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IN THE INCOME TAX APPELLATE TRIBUNAL

“C” BENCH: BENGALURU
BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT
AND
SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER

ITA Nos.288 & 289/Bang/2019

(Assessment Year: 2014-15)

Mr. Mohammadyusuf R.Dargad, The Addl. Commissioner of

Prop: M/s. Jabbar Petroleum, Vs. Income Tax,
Narendra Cross, Range-2,
Dharwad – 580 008. Hubballi.

[PAN: ALUPD 2624C]

(अपीलाथ /Appellant) ( थ /Respondent)

अपीलाथ की ओर से / Appellant by : Ms. Preeti S. Patel, Advocate

थ की ओर से/Respondent by : Smt. R. Premi, JCIT
सुनवाई की तारीख/ Date of hearing : 04.12.2019
घोषणा की तारीख /Date of Pronouncement : 03.01.2020

ORDER
PER D.S. SUNDER SINGH, A.M:

1. These two appeals filed by the assessee are directed against the

common order of the Commissioner of Income Tax (Appeals), Hubballi

(hereafter referred as “CIT(A)”) in ITA Nos.CIT(A), Hubli/10065 &

10064/2018-19 dated 07.12.2018 for the Assessment Year (AY) 2014-15.

since, the issues involved in both the appeals are identical, these appeals

are clubbed, heard together and disposed off by a common order as under:
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2. The brief facts of the case are that the assessee filed E-return of

income declaring total income of Rs. 3,45,800/- for the Assessment year

2014-15 and the same was processed u/s. 143(1) of the Income Tax Act,

1961 ("the Act") and the case was selected for scrutiny. During the course of

assessment proceedings the Assessing Officer(AO) noticed that the

Assessee had accepted the loans otherwise than account payee cheque of

Rs.50,000/- (bearer cheque) on 13/03/2013 and a sum of Rs. 4,00,000/- was

repaid in cash on 13/04/2013. The Additional Commissioner of Income

Tax,Range-2,Hubbali had issued the notice u/s.271D of the act for

accepting the loan of Rs.50000/- initiating penalty for violating the

provisions of section 269SS of the Act and called for explanation from the

assessee. In response to the notice, the assessee submitted the

explanation stating that the loan was accepted by the bearer cheques due

to exceptional circumstances for making the payment to Bharat Petroleum

Corporation Ltd. (BPCL). Not being convinced with the explanation of the

assessee, the AO levied the penalty of Rs.50000/- under section 271D of

the Act.

2.1. Similarly, the assessee made repayment of the loans in cash on

13.4.2013 for a sum of Rs.4,00,000/- to Industrial Protection Force (IPF) in

violation of the provisions of section 269T of the act. The payment of

Rs.4.00.000/- was made directly in the bank account of IPF. The Addl CIT

initiated the penalty u/s 271E of the act and called for explanation of the

assessee and the assessee explained that no cash payment was made
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directly to the assessee, since the payment was made in the bank account

and the transactions were accounted in the books of accounts of both the

assessees, hence, the assessee requested to drop the penalty proceedings.

The Addl.CIT not being impressed with the explanation levied the penalty of

Rs.4,00,000/- u/s. 271E of the Act.

3. Aggrieved by the order of the AO, the assessee went on appeal

before Ld. CIT(A) and argued that the loan was accepted by bearer cheque

due to business expediency, therefore, requested to cancel the penalty.

Similarly, the AR argued before the Ld.CIT(A) that repayment was made

directly in the bank account but not to the assessee, the transactions were

duly recorded in the books of accounts, hence, argued that there is no case

for the penalty. Not being convinced with the argument of Ld. AR, Ld.CIT(A)

confirmed the penalties levied by the Addl.CIT u/s 271D and 271E of the

act. Aggrieved by the orders of the Ld. CIT(A), the assessee filed appeal

before this Tribunal.

4. During the appeal hearing, the Ld. AR submitted that the assessee

has taken the loan from his father Mr. Mohammad Yousuf, which is a

transaction between two entities within the family. The assessee is a

Proprietor of M/s. Jabbar Petroleum, Dharwad and Shri R.M. Dargad is a

Proprietor of M/s Industrial Security Force and M/s. Aliya Petroleum at

Hubli. Mr. RM Dargad is the father of the assessee. The AR further

submitted that in petroleum dealership business there is a heavy inflow of

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cash to the extent of Rs. 5 to 6 lakhs daily. Therefore, as and when it was

necessary, the assessee was taking the loans from his father to meet the

exigencies of the business. Except the couple of occasions all the

transactions were made through banking channels. The assessee has

received a bearer cheque of Rs.50,000/- on 15.6.2013 from his father from

the account of IPF, Dharwad in the name of Mr. Hussian R. Dargad, the

Manager of Jabbar Petroleum and the same was withdrawn from the bank

account and deposited in the assessee’s cash book. The amount was

required for urgent business needs of the assessee to make the payment

to BPCL for purchase of petroleum products therefore, submitted that the

transaction was between the father and the son and the amount was

received through bearer cheques to meet the urgent needs therefore,

requested to drop the penalty. Similarly, in the case of repayment of the

loan the assessee stated that out of daily collection on 13.4.2013 the

assessee has directly deposited the cash of Rs. 4 lakhs into IPF Bank

account and he has not made cash payment directly to his father. The ld.

