Judgment:
Both these appeals pertain to assessment year 2000-01 and arise out of identical facts, one arising out of order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') and the other arising out of order passed under section 271D. So, these are being disposed of by this common order for the sake of convenience.
Briefly stated, the relevant facts of the case are that the assessee filed returns of income on 3-4-2001 declaring Nil income alongwith a copy of audit report which was processed under section 143(1)(a) on 26-3-2002. Thereafter, the case was selected for scrutiny. The assessee deals in agricultural produce on wholesale basis as well as derives income from commission. This is the first year of business which started on 5-11-1999.
During the year the assessee had shown total turnover of Rs. 48,63,569 and had declared loss of Rs. 7,154 the assessee had also shown commission of Rs. 1,06,758. After claiming various expenses, the assessee had shown net loss of Rs. 31,837. On examination of trading account, it was noticed by the assessing officer that in respect of some of the commodities, the assessee had shown G.P. of Rs. 1, 150 and in respect of some other commodities, the assessee had shown loss of Rs. 8,306 and thereby showed a net trading loss of Rs. 7,154 the items in which the losses were shown were Guwar, Jeera, Moongfali and cottonseeds.
On examination of profit and loss account it was noticed that the assessee had claimed shop general expenses at Rs. 20,697. The assessing officer concluded that these expenses were not fully vouched. On examination of capital account, it was noticed that during the year the assessee had introduced Rs. 17 lakhs as his capital. The assessee explained the source of this amount as from assessee's own funds, namely, from sale of tractor as on 8-6-1999 of Rs. 1,69,000, sale of tractor as on 25-8-1999 of Rs. 1,31,000, loan received back from Shri Ram Niwas of Rs. 60,000 loan received back from Shri Baksharam of Rs. 40,000 loan received back from Shri Bhikaram of Rs. 50,000 totalling to Rs. 4,50,000. The assessee also showed loans raised from HUF and his wife Smt. Patasi Devi to the tune of Rs. 5,50,000 and Rs. 7 lakhs respectively totalling to Rs. 12,50,000, the grand total of all these comes to Rs. 17 lakhs. The assessee was not having any documentary evidence about loans given to and recovered from as claimed by the assessee. The assessing officer concluded that recovery of loan shown from these persons is nothing but a paper exercise just to show the source of the funds which actually did not exist and as such, claim of the assessee is not genuine. Accordingly, an amount of Rs. 1.5 lakhs; were disallowed.
So far as HUF is concerned, the assessing officer treated Rs. 3.5 lakhs as genuine credit and the remaining amount of Rs. 2 lakhs was added under section 68 of the Act. In respect of the loan from his wife Smt.
Patasi Devi to the extent of Rs. 6 lakhs the assessing officer treated as explained, but the remaining Rs. 1 lakh was added to the total income under section 68 of the Act.
During the year, the assessee had shown an investment on construction of shop and godown for which expenditure was incurred amount Rs. 3,25,437. The assessing officer estimated this expenditure incurred on construction at Rs. 3.5 lakhs and thus the remaining amount of Rs. 24,563 was added under section 69 of the Act. The assessee had shown agricultural income of Rs. 80,000. But the assessing officer accepted only Rs. 50,000 as agricultural income and remaining amount of Rs. 30,000 was treated as income earned from business. The amounts of loan, allegedly taken from HUF Shri Narayan Chhaba and his wife Smt. Patasi Devi were in cash and as such, the same were taken in contravention of provisions of section 269SS for which penalty under section 271D of the Act was levied separately.
The assessee went in appeal before the CIT(A) against the additions made by the assessing officer as well as the penalty levied under section 271D of the Act. The CIT(A), in turn, gave some relief in respect of additions made by the assessing officer, but dismissed the appeal. against the penalty. Now the assessee is in appeal before us against the sustained additions and levied penalty.
We have heard the rival submissions and have perused the evidence of record.
"1. Under the facts and circumstances of the case the learned CIT(A) has erred in confirming addition of Rs. 1,50,000 on account of alleged unexplained realization of debtors as source for investment in shop.
2. Under the facts and circumstances of the case the learned CIT(A) has erred in confirming following additions made by applying provision of section 68 of the Income Tax Act, 1961: These are the only main grounds taken by the appellant-assessee. The learned A.R. Sandeep Jhanwar has submitted that the appellant is an agriculturist since long before starting business in the name and style of M/s. Chhaba Traders, after purchasing a plot for shop in the Krishi Upaj Mandi, Merta City. The assessee was completely involved in agricultural activities. The assessee, in his individual capacity and in his HUF capacity and in the name of his wife had agricultural land totalling to 208 bighas 15 biswas. The assessee had owned agricultural land to the tune of 23 bighas and 3 biswas and had taken on rent 45 bighas 11 biswas. The assessee's HUF owned agricultural land being ancestral, to the tune of 108 bighas, his wife Smt. Patasi Devi 31 bighas 11 biswas since 1964-65. The assessee also owned two tractors for using them in agricultural activities. This assessee is claimed to be the main person in the family and the entire financial affairs of the assessee including that of his wife Smt. Patasi Devi were being taken care of by him only. Smt. Patasi Devi is a homely lady and her financial affairs were also managed and looked after by her husband, i.e., the assessee. All the money matters of the HUF were also dealt with by him and he also managed the entire income and expenditure in relation to himself, his wife and his HUF. In the back drop of all these facts, the learned A.R. submitted that the assessee was holding the entire residue income belonging to all the 3 entities named above.
During the year under appeal, the assessee purchased a plot in the Krishi Upaj Mandi, Merta City, by way of open auction from Government establishment, by depositing Rs. 2,75,250 on the date of auction itself i.e., 7-4-1999 and Rs. 8,25,750 on or by 31-5-1999. This shop was subsequently constructed during the period 21-7-1999 to 4-11-1999 and finally the business was started from 5-11-1999. The total investment in the shop/business of M/s. Chhaba Traders was funded by the assessee himself and by his wife and by his HUF totalling to Rs. 17,48,772. The assessee had to deposit Rs. 11,01,000 with Krishi Upaj Mandi. The assessee never maintained any books of account before commencement of this business and the entire sources of the family were in a common pool and managed by him as mentioned above. Thus, the learned A.R. has further submitted that it is not a case of borrowing from any third party, the money available with the appellant himself has been appropriated for the purpose of investment other than agricultural income, there is nothing on record to show any other income except what is declared in the return. The learned A.R. has submitted that out of total investment, an investment of Rs. 7,50,000 was made from sale of tractors purchased 10 years back and sale of land purchased in 1964 at Rs. 95,829. Rs. 8,15,650 was invested from recovery from advance made in the past and Rs. 87,303 received from sale of agricultural produce.
It is true that the department has accepted to the extent of Rs. 12,98,772 to be the source of the assessee for investment and the source of Rs. 4.5 lakhs only has been treated as unexplained investment under section 68 of the Act. The source of Rs. 7.5 lakhs is not in dispute which was from sale of old tractors and agricultural land. The only amount of Rs. 10 lakhs was to be explained by the assessee and out of which the department agreed for Rs. 5.5 lakhs. The learned A.R's contention is that the additions have been made and sustained on surmises and presumptions only because there is no basis for treating the source of investment as unexplained. It has been submitted that there are all evidences on record to show that the assessee had been doing agricultural activities. On a piece of land measuring 208 bighas for the last so many years and in case least possible average saving of Rs. 2,000 per bighas is taken, it would give only savings of Rs. 2.5 lakhs to Rs. 3 lakhs, on estimate basis. According to him, part of the savings remained rotating in agricultural activities and part was given as advance to some persons as has been claimed by the assessee.
