and that breach, if any, was merely a technical or venial breach—Whether Tribunal was justified in deleting penalty—Held, yes."

In view of the above, and in the absence of any contrary material brought on record by the Revenue at the time of hearing before us, we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals) and the same is hereby upheld. The appeal of the Revenue is, therefore, dismissed.

In the result, the appeal of the Revenue is dismissed.

The order is announced in the open court on November 12, 2010.