The ITO, Ward-1(2), Bhavnagar V. M/s. Universal Associates, Bhavnagar

ITA 1349/AHD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6409 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMIR TEKRIWA LA
• Keywords: Income from undisclosed sources; Search and seizure; Reasonable cause; Tax effect; Ignorance of law; Set aside
• Section: 273B; 143(3); 271D; 271E; 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL , AM) ITA NO.1349/AHD/2010 A. Y.: 2006-07 THE INCOME TAX OFFICER, WARD 2(1), AAYAKAR BHAVAN, NAKUBAUG, JASHONATH CHOWK, BHAVNAGAR 364 001 VS M/S. UNIVERSAL ASSOCIATES, 305, MADHAV HILL, WAGHAWADI ROAD, BHAVNAGAR PA NO. AABFU 0560 G (APPELLANT) (RESPONDENT) APPELLANT BY SHRI SAMIR TEKRIWALA, SR. DR RESPONDENT BY SHRI TUSHAR P. HEMANI, AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XX , AHMEDABAD DATED 13-01-2010, FOR ASSESSMENT YEAR 2006-07, CHAL LENGING THE CANCELLATION OF PENALTY LEVIED U/S 271 E OF THE IT ACT. 2. THE FACTS OF THE CASE ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAD OBSERVED THAT THE ASSESS EE HAD REPAID CERTAIN AMOUNTS TO EX-PARTNERS AND RELATIVES OF THE PARTNERS OF THE FIRM BY OTHER THAN ACCOUNT PAYEE CHEQUE/DRAFTS AMOU NTING TO RS.30,92,700/-. THE MATTER WAS REFERRED TO THE ADDL . CIT, RANGE-1, BHAVNAGAR. THE AO NOTED THAT THE ASSESSEE, BY MAKIN G PAYMENTS OTHER THAN ACCOUNT PAYEE CHEQUE/DRAFTS HAD VIOLATED THE PROVISIONS OF SECTION 269T OF THE ACT AND THE ASSESSEE WAS ASKED TO EXPLAIN THE REASONS BY ISSUING NOTICE U/S 271E OF THE IT ACT. T HE ASSESSEE FILED ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 2 ITS DETAILED REPLY BEFORE THE ADDL. CIT IN THIS REG ARD WHICH IS REPRODUCED DITTO BY THE ADDL. CIT IN HIS PENALTY OR DER. THE REPLY OF THE ASSESSEE WAS NOT FOUND CONVINCING TO THE ADDL. CIT FOR THE REASONS MENTIONED THAT WHEN THE ASSESSEE WAS IN A P OSITION TO ISSUE BEARER CHEQUES TO THE ABOVE PARTIES, HE WAS IN A PO SITION TO ISSUE ACCOUNT PAYEE CHEQUE ALSO. HENCE, SATISFYING HIMSEL F, THE ADDL. CIT HAS CONCLUDED THAT THE ASSESSEE HAS COMMITTED DEFAU LT WITHIN THE MEANING OF SECTION 269T OF THE IT ACT AND ACCORDING LY IMPOSED A PENALTY OF RS.30,92,700/- WHICH IS THE TOTAL FIGURE OF AMOUNTS RETURNED BY THE ASSESSEE TO ITS EX-PARTNERS AND RELATIVES OF THE PARTNERS OF THE FIRM. 3. THE PENALTY WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A PARTNERSHIP FIRM IN EXISTENCE SINCE 1986. THE ASSES SEE IS APPROVED AA CLASS GOVERNMENT CONTRACTOR. DURING THE YEAR, THE ASSESSEE HAD MADE RE-PAYMENT OF CREDIT BALANCE IN THE EX-PAR TNERS ACCOUNT AND THEIR RELATIVES BY CHEQUE BUT BY NOT ACCOUNT PA YEE CHEQUES. THESE FACTS WERE POINTED BY THE AO DURING THE ASSESSMENT PROCEEDINGS. THE AO THEN HAD REFERRED THE MATTER TO THE ADDL. CIT FOR LEVY OF PENALTY. MAJOR REPAYMENTS WERE MA DE FOR THE CREDIT BALANCE IN THE EX-PARTNER'S ACCOUNT. SINCE THE INCE PTION OF THE FIRM, THERE WERE CHANGES IN THE PARTNERSHIP FIRM AT VARIO US INTERVALS. SOME PARTNERS HAD RETIRED FROM THE FIRM AND SOME OTHERS HAD JOINED THE FIRM. ALL OF THE PARTNERS WHETHER RETIRED OR JOINED , WERE RELATIVES. THE FIRM DID NOT HAVE ANY PARTNERS APART FROM THE FAMIL Y MEMBERS. AS THE FIRM WAS CONSTITUTED OF FAMILY MEMBERS, THE RETIRIN G MEMBERS HAD NOT ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 3 DRAWN THEIR CAPITAL FROM THE FIRM. ALSO IN BETWEEN, THE FIRM HAD BEEN FACING TURBULENT TIMES AND HENCE COULD NOT RETURN T HE CAPITAL TO THE RETIRED PARTNERS. THE FIRM HAD NEVER PAID ANY INTER EST TO THE CREDIT IN THE RETIRED PARTNER'S ACCOUNT. DURING THE YEAR, ASS ESSEE HAD RETURNED CAPITAL OF 6 EX-PARTNERS. THE FIRM HAD REPAID THE C REDIT IN THE ACCOUNT OF THE EX-PARTNERS BY BANK CHEQUES. ONLY MISTAKE WA S THAT, THE CHEQUES WERE NOT CROSSED. ALL THE PARTNERS WERE ASS ESSED TO TAX. THERE WAS NO MALA FIDE INTENTION ON THE PART OF THE ASSESSEE IN REPAYING THE CREDIT AMOUNT BY 'OTHER THAN ACCOUNT P AYEE CHEQUES'. IT WAS ALSO NOT THE CASE THAT THE ASSESSEE HAD GIVEN A NY FALSE EXPLANATION ABOUT THE REPAYMENT. THE AO HAD ALSO NO T MENTIONED IN THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT T HAT THE SAID TRANSACTIONS WERE SHAM OR NOT GENUINE. TRANSACTIONS WERE RECORDED IN THE BOOKS OF BOTH THE PARTIES. ACCORDINGLY, THERE WAS ONLY A SMALL TECHNICAL BREACH FOR WHICH YOUR APPELLANT HAS BEEN PENALIZED FOR AN AMOUNT OF RS. 30,92,700/-. FOR THE REPAYMENT OF LOAN/DEPOSIT TO PARTIES OTHER THEN EX-PARTNERS ONE HITESH KALTHIA, WHOSE ACCOUNT WAS SQUARED, HAPPENS TO BE SON OF EX-PARTNER RATILAL LALJIBHAI K ALTHIA. HE IS ALSO NEPHEW OF PRESENT PARTNER RAJNIKANT LALJIBHAI. HE W AS REPAID AN AMOUNT OF RS.32,620/-. HE IS REGULARLY ASSESSED TO TAX. THE AMOUNT REPAID TO HIM HAS BEEN REFLECTED IN HIS BOOKS OF AC COUNTS. ALSO HIS PAN WAS MENTIONED. ACCOUNT WAS ALSO SETTLED WITH M/ S R L KALATHIA CONSTRUCTION CO. PRIVATE LIMITED. ONE OF THE PARTNE RS OF THIS FIRM IS DIRECTOR IN THE SAID COMPANY. COPY OF ACCOUNT OF TH E COMPANY WAS SUBMITTED. ANOTHER PARTY, MR TULSI S. VANANI WAS AL SO RELATIVE OF THE PARTNERS. HIS ACCOUNT WAS ALSO SETTLED DURING THE Y EAR. HE WAS REPAID AMOUNT OF RS.4,60,000/-. HE IS REGULARLY ASSESSED T O TAX. THE ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 4 AMOUNTS REPAID TO HIM WERE REFLECTED IN HIS BOOKS O F ACCOUNTS. THE ASSESSEE HAD IN FACT CONSULTED THE LEGAL COUNSEL BE FORE DOING AND AS PER HIS ADVICE THAT, PROVISIONS OF SECTION 269T WOU LD NOT BE APPLICABLE HAD PROCEEDED IN RETURNING THE AMOUNTS T O THE EX- PARTNERS. FURTHER, ALSO THE BOOKS OF ACCOUNTS OF AS SESSEE WERE AUDITED BY A CHARTERED ACCOUNTANT UNDER THE PROVISI ONS OF SECTION 44 AB OF THE INCOME TAX ACT 1961. THE LEARNED CHARTERE D ACCOUNTANT, IN HIS STATUTORY AUDIT REPORT HAS NOWHERE MENTIONED THAT THERE WAS BREACH OF PROVISIONS OF SEC. 269T OF THE IT ACT. FURTHER, THE SAID CREDITS IN THE PARTNERS ACCOUNT AND OTHER PARTIES WERE VERIFIED BY THE RELEVANT AOS FROM TIME TO TIME. IN FACT, MOST OF THE ASSESSM ENT PROCEEDINGS IN THE PAST YEARS WERE COMPLETED BY PAS SING ORDER U/S 143(3) OF THE ACT SO THE GENUINENESS AND IDENTIFICA TION OF THE PARTIES WERE NEVER A QUESTION. THE ASSESSEE WAS EARLIER ASS ESSED TO TAX WITH CENTRAL CIRCLE, RAJKOT. THE LEARNED COUNSEL HA D DRAWN ATTENTION OF THE LEARNED CIT(A) TO THE LEGISLATIVE INTENTION FOR WHICH THE PROVISIONS OF SECTION 269 SS AND 269 T WERE INSERT ED BY THE FINANCE ACT, 1984. THE BOARD, VIDE CIRCULAR NO.387 DATED 6T H JULY, 1984 [PRINTED AT (1984) 43 CTR (TLT) 3], HAVE ELABORATEL Y EXPLAINED THE SCOPE AND INTENTION OF INSERTING THE PROVISIONS OF SECTION 269 SS AND 269 T IN THE FOLLOWING WORDS IN PARA 32.1 AND 32.2 AND PUBLISHED IN INCOME-TAX LAW, 5TH VOL. AT PAGE 5732, SO FAR AS SE CTION 269 SS IS CONCERNED. '32.1 UNACCOUNTED CASH FOUND IN THE COURSE OF SEARCHES CARRIED OUT BY THE IT DEPARTMENT IS OFTEN EXPLAINED BY TAXPAYERS AS REPRESENTING LOANS TAKEN FROM OR DEPOSITS MADE BY VARIOUS PERSONS. UNACCOUNTED ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 5 INCOME IS ALSO BROUGHT INTO THE BOOKS OF ACCOUNT IN THE FORM OF SUCH LOANS AND DEPOSITS, AND TAXPAYERS ARE ALSO ABLE TO GET CONFIRMATORY LETTERS FROM SUCH PERSON I N SUPPORT OF THEIR EXPLANATION. 32.2 WITH A VIEW TO COUNTER IN THIS DEVICE, WHICH ENABLES TAXPAYERS TO EXPLAIN AWAY UNACCOUNTED CASH OR UNACCOUNTED DEPOSITS/THE, FINANCE ACT, 1984, HAS INSERTED A NEW S.269 SS IN THE IT ACT DEBARRING PER SONS FROM TAKING OR ACCEPTING, AFTER 30TH JUNE, 1984, FR OM ANY OTHER PERSON ANY LOAN OR DEPOSIT OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT IF THE AMOUNT OF SUCH LOAN OR DEPOSIT OR THE AGGREGATE AMO UNT OF SUCH LOAN AND DEPOSIT IS RS.10,000/- OR MORE THI S PROHIBITION WILL ALSO APPLY IN CASES WHERE ON THE D ATE OF TAKING OR ACCEPTING SUCH LOAN OR DEPOSIT, ANY LOAN OR DEPOSIT TAKEN OR ACCEPTED EARLIER BY SUCH PERSON FR OM THE DEPOSITOR IS REMAINING UNPAID (WHETHER REPAYMENT HA S FALLEN DUE OR NOT) AND THE AMOUNT OR THE AGGREGATE AMOUNT REMAINING UNPAID IS RS.10,000* OR MORE. THE PROHIBITION WILL ALSO APPLY IN CASES WHERE THE AMOU NT OF SUCH LOAN OR DEPOSIT, TOGETHER WITH THE AGGREGATE A MOUNT REMAINING UNPAID ON THE DATE ON WHICH SUCH LOAN OR DEPOSIT IS PROPOSED TO BE TAKEN IS RS.10,000 OR MOR E.' (RAISED TO RS.20,000 W. E. F. 1ST APRIL, 1989)'. THE OBJECT AND SCOPE OF INSERTING S.269T HAVE BEEN EXPLAINED BY THE BOARD BY DEPARTMENTAL CIRCULAR NO,345 DATED 28TH JU NE, 1982. PARAS 2.1 AND 2.2 OF THE SAID CIRCULAR ARE REPRODUC ED HEREUNDER, WHICH IS PUBLISHED AT PAGE 5735 OF THE SAID VOLUMES OF INCOME-TAX LAW BY CHATURVEDI A PITHISARIA: '2.1 THE PROLIFERATION OF BLACK MONEY POSES A SER IOUS THREAT TO THE NATIONAL ECONOMY AND IT WAS CONSIDERE D NECESSARY TO TAKE EFFECTIVE STEPS TO CONTAIN AND CO UNTER THIS MAJOR ECONOMIC EVIL. THE GOVERNMENT HAS, IN RE CENT PAST, TAKEN SEVERAL LEGISLATIVE AND ADMINISTRATIVE MEASURES TO UNEARTH BLACK MONEY. THE INCOME-TAX ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 6 (SECOND AMENDMENT) ACT, 1981 (HEREINAFTER REFERRED TO AS THE AMENDING ACT), REPRESENTS ANOTHER STEPS IN T HE SAME DIRECTION. 2.2.1 IT CAME TO GOVERNMENT'S NOTICE THAT A SUBSTAN TIAL AMOUNT OF BLACK MONEY WAS DEPOSITED BY TAX EVADERS WITH BANKS, COMPANIES, CO-OPERATIVE SOCIETIES AND PARTNERSHIP FIRMS EITHER IN THEIR OWN NAMES OR IN B ENAMI NAMES. THE INCOME-TAX (SECOND AMENDMENT) ACT, 1981, SEEKS TO COUNTER ATTEMPTS TO CIRCULATE BLACK MONEY IN THIS MANNER. PROVISIONS OF SEC.26T '269 T MODE OF REPAYMENT OF CERTAIN DEPOSITS - NO BRANCH OF A BANKING COMPANY OR A CO-OPERATIVE BA NK AND NO OTHER COMPANY OR CO-OPERATIVE SOCIETY AND NO COMPANY OR OTHER PERSON SHALL REPLAY ANY LOAN OR AN Y DEPOSIT MADE WITH IT OTHERWISE THAN BY AN ACCOUNT P AYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT DRAWN IN THE NAM E OF THE PERSON WHO HAD MADE THE LOAN OR DEPOSIT IF - (A) THE AMOUNT OF THE LOAN OR DEPOSIT TOGETHER W ITH THE INTEREST, IF ANY, PAYABLE THEREON, OR (B) THE AGGREGATE AMOUNT OF THE LOANS OR DEPOSITS HELD BY SUCH 'PERSON WITH THE BRANCH OF THE BANKING COMPANY OR CO- OPERATIVE BANK OR, AS THE CASE MAY BE, THE OTHER CO MPANY OR COOPERATIVE SOCIETY OR THE COMPANY, OR OTHER PERSON EITHER IN HIS OWN NAME OR JOINTLY WITH ANY OTHER PERSON ON TH E DATE OF SUCH REPAYMENT TOGETHER WITH THE INTEREST, IF ANY, PAYABLE ON SUCH LOANS OR DEPOSITS, IS TWENTY THOUSAND RUPEES O R MORE: PROVIDED THAT WHERE THE REPAYMENT