The Add.CIT, Sagar V. M/s Kapil Kesherwani & Co., Sagar

ITA 42/JAB/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5808 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 22-10-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 27-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K SINGH
• Assessee Lawyers: GIRISH AGRAWAL CAS; H P VERMA ADV ASHISH GOYAL
• Keywords: Bonafide belief; Source of fund; Initiation of penalty proceedings; Reasonable cause; Difference of opinion; Change of opinion; Ignorance of law
• Section: 273B; 143(3); 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C.SHARMA, ACCOUNTANT MEMBER PAN NO. : AAHFB-2050-Q I.T.A.NO. 28 & 29/JBP/2009 A.Y.: 2005-06 ADDL. CIT, BASANT KESHERWANI & CO., RANGE SAGAR VS JAWAHARGANJ, SAGAR, DISTT. SAGAR (APPELLANT) (RESPONDENT) PAN NO. : AAEFH-1467-J I.T.A.NO. 25 & 26/JBP/2009 A.Y.: 2005-06 ADDL. CIT, RANGE SAGAR M/S.HARI NARAYAN TRADERS, BRINDAWANBAG WARD, VS SAGAR, (APPELLANT) (R ESPONDENT) PAN NO. : AOFPS4327-F I.T.A.NO. 130 & 131/JBP/2009 A.Y.: 2005-06 ADDL. CIT, RANGE SAGAR SHRI SATISH KUMAR SAHU, SAGAR VS (APPELLANT) (RESPONDENT) PAN NO. : AOFPS4326-E 2 I.T.A.NO. 132 & 133/JBP/2009 A.Y.: 2005-06 ADDL. CI T, RANGE SAGAR SHRI SANTOSH KUMAR SAHU, SAGAR VS (APPELLANT) (RESPONDENT) PAN NO. : AAGFG4309-N I.T.A.NO. 31 & 32/JBP/2009 A.Y.: 2005-06 ADDL. CIT, RANGE SAGAR GOPAL KRISHNA & CO., JAWAHARGANJ, SAGAR DISTT.SAGAR VS (APPELLANT) (RESPONDENT) PAN NO. : AAIFP-4821-E I.T.A.NO. 34 & 35/JBP/2009 A.Y.: 2005-06 ADDL. CIT, RANGE SAGAR M/S. PHOOL SINGH & COMPANY, JAWAHARGANJ, SAGAR DISTT.SAGAR VS (APPELLANT) (RESPONDENT) PAN NO. : AAHFB-2051-R I.T.A.NO. 37 & 39/JBP/2009 3 A.Y.: 2005-06 ADDL. CIT, RANGE SAGAR M/S. BRINDAWAN RAI & COMPANY, BRINDAWAN BAG, SAGAR DISTT.SAGAR VS (APPELLANT) (RESPONDENT) PAN NO. : AAHFK-6427-A I.T.A.NO. 41 & 42/JBP/2009 A.Y.: 2005-06 ADDL. CIT, RANGE SAGAR M/S. KAPIL KESH ERWANI & CO., JAWAHARGANJ, SAGAR DISTT.SAGAR VS (APPELLANT) (RESPONDENT) PAN NO. : AAIFFV-5975-J I.T.A.NO. 43 & 44/JBP/2009 A.Y.: 2005-06 ADDL. CIT, RANGE SAGAR M/S. VIP TRADERS, KATRA BAZAR, SAGAR DISTT.SAGAR VS (APPELLANT) (RES PONDENT) APPELLANT BY : SHRI K.K. SINGH, CIT 4 DR RESPONDENT BY : S/SHRI H.P.VERMA, ADV.,ASHISH GOYAL AND GIRISH AGRAWAL, CAS O R D E R PER R. C. SHARMA, A.M. THESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) DATED 12 TH DECEMBER, 2008 FOR THE ASSESSMENT YEAR 2005-06 IN THE MATTER OF IMPOSITION OF PENALTY