AR further submitted that all the transactions were duly accounted in the

books of accounts of both the assessees. The AR argued that since the

transactions were between father and son, there is no case for penalty u/s

271D/271E. The Ld.AR relied on the decision of this Tribunal in the case of

Smt. Deepika vs. ACIT in ITA No.561/Bang/2017 dated 13.10.2017.

5. On the other hand, the LD. DR vehemently opposed and argued that

the transactions were between two independent business concerns

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therefore, argued that there is no case for dropping the penalty and hence

requested to uphold the order of Ld. CIT(A).

6. We have heard the rival contentions and perused the material placed on

record. Though the transactions were between two entities both the

entities are proprietary concerns of father and son. This fact was not

disputed by the department. The assessee has accepted the loan through

bearer cheque and similarly deposited the cash into the bank account of

IPF which is the proprietary concern of the father. In the case of

acceptance of loan the assessee has demonstrated that he has taken the

loan due to urgent business needs which was not considered by the Ld.

CIT(A). From the statements of facts, it is observed that the deposit was

also made directly into the bank account and both the transactions were

duly accounted in the books of accounts. Both the father and the son are

assessed to tax and maintaining the regular books of accounts and except

technical violation there is no escapement of income or suppression of

income in the instant case. Therefore, we find that the transactions are duly

reflected and there is no unaccounted cash transactions involved in the

instant case. Though the transactions were between two independent

business organizations the transactions were remained between father and

son which does not attract imposition of penalty under section 271E/271D

of the Act. The Co-ordinate Bench of ITAT, Bangalore in the case of Smt.

Deepika (supra) considered the identical issue and held that there is no case
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for imposition of penalty under section 271D of the Act in the case of

near relatives. For the sake of clarity and convenience, we extract the

revenant portion in para No.7 to 14 of the order of this Tribunal in the cited

case.

“7. We have considered the rival submissions. The facts as decided by

ITAT Kolkata in the case of Dr.B.G.Panda were that loan transactions
were carried out in cash in violation of the provisions of Sec.269SS of the
Act between husband and wife. On the question of levy of penalty
u/s.271D of the Act, the Tribunal held as follows :-

“Section 269SS is applicable to the deposits or loan. It is true that both

in the case of a loan and in the case of a deposit, there is a
relationship of debtor or creditor between the party giving money and
the party receiving money. In the case of deposit. the delivery of
money is usually at the instance of the giver and it is for the benefit of
the person who deposits the money and the benefit normally being the
earning of interest from the party who customarily accepts deposit. In
the case of loan it is the borrower at whose instance and for whose
needs the money is advanced. The borrowing is primarily for the
benefit of a borrower although the person who lends the money may
also stand to gain thereby earning interest on the money lent. In the
instant case, this condition was not applicable because there was no
relationship of the depositor or a creditor as no interest was involved.
This was neither a loan nor a deposit. At the same time. the words 'any
other person' are obviously a reference to the depositor as per the
intention of the Legislature. The communication/transaction between
the husband and wife are protected from the legislation as long as they
are not for commercial use. Otherwise, there would be a powerful
tendency to disturb the peace of families. to promote domestic broils,
and to weaken or to destroy the feeling of mutual confidence which is
the most enduring solace of married life. In the instant case, the wife
gave money to husband for construction of a house which was
naturally a joint venture for the property of the family only. This
transaction was not for commercial use. The amount directly received
by the husband. i.e .. the assessee. was to the extent of Rs. 17.000
only and the balance amount of Rs. 26.000 was given by payment
directly to the supplier of the material required for the construction of
the house. Though the expenditure was apparently incurred by the
husband being the karta/head of the family, it could not be said that the
wife could not have any interest of her own in this house being
constructed. The transaction was neither loan nor any gift as no
'interest' element was involved and there was no promise to return the
amount with or without interest. It was clear that the money given by
the wife was a joint venture of the family. Taking into consideration
overall facts and circumstances of the case, it could be said that the
aforesaid piece of legislation was not applicable in the instant case. By
taking the liberal view and applying the golden rule of interpretation,
the assessee had a reasonable cause within the meaning of section 27
3B. Therefore. the penalty should be deleted.
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8. In the case of ACIT Vs. Vardaan Fashion (2015) 60 Taxmann.com 407

(Delhi-Trib.) it was held that where the Assessee intended to purchase a
property jointly for which assessee's wife had advanced a sum of money to
assessee and when deal for purchase of such house property did not
materialize, assessee refunded said amount through cheque to his wife.
On the question whether acceptance of cash by husband from his wife
would amount to taking of loan or advance in strict sense of section
269SS , the tribunal held that it cannot be construed as loan attracting
provisions of Sec.269SS of the Act and therefore no penalty under
section 271D could be levied.

