THE issues before the Bench are - Whether when the transactions are in cash beyond permissible limit, penalty u/s 271D are automatic; Whether when the assessee takes loan in cash from his political party, which deposits the same in his bank account, and the assessee withdraws the cash same day and pays up for conversion of a property into freehold, it constitutes 'reasonable cause' for failure to comply with the provisions of Sec 269SS; Whether for deciding a case for violation of Sec 269SS, whether the constitution of a political party permits sanction of loans in cash is not material and Whether a Member of Parliament can also plead ignorance of law as a resonable cause for waiver of penalty u/s 271D. And the verdict goes in favour of the assessees.
Facts of the case
Assessee
acquired leasehold rights over the Nazul land bearing Khasra No. 8-C, presently known as 1-A Block, Vikramaditya Marg, Thana Hazratganj, Lucknow vide agreement cum sale deed dated 31.01.2005 from Smt. Ujjwala Ramnath w/o late Shri Kamla Nath Ram, resident of 32A, Friends Colony (East), New Delhi. The rights were acquired by the assessee in the joint name with his wife, Smt. Dimpal Yadav. The said Nazul land was got converted into freehold in favour of the assessee and his wife, Vide the deed executed on 24.06.2005 for a total cost of Rs.44,67,208/-. The said amount of Rs 44,67,208/- was deposited in cash in the joint account of the assessee and his wife, Smt. Dimpal Yadav, maintained in State Bank of India Lucknow by Samajwadi Party for and on behalf of the assessee. From the perusal of the copy of account of the assessee in the books of Samajwadi Party, it was found that 50% of the above amount, i.e., Rs.22,33,604/- has been debited to the account of the assessee. The amount has subsequently been paid back to the Samajwadi Party on 24.08.2005. It was noted by the AO that the assessee had taken cash loan from Samajwadi Party in contravention of the provisions of section 269SS of the IT Act and as such, liable for penalty u/s. 271D of the IT Act. Accordingly, the matter was referred to the Addl. Commissioner of Income-tax, Firozabad. Proceedings u/s. 271D were, accordingly, initiated by issuing notice to the assessee. The assessee filed written submissions stating therein about his ignorance to the provisions of section 269SS and also stated that there was no doubt about the genuineness of the transaction. The AO quoted some part of his reply in the penalty order, in which the assessee explained that as the funds were urgently required and the assessee was not having requisite funds at that point of time, therefore, Samajwadi Party, of which the assessee is a Member, came forward by depositing the amount directly in their bank account maintained in State Bank of India, Lucknow. The assessee was in urgent need of funds for getting the property converted into freehold property and was under the bona fide belief that the transaction, being genuine, was not violative of any provisions of law. The assessee had also referred to the memorandum, explaining the provisions of the Finance Bill, 1984 by which section 269SS was inserted into the Income-tax Act and Circular No. 387 dated 06.07.1984, issued by the CBDT with reference to the purpose and scope of introducing the section 269SS in the Act.
It was explained before the AO that as clarified by the Board Circular, these provisions were introduced with a view to countering various devices adopted by the tax evaders for explaining unaccounted cash found during the course of search or for introducing their unaccounted income in the form of loans and deposits and it was introduced for countering the major economic evil of proliferation of black money etc. The AO, however, did not accept the contention of the assessee and was of the view that the above provision was inserted in the Income-tax Act with a view to countering cash transactions. In the case of assessee, there was no reasonable cause. The assessee’s case neither fell in any exceptional clause of section 269SS nor he produced any evidence to prove the urgency of depositing cash directly avoiding the transaction through banking channel. Nothing was brought on record that Nazul Department had put any condition or limitation or date by which the amount was to be deposited. No exigency was brought on record. Accordingly, it was held that the assessee had no reasonable cause to accept the deposits/loans in cash. It was, therefore, held that the assessee had violated the provisions of section 269SS and accordingly, penalty was levied u/s. 271D of the IT Act.
On appeal, the CIT(A) accepted the contention of the assessee because the assessee had been able to explain the exigency and the compelling reasons for raising of loan in cash. The CIT(A) found that cash was deposited in the account of the assessee on 23.06.2005, which was necessitated by corresponding payment to the Government Department. Therefore, in terms of section 273B, the assessee had "reasonable cause" for his failure to comply with the provisions of section 269SS of the IT Act and accordingly, deleted the penalty and allowed the appeal of the assessee.