U/S 271D AND 271E OF THE ACT. 2. ALL THE ASSESSES IN THESE APPEALS BELONG TO THE SAME GROUP AND ARE PARTNERS IN THE RESPECTIVE BUSINESS CARRIED ON BY THEM. AS COMMON GROUNDS HAVE BEEN TAKEN IN ALL THE APPEALS, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS INVOLVED IN BUSINESS OF LIQUOR TRADE. FOR THIS PURPOSE, THEY HAD FORMED A PARTNERSHIP FIRM AND 5 WERE GIVEN LICENCE BY THE GOVERNMENT FOR PURPOSE OF CARRYING ON LIQUOR TRADE. ALL THE PARTNERS OF THE FIRM EXCEPT SHRI SANTOSH KUMAR SAHU HAD PROCURED LICENCE TO CARRY ON THE LIQUOR BUSINESS. HOWEVER, SINCE THESE PARTNERS DID NOT HAVE FUNDS AND RESOURCES, THEY COLLECTIVELY APPROACHED SHRI SANTOSH KUMAR SAHU TO BE THE FINANCING PARTNER AND FOR WHICH A PARTNERSHIP FIRM WAS CONSTITUTED IN WRITING ON 30 TH MARCH, 2004. IN THE BOOKS OF ACCOUNTS OF THE FIRM SHRI SANTOSH KUMAR SAHU HAD TWO ACCOUNTS ONE WAS THE FIXED CAPITAL ACCOUNT WHICH WAS TO BE CARRIED FORWARD AND THE OTHER WAS THE CURRENT CAPITAL ACCOUNT WHICH WAS TO BE CLOSED BEFORE THE END OF THE ACCOUNTING YEAR. THE OTHER PARTNERS WERE REQUIRED TO DEPOSIT 90% OF THE BASIC LICENCE FEE WITH THE EXCISE OFFICE R BEFORE 1.4.2004 AND FOR THIS PURPOSE, SHRI SANTOSH KUMAR SAHU PROVIDED FUNDS IN CASH BY WITHDRAWING THE AMOUNT FROM HIS OTHER CONCERN M/S MAHAKALESHWAR WINES,SAGAR, ON THE VERY SAME DAY. HOWEVER, WHILE PASSING THE QUANTUM 6 ORDER IN RESPECT OF THESE ASSESSES, THERE WAS NO OBSERVATION ABOUT ANY DEFAULT OF THE ASSESSEE WITHIN THE MEANING OF SECTIONS 269SS OR SECTION 269T NOR THERE WAS ANY INITIATION OF PENALTY PROCEEDINGS U/S 271D/271E. AFTER EIGHT MONTHS FROM THE DATE OF COMPLETION OF THE QUANTUM ASSESSMENT, THE ASSESSING OFFICER ISSUED NOTICE WHEREIN IT WAS POINTED OUT THAT THE ASSESSEE HAS OBTAINED THE LOANS/ADVANCES FROM THE PARTNER SHRI SANTOSH KUMAR SAHU ON DIFFERENT DATES AND HAS MADE REPAYMENT OF THE LOAN AS INDICATED IN THE LEDGER ACCOUNT OF THE FIRM. IN VIEW OF THE ENTRIES IN THE LEDGER ACCOUNT OF THE FIRM, THE ASSESSING OFFICER WAS OF THE OPINION THAT IF A PARTNER PROVIDES FUNDS IN CASH TO THE PARTNERSHIP OR MAKES WITHDRAWAL OF FUNDS, THEY ARE LOANS/DEPOSITS OBTAINED OR REPAID BY THE PARTNERSHIP IN CONTRAVENTION TO SECTION 269SS AND 269T AND THEN THE FIRM IS LIABLE TO PENALTY U/S 271D AND U/S 271E OF THE ACT. THEREAFTER, THE ASSESSEE FILED REPLY WHEREIN IT WAS SUBMITTED 7 THAT PARTNER AND THE FIRM WERE THE SAME AND THE FIRM IS NOT A SEPARATE LEGAL ENTITY, THEREFORE, THE RE IS NO CONTRAVENTION TO SECTION 269SS AND 269T, ACCORDINGLY, NO PENALTY IS LEVIABLE FOR CASH PAYMENT BY THE PARTNER TO THE FIRM AND/OR REPAYMENT OF SUCH CASH BY THE FIRM TO THE PARTNER. HOWEVER, THE ASSESSING OFFICER DID NOT AGREE WITH THE ASSESSEES CONTENTION AND AFTER RELYING UPON THE DECISION OF THE ITAT, BOMBAY BENCH IN THE CASE OF UNIQUE CONSTRUCTION; 52 TTJ 96 LEVIED PENALTY U/S 271D AND 271E. BY THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) DELETED THE PENALTY IMPOSED U/S 271D AND U/S 271E AFTER MAKING THE FOLLOWING OBSERVATIONS :- I HAVE CAREFULLY CONSIDERED THE FACTS AND RECORD AND THE SUBMISSIONS MADE BY THE LD. AUTHORIZED REPRESENTATIVE. THE AO HAS SOLELY RELIED UPON THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF M/S. UNIQUE CONSTRUCTION (SUPRA), BUT THE FACTS OF THIS CASE ARE ENTIRELY DIFFERENT FROM THAT OF THE ASSESSEE. IN THE CASE LAW REFERRED BY THE ASSESSING OFFICER, THE FIRM HAD ACCEPTED DEPOSITS FROM FAMILY MEMBERS AND SISTER CONCERNS OF THE PARTNERS. THE FAMILY MEMBERS AND THE SISTER 8 CONCERNS ARE CERTAINLY DISTINCT FORM THE FIRM AND ANY AMOUNT ACCEPTED FROM THEM IS A DEPOSIT IN THE HANDS OF THE ASSESSEE AS IT BECOMES A CHARGE ON THE FIRM. HOWEVER, THE FIRM AND A PARTNER ARE NOT TWO DISTINCT ENTITIES IN LEGAL SENSE AND BECAUSE OF WHICH THE HON'BLE SUPREME COURT IN THE CASE OF R.M. CHIDAMABARAM PILLAI [SUPRA] HAS HELD THAT THERE CANNOT BE ANY EMPLOYER-EMPLOYEE RELATIONSHIP AS A MAN CANNOT BE HIS OWN EMPLOYER. BY THE SAME LOGIC THE PARTNER CANNOT MAKE A DEPOSIT IN THE FIRM FOR THE REASON THAT IT DOES NOT CREATE ANY CHARGE ON THE FIRM. IN CASE OF NON-RECOVERY OF THIS AMOUNT, THE PARTNER CANOT SUE THE FIRM SINCE IT WOULD AMOUNT TO FILING A SUIT AGAINST HIMSELF. THE FUNDS THUS PROVIDED BY A PARTNER DOES NOT ASSUME THE CHARACTER OF A DEPOSIT AND HENCE THE FUNDS PROVIDED BY THE PARTNER TO THE FIRM IN CASH FALLS OUT OF THE AMBIT OF SECTION 269SS AND 269T. IN ANY CASE, THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE RAJASTHAN HIGH COURT IN THE CASE OF LAKHPAT FILM EXCHANGE [SUPRA]. RESPECTFULLY FOLLOWING THIS DECISION, BOTH THESE PENALTIES ARE HEREBY DELETED BY CANCELLING THESE ORDERS. 4. REVENUE IS IN FURTHER APPEAL BEFORE US AGAINST THE ABOVE ORDER OF THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) IN CASES OF ALL THESE ASSESSES. 5. IT WAS ARGUED BY THE LEARNED CIT DR THAT WHILE FRAMING THE QUANTUM ASSESSMENT THE ASSESSING OFFICER HAS NOT ACCEPTED THE ASSESSEES 9 CONTENTION REGARDING RF AND ASSESSMENT HAS BEEN COMPLETED AS AN AOP, THEREFORE, ACCEPTANCE OF CASH AND REPAYMENT OF CASH BY THE MEMBERS OF AOP TO AOP CANNOT BE CONSIDERED AT PAR WITH THE PAYMENT OF CASH BY PARTNER TO A FIRM AND VICE VERSA. THE LEARNED CIT DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER FOR IMPOSITION OF PENALTY. 6. ON THE OTHER HAND, IT WAS CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE RETURN OF INCOME WAS ACCOMPANIED BY THE TAX AUDIT REPORT IN WHICH THE AUDITOR HAD CLARIFIED THAT NO DEPOSIT HAD BEEN ACCEPTED OR REPAID IN VIOLATION OF SECTION 269SS AND 269T AND WHILE COMPLETING THE QUANTUM ASSESSMENT THE ASSESSING OFFICER HAS ACCEPTED THIS VIEW SINCE HE HAS NOT INITIATED ANY PENALTY PROCEEDINGS AT THAT TIME. HOWEVER, AFTER A GAP OF 8 MONTHS FROM THE DATE OF PASSING OF THE ORDER, PENALTY PROCEEDINGS UNDER THESE SECTIONS WERE INITIATED WHICH SHOWS TO BE A CHANGE OF OPINION. HE FURTHER DREW OUR ATTENTION TO THE ORDER OF PENALTY WHEREIN THE ASSESSEE WAS 10 TREATED TO BE A FIRM.THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE FACTS OF THE DECISION OF THE BOMBAY ITAT AS RELIED UPON BY THE ASSESSING OFFICER WERE ON DIFFERENT FACTS WHEREIN CASH WAS ACCEPTED BY THE FIRM FROM FAMILY MEMBERS AND SISTER CONCERN OF THE PARTNERS AND NOT BY THE PARTNER HIMSELF. THE FAMILY MEMBERS AND THE SISTER CONCERNS ARE CERTAINLY DISTINCT FROM THE PARTNER OF A FIRM AND ANY AMOUNT ACCEPTED FROM THESE PERSONS AMOUNTS TO DEPOSIT IN THE HANDS OF THE FIRM AS IT BECOMES A CHARGE ON THE FIRM. FURTHER RELIANCE WAS PLACED ON THE DECISION OF RAJASTHAN HIGH COURT IN THE CASE OF LAKHPAT FILM EXCHANGE WHEREIN IT WAS HELD THAT THE PARTNERS OF THE FIRM ARE NOT INDEPENDENT OF THE FIRM AS THE FIRM IS NOT A JURISTIC PERSON AND HENCE THE FUNDS PROVIDED BY THE PARTNER TO THE FIRM IN CASH CANNOT BE CALLED TO BE DEPOSIT WHICH HAS BEEN ACCEPTED IN CONTRAVENTION TO SECTIONS 269SS AND 269T OF THE ACT. OUR ATTENTION WAS DRAWN TO THE IMMEDIATE REQUIREMENT OF CASH FOR 11 DEPOSIT WITH THE GOVERNMENT AUTHORITY WHILE OBTAINING LIQUOR LICENCE WHICH NECESSITATED BRINGING OF CASH BY THE PARTNERS. HE SUBMITTED THAT THE CASH WAS WITHDRAWN BY THE PARTNER FROM ANOTHER CONCERN AND THE SOURCE OF FUND WAS NEVER DOUBTED NOR ANY ADDITION WAS MADE U/S 68 IN THE HANDS OF FIRM. ACCORDINGLY, PAYMENT OF CASH WAS MADE UNDER COMPELLING CIRCUMSTANCES COVERED BY THE PROVISIONS OF SECTION 273B UNDER WHICH NO PENALTY IS TO BE IMPOSED WHEN THERE IS A REASONABLE CAUSE FOR SUCH CONTRAVENTION. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND DELIBERATED ON THE CASE LAWS REFERRED BY AUTHORITIES BELOW IN THEIR RESPECTIVE ORDERS AS WELL AS CASE LAWS CITED BY THE REPRESENTATIVE OF THE ASSESSEE AND DEPARTMENT. FROM THE RECORD, WE FIND THAT PENALTY WAS LEVIED FOR ACCEPTING CASH PAYMENT FROM THE PARTNER AND FOR REPAYING CASH BY THE FIRM TO THE PARTNER. THE PENALTY ORDER WAS PASSED BY THE ASSESSING OFFICER 12 TREATING IT AS A FIRM INSTEAD OF AOP. HONBLE SUPREME COURT IN THE CASE OF R.M. CHIDAMBARAM PILLAI; 106 ITR 292 HELD THAT THE FIRM IS NOT A LEGAL PERSON AND UNDER THE INCOME TAX LAW IT IS A UNIT OF ASSESSMENT AND NOT A FULL PERSON. IN VIEW OF THIS PROPOSITION, THE ACCEPTANCE OF CASH FROM THE PARTNER OR REPAYMENT TO THE PARTNER CANNOT BE TREATED AS DIFFERENT ENTITY SO AS TO BRING THE SAME WITHIN THE PURVIEW OF LOAN OR DEPOSIT. FURTHERMORE, THE PROVISIONS OF SECTIONS 271D AND 271E ARE SUBJECT TO THE PROVISIONS OF SECTION 273B WHICH PROVIDES THAT IF A PERSON PROVES THAT THERE WAS A REASONABLE CAUSE FOR SUCH CASH PAYMENT, NO PENALTY IS IMPOSABLE. THUS, THE LEVY OF PENALTY U/S 271D AND U/S 271E IS DISCRETIONARY IN NATURE AND THE LEVIABILITY IS TO B E DECIDED KEEPING IN VIEW THE REASONABLE CAUSE FOR BRINGING SUCH CASH IN FIRM BY THE PARTNER. IN THE INSTANT CASE BEFORE US, IT IS CRYSTAL CLEAR THAT FO R OBTAINING LIQUOR LICENCE, THE ASSESSEE WAS TO MAKE IMMEDIATE PAYMENT TO THE GOVERNMENT 13 AUTHORITIES I.E. EXCISE DEPARTMENT BEFORE 1.4.04 AND FOR THIS PURPOSE, ONLY THE PARTNER OF THE FIRM BROUGHT CASH AND THE SAME WAS ALSO REPAID WHEN THE FUND WAS AVAILABLE WITH THE FIRM. THEIR LORDSHIPS OF DELHI HIGH COURT IN THE CASE OF WOODWORD GOVERNOR INDIA PVT. LTD.; 253 ITR 745 HAVE EXPLAINED THE 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 MAIN AN HONEST BELIEF FOUNDED UPON REASONABLE GROUNDS OF THE EXISTENCE OF THE STATE OF CIRCUMSTANCES, WHICH ASSUMING THEM TO BE TRUE, WOULD REASONABLY LEAD ANY ORDINARY PRUDENT AND CAUTIOUS MAN PLACED IN THE POSITION OF THE PERSON CONCERNED, TO COME TO THE CONCLUSION THAT THE SAME WAS RIGHT THING TO DO. EVEN THE CONTENTION OF THE ASSESSEE THAT THEY WERE IGNORANT OF LAW WITH REGARD TO THE LEVY OF PENALTY FOR SUCH CASH PAYMENT BY THE PARTNER ALSO HOLDS GOOD. IN THIS REGARD DECISION OF THE SUPREME COURT IN THE CASE 14 OF MOTILAL PADAMPAT SUGAR MILLS LTD; 118 ITR 326 IS VERY IMPORTANT, IN WHICH IT WAS HELD THAT THERE IS NO PRESUMPTION THAT EVERY PERSON KNOWS THE LAW, BUT THAT IS NOT A CORRECT STATEMENT; THERE IS NO SUCH MAXIM KNOWN TO THE LAW. THIS VERDICT IS AVAILABLE FOR THE PROPOSITION THAT THE DICTUM IGNORANCE OF LAW IS NOT EXCUSABLE. IT IS NOT HELD GOOD IN ALL CASES. THE BELIEF OF IGNORANCE OF LAW HAS TO BE DECIDED IN THE FACTS OF EACH CASE. IN A PARTICULAR SITUATION, THE ABOVEREFERRED MAXIM MAY HELP WHICH MAY 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 ALSO LEAD TO INEVITABLE CONCLUSION THAT THE ACCUSED WAS NOT OR COULD NOT HAVE THE KNOWLEDGE OF LAW, HE CANNOT BE PENALIZED FOR THIS DEFAULT. 8. AFTER GOING THROUGH THE ASSESSMENT FRAMED U/S 143(3) WE FIND THAT THE ASSESSING OFFICER HAS NOT 15 POINTED OUT ANYTHING WRONG WITH REGARD GENUINENESS OF THE PAYMENT OR THE SOURCE OF PAYMENT ACCORDINGLY, NO ADD WAS MADE WITH RESPECT TO THE AMOUNT RECEIVED BY THE ASSESSEE FIRM. FURTHERMORE, WHILE INTRODUCING THE PROVISIONS OF SECTIONS 269SS AND 269T OF THE ACT THE LEGISLATURE INTENDED TO CURB CIRCULATION OF BLACK MONEY BY WAY OF CASH AND THEREBY BRING CHECK ON SUCH BLACK MONEY WHICH WAS NOT HAVING ANY IDENTIFIABLE SOURCES. KEEPING IN VIEW THE LEGISLATIVE INTENTION, THE ASSESSING OFFICER WHILE IMPOSING THE PENALTY SHOULD HAVE KEPT IN MIND THE GENUINENESS OF THE TRANSACTION WHEREIN THE SOURCE OF FUND WAS ALSO EXPLAINED. IN THE INSTANT CASE, THE SOURCE OF MONEY WHICH WAS DEPOSITED IN THE FIRM WAS NOT DOUBTED NOR DISPUTED EVEN WHILE FRAMING THE ASSESSMENT U/S 143(3) OF THE ACT AND NO ADD WAS MADE IN THIS REGARD. IN THE INSTANT CASE, THE ASSESSEE FIRM WAS ACTING UNDER A BONAFIDE BELIEF THAT THE TRANSACTIONS WITH PARTNERS DID NOT ATTRACT THE 16 PROVISIONS OF SECTIONS 269SS AND 269T OF THE ACT. SUCH BELIEF CONSTITUTED A REASONABLE CAUSE FOR NOT IMPOSING THE PENALTY U/S 271D AND U/S 271E. HONBLE RAJASTHAN HIGH COURT IS DIRECTLY ON THIS ISSUE IN THE CASE OF LAKHPAT FILM EXCHANGE (SUPRA) AND UPHELD THE ORDER OF THE TRIBUNAL FOR DELETING THE PENALTY IMPOSED WITH RESPECT TO ACCEPTANCE OF CASH BY THE PARTNER OF THE FIRM. THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE TO THE EFFECT THAT PATNERS AND FIRM ARE NOT INDEPENDENT OF EACH OTHER AND FIRM IS NOT A JURISTIC PERSON,THEREFORE, THESE TRANSACTIONS CANNOT BE CONSIDERED AS INTRA PERSON BUT WERE ONLY FOR PURPOSE OF CARRYING ON PARTNERS OWN BUSINESS, HOLDS GOOD. THE FACT THAT UNDER THE INCOME TAX ACT THE FIRM AND PARTNER OF THE FIRM ARE RECOGNIZED AS INDEPENDENT UNITS, THE SAME CANNOT BE TREATED FOR ALL PURPOSES TO BE SEPARATE AND INDEPENDENT. FROM RECORD WE ALSO FIND THAT THE ASSESSEE HAS BEEN ABLE TO ESTABLISH THAT THERE WAS 17 NECESSITY/COMPULSION FOR ACCEPTING CASH FROM THE PARTNERS FOR PAYMENT TO THE EXCISE AUTHORITY WHICH CONSTITUTED REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273B OF THE ACT. 9. FROM RECORD WE FIND THAT ALL THE PARTNERS, EXCLUDING SHRI SANTOSH KUMAR SAHU SUCCEEDED IN GETTING THE LIQUOR CONTRACT IN THE LOTTERY, THEY WERE REQUIRED TO DEPOSIT 90% OF THE BASIC LICENCE FEE WITH THE EXCISE OFFICER BEFORE 1.4.2004 SO THAT THE LICENCE MAY BE ISSUED TO THEM FOR THE PERIOD 1.4.2004 TO 31.3.2005 ACCORDINGLY, SHRI SANTOSH KUMAR SAHU WHO WAS ADMITTED TO PARTNERSHIP CONTRIBUTED THE AMOUNT ON 1.4.04 WHICH WAS DEPOSITED WITH THE EXCISE OFFICERS IMMEDIATELY ON THE VERY SAME DAY AND THE AMOUNT WAS TRANSFERRED AND REFLECTED IN THE CURRENT ACCOUNT OF THE BOOKS OF THE ASSESSEE FIRM AS ON 1.4.2004 I.E. ON OPENING DAY OF THE ACCOUNTING PERIOD OF THE ASSESSEE FIRM. FOR CONTRIBUTING THIS AMOUNT, SHRI SANTOSH KUMAR SAHU HAD WITHDRAWN THIS AMOUNT FROM THE OTHER CONCERN M/S 18 MAHAKALESHWAR WINES ON THE VERY SAME DAY. THIS FIRM WAS CARRYING ON BUSINESS AT UJJAIN AND IT WAS NOT POSSIBLE TO BRING MONEY THROUGH CHEQUE ON THE SAME DAY AS THE SAME WOULD HAVE REQUIRED ENCASHMENT TIME OF ABOUT A WEEK. IT WAS ALSO NOT POSSIBLE TO BRING MONEY THROUGH A DRAFT AS THE SAME WOULD HAVE REQUIRED HEAVY COMMISSION AND TRANSACTION CHARGES. BOTH DEPOSIT OF CASH FROM THE PARTNER AND REPAYMENT TO THE PARTNER WAS FOUND TO BE GENINE. THE ASSESSEE GENUINELY BELIEVED THAT IF THE PARTNER CONTRIBUTED FUNDS AND WITHDRAWS FUNDS, PROVISIONS OF SECTION 269SS AND 269T WERE NOT ATTRACTED AS THE FIRM IS SIMPLY THE COMPENDIUM OF INDIVIDUAL PARTNERS AND NOT A SEPARATE PERSON. THIS BONAFIDE BELIEF HAD THE SUPPORT OF THE SUPREME COURT IN THE CASE OF R.M. CHIDAMBARAN PILLAI (SUPRA). PUNJAB & HARYANA HIGH COURT IN THE CASE OF SAINI MEDICAL STORES; 276 ITR 79 AND JHARKHAND HIGH COURT IN THE CASE OF OMEC V. CIT; 217 CTR 144 HAVE HELD THAT NO PENALTY U/S 19 271D AND U/S 271E IS LEVIABLE IF THE CASH TRANSACTIONS ARE GENUINE. 10. FURTHERMORE, NO PENALTY U/S 271D/U/S 271E IS LEVIABLE IF THE CASH TRANSACTIONS HAVE TAKEN PLACE FOR SUFFICIENT REASONS AS HELD IN A. ADI V. KUMARI A.B. SHANTI (2002) 255 ITR 258 SC B. CIT V. MAHESHWARI NIRMAN UDYOG(2008) 302 ITR 201 RAJ. C. CIT V. MANOJLALWANI (2003) 180 CTR (RAJ) 394 H.C. FURTHERMORE, NO PENALTY U/S 271D AND U/S 271E IS LEVIABLE FOR CASH TRANSACTIONS BETWEEN THE FIRM AND ITS PARTNERS AS HELD IN THE CASE OF LAKHPAT FILM EXCHAN GE (SUPRA) AND R.M. CHIDAMBARAM PILLAI (SUPRA). THERE IS ALSO NO DISPUTE TO THE LEGAL PROPOSITION THAT PENAL TY U/S 271B IS NOT MANDATORY BUT IS DISCRETIONARY AND AO HAS TO EXERCISE HIS JUDICIAL DISCRETION BEFORE LEVYING THE PENALTY. WHERE THE ASSESSEE CAN SUBSTANTIATE THAT THERE IS A REASONABL E CAUSE FOR SUCH CASH PAYMENT BY PAFTNER TO FIRM AND VICE VERSA PENALTY ENVISAGED U/S 271D AND 271E SHOULD NOT BE IMPOSED. THE USE OF THE WORD MAY IN SECTION 271B SHOWS THAT DI SCRETION IS CONFERRED ON THE AO TO IMPOSE PENALTY OR NOT TO IMPOSE THE PENALTY HAVING DUE REGARD TO THE FACTS AND CIRCUMST ANCES OF 20 THE CASE. HON'BLE SUPREME COURT IN THE CASE OF HIN DUSTAN STEELS 83 ITR 26 OBSERVED THAT PENALTY WILL NOT BE IMPOSED MERELY BECAUSE IT WAS LAWFUL TO DO SO. WHETHER PEN ALTY SHOULD BE IMPOSED FOR FAILURE TO PERFORM A STATUTOR Y OBLIGATION IS A MATTER OF DISCRETION OF THE AUTHORI TY TO BE EXERCISED JUDICIOUSLY AND ON CONSIDERATION OF ALL T HE RELEVANT CIRCUMSTANCES. EVEN IF MINIMUM PENALTY IS PRESCRIB ED, THE AUTHORITY COMPETENT TO IMPOSE THE PENALTY WILL BE J USTIFIED IN REFUSING TO IMPOSE THE PENALTY WHEN THERE IS A TECH NICAL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT OR WHERE A BREACH FLOWS FROM A BONA-FIDE BELIEF THAT THE OFFENDER IS NOT LIABLE TO ACT IN A MANNER PRESCRIBED BY THE STATUTE. HON'BLE DELHI HIGH COURT IN THE CASE OF WOODWARD GOVERNOR INDIA ( P) LTD. 253 ITR 745 HAS OBSERVED AS UNDER:- REASONABLE CAUSE AS APPLIED TO HUMAN ACTION IS THAT WHICH WOULD CONSTRAIN A PERSON OF AVERAGE INTELLIGENCE AND ORDINARY PRUDENCE. IT CAN BE DESCRIBED AS PROBABLE CAUSE. IT MEANS 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 CAUSE SHOWN HAS TO BE CONSIDERED AND 21 ONLY IF IT IS FOUND TO BE FRIVOLOUS, WITHOUT SUBSTANCE OR FOUNDATION, THE PRESCRIBED CONSEQUENCES FOLLOW. 10. IN VIEW OF THE ABOVE DISCUSSION AND KEEPING IN VIEW THE ENTIRETY OF FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED COMMISSIO NER OF INCOMETAX (APPEALS) IN DELETING THE PENALTY IMPOSED U/S U/S 271D AND U/S 271E. 11. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER, 2010. (JOGINDER SINGH) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER INDORE DECEMBER 30, 2010 COPY TO APPLICANT, RESPONDENT, CIT, CIT(A), DR DN/-