9. The Income-tax Appellate Tribunal, Amritsar Bench, in the case of ITO

v. Tarlochan Singh [2003] 128 Taxman 20 (Mag) was concerned with a
case where the husband had taken the cash of Rs. 70,000 from his wife for
the purpose of investment in the acquisition of immovable property.
The Assessing Officer had levied the penalty under section 271D which
was cancelled by the Income-tax Appellate Tribunal holding as under :

"Even keeping in view the contents of the Departmental Circular No.

387 [1985] 152 ITR (St.) 1), it was never the intention of the
Legislature to punish a party involved in a genuine transaction.
Therefore, by taking a liberal view in the instant case, the assessee had
a reasonable cause within the meaning of section 273D. Thus,
keeping in view the entire facts of the instant case, and also keeping
in view the intention of the Legislature in enacting the provisions of
section 269SS, it was to be held that the assessee was prevented by
sufficient cause from receiving the money by an account payee
cheque or account payee bank draft. In the instant case, the assessee
was of the opinion that the amount in question did not require to be
received by an account payee cheque or account payee draft. Thus,
there was a reasonable cause and no penalty should have been
levied. From the above, it would be clear that the assessee had taken
plea that firstly there was no violation of the provisions of section
269SS. Secondly, there was a reasonable cause. Thirdly, the
assessee was under the bona fide belief that he was not required to
receive the amount otherwise than by an account payee cheque or
account payee draft. As an alternative submission, it was contended
that the default could be considered either technical or venial breach
of the provisions of law and, therefore, no penalty under section 271D
was leviable. In view of the above discussion, no penalty under
section 271D was leviable. It is well-settled that penalty provision
should be interpreted as it stands and, in case of doubt, in a manner
favourable to the taxpayer. If the court finds that the language is
ambiguous or capable of more meaning that the one, then the court
has to adopt the provision which favours the assessee, more
particularly where the provisions relate to the imposition of penalty. In
view of the above, the penalty sustained by the Commissioner
(Appeals) was cancelled."

10. The ratio of the above decision of the Income-tax Appellate Tribunal,
Amritsar Bench, would be squarely applicable to the facts of the
assessee's case. Here also, the daughter and member of the HUF have
given money for certain specific purpose. The source and genuineness of
the loan has been accepted by the AO. The cash loans in question
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therefore cannot be said fall within the mischief of Sec.269SS of the Act
as near relatives cannot be said to be “Other person” within the meaning
of Sec.269SS of the Act. In any event in the circumstances of the case,
there was reasonable cause for accepting loans in cash.

11. In the case of CIT v. Sunil Kumar Goel [2009] 315 ITR 163/183
Taxman 53 , the Hon'ble Punjab and Haryana High Court held as under :
"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."

12. That the ratio of the above decision of the hon'ble Punjab and
Haryana High Court would also be squarely applicable in respect of cash
transaction between the assessee and his near relatives.

13. In the case of M.Yeshodha 351 ITR 265(Mad), the Hon’ble Madras
High Court held that transaction of loan between father in law and
daughter in law in cash cannot be subject matter of levy of penalty u/s.271D
of the Act.

14. In the light of the aforesaid judicial pronouncements, we are of the view
that imposition of penalty u/s.271D of the Act cannot be sustained.
The same is directed to be deleted. The appeal of the Assessee is
allowed.”

7. Since, the facts are identical respectfully following the view taken by

this Tribunal in the case of Smt. Deepika (supra), we hold that the penalty

levied by the AO u/s. 271E/271D is unsustainable and the same are

cancelled. Accordingly, we, set aside the orders of the Ld.CIT(A) and cancel

the penalties levied u/s. 271E/271D of the act. The appeals of the assessees

are allowed.
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8. In the result, both the appeals filed by the assessee are allowed.

Sd/- Sd/-

(N.V. VASUDEVAN) (D.S. SUNDER SINGH)

VICE PRESIDENT ACCOUNTANT MEMBER

Bengaluru, Dated: 3.1.2020.

EDN

Copy to
1. The appellant
2. The Respondent
3. CIT (A)
4. Pr. CIT
5. DR, ITAT, Bangalore.
6. Guard File
By order

Assistant Registrar
Income-tax Appellate Tribunal
Bangalore