In appeal before the Tribunal, the DR argued that Samajwadi Party was not authorized to advance any loan to the assessee. Samajwadi Party deposited the impugned amount in the account of the assessee on 23.06.2005 and on the same day, said amount was withdrawn for the purpose of making payment to the Government Authority for conversion of land from lease hold to free hold. No bona fide has been shown by the assessee and there is a contradiction in the submissions of the assessee. There was no urgency of Nazul Department shown for deposit of amount in cash. Thus, the assessee failed to explain any reasonable cause for failure to comply with the provisions of the Act. No evidence showing urgency had been filed for taking cash loan and alternatively no urgency had been proved by the assessee.
Having heard the parties, the Tribunal held that,
++ it is clear from the Board circular that the relevant provisions were introduced in the Income-tax Act with a view to countering the various devices adopted by the tax evaders for explaining their unaccounted cash found during the course of search or for introducing their unaccounted income in the form of loans and deposits and it was introduced for countering the major economic evil of proliferation of black money etc;
++ it is also clear that the assessee has been able to establish reasonable cause for failure to comply with the provisions of law. Samajwadi Party deposited the impugned amount on 23.06.2005 in the joint bank account of the assessee in cash. On the same date, the said amount was withdrawn for the purpose of making payment to Nazul Department for getting the joint property of the assessee converted from leasehold to freehold. The registered deed dated 24.06.2005 executed by the Nazul Department is filed on record along with copies of the challan depositing the cash with Nazul Department on 23.06.2005. The confirmation of Samajwadi Party is filed in the paper book to support the above contention of the assessee. The copy of the assessment order for the assessment year under appeal dated 04.07.2008 u/s. 143(3) has been filed on record, in which the AO on the same matter in issue made enquiries from the assessee regarding taking the impugned loan from Samajwadi Party for conversion of the joint property of the assessee from lease hold to free hold and repayment of loan to Samajwadi Party. The AO did not dispute the genuineness of the transaction entered into between the assessee and Samajwadi Party and no addition has been made in this regard. The above facts would clearly reveal that on 23.06.2005 when Samajwadi Party deposited the amount in cash in the joint account of the assessee, the assessee was in dire need of (cash) money because on the same day the amount in cash was withdrawn from the joint account of the assessee and was deposited with the Nazul Department. It is supported by the challan of the treasury and the registered deed executed by the Nazul Officer on 23.06.2005 and 24.6.2005. If the assessee would have taken the loan from Samajwadi Party through banking channel through cheque, it would have taken some time for process in clearing. Since the amount is deposited in the joint account of the assessee on 23.06.2005 and was withdrawn on the same day for making cash payment to the Nazul Authority, there can be no reason to doubt the bona fide of the assessee;
++ thus, the assessee has been able to prove that for bona fide reasons the assessee had taken cash loan from his own party (Samajwadi Party) and entered into the genuine transaction. Routing of the cash deposit through the bank account of the assessee without direct receipt and payment of the impugned cash would further endorse the bona fide of the assessee. The AO without any reasons had doubted the explanation of the assessee because the AO failed to note that extreme circumstance explained by the assessee, would prove the necessity of the assessee to take cash loan on a particular date, i.e., 23.06.2005 and when there is no gap between the loan and the date of payment to Nazul Department, would prove that the assessee was in fact in need of money for making payment to Nazul department. The taking of loan through cheque would have delayed the execution of leasehold property into freehold. The AO has not made out any case that it was an unaccounted or black money used by the assessee. The AO has also not made out any case that the assessee possesses any unaccounted or black money or to explain any entries in the search case. Since the genuine transaction is supported by the confirmation of Samajwadi Party and is not disputed by the AO, therefore, no unaccounted income has been brought into books of assessee or his bank account. From the evidence and material on record, it is, therefore, clearly established that the assessee entered into genuine transaction of taking cash loan from Samajwadi Party for bona fide reasons, which is supported by the evidence and the amount in question is also repaid through banking channel. Therefore, the assessee has been able to establish that he has ‘reasonable cause’ for failure to comply with the provision of law. The decisions cited above and the Board’s circular clearly support the findings of the CIT(A) for canceling the penalty in the matter. It is well settled law that penalty is not automatic in each and every case and it depends upon the facts and circumstances of each case. Since in this case, the assessee has produced confirmation from Samajwadi Party alongwith relevant documents on record to show that the assessee was in dire need of cash on a particular date for making cash payment to Nazul Department for getting the property converted into freehold. Therefore, it is not a fit case for levy of penalty and the CIT(A), therefore, rightly exercised his jurisdiction in the matter for canceling the penalty. Considering the facts of the case in the light of the above discussion, we are of the view that the assessee has been able to explain reasonable cause for failure to comply with the provision of law. Therefore, the CIT(A) rightly deleted the penalty in the matter;