IS BY A BANKING C OMPANY OR CO- OPERATIVE BANK, SUCH REPAYMENT MAY ALSO BE MADE BY CREDITING THE AMOUNT OF SUCH DEPOSIT TO THE ACCOUNT (IF ANY) WITH SUCH COMPANY OR BANK OF THE PERSON TO WHOM SUCH DEP OSIT HAS TO BE REPAID- ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 7 PROVIDED FURTHER THAT NOTHING IN THIS SECTION SHALL APPLY TO REPAYMENT OF ANY LOAN OR DEPOSIT TAKEN OR ACCEPTED FROM- (I) GOVERNMENT; (II) ANY BANKING COMPANY, POST OFFICE SAVINGS BANK OR CO- OPERATIVE BANK; (III). ANY CORPORATION ESTABLISHED BY A CENTRAL, ST ATE OR PROVINCIAL ACT; (IV) ANY GOVERNMENT COMPANY AS DEFINED IN SECTION 617OF THE COMPANIES ACT, 1956 (1 OF 1956) (V) SUCH OTHER INSTITUTION, ASSOCIATION OR BODY OR CLASS OF INSTITUTION, ASSOCIATIONS OR BODIES WHICH THE CENTR AL GOVERNMENT MAY, FOR REASONS TO BE RECORDED IN WRITI NG, NOTIFY IN THIS BEHALF IN THE OFFICIAL GAZETTE.] EXPLANATION- FOR THE PURPOSES OF THIS SECTION,- (I) 'BANKING COMPANY SHALL HAVE THE MEANING ASSIGN ED TO IT IN CL.(I) OF THE EXPLANATION TO S.26955; . (IA) 'CO-OPERATIVE BANK' SHALL HAVE THE MEANING ASS IGNED TO IT IN PART V OF THE BANKING REGULATION ACT,1949 (10 OF 19 49); (II} 'LOAN OR DEPOSIT' MEANS ANY LOAN OR DEPOSIT OF MONEY WHICH IS REPAYABLE AFTER NOTICE OR REPAYABLE AFTER A PERI OD AND, IN THE CASE OF A PERSON OTHER THAN A COMPANY, INCLUDES LOA N OR DEPOSIT OF ANY NATURE]. FURTHER, PROVISIONS OF SEC.271E ARE DISCUSSED HERE UNDER: [PENALTY FOR FAILURE TO COMPLY WITH THE PROVISIONS OF SECTION 269T. 271E (1) IF A PERSON REPAYS ANY [LOAN OR] DEPOSIT R EFERRED TO IN SECTION 269T OTHERWISE THAN IN ACCORDANCE WITH THE PROVISIONS ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 8 OF THAT SECTION HE SHALL BE LIABLE TO PAY, BY WAY O F PENALTY, A SUM EQUAL TO THE AMOUNT OF THE [LOAN OR] DEPOSIT SO REPAID.] [(2) ANY PENALTY IMPOSABLE UNDER SUB-SECTION (1) SH ALL BE IMPOSED BY THE [JOINT] COMMISSIONER.] IT IS CLEAR FROM THE AFORESAID CIRCULARS ISSUED BY THE BOARD THAT THESE PROVISIONS WERE INTRODUCED WITH A VIEW TO COU NTERING THE VARIOUS DEVICES ADOPTED BY THE TAX EVADERS FOR EXPL AINING THEIR UNACCOUNTED CASH FOUND CASH FOUND DURING THE COURSE OF SEARCH OR FOR INTRODUCING THEIR UNACCOUNTED INCOME IN THE FORM OF LOANS AND DEPOSITS AND IT WAS INTRODUCED FOR COU NTERING THE MAJOR ECONOMIC EVIL OF PROLIFERATION OF BLACK MONEY , ETC. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS NOT ACCE PTED ANY DEPOSITS OR LOANS IN CASH VIOLATING THE PROVISIONS OF SECTIO N 269 SS OF THE IT ACT. IT IS ONLY THAT, IT HAD REPAID THE CREDIT IN T HE EX-PARTNERS ACCOUNT AND SOME OTHER PARTIES WHO HAPPENS TO BE RELATIVES. THE ASSESSEE HAD NO INTENTION OF ANY SORT OF TAX PLANNING OR EVA SION OF TAXES. THE AMOUNTS WERE IN THE BALANCE SHEETS PAST MANY YEARS. THE ASSESSEE BEING GOVERNMENT APPROVED CONTRACTOR AND CLAIMING R EFUNDS, HAVE BEING CONTINUOUSLY SCRUTINIZED PAST 5-8 YEARS WHERE BY THE AO HAS VERIFIED THE CREDIT AMOUNTS. FURTHER, MOST OF THE P ARTIES WERE EX- PARTNERS AND ALSO FAMILY MEMBERS. SO THERE IS NO QU ESTION OF BENAMI PARTIES. THE ASSESSEE ALSO DRAWN ATTENTION OF THE L EARNED CIT(A) TO THE PROVISIONS OF SECTION 273B OF THE IT ACT WHICH READS AS UNDER: PENALTY NOT TO BE IMPOSED IN CERTAIN CASES. NOTWITHSTANDING ANYTHING CONTAINED IN THE PROVISION S OF [CLAUSE (B) OF SUB-SECTION (1) OF ] [SECTION 271, S ECTION 271A, 77 [SECTION 271AA,] SECTION 271B [,SECTION 271BA], [SECTION 271BBJ SECTION 271C, [SECTION 271CA,] SECT ION ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 9 271D, SECTION 271E, [SECTION 271F, [SECTION 271FA,] [SECTION 271FB,] [SECTION 271&,]] CLAUSE (C) OR CLA USE (D) OF SUB-SECTION (1) OF SECTION 272AA] OR [SECTION 27 2B OR] [SUB-SECTION (1) [OR SUB-SECTION (1A) OF SECTION 27 2BB] [SUB-SECTION (1) OR CLAUSE (B) OR CLAUSE (C) OF SUB -SECTION (2) OF SECTION 273, NO PENALTY SHALL BE IMPOSABLE O N THE PERSON OR THE ASSESSEE, AS THE CASE MAY BE, FOR ANY FAILURE REFERRED TO IN THE SAID PROVISIONS IF HE PR OVES THAT THERE WAS REASONABLE CAUSE 89 FOR THE SAID FAILURE.] REASONABLE CAUSE AS APPLIED TO HUMAN ACTION, IS THA T WHICH WOULD CONSTRAIN A PERSON OF AVERAGE INTELLIGE NCE AND ORDINARY PRUDENCE. THE EXPRESSION 'REASONABLE' IS NOT SUSCEPTIBLE OF A CLEAR AND PRECISE DEFINITION; FOR AN ATTEMPT TO GIVE A SPECIFIC MEANING TO THE WORD 'REASONABLE' IS TRYING TO COUNT WHAT IS NOT NUMBER AND MEASURE WHAT IS NOT SPACE. IT CAN BE DESCRIBED AS RATIONAL ACCORDING TO THE DICTATES OF REASON AND IS NOT EXCESSIVE OR IMMODERATE. THE WORD 'REASONABLE' HAS IN LAW THE PRIMA FACIE MEANING OF REASONABLE WITH REGA RD TO THOSE CIRCUMSTANCES OF WHICH THE ACTOR, CALLED ON T O ACT REASONABLY, KNOWS OR OUGHT TO KNOW. REASONABLE CAUS E CAN BE REASONABLY SAID TO BE A CAUSE WHICH PREVENTS A MAN OF ORDINARY PRUDENCE AND AVERAGE INTELLIGENCE, ACTING UNDER NORMAL CIRCUMSTANCES, WITHOUT NEGLIGEN CE OR INACTION OR WANT OF BONA FIDES - AZADI BACHAO ANDOL AN V. UNION OF INDIA (2001) 252 ITR471 (DELHI). THE LEARNED COUNSEL FOR THE ASSESSEE ALSO DREW ATTE NTION OF THE LEARNED CIT(A) TO THE HON'BLE SUPREME COURT DECISIO N IN THE CASE HINDUSTAN STEEL LTD. VS. STATE OF ORISSA REPORTED A T 83 ITR 26 WHERE IT WAS HELD BY THE