ITA No. 142 of 2009 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 142 of 2009 Date of Decision: 20.4.2011 M/s Sona Paper Boards Ltd. ....Appellant. Versus Joint Commissioner of Income tax ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Sunish Bindlish, Advocate for the appellant. Ms. Urvashi Dhugga, Senior Standing Counsel, for the respondent. AJAY KUMAR MITTAL, J. 1. This appeal has been filed by the assessee under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 28.2.2008 passed by the Income Tax Appellate Tribunal, Chandigarh Bench “A” (hereinafter referred to as “the Tribunal”) in ITA No. 569/Chandi/2006 for the assessment year 2002-03, claiming the following substantial questions of law:- (1) Whether on facts and circumstances of the case the order of the Tribunal confirming the penalty under Section 271D for Rs.1,70,000/- was perverse? (2) Whether the order of the Tribunal confirming penalty u/s 271D was justified in a case where there was no ITA No. 142 of 2009 -2- finding of any malafide or evasion of tax? (3) Whether the Tribunal was right in upholding the penalty u/s 271D when the genuineness of the transaction was not in dispute? (4) Whether the imposition of penalty u/s 271D merely for technical mistake can be sustained? (5) Whether, on the facts and circumstances of the case, there was reasonable cause for the assessee to receive the loans and deposits in cash and not by account payee cheque or bank draft as required u/s 269SS and, as such, the penalty levied under S. 271D for receiving the loans and deposits in cash, was not proper and unjustified? (6) Whether on facts and circumstances of the case the order of the Tribunal confirming penalty under Section 271D of the Act was not justified in view of the settled law of the Supreme Court and various High Courts of the country?” 2. Briefly stated, the facts necessary for adjudication as pleaded in the appeal are that the assessee filed its return on 31.10.2002 for the assessment year 2002-03 declaring nil income. The assessment under Section 143(3) of the Act was completed on 28.12.2004. During the course of assessment proceedings, it was noticed that the assessee had accepted loans/deposits in violation of the provisions of Section 269SS of the Act. The Assessing Officer issued a show cause notice under Section 271D of the Act to the ITA No. 142 of 2009 -3- assessee and accordingly imposed a penalty of Rs.6,38,000/- vide order dated 24.8.2005. On appeal by the assessee, the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] vide order dated 7.4.2006 deleted the aforesaid penalty. Feeling aggrieved, the department took the matter in appeal before the Tribunal. The Tribunal vide order dated 28.2.2008 upheld the order of the CIT(A) deleting the penalty amounts of Rs.1,40,000/- and Rs.3,28,000/-, but set aside the order relating to the penalty of Rs.1,70,000/-. Hence, the present appeal by the assessee. 3. We have heard learned counsel for the parties. 4. Learned counsel for the assessee submitted that the Tribunal was in error in confirming the penalty under Section 271D amounting to Rs.1,70,000/- for alleged violation of the provisions of Section 269SS of the Act. According to the learned counsel, the payment which was made by Smt. Kamla Devi Sethia to the assessee was necessitated in the given circumstances and there existed reasonable cause for the same within the meaning of the provisions of Section 273B of the Act. Reliance has been placed on the following judgments:- I. Asst. Director of Inspection (Investigation) v. Kum. A.B. Shanthi, [2002] 255 ITR 258; II. Commissioner of Income Tax v. Sunil Kumar Goel, [2009] 21 DTR 43; and III. The Commissioner of Income Tax-I, Chandigarh v. M/s Sona Paper Boards Ltd., ITA No. 594 of 2008 decided on 27.11.2008. ITA No. 142 of 2009 -4- 5. Learned counsel for the revenue, on the other hand, supported the order passed by the Tribunal. 6. After giving our thoughtful consideration to the respective submissions of learned counsel for the parties, we find merit in the submission made by learned counsel for the assessee. 7. Explaining the object and purpose of introducing Sections 269SS and 271D of the Act, the Supreme Court in Kum. A.B. Shantu's case (Supra) had laid down as under:- “The object of introducing section 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money, or if he has given some false entries in his accounts, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money is unearthed and the taxpayer would usually give the explanation that he had borrowed or received deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records later to suit the plea of the taxpayer. The main object of section 269SS was to curb this menace.” 8. Further, the Apex Court observed that Section 273B of the Act was incorporated whereby the assessee had an opportunity to explain reasonable cause for failure to comply with the provisions of Section 269SS of the Act. It was recorded:- “It is important to note that another provision, namely, section 273B was also incorporated which provides ITA No. 142 of 2009 -5- that notwithstanding anything contained in the provisions of section 271D, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision if he proves that there was reasonable cause for such failure and if the assessee proves that there was reasonable cause for failure to take a loan otherwise than by account-payee cheque or account- payee demand draft, then the penalty may not be levied. Therefore, undue hardship is very much mitigated by the inclusion of section 273B in the Act. If there was a genuine and bona fide transaction and if for any reason the taxpayer could not get a loan or deposit by account-payee cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty has got discretionary power.” 9. In Sunil Kumar Goel's case (supra), this Court had the occasion to consider regarding reasonableness of cause under Section 273B of the Act where in a family transaction between two independent assessees based on an act of casualness but where the disclosure had been made in the accounts and no tax effect was involved, it was held that this constituted “reasonable cause” under Section 273B of the Act and invoking of provision of Section 271D of the Act was not justified. 10. It requires mention that the revenue had challenged the order of the Tribunal dated 28.2.2008 whereby deletion of penalty ITA No. 142 of 2009 -6- amount of Rs.1,40,000/- and Rs.3,28,000/-, i.e. Rs.4,68,000/- by the CIT(A) had been upheld. Income Tax Appeal No. 594 of 2008 (C.I.T. Vs. M/s Sona Paper Boards Ltd.) filed by the revenue was dismissed by this Court on 27.11.2008. 11. Having analyzed to legal principles, referring to factual matrix in the present case, it may be noticed that the assessee- company had pleaded that it had incurred huge losses and was in dire need of funds to discharge its liability towards creditors. Smt. Kamla Devi Sethia the director had sold her agricultural land at Bikaner and had deposited the amount in Bank of Rajasthan Ltd. which was transferred to the assessee-company at Chandigarh through on line facility available with the banker. The amount so received was utilized for clearing the cheques issued to the creditors. The CIT(A) had concluded that the transaction was genuine and bonafide and there was no loss to the revenue as there was no evasion of tax. The transaction had also been accepted to be genuine during the assessment proceedings. At this stage, it would be expedient to reproduce the findings recorded by the CIT(A) while allowing the appeal of the assessee in paras 5, 9 and 11, which read thus:- “5. I find force in the argument of the ld. A.R. that the object of the provisions being unearthing of unaccounted money, the same are not applicable to a transaction which is done in an open manner, which is genuine and in which no unaccounted money is involved. Mere technical breach of the provisions, while the transactions are held to be ITA No. 142 of 2009 -7- genuine, do not attract the provisions of section 269SS or 269T. It is not the case of the department that the amounts involved were sham or unaccounted transactions or that any other prejudice had been caused to the revenue. Now, it may be noted that Chapter XXB of the Act begins with the head “Requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax.” It has been held that the term “certain” used therein, when read along with the legislative intent of curbing tax evasions, clearly means that all loans and deposits are not caught within its mischief. This Chapter attracts only “certain” loans or deposits that are brought in by the taxpayer to explain away his unexplained cash or unaccounted deposit. This Chapter is definitely not intended to penalize genuine transactions, where no tax evasion is involved. It is well settled that the headings prefixed to sections or set of sections in modern statues are regarded as preambles to those sections. This view was approved by Farewell L.J. in Fletcher vs. Birkenhead Corporation (1907) 1 K.B. 205. 6. XX XX XX 7 XX XX XX 8. XX XX XX ITA No. 142 of 2009 -8- 9. To my mind the subject transactions in the present matter, can be attributed to various exigencies and vicissitudes of an assessee running into huge losses and in dire need of funds. It would also be well to recall that there is no presumption that everybody knows the law [Padampat Sugar Mills Co. Ltd. vs. State of UP & Ors. (1979) 1128 ITR 326 (SC)]. Section 273B of the Act, enacts provisions of overriding nature and provides that notwithstanding anything contained in section 271D no penalty shall be imposable if the assessee proves that there was reasonable cause for accepting the loan or deposit beyond the prescribed monetary limit in cash. The words 'reasonable cause' have not been defined under the Act but they could receive the same interpretation which is given to the expression 'sufficient cause'. Therefore, in the context of the penalty provisions, the words 'reasonable cause' would mean a cause which is beyond the control of the assessee. 'Reasonable cause' obviously means a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides from restricting his cash borrowings to within the specified limit. To my mind the real question that needs to be considered in such ITA No. 142 of 2009 -9- situations is, whether there is any taint of mala fides or element of recklessness or ruse. I am of the opinion that where no want of bona fide can be imputed to the appellant, the word “sufficient cause” should receive liberal construction so as to advance substantial justice and I am fortified in this view by the principles exposited in Woodward Governor India Pvt. Ltd. Vs. CIT (2002) 253 ITR 745 (Del). 10. XX XX XX 11. No loss of revenue is involved in this case. Even if there is any ignorance, which resulted in the infraction of law, the default committed by the appellant was merely a technical and venial one which involved no evasion of tax. In my opinion bona fide belief coupled with the genuineness of the transactions would constitute reasonable cause u/s 273B for not invoking the provisions of section 271D of the Act. It must be borne in mind that the Supreme Court in CIT Vs. Podar Cement (P) Ltd. (1977) 92 Taxman 541 (SC) has laid down that provisions of the Act could not be construed in a manner to make them an instrument of oppression. In R.B. Jodha Mal Kuthiala Vs. CIT (1971) 82 ITR 570 (SC) it has been held that the tax laws have to be interpreted reasonably and in consonance with justice. To my mind, the levy of penalty in facts of ITA No. 142 of 2009 -10- the present case was not warranted.” 12. The circumstances narrated by the assessee justify taking of the amount from Smt. Kamla Devi Salathia in cash and the same being genuine and bonafide transaction offers reasonable cause under Section 273B of the Act as accepted by the CIT(A). The Tribunal had erred in reversing the said finding. Thus, the order of the Tribunal is unsustainable. 13. In view of the above, the questions of law are answered in favour of the assessee and against the revenue. The appeal stands allowed. (AJAY KUMAR MITTAL) JUDGE April 20, 2011 (ADARSH KUMAR GOEL) gbs JUDGE