++ before proceeding further, it is necessary to consider one more contention raised by the DR that Samajwadi Party is not authorized to give any loan or advance to the assessee. Therefore, the genuineness of the transaction should be doubted in this case. The record reveals that earlier Bench of Tribunal after conclusion of the hearing re-fixed the case for hearing and directed the Counsel for the assessee to file copy of Rules and Regulations of the Samajwadi Party along with relevant provision in the rule, which would permit advancing of loan to the office bearers of the Samajwadi Party. Somehow the order of the Bench dated 07.04.2011 was not complied with and ultimately the aforesaid appeal was withdrawn from earlier bench of ITAT, Agra Bench by the order of the Vice President, Delhi Zone. When new Bench was constituted at ITAT, Agra, aforesaid appeals were re-fixed for hearing on merits. The Counsel for the assessee on several dates sought adjournments to comply with the order of the earlier Bench dated 07.04.2011 as above. Ultimately, the ld. Counsel vide his letter dated 01.08.2012 filed the copy of the constitution of Samajwadi Party, which is taken on record. In the aforesaid letter dated 01.08.2012, the ld. Counsel for the assessee also mentioned that the party constitution did not contain any prohibition in giving such loan to the members of the party. It was also written in the letter that this document, i.e., constitution of Samajwadi Party cannot be read in evidence and admitted at this stage, as neither the authorities imposed penalty nor deleted the penalty has referred or relied upon the constitution of the party. The ld. DR objected to the language used by the ld. Counsel and submitted that if that is the assessee’s case, the department may be permitted to file additional evidence, i.e., Constitution of Samajwadi Party and such objection is against order of Bench. The ld. Counsel for the assessee in view of the objection of the ld. DR submitted that the language used in his letter dated 01.08.2012 was not used with the consent of the assessee. Therefore, he sought permission to withdraw his letter dated 01.08.2012. Accordingly, the Counsel for the assessee was permitted to withdraw his letter and the language contained therein dated 01.08.2012. Later on fresh copy of constitution of Samajwadi party is placed on record. In view of this matter, we are of the view that since earlier Bench of the Tribunal directed to place on record copy of Constitution of the Samajwadi Party, therefore, Counsel for assessee should have followed the order of court as per law and should not have commented on the same. The DR raised objection that Samajwadi Party is not authorized to give loan to the assessee, therefore, we find it appropriate to decide this issue also. The issue before the Tribunal is with regard to levy of penalty u/s. 271D of the Act for violation of provisions contained in section 269SS of the Act. The above provision did not prohibit taking of loan in cash from political party or otherwise. It simply provides mode of taking or accepting certain loans and deposits instead of cash. The prohibition is provided under these provisions for taking or accepting from any other person a loan or deposit otherwise than by account payee cheque or draft if it exceeded the prescribed limit. Therefore, whether Samajwadi Party had no provision in their Constitution for giving loan or advance to the assessee, would not be relevant criteria to decide the issue of levy of penalty u/s. 271D of the IT Act. Further, Samajwadi Party has filed their confirmation that the impugned loan was given to the assessee and his wife, which was repaid later on through banking channel. The AO in the regular assessment proceedings also did not doubt the genuineness of the transaction between the Samajwadi Party and the assessee & his wife. Therefore, the objection of the DR has no relevance to matter in issue and accordingly, the same is rejected;
++ now, we come to a point raised by the Counsel for the assessee about the immature age of the assessee and his ignorance about law for pleading reasonable cause. This point is not arising from the finding and orders of the authorities below. Therefore, it is irrelevant point raised by the Counsel for the assessee. Otherwise also, when the assessee has pleaded on merits before the authorities below about the "reasonable cause" for failure to comply with the provision of law in the light of the Board’s circular and other decisions, we do not find any justification for Counsel for the assessee to have raised such a plea or to insist the Bench to decide the point. The Counsel for the assessee admitted that assessee was Member of Parliament in the assessment year under appeal. The Members of Parliament are makers of laws and could not be said to be ignorant of law. Further, the assessee later on became Chief Minister of the State of Uttar Pradesh, therefore, such plea of Counsel for assessee is irrelevant. It appears that such contention is also raised without consent or knowledge of assessee. As stated above, this point is not arising out of the orders of the authorities below and the CIT(A) cancelled the penalty on explanation of the assessee that the assessee has been able to prove that there was "reasonable cause" for failure to comply with the provisions of section 269SS and the findings of the CIT(A) have been confirmed above. The contention of the Counsel for the assessee is, accordingly, rejected;
++ we are of the view that the CIT(A) was justified in holding that in terms of section 273B of the IT Act, the assessee has been able to prove that there was a "reasonable cause" for failure to comply with the provisions of law. We, therefore, do not find any illegality or infirmity in the order of the ld. CIT(A) in deleting or canceling the penalty. The order of the CIT(A) is confirmed and the departmental appeal is accordingly dismissed.
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