APEX COURT 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 ORDINARIL Y BE IMPOSED UNLESS THE PARTY OBLIGED, EITHER ACTED DELIBERATELY IN DEF IANCE OF LAW OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR DISHONEST, OR ACT ED IN CONSCIOUS ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 10 DISREGARD OF ITS OBLIGATION - PENALTY WILL NOT ALSO BE IMPOSED MERELY BECAUSE IT WAS LAWFUL TO DO SO- WHETHER PENALTY SHO ULD BE IMPOSED FOR FAILURE TO PERFORM A STATUTORY OBLIGATION IS A MATTER OF DISCRETION OF THE AUTHORITY TO BE EXERCISED JUDICIALLY AND ON A C ONSIDERATION OF ALL THE RELEVANT CIRCUMSTANCES-EVEN IF A MINIMUM PENALT Y IS PRESCRIBED, THE AUTHORITY COMPETENT TO IMPOSE THE PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE PENALTY, WHEN THERE IS A TECHNIC AL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT OR WHERE THE BREACH FL OWS FROM A BONA FIDE BELIEF THAT THE OFFENDER IS NOT LIABLE TO ACT IN THE MANNER PRESCRIBED BY THE STATUTE. HE FURTHER REFERRED TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ASSTT. DIRECTO R OF INSPECTION (INVESTIGATION) VS. KUM. A. B. SHANTHI WHEREIN IT H AS EXPLAINED THE OBJECT OF INTRODUCING S. 269SS AS UNDER: 'THE OBJECT OF INTRODUCING S. 269SS IS TO ENSURE TH AT A TAXPAYER IS NOT ALLOWED TO GIVE FALSE EXPLANATION F OR HIS UNACCOUNTED MONEY, OR IF HE HAS GIVEN SOME FALSE EN TRIES IN HIS ACCOUNTS, HE SHALL NOT ESCAPE BY GIVING FALS E EXPLANATION FOR THE SAME. DURING SEARCH AND SEIZURE S, UNACCOUNTED MONEY US UNEARTHED AND THE WOULD USUALL Y GIVE THE EXPLANATION THAT HE HAD BORROWED OR RECEIV ED DEPOSITS FROM HIS RELATIVES OR FRIENDS THAT IT IS E ASY FOR THE SO-CALLED LENDER ALSO TO MANIPULATE HIS RECORDS LAT ER TO SUIT THE PLEA OF THE TAXPAYER. THE MAIN OBJECT OF S . 269SS WAS TO CURB THIS MENACE. AS REGARDS THE TAX LEGISLA TIONS, IT IS A POLICY MATTER, AND IT IS FOR THE PARLIAMENT TO DECIDE IN WHICH MANNER THE LEGISLATION SHOULD BE MADE. OF COURSE, IT SHOULD STAND THE TEST OF CONSTITUTION VA LIDITY. THE OBJECT SOUGHT TO BE ACHIEVED WAS TO ERADICATE THE E VIL PRACTICE OF MAKING FALSE ENTRIES IN THE ACCOUNT BOO KS AND LATER GIVING EXPLANATION FOR THE SAME.' ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 11 HE HAS ALSO REFERRED TO THE DECISION OF THE HONBLE GAUHATI HIGH COURT IN THE CASE OF CIT VS BHAGWATI PRASAD BARJORI A HUF REPORTED AT 183 CTR (GAU) 484, IN WHICH IT WAS HELD THAT 'IN VIEW OF THE DECISION OF THE APEX COURT UPHOLDING THE CONSTITUTI ONAL VALIDITY OF S.296 SS, PENALTY UNDER S.271D COULD NOT BE SET ASI DE ON THE GROUND THAT THE PROVISION OF S.269 SS IS ULTRA VIRE S THE CONSTITUTION; HOWEVER, PENALTY WAS NOT LEVIABLE FOR THE REASON TH AT THE IMPUGNED TRANSACTION OF LOAN FINDS PLACE IN THE BOOKS OF ACC OUNT OF THE ASSESSEE AS WELL AS THE LENDER AND NONE OF THE AUTH ORITIES FOUND THAT THE TRANSACTION WAS NOT GENUINE OR THAT IT WAS A SH AM TRANSACTION TO COVER UP UNACCOUNTED MONEY. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER REFERR ED TO THE DECISION OF THE ITAT AMRITSAR BENCH IN THE CASE OF SKYLINE S ILK MILLS 101 TTJ 798 IN WHICH IT WAS HELD THAT PAYMENTS MADE IN CASH BY THE ASSESSEE-FIRM IN RESPECT OF AMOUNTS STANDING IN THE CAPITAL ACCOUNTS OF TWO OUTGOING PARTNERS AND THE PAYMENTS MADE TO T HE WIFE OF ONE PARTNERS FROM HER CURRENT ACCOUNT WERE NOT PAYMENTS OF DEPOSITS, AND THE SOURCE OF SUCH PAYMENTS NOT BEING IN DOUBT, PENALTY UNDER S. 271 E WAS NOT LEVIABLE. HE HAS ALSO REFERRED TO THE DECISION OF THE ITAT DELHI BENCH IN THE CASE OF FARRUKHABAD INVESTM ENT (I) LTD. VS JCIT 85 ITD 230 WHEREIN IT WAS HELD THAT THERE BEING NO INTENTION ON THE PART OF THE ASSESSEE TO INTRODUCE UNACCOUNTED C ASH IN ACCEPTING/REPAYING LOANS/DEPOSITS IN VIOLATION OF S . 269 SS/269T, PENALTY UNDER S. 271D/E WAS NOT LIABLE. HE HAS ALSO REFERRED TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE R EPORTED IN 174 CTR 513 WHEREIN IT WAS HELD THAT IF THERE WAS A GENUINE AND BONA ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 12 FIDE TRANSACTION AND IF FOR ANY REASON THE TAXPAYER COULD NOT GET A LOAN OR DEPOSIT BY ACCOUNT-PAYEE CHEQUE OR DEMAND D RAFT FRO SOME BONA FIDE REASONS, THE AUTHORITY VESTED WITH THE PO WER TO IMPOSE PENALTY HAS GOT DISCRETIONARY POWER' AND THE DECISION OF THE ITAT AHMEDABAD BENCH IN THE CASE OF SHREENATH BUILDERS VS. DEPUTY COMMISSIONER OF INCOME TAX (2000) 66 TTJ (AHD) 113 WHERE IN IT WAS HELD THAT 'A HARMONIOUS CONSTRUCTION OF THE RELEVANT PROVISIO NS OF SS.271D, 271E AND 273B CLEARLY REVEALS THAT THE USE OF THE EXPRESSION 'SHALL BE LIABLE TO PAY' IN SS.271D AND 271E AND THE PROVISIONS OF S.273B PROVIDING THAT NO PENALTY WOUL D BE LEVIABLE IF THE PERSON CONCERNED PROVES THAT THERE WAS REASONABLE C AUSE FOR THE SAID FAILURE CLEARLY INDICATES THAT THESE PROVISION S GIVE A DISCRETION TO THE AUTHORITIES TO IMPOSE THE PENALTY OR NOT TO IMP OSE THE PENALTY. SUCH DISCRETION HAS TO BE EXERCISED IN A JUST AND F AIR MANNER HAVING REGARD TO THE ENTIRE RELEVANT FACTS MATERIALS EXIST ING ON RECORDS. - ITO VS. LAKSHMI ENTERPRISES & ORS. (1990) 185 ITR 595 ( AP) APPLIED. ORDINARILY A PLEA AS TO THE IGNORANCE OF LAW CANNOT SUPPORT THE BREACH OF A STATUTORY