The learned A.R. has further submitted that the assessing officer has doubted the genuineness of the advance made and recovered by assessee to Shri Ramniwas, Baksharam and Shri Bhikaram and made it the reason for addition of Rs. 1.5 lakhs. This is not a case of money simply borrowed from outsider, but it is a case of recovery of own money by assessee. There is no dispute between the assessee and the department that this is his own money. The only dispute is that the department presumes it to be out of unexplained source, rather than agricultural income. All the persons were produced before the assessing officer, all of them were examined and they accepted the fact of receipt and paying back the money to the assessee. The advances for similar nature have been partly accepted in the hands of Smt. Patasi Devi and HUF. The source of the funds by the creditors is supported by agricultural income. So according to the learned A.R. in such circumstances, it is not justified to doubt the genuineness of the transaction in question.
An amount of Rs. 1 lakh, out of source of Smt. Patasi Devi, Rs. 7 lakhs and 2 lakhs out of source of HUF of Rs. 5.5 lakhs are estimated to have been out of unexplained income of the assessee without any basis. He, therefore, prayed to delete the entire addition.
On the other hand, the learned Departmental Representative Shri Zala has submitted that the major part of the agricultural land owned by this assessee was unirrigated, therefore, the entire source could not be from agricultural income and there must have been some unexplained income of the assessee which has been invested in his business. So, according to him, the assessing officer was justified in making his best estimation in the absence of any record. He further supported the orders of the authorities below.
We have given careful thought to the above submissions and evidence on record. The fact of possession of 208 bighas of agricultural land and its cultivation is proved on record. This has not been rebutted by the department by way of any proof. The sale of agricultural produce for various years have been placed on record. The appellant also owned tractors and tubewells for agricultural activities. It is also not disputed that the land in Merta City is fertile one. The assertion of the learned A.R. that even the unirrigated land also gives yield and the evidence for the same are on record. The production may, however, be less, in case of insufficient and delayed rains. It is a fact that 77 bighas of land is irrigated. Looking to the overall facts and circumstances of the case and the material on record it is established that the assessee has been engaged in agricultural activities on a fairly large scale. There is nothing on record to suggest any income other than agricultural income, the details of which are placed on record. In this case the sources of unexplained money of Rs. 1.5 lakhs was disputed and doubted by the department. The assessee claims that this money belonged to him only. It is not a borrowing at all from third party. The transaction of advancement have been admitted by the persons and no doubt has been raised in respect of the transaction of similar nature ill tile case of Smt. Patasi Devi and HUF. The assessee had also sufficient agricultural income to support the advance of money in the past. In such circumstances, there appears to be no reason to disbelieve the assessee's explanation. The HUF and his wife had sufficient source of agricultural income. The assessee had explained the immediate source of entire money and no specific source had been doubted but the additions have been made on estimation basis. Thus, looking to the available material on record showing evidence of sufficient agricultural income to support the entire amount of Rs. 7 lakhs in the case of Smt. Patasi Devi and Rs. 5.5 lakhs in the case of HUF of assessee there appears to be reason to treat part of the money as unexplained money of the assessee on estimation basis only. The department has failed to bring any material on record whereby one can disbelieve the explanation given by the assessee in respect of the entire source of income i.e. Rs. 17,48,770. Thus this addition made and sustained by the learned CIT(A) is not justified and accordingly deleted.
Now coming to the penalty appeal a penalty was levied under section 271D for contravention of the provisions of section 269SS. The learned A.R. has submitted that the transaction in question cannot be taken as loan or deposit in the given facts and circumstances of the case, and therefore, the provisions of section 269SS are not attracted.
For the common interest of the family, the assessee utilised the funds belonging to his wife and HUF of which he was in possession. He was the sole decision maker in the family. This was the first time when the assessee entered into the arena of business. Only after the business started, the bank accounts in the name of his wife and HUF were opened and money was transferred in their accounts after taking advice from the Chartered Accountant because earlier there was no need to keep such accounts. Thus the money utilized by assessee were never a loan. For that matter, he has relied on the decision of the Tribunal in the case of ITO v. Sunil M. Kasliwal (2003) 80 TTJ (Pune) (TM) 1, Chandra Cement Ltd. v. Dy. CIT (2000) 68 TTJ (Jp.) 35.
The learned A.R. has also taken resort to reasonable cause by submitting that the transactions being genuine and are not doubted by the department under section 271D cannot be levied.
On the other hand, the learned Departmental Representative has relied on the orders of the authorities below. He has also made reference to para 14 of the penalty order where the averments in the affidavits of Smt. Patasi Devi and Shri Narayan Ram Chhaba as Karta of HUF have been mentioned. He also submitted that the assessee, his wife and HUF were also earning interest income and consequently, provisions of section 269SS were not attracted for levying penalty under section 271 D of the Act.
After giving careful thought to the facts and circumstances of the case, we are of the considered opinion that the genuineness of the transaction to the extent of penalty is levied was never in doubt and the additions made under section 68 had been deleted by our above order. This is a fact that the appellant-assessee was holding the possession of the entire resources of the family and used it for the business purposes in the common interest of the family. Relying on the decisions cited above, we are of the considered opinion that the penalty under section 271D cannot be levied in this case. Moreover, there existed a reasonable cause in the case of this assessee because he being an agriculturist, he could not be presumed to have knowledge of the law. For that matter, reliance in the case of Dr. Deepak Muchala v. ITO (1997) 58 TTJ (Bom.) 524 wherein it was held that even a dentist could not be presumed to have knowledge of technicalities of the Income Tax Act. So, as we have held above, it is not a fit case for levy of penalty under section 271D of the Act. Accordingly, we delete the penalty of Rs. 9.5 lakhs.
Per Joginder Pall, Accountant Member.I have gone through the proposed order of my Ld. Brother (Judicial Member). I have not been able to persuade myself to agree with the reasoning and conclusion drawn by my Ld. Brother in regard to one ground in ITA No. 339 and grounds in ITA No. 340. Therefore, I proceed to write my own order.
In ITA No. 339 of 2004, 1 agree with the reasoning and conclusion drawn by my Ld. Brother in regard to ground No. 2 relating to addition of Rs. 3,00,000. Apart from the reasons given by my Ld. Brother both Narayan Ram Chhaba (HUF) and Smt. Patasi Devi were separately being assessed to tax. Addition if any, could have been made in their own hands once the parties had accepted such loans. Moreover, revenue itself had accepted major portion of loans taken from these two persons. However, I do not agree with the finding of my Ld. Brother in regard to ground No. 1 relating to addition of Rs. 1,50,000. The reasons for the same are discussed in the succeeding paragraphs.
The facts of the case are that while explaining the source of investment in shop, the assessee stated that he had advanced loans of Rs. 60,000 to Shri Ram Niwas, assessee's brother-in-law (sister's husband) Rs. 40,000 to Sh. Baxa Ram (assessee's father) and Rs. 50,000 to Sh. Bhikha Ram (assessee's maternal uncle), out of his agricultural income of the earlier assessment years. These loans were returned by these persons in the accounting year under reference and amounts received were invested in the shop. These persons were also produced before the assessing officer and their statements were recorded. The statement of Sh. Ram Niwas recorded on 9-12-2002 is at pages 62 and 63 of the paper book. He stated before the Income Tax Officer that he was a farmer earning annual income of Rs. 20,000, owned 22 'Bighas' of agricultural land half of which was irrigated and remaining half was unirrigated, his household expenses were Rs. 10,000 to Rs. 12,000, the assessee was his wife's brother, he had taken loan of Rs. 60,000 about 4 to 5 years before and the loan alongwith interest was returned about 2 to 3 years before. He also admitted that loan was taken and returned in cash as he did not have any bank account.
Similarly, a copy of the statement of Sh. Baxa Ram (assessee's father) recorded on 9-12-2002 is at pages 64 to 66 of the paper book. He also stated that he was an agriculturist, owned 16 bighas of land in his own name and 35 bighas in the name of his son, his household expenses were about Rs. 15,000 to Rs. 20,000, his agricultural income was about Rs. 20,000 to Rs. 30,000, he borrowed Rs. 40,000 from the assessee about 5 years before, the amount was returned to the assessee and loan was taken and returned in cash. He also stated that there was no written proof for taking or returning the loan.
A copy of the statement of Sh. Bhikha Ram, maternal uncle of the assessee recorded on 9-12-2002 is at pages 67 and 68 of the paper book.
He confirmed that he was an agriculturist, owning 40 bighas of land having annual income of Rs. 20,000 to Rs. 25,000, his household expenses were about Rs. 8,000 to Rs. 10,000, he borrowed an amount of Rs. 50,000 from the assessee about 4 to 5 years before, the amount was returned to the assessee alongwith interest. The amounts were accepted and returned in cash, loan was taken for household expenses and marriage expenses and there was no written proof for taking and returning the loan.
The assessing officer rejected the claim of the assessee that the loans were advanced to these persons about 5 years before and such amounts were received in the accounting year under reference for the following reasons: (i) No documentary evidence with regard to advancing of loans to these persons out of income from agriculture had been furnished.
(ii) No documentary evidence about the return and recovery of the alleged loans had also been furnished.
(iii) The assessee was holding only 23 bighas of agricultural land.
Income from such land would not be sufficient to generate the savings, which were utilised in advacing loans to these persons. The assessee also owned two tractors purchased out of agricultural income. The assessee was also expected to meet household expenses out of such agricultural income. Thus, there could be no surplus available with the assessee.
(iv) Krishi Mandi Vikrya Parchis in respect of sale of agricultural produce and Girdawari reports, which contained details of crops sown did not tally with each other in respect of sowing of crops mentioned in the Girdawari and sales proceeds mentioned in the Krishi Mandi Vikrya Parchis. For example, Girdawari showed crops of Ganwar, Moong, Till, Wheat and Bajri, etc., whereas Krishi Mandi Vikrya Parchi showed sale of Raida, Kapas and Jeera etc.
(v) In the statements recorded, all the three persons admitted that they were not having any evidence in respect of loans taken from assessee and repayment thereof. Thus, the assessing officer concluded that it was only a paper exercise to explain the source of the funds which actually did not exist and as such the claim of the assessee could not be accepted. Therefore, the assessing officer made an addition of Rs. 1,50,000 being income from undisclosed sources.
The assessee challenged the addition in appeal before the CIT(A). It was submitted before the CIT(A) that all the three persons were close relations of the assessee i.e. sister's husband, father and maternal uncle. Therefore, there was no written agreement or proof for advancing and returning of the loan. It was submitted that these persons were produced and confirmed having taken loans from the assessee about 5 years before and also return of such loans in the accounting year under reference, the assessing officer should have accepted the same as genuine. However, these submissions did not find favour with the learned CIT(A), who held that the assessee has not produced any evidence regarding loans given to Sh. Ram Niwas, Sh. Baxa Ram and Sh.
Bhikha Ram either during the course of assessment proceedings or even during the appellate proceedings. Therefore, the addition made was upheld by recording the following finding in para 4.3 of the impugned order: "4.3 I have considered the submissions of the learned A.R. of the appellant as well as the reasons given by the assessing officer for making the addition. After due consideration, I find that the assessee has not produced any evidence regarding loans given to Sh. Ramniwas, Sh. Baxaram and Sh. Bhikha Ram. It is also seen that the assessing officer has interrogated the above persons by way of recording their statements and in the statements they have denied of having any evidence in respect of alleged loans given to them by the assessee and the repayments made by them to the assessee. During the appellate proceedings also no such evidence was produced, therefore, in my view the assessing officer was justified in making the addition of Rs. 1,50,000 treating the same as assessee's income from undisclosed source, therefore, the addition of Rs. 1,50,000 is hereby confirmed." The submissions of both the parties have already been summarized by my Ld. brother in paragraphs 9 to 11 of his order. Therefore, these are not repeated again. However, I wish to add that these submissions are the same as made before the authorities below.
After hearing both the parties and examining the facts, evidence and material on record, the issue that requires to be decided whether it could now be said that assessee has explained the source of investment of Rs. 1,50,000 through return of the loans and, therefore, no addition is called for. The explanation of the assessee is that he had given loans to aforesaid three parties about 5 years before. These loans were received in the accounting year under reference. These were utilised for making investment in the shop. It is no doubt true that all the three persons were also produced before the assessing officer wherein they confirmed the fact having taken loan about 5 years before and returned the same in the accounting year under reference. All these loans were given in cash and also returned by the parties in cash.
There is absolutely no direct documentary evidence adduced either before the authorities below or even before us about the fact of having advanced the said loans in the earlier years and also return of loans in the assessment year under reference. The explanation given by the assessee that he was managing the affairs of HUF and his wife is too general in nature. It must be noted that the HUF also advanced an amount aggregating Rs. 5.50 lakhs. The source of the same was also explained to be loans advanced to various persons in the earlier years and return thereof in the accounting year under reference. The HUF claimed to have advanced loan to the assessee out of agricultural income and return of the loans advanced in the earlier years. This loan has also been accepted. Therefore, no further credit about the agricultural income of the HUF could be allowed to the assessee for the purpose of explaining the source of Rs. 1,50,000. Similarly, similar claim was also made by Smt. Patasi Devi wife of the assessee who also advanced an amount of Rs. 7 lakhs to the assessee for purchase of shop.
The source of loan of Rs. 7 lakhs has been accepted and addition made in this regard has been deleted. But no further credit about the extent of income earned by Smt. Patasi Devi could be allowed to the assessee.
As regards the case of the assessee, the facts placed on record show that the assessee owned agricultural land of 4 bighas in 1980. He was examined by the assessing officer on 9-12-2002. He owned 4 bighas and 3 biswas in 1988. He purchased the land measuring 15 bighas in 1990 and purchase further land measuring 44 bighas 11 biswas during the period from 1990 to 1999. Statement of the assessee was recorded by the assessing officer and a copy of the same is placed at pages 86 to 94 of the paper book. In his statement Sh. Narayan Dass had stated that his annual agricultural income was about Rs. 70,000 to Rs. 80,000 and his household expenses were to the tune of Rs. 60,000. He also confirmed having constructed one house about 15 to 20 years before. In addition, he has also stated that he had purchased agricultural land from time-to-time. He also owned two tractors purchased during the earlier years. Sale proceeds of such tractors were also invested in the purchase of shop. These facts clearly show that whatever income was earned by the assessee in the earlier period, the same was utilized in construction of the house property, purchase of agricultural land and tractors. Even as per his own admission his agricultural income was only Rs. 70,000 to Rs. 80,000 and his household expenses were to the tune of Rs. 60,000. In the earlier year, the extent of agricultural land owned was still less. Therefore, his income is bound to be less than what it was in 2002. Be that as it may, the annual surplus of Rs. 10,000 to Rs. 20,000 would not be sufficient in explaining the source of cash loans of Rs. 1,50,000 given to the aforesaid three persons in the earlier years in addition to other investments.
Further, the statement of Sh. Ram Niwas, sister's husband to whom the assessee had advanced Rs. 60,000 about 5 years before was recorded wherein he stated that his agricultural income was Rs. 20,000 and he owned 22 bighas of agricultural land. Out of the said land, half was irrigated and half was unirrigated. In his statement, he has further stated that he returned the entire amount along with interest. This shows that he was not a man of means to return the entire amount alongwith interest in the accounting year relevant to the assessment year under reference, when he could not do so, during the last 5 years.
Similarly, the statement of Sh. Bhikha Ram is at pages 67 and 68 of the paper book. He claimed to have taken loan for household and marriage expenses about 5 years. He also stated to have returned the principal amount alongwith interest in the accounting year under reference. There is also no documentary evidence to this effect. But considering the fact that entire land owned by Sh. Bhikha Ram (maternal uncle) was unirrigated, it also appears rather difficult for him to return the entire amount alongwith interest at one go, which he could not do so during the last 5 years. One noticeable feature of their statements is that all have given stereo-typed reply of earning agricultural income of Rs. 20,000 to Rs. 25,000 irrespective of the fact whether someone owned agricultural land 22 Bighas or 50 Bighas and also whether the land was irrigated or not. These facts do not inspire much confidence about the genuineness of these transactions. Be that as it may, both the persons have stated that the amounts in question were taken on interest. In his statement. Sh. Narayan Ram has admitted that he was being assessed to Income-tax. However, copies of returns filed in his individual capacity are not on record. Therefore, the point whether such interest income received from Sh. Sri Niwas and Sh. Bhikha Ram was reflected in the income-tax return filed by the assessee for the earlier assessment year or in the assessment year under reference requires verification. In case the assessee has shown such interest income in the returns of income for the earlier years on accrual basis or in the return filed for the assessment year under reference on receipt basis, it would be reasonable to believe that the assessee had indeed given such loans in the past and the source thereof would stand proved. However, if such income is not disclosed in the returns filed for earlier assessment years, or in the current assessment year, the version of the assessee cannot be accepted and addition for the same would be called for. In the light of these facts, 1 consider it fair and appropriate to set aside the order of the CIT(A) and restore the issue to the file of the CIT(A) for verification on the lines indicated above and for deciding the same afresh in accordance with law and after allowing reasonable opportunity to both the parties.
The next part of the ground relates to an addition of Rs. 40,000 being loan given to Sh. Baxa Ram father of the assessee and return thereof in the assessment year under reference. Sh. Baxa Ram stated that he owned 16 bighas of agricultural land in his name and 35 bighas in the name of his son who was staying with him. He also claimed to have taken loan of Rs. 40,000 from the assessee about 5 years before for meeting the household expenses and other social obligations. The fact that assessee's father had to borrow Rs. 40,000 from his son for meeting household expenses shows that he was not earning sufficient income for meeting his household expenses and other requirements. If his financial condition was sound, he could have returned the amount much before. Be that as it may, there is no evidence that such loan was taken on interest as the assessing officer has not asked any question in this regard. Considering that the assessee was being assessed to tax in the earlier years, it requires to be verified as to whether this fact was ever shown in the return of income. In case, the assessee had shown such loan in the documents filed alongwith the returns of the earlier years, the loan given of Rs. 40,000 and subsequent refund thereof, requires to be accepted. Therefore, I consider it necessary to set aside the order of the CIT(A) and restore the same to his file for verification and for deciding the same afresh as per law and after allowing reasonable opportunity both to assessee and assessing officer.
Thus, the ground is treated as allowed for statistical purpose.
Now, I take up appeal in ITA No. 340(JU) 2004 relating to sustaining of penalty of Rs. 9,50,000 under section 271D of the Income Tax Act. The facts of the case are that the assessing officer initiated penalty proceedings under section 271D for acceptance of cash loans of Rs. 5.50 lakhs from Narain Ram Chhaba (HUF) and Rs. 7 lakhs from Smt. Patasi Devi wife of the assessee in violation of provisions of section 269SS of the Income Tax Act. In reply to the show-cause notice, the assessee submitted that the HUF and his wife had only agricultural income and, therefore, the acceptance of such cash loans did not amount to violation of the provisions of section 269SS. This submission of the assessee was found to be incorrect as the assessing officer observed that for the earlier years both the HUF and assessee's wife had shown income from interest in addition to agricultural income. The next submission of the assessee that he started earning business income only after purchase of shop was again found to be factually incorrect for the reason that even for the earlier years, the assessee was being assessed to tax and income had been shown from interest. The assessee had, then, contended that the HUF and his wife had collectively purchased the shop. This submission was also rejected on the ground that the shop was purchased by the assessee in his individual capacity and amounts in question were shown as loans in the balance sheet. It was also contended that the assessee had to take these loans because of emergent need for making the payment to Krishi Upaj Mandi. This submission was again found to be factually incorrect on the ground that the immediate payment was required to be made only to the tune of Rs. 3 lakhs. Thereafter, there was time gap for making the payment of the remaining amount. The assessee could have easily obtained loans by way of account payee cheques/bank drafts as there was sufficient time available for making the payment. Accordingly, the assessing officer accepted the explanation of the assessee in respect of cash loans of Rs. 3 lakhs due to urgent business need and levied a penalty of Rs. 9.50 lakhs under section 271D as the assessee failed to explain any reasonable cause for acceptance of the same.
Being aggrieved, the assessee impugned the levy of penalty in appeal before the CIT(A). Before the CIT(A) similar submissions were made. The learned CIT(A) has upheld the order of the assessing officer for the following reasons: (1) Submissions of the assessee that provisions of section 269SS were not applicable to the assessee's case for the reason that the persons from loans had been accepted were agriculturists was without any merits because both Sh. Narayan Ram Chhaba (HUF) and Smt. Patasi Devi were being assessed to tax. They filed their returns of income for the assessment years 1999-2000 and 2000-01 showing income from other sources. Even the assessee had filed the returns of income for the assessment years 1999-2000 and 2000-01 showing income from other sources. Thus, the provisions of section 269SS were clearly attracted.
(ii) The contention of the assessee that the loans were taken for investment in plot and construction of shop and godown and the same were invested by the assessee, his wife and his HUF with the intention that they were making joint investment was factually incorrect because the persons have been shown as creditors and assessee had shown repayment of interest on the said loans. These facts indicated that the loans in question were given to the assessee with the purpose of earning interest and there was no joint ownership.
(iii) The decision of the ITAT, Jaipur Bench in the case of Dy. CIT v.Sri Lal [IT Appeal No. 1390 (Jp) of 1996] relied upon by the assessee was not applicable because in that case one old man started construction of a Nursing Home for a son and daughter-in-law who were Doctors and both Doctors contributed to the construction of Nursing Home. In that case, the Tribunal held that since both the persons who contributed for the construction of a Nursing Home, were immediate beneficiaries, there was a reasonable cause in accepting such cash loans, but no such facts exist in the present case as the person who advanced the loans had no common interest in the purchase of property.
(iv) The other decisions relied upon by the assessee were also not applicable to the facts of the present case.
The learned counsel for the assessee has reiterated the submissions which were made before the authorities below. These have already been summarized by my Ld. Brother in his order. These submissions are that the assessee belonged to an agriculturists family, the loans were taken from HUF and Smt. Patasi Devi who were also having agricultural income, genuineness of the loan is not in doubt, there was a reasonable cause for accepting the Cash loans because the assessee was required to make payments urgently to Krishi Upaj Mandi for the purchase of shop. It was also submitted that both the HUF and Smt. Patasi Devi did not have any bank account, and, therefore, under such circumstances, penalty sustained by the learned CIT(A) may be cancelled.
The learned Departmental Representative, on the other hand, heavily relied on the orders of authorities below. He submitted that the submissions of the assessee that the persons from whom loans were accepted were agriculturists is factually wrong because both the HUF and Smt. Patasi Devi were being assessed to tax. Even for the earlier assessment years, they had income from other sources. He particularly drew our attention to the findings of the CIT(A) recorded in para 2.3 of the impugned order. Thus, he submitted that the order of the CIT(A) does not merit any interference.
Having heard both the parties and perusing the evidence and material on record, the issue that requires to be decided is that whether the assessee has been able to explain the reasonable cause for acceptance of cash loans in violation of provisions of section 269SS. The submissions made before us are the same as made before the authorities below. It is a settled position that levy of penalty under section 271D is not automatic. The assessee can explain that there was a reasonable cause for accepting such cash loans. But the fact whether there was a reasonable cause or not has to be seen in the light of explanation and reasons submitted before the authorities below. The explanation of the assessee that the loans had been taken from two persons who were agriculturists has been found to be factually incorrect by the authorities below. As discussed above, both the assessing officer and the CIT(A) has observed that the HUF and assessee's wife were being assessed to tax in the earlier assessment years. In fact a copy of the return filed by the HUF from whom loan of Rs. 5.50 lakhs was accepted in cash is at pages 69 and 70 of the paper book. A copy of the statement of income is at page 71 of the paper book. In the said statement the assessee had shown interest income of Rs. 51,250 for the assessment year 1999-2000. Similarly, a copy of the return filed for the assessment year 2000-01 is at pages 74 and 75 of the paper book.
The same shows interest of Rs. 41,790. Similarly, a copy of the return filed in the case of Smt. Patasi Devi for the assessment year 1999-2000 is shown at page 79 of the paper book. A copy of the statement of income is at page 80 of the paper book. The same shows interest income of Rs. 25,650 and agricultural income of Rs. 40,000. A copy of return for the assessment year 2000-01 is at page 88 of the paper book. A copy of the statement of income is at page 84 of the paper book. The same shows interest income of Rs. 54,480. Thus, the claim of the assessee that the loans had been taken from the parties who were having agricultural income is factually wrong. It is also not denied that even the assessee was being assessed to tax even in the earlier assessment years and he also earned income by way of interest.
The various papers placed on record show that the assessee, his wife and HUF had advanced amounts on interest in the earlier assessment years and they were earning regular income by way of interest. In fact even the close relations of the assessee admitted having borrowed amounts on interest. Therefore, the submission is without any merit.
The other submissions of the assessee that there was a reasonable cause for accepting the loans in cash for meeting emergent needs is again not correct. It is no doubt true that the property in question was purchased in auction i.e. on 6-4-1999 where the assessee was required to make part of the payment immediately. Loans taken for this purpose have been accepted and no penalty has been levied for the same.
However, subsequent loans were taken from the HUF at Rs. 1 lakh on 4-5-1999, Rs. I lakh on 16-10-1999 and Rs. 1.50 lakhs on 1-11- 1999 i.e. much after the date of public auction. Similarly, loan of Rs. 7 lakhs was taken from Smt. Patasi Devi on 30-5-1999 i.e. nearly after two months from the date of auction. There was no such emergent need for taking the loans in cash as the assessee could have easily routed these transactions through bank.
Further, the explanation of the assessee that Smt. Patasi Devi and HUF had no bank account is factually wrong. The statement of Sh. Narayan Ram i.e. the assessee is at pages 86 to 94 of the paper book. He categorically admitted that he had bank account with Central bank of India, Merta and UCO Bank, Merta in his own name, in the UCO Bank, Merta, in the name of his wife Smt. Patasi Devi and UCO Bank, Merta, in the name of HUF. Thus, all these persons had bank account in the same bank, same branch and same place. Therefore, these transactions could have been easily routed through banks. In fact, a copy of the statement of income of HUF for the assessment year 1999-2000 is at page 71 of the paper book. The same shows bank interest of Rs. 18. This clearly shows that the HUF had bank account prior to the date when impugned loans were advanced to the assessee. Similarly, the statement of assets of Smt. Patasi Devi as on 31-3-2000 is at page 85 of the paper book. The same also shows balance with UCO Bank. However, the exact date on which bank Account was opened in the name of Smt. Patasi Devi is not known.
In case the bank Account in the names of Smt. Patasi Devi, and the assessee existed prior to the date when these loans were accepted as in the case of HUF, it cannot be said that there was a reasonable cause for accepting cash loans in violation of provisions of section 269SS.This point requires further examination and verification and also these facts also need to be confronted to the assessee. In case Smt. Patasi Devi like HUF too had bank account in the same branch prior to the date when impugned loans were given the explanation of the assessee that loans were accepted for want of bank account need to be rejected.
The assessee has not given any other reasons for accepting the cash loans in violation of provisions of section 269SS. Therefore, the issue whether there was a reasonable cause or not is to be seen in the light of reasons given by the assessee which have been found factually incorrect. As regards the various decisions relied upon by the assessee, the same are on their own facts. Ratio of a particular decision has to be seen in the light of submissions made and facts of the case. In this case no attempt has been made by the learned Counsel as to how the ratio of those decisions is applicable to the facts of present case.
Thus, in the light of discussion in the preceding paragraphs, I consider it fair and reasonable to set aside the order of the CIT(A) and restore the issue to the file of the CIT(A) for deciding the matter afresh in accordance with law and after allowing a reasonable opportunity to both the parties. While deciding the case, the CIT(A) shall also keep in mind the observations made hereinabove. The ground of appeal are also treated as allowed for statistical purposes.
In the result the appeal in ITA No. 339/JU/2004 is partly allowed for statistical purposes and appeal in ITA No. 340/JU/2004 is allowed for statistical purposes.
In my view, the following points of difference need to be referred to the Hon'ble President under section 255(4) of the Income Tax Act, 1961: "Whether, on the facts and in the circumstances of the case and having regard to material and evidence on record, addition of Rs. 1,50,000 being unexplained investment is to be deleted or matter remanded for making further enquiries ?" "Whether, on the facts and in the circumstances of the case penalty imposed Linder section 271D of the Income Tax Act, 1961 is to be cancelled or the matter is to be restored to the file of CIT(A) for making further enquiries ?" Per R.S. Syal, Accountant Member.These two distinct appeals of the same assessee came up for consideration before the Division Bench. On difference of opinion between the Members who heard these appeals, the following questions have been referred to me by the Hon'ble President under section 255(4) of the Income Tax Act, 1961, for my opinion.
The Ld. Members after passing dissenting orders, made a reference to the Hon'ble President identifying separately the point of difference as under: "Whether the source of investment of Rs. 1,50,000 stand explained by the assessee or this issue requires further investigation of facts as per law?" "Whether on the facts and in the circumstances of the case and having regard to material and evidence on record, addition of Rs. 1,50,000 being unexplained investment is to be deleted or matter remanded for making further enquiries." The sum and substance of the questions drafted separately by both the learned Members, is as to whether the addition of Rs. 1.50 lakhs confirmed by the learned CIT(A) on account of unexplained investment is liable to be deleted or deserves to be restored to the learned CIT(A) for making further specific enquiries.
Briefly stated, the facts of the case are that the assessee is an agriculturist and was involved only in the agricultural activities up to the period relevant to assessment year 1999-2000 i.e. the immediately preceding year. The return for the said year, being the return filed by the assessee for the first time in his life on 2-3-2000, showed the agricultural income of Rs. 49,350 and interest income of Rs. 20,250. In the previous year relevant to the assessment year under consideration, the assessee purchased a plot in the Krishi Mandi, Merta City, in an open auction conducted by the State Government Body. The purchase was registered in the name of M/s. Chhaba Traders, Prop. Shri Narayanram Chhaba. The assessee had reflected Rs. 17 lakhs as his capital in the return of income. He submitted the break up of the source of this investment as amount invested by himself at Rs. 4.50 lakhs; a loan of Rs. 7 lakhs from his wife, Smt. Patasi Devi; and a loan of Rs. 5,50,000 from Shri Narayanram Chhaba (HUF). The source of assessee's own funds was shown as sale consideration of two trucks amounting to Rs. 3 lakhs and recoveries of loans, viz., Rs. 60,000 from Shri Ramniwas (sister's husband); Rs. 40,000 from Shri Baksharam, (father) and Rs. 50,000 from Shri Bhikaram (maternal uncle). It was stated before the assessing officer that he had recovered the loans from these three persons in this year, which were advanced in earlier years out of his agricultural income and sale consideration of agricultural land on 28-41998 for Rs. 53,133. The assessing officer did not accept the genuineness of the receipt of refund of the loans and accordingly treated the sum of Rs. 1,50,000 as assessee's own income from undisclosed sources.
The source of loan from Shri Narayanram Chhaba (HUF) was stated to be as under: The assessing officer accepted the explanation only to the extent of Rs. 3,50,000 and made addition for the balance amount of Rs. 2 lakhs under section 68 of the Act.
The source, of the third loan of Rs. 7 lakhs shown to have been received from Smt. Patasi Devi (wife) was explained by the assessee as under: The assessing officer accepted the genuineness of this credit to the tune of Rs. 6 lakhs and made addition for the balance amount of Rs. 1 lakh under section 68 of the Act.
The submissions made on behalf of the assessee on these three credits, failed to persuade the first appellate authority to fall in line with the assessee's point of view. In the appeal before the Tribunal, it was contended on behalf of the assessee that the assessee had 208 bighas and 15 biswas of agricultural land in his individual and HUF capacity and also in the name of his wife. It was also contended that the assessee was the main person in the family and the entire financial affairs of the family, including that of his wife, being a homely lady, were being taken care of by him. It was still further contended that the assessee was controlling the entire agricultural income belonging to all the three entities and no books of account were maintained prior to the commencement of the business, which was started in this year pursuant to the purchase of plot in open auction conducted by the State Government. It was reiterated by the learned AR that the entire resources of the family were in common pool and managed by the assessee alone. Detailed submissions were made with regard to the above-referred three additions totalling Rs. 4,50,000. For the addition of Rs. 1,50,000 representing recovery of loans by the assessee from his three close relatives, it was put forth that all the persons were produced before the assessing officer and they had accepted the fact of receipt and paying back the money to the assessee. In this backdrop of facts, the learned J.M., in his proposed order deleted the three additions of Rs. 4,50,000 (Rs. 1,50,000 - assessee himself, Rs. 1 lakh - Smt Patasi Devi and Rs. 2 lakhs - Shri Narayanram Chhaba (HUF). However, the learned A.M. agreed with the conclusion of the learned J.M. with regard to the deletion of the two additions of Rs. 3 lakhs viz., Rs. 1 lakh as loan from Smt. Patasi Devi and Rs. 2 lakhs as loan from Shri Narayanram Chhaba (HUF). He did not concur with the deletion of the addition of Rs. 1,50,000 representing the recovery of loans by the assessee from his three relatives. He restored the matter to the file of the learned CIT(A) for further verification on the lines as suggested by him.
I have painstakingly heard the rival submissions in the light of the material placed before me. It is manifest that the assessee purchased a plot in open auction and invested some amount in business of commission agency and dealing in agricultural produce, both totalling Rs. 17,48,772. The net loss from business was shown at Rs. 31,837. It is an admitted position that the assessee had never carried on any business in the past. It was only for the immediately preceding year that the return was filed by the assessee for the first time showing interest income of Rs. 26,250 alongwith the agricultural income of Rs. 49,350.
This return was filed on 2-3-2000. Return for the assessment year under consideration was filed on 3-4-2001 showing agricultural income at Rs. 80,000 and business loss of Rs. 31,837. Out of the total amount invested by the assessee in the shop/business of M/s. Chhaba Traders, insofar as the receipt of loans by the assessee from Smt. Patasi Devi to the tune of Rs. 7 lakhs and Shri Narayanram Chhaba (HUF) to the extent of Rs. 5,50,000 are concerned, both stand fully accepted up to the Tribunal. The only dispute is regarding the recovery of loans by the assessee from his three relatives, which were stated to be advanced in earlier years. There is no quarrel about the fact that the assessee was engaged only in the agricultural activities ab initio and had never maintained his books of account except in the previous year relevant to the assessment year in question in which the business of commission agency of agricultural produce was started for the first time. The assessee, in his statement recorded on 9-12-2002, copy placed. at page 86 of PB, stated that he was engaged in agricultural activities, the annual income from which was at Rs. 70,000 to Rs. 80,000. It was also admitted by him that the annual household expenses of his family comprising of nine members were Rs. 60,000. The learned Departmental Representative, on perusing the said statement of the assessee, during the course of present proceedings, fairly conceded that no question was asked by the assessing officer with regard to advancing of loans to these three persons in the past. It is further noted that these three close relatives, whose statements were recorded by the assessing officer during the course of assessment proceedings, in the financial year 2002, copies placed at pages 62 to 68 of the PB, admitted the fact of having received loans from the assessee around four-five years back.
It was further admitted that, albeit written agreement was executed, yet the amount was repaid to the assessee. No question was asked by the assessing officer from all of them regarding the source from which the amount was returned to the assessee. The factual position that emerges is that the assessee admitted having advanced loans to these three persons out of his agricultural income and sale consideration of agricultural land and all three persons, had accepted the receipt and refund of the loans to the assessee. Apart from the categorical admission by the borrowers and lender, in the facts and circumstances of the case, the only other arena of testing the genuineness of the transactions, in the widest amplitude, could have been the verification of the origin of the amount at the time of lending and the source of borrowers at the time of repayment. insofar as the first aspect is concerned, the assessee has claimed from inception that the loans were advanced out of his agricultural income and the sale consideration of agricultural land. The factor, which heavily weighed with the assessing officer in not accepting the assessee's explanation is that no documents were executed at the time of receipt and repayment of loan.
When the facts of the case are appreciated in the light of the relations to whom the loans were advanced, namely, father, sister's husband and maternal uncle and the further fact, being the set up in which the assessee was living, namely, the rural background and having only the agricultural income as his source, it becomes palpable that the non-execution of agreement in this regard, per se, cannot disturb the genuineness or otherwise of character of the loans. It cannot be conceived that a normal person in these circumstances would insist on executing legal documents before the advancement of the loans to such close relatives.
As regards the availability of funds with the assessee at that time, it is austere that his stand point from the beginning was that he looked after the financial affairs of his wife, Smt. Patasi Devi along with that of his HUF. The total agricultural land holding of the assessee at the relevant point of time was 69 bighas and 4 biswas and that of his HUF was at 108 bighas. Similarly, the agricultural landholding of Smt.
Patasi Devi was at 31 bighas and 11 biswas. Meaning thereby that he was looking after the total agricultural land of 208 bighas and 15 biswas, which pertained to the three different taxable entities. The assessee led evidence before the assessing officer that his individual agricultural income in the financial year 1998-99 was Rs. 49,350. Not only that, the assessee had shown in his HUF capacity, the agricultural income during the financial year 1999-2000 at Rs. 87,293, being a component of total credit of Rs. 5,50,000, which has been accepted in entirety. In his statement he only referred to approximate annual agricultural income of Rs. 70,000 to Rs. 80,000 as pertaining to his individual capacity. No question was raised regarding the quantum of agricultural income earned in the status of HUF and his wife. As he was the head of the family, naturally, he was responsible to maintain his family, for which he had stated to have spent Rs. 60,000 on household expenses. There is no question in the statement regarding the source wherefrom the household expenses were met. Obviously, the contention of the learned A.R. that such expenses were met by the assessee out of common pool, as he was having financial control of the affairs of his wife and HUF as well, cannot be brushed aside. The assessing officer drew inference of the net saving of Rs. 10,000 to Rs. 20,000 per annum in his hands by totally disregarding the fact that the agricultural land holding of the HUF was much more than that in the individual status of the assessee and the agricultural income in that status in the financial year 1999-2000 had been shown at Rs. 87,293. Similarly, his wife was also holding agricultural land at 31 bighas and 11 biswas.
No cognizance was taken of the agricultural income earned by his wife also. If the agricultural income earned by the assessee, his wife and his HUF are considered in total, alongwith the fact that the total expenditure of Rs. 60,000 was incurred on household expenses, this leaves a substantial amount available with the assessee. Another important factor, which cannot be lost sight of is that the assessee categorically stated before the assessing officer that the three loans amounting to Rs. 1,50,000 were financed out of agricultural income as well as out of sale consideration of agricultural land at Rs. 53,133.
It is not the case of the revenue that the assessee had not sold the agricultural land at the relevant time.
The other possibility for verification of the genuineness of the recovery of loans could have been to examine the source in the hands of the three persons who admitted to have refunded the loans to the assessee in the year under consideration. The statements of these three persons, recorded by the assessing officer, go to show that not even a single question was raised regarding the source from which money was refunded by them to the assessee. No obligation is cast upon the assessee to make good the misfeasance of the assessing officer and prove which he is not called upon to prove. When all the three persons categorically admitted the fact of having received the loan from the assessee in the past and returned in the year in question, in the absence of any material or evidence to controvert their version, there was no question of treating the amount as unexplained income of the assessee.
At this juncture, it would be relevant to note another factor which has an important bearing on the dispute. While explaining the source of loan Rs. 5,50,000 from Shri Narayan Ram Chhaba (HUF), there has been shown recovery of loans from seven different persons in this year totalling to Rs. 4,20,000, (agricultural land holding of 108 bighas) which has been eventually accepted in entirety. Similarly, Smt. Patasi Devi had also advanced the loans in the past, which were recovered by her in the year under consideration to the tune of Rs. 2,45,650 (agricultural land holding of 31 bighas 11 biswas) which fact also stands finally accepted. When the genuineness of recovery of the loans by Narayan Ram Chhaba (HUF) and Smt. Patasi Devi is considered in the light of their respective land holdings, vis-a-vis the land occupied by the assessee in individual status (at 45 bighas and 11 biswas) there appears to be no reason for not accepting the source of advancing loans by the assessee in his individual status out of agricultural income at a sum of less than Rs. 97,000 (Rs. 53,133 was admittedly the sale consideration of agricultural land utilized for advancing loans).
The case of the assessee right from the beginning was that prior to the year under consideration the assessee had filed return only for the assessment year 1999-2000 because he did not have any taxable income in the past. The department has not brought on record even an iota of evidence to show that the assessee had any income liable to tax in these earlier years. In such circumstances, the question of filing returns for such earlier years, does not arise. If that is the position, the contention of the learned Departmental Representative regarding the verification as to whether the assessee had shown the payment of loan to his father in the return of earlier year, remains out of the context. The learned Departmental Representative has forcefully contended that it was necessary to examine as to whether the assessee had shown interest income in respect of loans given to S/Shri Ramniwas and Bhikaram on receipt or accrual basis. At this, stage, I would like to mention that the core of controversy is the capacity of the assessee to advance the loans in the past, refund of which was received in this year for financing the investment in the shop. This issue is required to be determined on the basis of the capacity of the assessee to advance the loans at the relevant time alongwith the genuineness of the making of loans and the receipt of refund, de hors the aspect of interest income. The question whether the interest income from these three loans is reflected in the return of income or not, is secondary and cannot be determinative of the source of investment as claimed by the assessee. If the interest income is actually earned by the assessee but is not offered for taxation in the return of income, the remedy should be to charge such interest to tax, rather than not accepting the source of the amount. Be that as it may, it is seen that the assessee had offered interest income of Rs. 26,250 for taxation in the assessment year 1999-2000. It has been stated by the learned A.R.that this interest represents the interest charged by the assessee at the rate of 17.5 per cent, on three loans totalling Rs. 1,50,000. The learned A.R. has drawn my attention towards the disclosure of interest income of Rs. 26,250 in the return for assessment year 1999-2000, from the material already on record in the shape of synopsis of submissions in these appeals, which were made available at the time of original hearing by the Division Bench. Since the said loans were received back by the assessee on 2-4-1999, 10-4-1999 and 11-4-1999 respectively for making investment in the shop, it was stated that no interest was charged for the few days of this financial year.
In view of the foregoing reasons, I am of the considered opinion that the addition of Rs. 1,50,000 was uncalled for. I, therefore, agree with the view taken by the J.M. in deleting the addition.
The learned Members after passing dissenting orders made a reference to the Hon'ble President identifying separately the point of difference as under: "Whether in the facts and circumstances of the case penalty under section 271D of the Income Tax Act, 1961 cannot be levied or the matter requires to be restored to the file of the CIT(A)?" "Whether on the facts and in the circumstances of the case penalty imposed under section 271D of the Income Tax Act, 1961 is to be cancelled or the matter is to be restored to the file of the learned CIT(A) for making further enquiries?" The crux of the dispute between the learned Members is to decide as to whether the penalty of Rs. 9,50,000 imposed by the assessing officer under section 271D of the Act deserves to be deleted or the matter requires fresh consideration by the first appellate authority.
There is no dispute on facts by the learned Members, which in nutshell, are as follows. The assessee, who was an agriculturist, since inception, started business of commission agency of agricultural produce in the previous year relevant to assessment year under consideration by purchasing a plot. Apart from showing his own investment the assessee had shown loans of Rs. 5.50 lakhs from Shri Narayan Ram Chhaba (HUF) and Rs. 7 lakhs from Smt. Patasi Devi, wife of the assessee. These loans were taken between 6-4-1999 to 1-11-1999 in cash. The assessing officer accepted the reasonable cause to the tune of Rs. 2 lakhs out of the loan taken from Shri Narayan Ram Chhaba (HUF) on 6-4-1999, as the cash was required on the date of public auction on 6-4-1999. He did not accept the reasonable cause for the other three loans of Rs. 1 lakh, Rs. 1 lakh and Rs. 1,50,000 taken by the assessee in cash from Shri Narayan Ram Chhaba (HUF) on 4-5-1999, 6-10-1999 and 1-11-1999 respectively. Similarly, the loan of Rs. 6 lakhs received by the assessee from Smt. Patasi Devi on 30-5-1999 was held to be caught within the mischief of provisions of section 269SS. Resultantly, penalty of Rs. 9,50,000 was imposed, which came to be confirmed in the first appeal. The submissions made on behalf of the assessee before the Division Bench found favour with the learned JM who deleted the penalty. On the other hand, the learned AM restored the matter to the file of the first appellate authority for deciding the matter afresh in accordance with law and in the light of directions by him.
At the outset, the learned Counsel for the assessee vehemently argued that having concluded the transactions of loans to be genuine, the question of imposition of penalty was not maintainable. It was further stated that an incorrect finding has been recorded with regard to the opening of bank account by HUF prior to the date of loan. By referring to point No. 3 of the Synopsis of submissions furnished during the course of hearing before the Division Bench, it was stated that he had specifically mentioned that at the time when the transactions of loan took place, the assessee's wife as well as his HUF did not have any bank accounts. He referred to pages 127 and 128 of the PB, being the copy of pass book of UCO bank account in the name of Smt. Patasi Devi, to show that the bank account was opened by her for the first time on 15-3-2000 by depositing cash of Rs. 500. He further referred to pages 125 and 126 of the PB, being the copy of outer cover of the UCO bank Pass Book favouring Shri Narayan Ram Chhaba (HUF) giving a note that the bank account was opened on 27-3-2000. It was argued with vehemence that the assessee in question No. 5 of his statement recorded by the assessing officer at page 87 of PB, had categorically stated that he had his bank account at Central bank of India and UCO Bank, whereas his wife and HUF had no account other than at UCO Bank. With reference to the disclosure of bank interest by HUF in its computation of income for assessment year 1999-2000, it was stated that this amount was inadvertently included in the computation of income. It was also stated that he, during the course of hearing before the Division Bench, had shown letter of the Chartered Accountant intimating about the wrongful inclusion of this amount of Rs. 18 in the return of income of HUF and had further shown copy of the pass book of assessee's HUF depicting that the Saving bank account at UCO bank was opened in the year 2000.
It was reiterated that the assessee was an agriculturist since beginning and it was for the first time that he purchased the shop and ventured to start business in this year and the bank accounts of the assessee, his HUF and his wife were opened after the acceptance of the loans. It was further argued that the funds of the other two taxable entities, namely HUF and his wife, were also controlled by the assessee and the provisions of section 269SS were not violated. His other submissions were the reiteration of the reasoning recorded by the learned JM to delete the penalty. Per contra, the learned Departmental Representative strongly relied on the order passed by the learned AM by contending that the penalty was rightly restored to the file of the first appellate authority for a fresh adjudication. It was stated that certain vital aspects remained unexamined by the authorities below, which were crucial for the determination of the fate of the penalty.
I have heard the rival submissions and perused the relevant material on record in the light of precedents cited. It is discernible that the penalty under section 271D was inflicted on the assessee in respect of loans of Rs. 3,50,000 accepted from Shri Narayan Ram Chhaba (HUF) and Rs. 6 lakhs accepted from Smt. Patasi Devi in violation of provisions of section 269SS. The assessing officer made addition under section 68 of Rs. 2 lakhs as unexplained loan from Shri Narayan Ram Chhaba (HUF) and Rs. 1 lakh on account of unexplained loan from Smt. Patasi Devi.
Both the learned Members agreed for the deletion of these two additions. I am unable to subscribe to the contention raised on behalf of the assessee that the deletion of addition under section 68, leading to the upholding the genuineness of the transaction of loan, justifies the obliteration of penalty under section 271D as well. In my opinion, the position appears to be rather converse. When an addition is made under section 68 by not accepting the genuineness of the credit, the conclusion that follows is that, that the amount allegedly shown as loan is, in fact, the income of the assessee and the name of the borrower is used only to give the colour of genuineness to the assessee's own undisclosed investment in the business. Addition under section 68 presupposes that no genuine transaction of loan actually took place. On the contrary, section 269SS is attracted where the loan is genuinely taken and there is violation of the provisions by accepting it in cash beyond the specified limit. It is only in respect of genuine loans that the provisions of section 269SS can be considered. If, on the other hand, the loan shown by the assessee in his books of account turns out to be ingenuine, that calls for addition under section 68 and hence the false nomenclature of loan given to that transaction sheds its character. It is, ergo clear that only when the loan is genuine, the provisions of section 269SS can be considered for application. This view has been taken by the Delhi Bench of the Tribunal in the case of Asstt. CIT v. Ruchika Chemicals & Investment (P.) Ltd. (2004) 88 TTJ (Delhi) 85. Similar view has been taken in the case of ITO v. Narsing Ram Ashok Kumar (1993) 47 ITD 38 (Pat.) and Udaichand Santosh Kumar Jain v. ITO (2003) 79 TTJ (Indore) 88. In the light of these precedents, I find this argument of the learned A.R. as bereft of any force.
The erudite A.R. has not disputed the fact that in addition to the agricultural income, the loaner and loanees had income from interest at the time when the transactions of loan took place. He has candidly admitted that the transactions in question were in the nature of loans and the assessee had also paid interest thereon. This leads to a situation that the loans accepted by the assessee in cash were more than the limit specified and hence the violation of the provisions of section 269SS was there. The next question which arises for consideration is: 'Whether every breach of section 269SS calls for penalty under section 271D? In my view this question has to be replied in the negative as every violation does not automatically result in the imposition of penalty. Where such breach is simply technical or venial, that would push the case out of the mischief of the penalty. The Hon'ble Supreme Court in the classic judgment delivered in the case of Hindustan Steel Ltd. v. State of Orissa ( 1972) 83 ITR 26 has held that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. It was further held that whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. This decision has been applied by the Hon'ble Jurisdictional High Court in the case of CIT v. Superintending Engineer, P.W.D. (2003) 260 ITR 641 (Raj.).
It has been argued on behalf of the assessee that there was a reasonable cause in accepting the loans in cash, being the ignorance of law by the assessee who is basically an agriculturist. At this stage it is important to note that what is a reasonable cause may differ from person to person and situation to situation. Their Lordships of the Hon'ble Delhi High Court in the case of Woodward Governor India (P.) Ltd v. CIT (2002) 253 ITR 745 have explained the expression 'Reasonable cause' as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It has been explained to mean an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinarily prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do. The assessee in the present case has pleaded the ignorance of the relevant provisions as a reasonable cause for the breach of the section 269SS. I am reminded of the celebrated decision of the Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. (1979) 118 ITR 326 in which it was held that "there is no presumption that every person knows the law. It is often said that every one is presumed to know the law, but that is not a correct statement: there is no such maxim known to the law". This verdict is an authority for. the proposition that the dictum: 'Ignorance of law is not excusable' does not hold good in all cases. The plea of ignorance of law has to be decided in the facts of each case. In a particular situation, the afore-referred maxim may hold good, while in another, it may not. The facts of each case are required to be examined cautiously before reaching any conclusion as to whether the guilty can be said to have knowledge of law or not. If the surrounding circumstances not only indicate but lead to inevitable conclusion that the accused was not or could not have the knowledge of law, he cannot be penalized for his default.
Adverting to the facts of the instant case, it is found that the assessee was wholly and exclusively engaged in agricultural activities since beginning. It was only in this year that he purchased a shop for carrying on the business of commission agency in the agricultural produce. Admittedly he had neither filed any return of income prior to assessment year 1999-2000 nor was he obliged to file the returns as his income was falling in the range of non-taxable limit. Assessee's HUF was also engaged in the agricultural operations and so is the case with his wife Smt. Patasi Devi. The financial affairs of these three entities were in assessee's sole control. Prior to the purchasing of plot for shop in auction, there is no iota of evidence that the assessee, had any inclination towards business in the past. Returns for assessment year 1999-2000 for all the three entities showing interest and agricultural income were filed in the year 2000 on his starting the business after taking loans from his HUF and wife. Prior to that, no return of income was ever filed either by the assessee or other two related assessees. These facts, prima facie, show that the assessee did not have any taxable income and was never exposed to I.T. proceedings, directly or indirectly, in any manner in the past and had no knowledge of the provisions of the Income Tax Act when he took the loans from his wife and his HUF at the time of start of his business. In my considered opinion the ratio decidendi of Motilal Padampat Sugar Mills Co. Ltd.'s case (supra) squarely applies to the facts of this case. In the case of Dr. Deepak Muchala (supra) the assessee, a dentist by profession, took loan in violation of provisions of section 269SS for which penalty under section 271D was imposed. When the matter travelled to the Tribunal, it was held that the assessee was not expected to be well verse with fast changing laws and resultantly the penalty was deleted.
The facts of the instant case are on much stronger footing when compared with Dr. Deepak Muchala's case (supra). In view of the above discussion, I am satisfied that there existed a reasonable cause in terms of section 273B in accepting the loans in violation of the provisions of section 269SS and, as such, the penalty was wrongly imposed.
Be that as it may, it is noted that the assessee's counsel relied, before the Division Bench, on the Third Member decision in the case of Sunil M. Kasliwal (supra) to bring home the point that the penalty was erroneously confirmed in the first appeal. In this case, the assessee received certain loans in cash in violation of the provisions of section 269SS. Out of the total loans of Rs. 5,44,150, a major loan of Rs. 2,78,000 was borrowed from his HUF and Rs. 41,500 was borrowed from his wife. Both the members of the Division Bench came to the conclusion that the acceptance of loan by individual from his HUF of which the assessee was karta, did not warrant the imposition of penalty because there was common control of funds with the assessee. Similarly, both the Members agreed that the transaction of loan from wife to husband also did not call for imposition of penalty under section 271D. Though there was difference of opinion between the two Members on certain other loans, but on the aspect of accepting the loans from HUF and wife, there was unanimity in their findings. In the case of ITO v.Rajendra Trading Co. ( 1994) 48 ITD 210 (Chd.) the assessee firm accepted loan of Rs. 60,000 in cash from a bigger HUF through one MI, who, being the senior most member thereof, was acting as karta and in that capacity was custodian of the surplus funds of the said HUF. ML was a partner in the assessee firm representing his smaller HUF. When penalty was imposed under section 271D, the Tribunal observed that ML had three capacities, as a partner of the firm, as karta of the HUF, which he represented in the assessee firm and further as acting karta of bigger HUF. It was held that with three different capacities of the same person, it could be safely said that it was deposit from self to self or else from one pocket to another. The penalty in this case was held to be not maintainable. On a comparative analysis it is found that the facts of these two cases are very close to that of the assessee.
Here also, the assessee was controlling the financial affairs of his wife, apart from those of his individual and HUF. All the funds were admittedly pooled in unison centrally controlled by the assessee.
Keeping into consideration the common control of funds of HUF and his wife with the assessee, the facts of the case are found on all fours with the case of Sunil M Kasliwal (supra) in which both the learned Members agreed that penalty under section 271D was not exigible in respect of loans accepted by the assessee from his wife and his HUF in violation of provisions of section 269SS. Hence the penalty is not maintainable even on this count.
For the foregoing reasons, I concur with the view canvassed by the learned JM in deleting the penalty.
The matter will now go before the regular Bench for the disposal of the appeals in accordance with the opinion of the majority.