PROVISIONS; BUT THE FACTS OF SUCH AN INNOCENT MISTAKE DUE TO IGNORANCE OF THE RELEVANT PROVISIONS OF LAW, COUPLED WITH THE FACT THAT THE TRANSACTIONS IN QUESTION ARE GENUINE AND BONA FIDE TRANSACTIONS AND WERE UNDERTAKEN DURING THE REGULAR COURSE OF ITS BUSINESS, WILL CONSTITUTE A REASONABLE CAUSE AND THE DECISION IN THE CASE OF MUTHOOT M. GEORGE BROTHERS VS ACIT (1993) 47 TTJ (COACH) 434 : 46 ITD 10 WHEREIN IT WAS HELD AS UNDER: BONA FIDE TRANSACTIONS BETWEEN SISTER CONCERNS WIT H CENTRALIZED ACCOUNTS AND MANAGEMENT DO NOT ATTRACT ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 13 PROVISIONS OF SS. 26955 AND 269T AND, THEREFORE, PE NALTY UNDER SS. 271D/271E IS NOT LEVIABLE. HE HAS ALSO REFERRED TO THE DECISION OF THE HONBLE HIGH COURT OF JHARKHAND IN THE CASE OF OMEC ENGINEERS VS. COMMISS IONER OF INCOME TAX REPORTED AT 217 CTR 144 WHERE THE HONBL E HIGH COURT HAS HELD THAT, 'THERE BEING NO FINDING OF AO, CIT(A) OR TRIBUNAL T HAT THE TRANSACTIONS IN VIOLATION OF S. 269SS WERE NOT GENUINE, ASSESSEE'S RETURN HAVING BEEN ACCEPTED UNDER S.143( 3) AFTER SCRUTINY, THERE BEING ALSO NO FINDING THAT TRANSACT IONS WERE MALA FIDE AIMED AT DISCLOSING CONCEALED MONEY, IMPOSITION OF PENALTY UNDER S. 271D MERELY FOR TECHNICAL MISTAKE COULD NOT BE SUST AINED' AND ALSO TO THE DECISION OF THE HONBLE GUJARAT HIGH COURT I N THE CASE OF CIT VS SHREE AMBICA FLOUR MILLS CORPORATION 6 DTR (GUJ) 169, WHEREIN IT WAS HELD THAT TRIBUNAL HAVING DELETED PENALTY UNDER SS. 271D AND 271E OBSERVING THAT TRANSACTIONS BETWEEN SISTER CON CERNS ARE NOT COVERED BY EITHER PROVISIONS OF S. 26955 OR S. 269T AND THAT THE DEFAULT, IN ANY, WAS OF VENIAL NATURE, NO INTERFERE NCE IS CALLED FOR AND ALSO TO THE DECISION OF THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF CIT VS EETACH AGENCIES THEREIN IT WAS HELD THAT TRIBUNAL HAVING FOUND THAT ASSESSEE COMMITTED VIOLATION OF 269T UND ER A GENUINE BELIEF THAT S. 269T HAD NO APPLICATION TO DEPOSITS AND THAT IT ONLY PLIED TO LOANS PENALTY UNDER S. 271E WAS RIGHTLY DELETED. 4. THE LEARNED CIT(A) CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE SUBMISSIONS OF THE ASSESSEE CANCELLED THE PE NALTY. HIS FINDINGS IN PARA 3 AND 3.1 OF THE APPELLATE ORDER A RE REPRODUCED AS UNDER: ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 14 3. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND ARGUMENTS OF THE LEARNED COUNSEL FOR THE APPELLANT WITH CASE LAW RELIED UPON BY HIM AND HAVE ALSO CAREFULLY GONE THROUGH THE PENALTY ORDER AS WELL AS ASSESSMENT ORD ER. THE APPELLANT IS A PARTNERSHIP FIRM ENGAGED IN BUSI NESS OF ROAD CONSTRUCTION AS GOVERNMENT APPROVED AA CLAS S ROAD CONTRACTOR. THE FIRM WAS INCORPORATION W.E.F. 02-11- 1986. THEREAFTER, CHANGES IN CONSTITUTION OF THE FI RM HAD TAKEN PLACE FROM TIME TO TIME. THIS IS EVIDENT FROM THE TRUE COPY OF FORM NO. & ISSUED BY REGISTRAR OF FIRM S, BHAVNAGAR DIVISION, BHAVNAGAR. THERE WERE IN TOTAL 8 PARTNERS WHO RETIRED FROM THE FIRM SINCE INCEPTION TILL DATE. THESE RETIRED PARTNERS HAD CREDIT IN THEIR ACCOUNT, WHICH WAS ON ACCOUNT OF THEIR CAPITAL CONTRIBUTION AND PR OFIT EARNED. THESE RETIRED PARTNERS WERE PAID THEIR CAPI TAL ONLY LYING WITH THE FIRM BY OTHER THAN ACCOUNT PAYEE CHE QUE DURING THE YEAR. THE LEARNED AR HAD PLACED ON RECOR D COPY OF EACH EX-PARTNER FROM THE DAY OF THEIR RETIR EMENT TILL THE DATE THE PAYMENT WAS MADE. COPIES OF THE CAPITA L ACCOUNTS PLACED ON THE FILE SHOWS THAT THE AMOUNTS WHICH WERE PAID WERE THE CLOSING BALANCES IN THE CAPITAL ACCOUNTS AND THE SAME INCLUDED INITIAL CONTRIBUTION AND SHARE OF PROFIT EARNED BY THE FIRM DURING THE PERIO D WHEN THEY WERE PARTNERS. THERE WERE NO OTHER CREDIT OR D EBIT TRANSACTIONS IN THEIR ACCOUNTS. THE LEARNED AUTHORI SED REPRESENTATIVE HAS CLARIFIED THAT NO INTEREST WAS P AID ON THE CREDIT BALANCE. SECONDLY ALL THE PARTNERS WERE ASSESSED TO TAX. THE ASSESSING OFFICER, WHILE COMPL ETING THE SCRUTINY ASSESSMENT HAD NO WHERE BROUGHT ON THE RECORD THAT THE SAID TRANSACTIONS WERE SHAM OR BOGU S. IT IS NO DOUBT, TRUE THAT AT THE TIME OF RETIREMENT OF TH E PARTNERS THE FIRM WAS REQUIRED TO REPAY THE AMOUNTS STANDING IN THEIR CAPITAL ACCOUNTS AND, THEREFORE, THE SAME REPRESENTED AS LIABILITY OF THE FIRM TOWARDS PARTNE RS. BUT THE SAID LIABILITY DOES NOT AUTOMATICALLY TAKE THE SHAPE OF DEPOSITS. THE LEARNED AR ALSO PLACED A PAPER BOOK CONTAINING THE CONFIRMATIONS OF THE EX-PARTNERS. KE EPING IN VIEW THE INTENT OF THE LEGISLATURE BEHIND ENACTING S.269 SS/269T, THE TRANSACTIONS AS ARE FOUND IN THE BOOKS OF ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 15 ACCOUNTS OF THE APPELLANT CANNOT BE TERMED AS DEPOS ITS OR LOANS AS UNDERSTOOD IN COMMON PARLANCE. IT ONLY REPRESENTS THE CAPITAL IN THEIR ACCOUNTS ON THE DAY OF RETIREMENT FROM THE FIRM. FURTHER, THE TRANSACTIONS HAVE NOT BEEN TREATED AS NON-GENUINE OR BOGUS. HENCE, PROVISIONS OF SEC. 269T ARE NOT ATTRACTED TO THE FA CTS OF THE CASE. ACCORDINGLY, PENALTY LEVIED FOR REPAYMENT OF CREDIT IN THE EX-PARTNER'S CAPITAL ACCOUNTS IS HERE BY CANCELLED. 3.1 AS REGARDS THE REPAYMENTS MADE TO HITESH KALTH IA, SON OF EX-PARTNER RATILAL LALJIBHAI KALTHIA, TULSI VANANI SON-IN LAW OF EX-PARTNER BATUKBHAI NARANBHAI AND R L KALTHIA CONSTRUCTION PRIVATE LIMITED, WHERE DIRECTO R R.LPATEL IS A PARTNER OF THE APPELLANT FIRM, THE AS SESSING OFFICER HAS NOT PROVED THE SAID TRANSACTION AS BOGU S OR SHAM. THE PROVISIONS OF SEC.269T HAVE BEEN INSERTED IN THE ACT WITH A VIEW TO CURB TAX EVASION. THE SOURCE OF PAYMENTS MADE BY THE ASSESSEE IS NOT IN DOUBT. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSIN G OFFICER TO SHOW THAT SUCH REPAYMENTS WERE CLAIMED B Y THE CREDITORS FOR EXPLAINING THE SOURCE OF CERTAIN UNEX PLAINED INVESTMENTS OR EXPENDITURE. THEREFORE, IN NO WAY SUCH REPAYMENTS COULD BE CONSIDERED FOR THE PURPOSE OF EVADING TAX. THE LEVY OF PENALTY UNDER SEC.271E IS NOT AUTOMATIC. THE BONA FIDES OF THE TRANSACTIONS IS NO T IN DOUBT EITHER IN THE CASE OF THE PAYER OR RECIPIENT, AS SOURCE OF PAYMENT IS NOT IN DOUBT. THEREFORE, EVEN WITH REGARD TO THE MERITS OF THE CASE, PENALTY UNDER SEC .271E IS NOT LEVIABLE. THEREFORE, THE PENALTY LEVIED U/S. 271E IN SUCH FACTS AND CIRCUMSTANCES IS DIRECTED TO BE CANA LLED. 5. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT THE ASSESSEE HAS NOT MADE THE PAYMENT OF LOAN AND DEPOSIT AS PER LAW AND HAS VIOLATED THE PROVISIONS OF SECTION 269T OF THE IT ACT BY MAKING PAYMENT THROUGH BEARER CHEQUES, THEREFORE , THE AO WAS JUSTIFIED IN LEVYING THE PENALTY AGAINST THE ASSESS EE. HE HAS ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 16 SUBMITTED THAT THE ASSESSEE COULD HAVE ISSUED ACCOU NT PAYEE CHEQUES, THEREFORE, PENALTY SHOULD NOT HAVE BEEN CA NCELLED BY THE LEARNED CIT(A). 6. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW AND SUBMITTED THAT PARTNERS INTRODUCED THE CAPITAL IN T HE ASSESSEE FIRM AND ON RETIREMENT BY THE PARTNERS THEIR SHARE CAPIT AL WAS RETURNED ON WHICH NO INTEREST HAS BEEN PAID. IT WAS, THEREFORE, NOT A LOAN OR DEPOSIT AS PRESCRIBED U/S 269 T OF THE IT ACT. HE S UBMITTED THAT THERE IS NO DISPUTE THAT THE TRANSACTION WAS GENUINE AND ALL THE PARTNERS ARE ASSESSED TO TAX. THE ASSESSEE MADE BONA FIDE PAYMEN T TO THE PARTNERS WHO ARE CLOSELY RELATED WITH EACH OTHER. H E HAS SUBMITTED THAT SINCE THE PARTNERSHIP FIRM IS REPRESENTED BY T HE PARTNERS COLLECTIVELY, THEREFORE, RE-PAYMENT WAS MADE TO SEL F. HE HAS FURTHER SUBMITTED THAT AT LEAST ALL THESE FACTS SHOW THAT T HE ASSESSEE PROVED THAT THERE WAS A REASONABLE CAUSE FOR FAILURE TO CO MPLY WITH THE PROVISIONS OF LAW. THEREFORE, PENALTY WAS RIGHTLY C ANCELED BY THE LEARNED CIT(A). HE HAS RELIED UPON THE ORDER OF THE ITAT AMRITSAR BENCH IN THE CASE OF SKYLINE VS ACIT 12 SOT 8 AND T HE ORDER OF THE ITAT AHMEABAD BENCH IN THE CASE OF M/S. HONEST ENTE RPRISES LTD. VS ACIT IN ITA NO.3539/AHD/2008 DATED 15-02-2011. C OPIES OF THE SAME ARE FILED IN THE PAPER BOOK. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. THE FACTS AS NOTED ABOVE ARE N OT IN DISPUTE. IT IS ALSO NOT IN DISPUTE THAT THE EX-PARTNERS JOINED THE ASSESSEE FIRM AND ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 17 INTRODUCED THEIR CAPITAL IN THE ASSESSEE FIRM. LATE ON THE EX-PARTNERS RETIRED FROM THE ASSESSEE FIRM AND THE AMOUNTS WERE REFUNDED TO THEM THROUGH BEARER CHEQUES. REPAYMENT WAS ALSO MAD E TO THE SON AND SON-IN-LAW OF THE EX-PARTNERS. THE AO HAS NOT P ROVED THAT THE SAID TRANSACTION WAS BOGUS OR SHAM. SINCE THE PARTN ERS INTRODUCED CAPITAL IN THE PARTNERSHIP FIRM AT THE TIME OF JOIN ING THE ASSESSEE FIRM, THEREFORE, THE CHARACTER OF THE INTRODUCTION OF CAP ITAL WAS NOT IN THE NATURE OF LOAN OR DEPOSIT AS IS PROVIDED U/S 269 T OF THE IT ACT. SECTION 269T OF THE IT ACT PROVIDES PENALTY FOR REP AYMENT OF ANY LOAN OR DEPOSIT MADE WITH IT IN THE MODE OTHER THAN PROV IDED BY LAW. THE CHARACTER OF RETURN OF THE CAPITAL BY THE ASSESSEE FIRM WOULD REMAIN SAME AS WAS INTRODUCED AT THE TIME OF JOINING THE A SSESSEE FIRM. THE CHARACTER OF REPAYMENT OF THE SUM INTRODUCED AS CAP ITAL WOULD NOT CHANGE ON THE DATE OF RETIREMENT FROM THE PARTNERSH IP FIRM. SINCE THE CHARACTER OF INTRODUCTION OF THE CAPITAL BY THE PAR TNERS WOULD REMAIN SAME AT THE TIME OF RETIREMENT, THEREFORE, IT WOULD NOT TAKE THE CHARACTER OF LOAN OR DEPOSIT MADE WITH THE ASSESSEE FIRM AT THE TIME OF RETIREMENT. FURTHER, IT IS NOT IN DISPUTE THAT A LL THE PARTNERS ARE CLOSE RELATIVES AND EVEN THE RETURN OF THE AMOUNT WAS MAD E TO SON AND SON-IN-LAW OF THE EX-PARTNERS, WOULD PROVE THAT REP AYMENT WAS MADE TO THE CLOSELY RELATED PERSONS. EVEN SOME OF THEM W ERE FAMILY MEMBERS. SECTION 4 OF THE PARTNERSHIP ACT PROVIDES THE DEFINITION OF PARTNERSHIP, PARTNER, FIRM AND FIRM NAME. IT PROVID ES PARTNERSHIP IS THE RELATION BETWEEN PERSONS WHO HAVE AGREED TO SHARE T HE PROFIT OF A BUSINESS CARRIED ON BY ALL OR ANY OF THEM ACTING FO R ALL. PERSONS WHO HAVE ENTERED INTO PARTNERSHIP WITH ONE ANOTHER ARE CALLED INDIVIDUALLY PARTNERS AND COLLECTIVELY A FIRM AND THE NAME UNDER WHICH THEIR BUSINESS IS CARRIED ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 18 ON IS CALLED THE FIRM NAME. THIS WOULD PROVE THAT T HE PARTNERS ON RETIREMENT FROM THE ASSESSEE FIRM TAKEN BACK THEIR AMOUNT INTRODUCED IN THE PARTNERSHIP FIRM WHICH IS THE COLLECTIVE NAM E OF THE PARTNERS. THUS, IT COULD BE ASSUMED THAT IT WAS AN AMOUNT RET URNED TO THE SELF. IT WOULD, THEREFORE, PROVE THAT PERHAPS THERE MAY N OT BE VIOLATION OF SECTION 269 T OF THE IT ACT IN THE GIVEN SET OF FAC TS AND CIRCUMSTANCES. THE ASSESSEE ALSO RELIED UPON BOARD CIRCULAR WHICH PROVIDES THAT THE ABOVE PROVISION HAS BEEN INTRODUC ED IN THE ACT WITH A VIEW TO OVERCOME TAX EVASION. THE SOURCE OF THE P AYMENT MADE BY THE ASSESSEE IS NOT IN DOUBT. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO TO SHOW THAT SUCH REPAYMENTS WERE CLAIMED BY THE CREDITORS FOR EXPLAINING THE SOURCE OF CERTAIN UNEX PLAINED INVESTMENT OR EXPENDITURE. THE BOARD CIRCULAR WOULD THUS SQUAR ELY APPLY IN FAVOUR OF THE ASSESSEE IN THIS CASE. THE DECISION O F ITAT AMRITSAR BENCH IN THE CASE OF SKYLINE SILK MILLS (SUPRA) WOU LD ALSO SUPPORT THE CASE OF THE ASSESSEE. ITAT AHMEDABAD BENCH IN THE C ASE OF M/S. HONES ENTERPRISES LTD. (SUPRA) IN PARA 5 TO 7 HELD AS UNDER: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND THE MATERIAL AVAILABLE ON RECORD. THE AUTHORITIES BELOW HAVE RELIED UPON THE DECISION IN THE CASE OF BHALOTIA ENGINEERING WORKS PVT. LTD. (SUPRA) IN WHICH IT WAS HELD SHARE APPLICATION MONEY RECEIVED IN CASH EXCEEDING PRESCRIBED LIMIT AMOUNTS TO DEPOSIT WITHIN THE MEAN ING OF SECTION 269 SS OF THE IT ACT AND PENALTY CAN BE IMP OSED U/S 271D OF THE IT ACT. IN THIS CASE THE TRIBUNAL R EFERRED THE FOLLOWING QUESTION TO THE HONBLE HIGH COURT FO R ITS OPINION WHETHER ACCEPTANCE OF SHARE APPLICATION MONEY IN CASH AMOUNTING TO RS.20,000/- OR MORE VIOLATIVE OF THE PROVISIONS OF SECTION 269 SS. THE REFERENCE WAS DECIDED ACCORDINGLY BY HOLDING THAT SHARE ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 19 APPLICATION MONEY AMOUNTS TO DEPOSIT WITHIN THE MEANING OF SECTION 269SS. IN THIS CASE, THE QUESTION OF REASONABLE CAUSE AS IS PRESCRIBED U/S 273B OF TH E IT ACT WAS NOT DECIDED. THE PROVISIONS OF SECTION 273B OF THE IT ACT PROVIDES THAT NO PENALTY SHALL BE IMPOSA BLE ON THE PERSON OR THE ASSESSEE AS THE CASE MAY BE FOR A NY FAILURE REFERRED TO IN SECTION 271D OF THE IT ACT I F THE ASSESSEE PROVES THAT THERE WAS REASONABLE CAUSE FOR THE SAID FAILURE. THE REASONABLE CAUSE WOULD MEAN A CAU SE WHICH IS BEYOND THE CONTROL OF THE ASSESSEE. REASON ABLE CAUSE OBVIOUSLY MEANS A CAUSE WHICH PREVENTS A REASONABLE MAN OF ORDINARY PRUDENCE ACTING UNDER NORMAL CIRCUMSTANCES, WITHOUT NEGLIGENCE OR INACTIO N FOR WANT OF BONA FIDE. THE ASSESSEE EXPLAINED IN ITS RE PLY THAT IN ORDER TO GET ENHANCED FACILITIES FOR FINANCE FOR DEVELOPMENT OF THE BUSINESS, THE DIRECTORS HAVE TO ARRANGE FOR INCREASE IN PAID UP CAPITAL OF THE COMP ANY AND FOR THIS PURPOSE MONEY TO BE CONVERTED INTO PAI D UP CAPITAL AFTER COMPLYING WITH THE FORMALITIES FOR AL LOTMENT OF SHARES. THIS WAS BUSINESS NECESSITY AND EXPEDIENCY. IT WAS ALSO EXPLAINED THAT FURTHER DUE DEPOSITS WERE B ROUGHT THROUGH ACCOUNT PAYEE CHEQUES AND ALL OF THEM HAVE CONFIRMED THE TRANSACTION. FURTHER, ALL THE DIRECTO RS WERE ASSESSED WITH THE SAME AO OF THE ASSESSEE COMPANY. THE ASSESSEE, THEREFORE, PLEADED THAT THE CASH WAS INTRODUCED WITH BONA FIDE INTENTION TO DEVELOP COMP ANYS BUSINESS AND ALL THE DIRECTORS ARE IDENTIFIABLE. AB OVE FACTS WOULD PROVE THAT GENUINE CASH TRANSACTION WAS ENTER ED INTO BETWEEN THE DIRECTORS AND THE ASSESSEE COMPANY DUE TO URGENT BUSINESS EXIGENCY. THE AUTHORITIES BE LOW HAVE NOT GIVEN ANY FINDING THAT THE TRANSACTION WAS NOT GENUINE. THE HONBLE JHARKHAND HIGH COURT IN THE CA SE OF OMEC ENGINEERS VS CIT 294 ITR 599 HELD AS UNDER: HELD, THAT THERE WAS NO FINDING OF THE ASSESSING AUTHORITY, THE APPELLATE AUTHORITY OR THE TRIBUNAL THAT THE TRANSACTION MADE BY THE ASSESSEE IN BREACH OF THE PROVISIONS OF SECTION 269SS WAS NOT A GENUINE TRANSACTION. ON THE CONTRARY, THE RETURN FILED BY THE ASSESSEE WAS ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 20 ACCEPTED AFTER SCRUTINY UNDER SECTION 143(3) OF THE ACT. FURTHER, THERE WAS NO FINDING OF THE APPELLATE AUTHORITY THAT THE TRANSACTION IN BREACH OF THE AFORESAID PROVISIONS MADE BY THE ASSESSEE WAS MALA FIDE AND WITH THE SOLE OBJECT TO CONCEAL MONEY. CONSEQUENTLY, PENALTY IMPOSED UNDER SECTION 271D MERELY ON TECHNICAL MISTAKE COMMITTED BY THE ASSESSEE, WHICH HAD NOT RESULTED IN ANY LOSS OF REVENUE, WAS HARSH AND COULD NOT BE SUSTAINED IN LAW. 5.1 THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS SAINI MEDICAL STORE 276 ITR 79 HELD AS UNDER: IN THE PRESENT CASE, THE COMMISSIONER OF INCOME- TAX (APPEALS) IN HIS ORDER DATED JANUARY 18, 1999, WHEREBY THE PENALTY UNDER SECTION 271D OF THE ACT WAS DELETED, HAD ACCEPTED THE VERSION GIVEN BY THE ASSESSEE THAT VIOLATION OF THE PROVISIONS OF THE AC T WAS UNDER A BONA FIDE BELIEF OF THE ASSESSEE AND THE SAME WAS NOT WITH ANY INTENTION TO AVOID OR EVADE THE TAX. THE FINDINGS OF THE COMMISSIONER OF INCOME-TAX (APPEALS) HAVE BEEN CONFIRMED IN APPEAL BY THE TRIBUNAL. THE CANCELLATION OF PENALTY WAS VALID. 5.2 THE HONBLE GAUHATI HIGH COURT IN THE CASE OF C IT VS BHAGWATI PRASAD BAJORIA (HUF) 263 ITR 487 HELD A S UNDER: SECTION 273B OF THE INCOME-TAX ACT, 1961, PROVIDES 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 PROVISIONS OF SECTION 269SS, IF THE ASSESSEE PROVES THAT THERE WAS A REASONABLE CAUSE FOR SUCH FAILURE AND IF THE ASSESSEE PROVES THAT THERE WAS A REASONABLE ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 21 CAUSE FOR FAILURE TO TAKE A LOAN OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT AND IN SUCH CIRCUMSTANCES THE PENALTY SHALL NOT BE LEVIED. IN VIEW OF THIS PROVISION, IT IS APPARENT THAT THERE IS A DISCRETIO N LEFT WITH THE AUTHORITY CONCERNED WHETHER TO LEVY THE PENALTY OR NOT IN THE GIVEN CIRCUMSTANCES IF THE ASSESSEE COMES AND PROVES A REASONABLE CAUSE FOR NOT ACCEPTING THE LOAN BY ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT. WHERE THE FACTS WHICH EMERGED IN THE CASE WERE THAT AS A RESULT OF ADVANCEMENT OF THE LOAN BY U ON THREE DIFFERENT DATES THE ASSESSEE HAD EXECUTED PROMISSORY NOTES IN FAVOUR OF U, THE TRANSACTION OF LOAN HAD FOUND PLACE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AS WELL AS THE LENDER OF THE LOAN AND NONE OF THE AUTHORITIES HAD REACHED THE CONCLUSION THAT THE TRANSACTION OF LOAN WAS NOT GENUINE AND IT WAS A SHAM TRANSACTION TO COVER UP THE UNACCOUNTED MONEY: HELD, THAT THE DELETION OF PENALTY UNDER SECTION 271D WAS JUSTIFIED. 5.3 THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS SPEEDWAYS RUBBER PVT. LTD. 326 ITR 31 CONSIDERING THE DECISION IN THE CASE OF BHALOTIA ENGINEERING WORKS PVT. LTD. (SUPRA) HELD THAT SINCE FINDINGS TO THE FACT HAVE BEEN GIVEN THAT TRANSACTI ON WAS BONA FIDE AND THE PENALTY WAS OF TECHNICAL NATURE, WHICH DO NOT JUSTIFY PENALTY, THE ORDER OF THE TRIBUNAL WAS NOT SHOWN TO BE IN ANY MANNER PERVERSE OR UNREASONABLE. THE DEPARTMENTAL APPEAL WAS DISMISSED. 5.4 ITAT KOLKATA BENCH IN THE CASE OF ITO VS AVADH RUBBER LTD. 43 SOT 309 CONSIDERING THE BOARD CIRCUL AR ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 22 NO.387 DATED 06-07-1984 ON THE SUBJECT IN WHICH IT WAS PROVIDED THAT NEW SECTION 269 SS HAS BEEN INSERTED IN THE ACT WITH A VIEW TO COUNTER THE DEVICE OF UNACCO UNTED MONEY BROUGHT INTO BOOKS OF ACCOUNT IN THE FORM OF LOANS AND DEPOSITS IN ORDER TO EXPLAIN THE DEPOSITS. THER EFORE, BY THE NEW PROVISIONS SUCH PERSONS ARE DEBARRED FRO M TAKING OR ACCEPTING ANY LOAN OR DEPOSIT. THE TRIBUN AL, THEREFORE, OPINED THAT THE ABOVE PROVISION WAS INTR ODUCED TO ELIMINATE A PROLIFERATION OF BLACK MONEY IN THE SOCIETY AT LARGE AND NOT OTHERWISE. 5.5 THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS SUNIL KUMAR GOEL 315 ITR 163 HELD AS UNDER: HELD, THAT THERE WAS NO DISPUTE ABOUT THE FACT THAT THE CASH TRANSACTIONS OF THE ASSESSEE WERE WITH THE SISTER CONCERN AND THESE TRANSACTIONS WITHIN THE FAMILY AND DUE TO BUSINESS EXIGENCY. A FAMILY TRANSACTION, BETWEEN TWO INDEPENDENT ASSESSEES, BASED ON AN ACT OF CASUALNESS, SPECIALLY IN A CASE WHERE THE DISCLOSURE THEREOF WAS CONTAINED IN THE COMPILATION OF ACCOUNTS, AND WHICH HAD NO TAX EFFECT, ESTABLISHED REASONABLE CAUSE UNDER SECTION 273B OF THE ACT. SINCE THE ASSESSEE HAD SATISFACTORILY ESTABLISHED REASONABLE CAUSE UNDER SECTION 273B OF THE ACT, HE MUST BE DEEMED TO HAVE ESTABLISHED SUFFICIENT CAUSE FOR NOT INVOKING THE PENAL PROVISIONS OF SECTIONS 271D AND 271E OF THE ACT AGAINST HIM. THE DELETION OF PENALTY BY THE TRIBUNAL WAS VALID. 6. CONSIDERING THE FACTS IN THE LIGHT OF THE ABOVE DECISIONS, WE ARE OF THE VIEW THAT THE ASSESSEE HAS BEEN ABLE TO EXPLAIN REASONABLE CAUSE FOR FAILURE TO COMPLY WITH THE PROVISIONS OF LAW. THE DIRECTORS HAVE INTRODUCED SH ARE CAPITAL MONEY THROUGH CASH FOR URGENT BUSINESS NEED ; THEREFORE, THE ASSESSEE IS ABLE TO PROVE THAT IT HA S REASONABLE CAUSE FOR FAILURE TO COMPLY WITH THE PRO VISIONS OF ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 23 LAW. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AU THORITIES BELOW AND CANCEL THE PENALTY. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. 8. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT O F THE ABOVE DECISIONS, WE ARE OF THE VIEW THAT THE AT LEAST THE ASSESSEE HAS BEEN ABLE TO EXPLAIN REASONABLE CAUSE FOR FAILURE TO COM PLY WITH THE PROVISIONS OF LAW. THE EX-PARTNERS HAVE INTRODUCED THEIR CAPITAL IN THE ASSESSEE FIRM AND ON RETIREMENT THEY WERE GIVEN THE IR AMOUNT BACK THROUGH BEARER CHEQUES AND, THEREFORE, THE ASSESSEE IS ABLE TO PROVE THAT IT HAD REASONABLE CAUSE FOR FAILURE TO COMPLY WITH THE PROVISIONS OF LAW. THE FINDING OF FACT GIVEN BY THE LEARNED CI T(A) SHOW THAT THE ASSESSEE MADE PAYMENTS BONA FIDE AND THE DEFAULT W AS HIGHLY TECHNICAL IN NATURE, THEREFORE, THE LEARNED CIT(A) WAS JUSTIFIED IN CANCELING THE PENALTY. CONSEQUENTLY, PENALTY IMPOSE D BY THE AO MERELY ON TECHNICAL MISTAKE IF ANY COMMITTED BY TH E ASSESSEE WHICH HAS NOT RESULTED IN ANY LOSS OF REVENUE, THE LEVY O F PENALTY WAS HARSH AND COULD NOT HAVE BEEN SUSTAINED IN LAW. WE, THERE FORE, FIND THAT THE LEARNED CIT(A) RIGHTLY CANCELLED THE PENALTY IN THE MATTER WHICH REQUIRES NO INTERFERENCE. ITA NO.1349AHD/2010 ITO,WARD 1(2), BHAVNAGAR VS UNIVERSAL ASSOCIATES 24 9. IN THE RESULT, THE APPEAL OF THE REVENUE HAS NO MERIT AND IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17-06-2011 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 17-06-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD