ORDER
Deepak R. Shah, Accountant Member
1. All these appeals by assessee ares directed against the order of learned CIT(A), Muzaffarnagar dated 5.1.2006 in an appeal against order levying penalty Under Section 271D of the Income-tax Act, 1961 (the Act). In all these appeals, the assessee challenges levy of penalty Under Section 271D of the Act. Since all these assesses are related to each other and facts in all the cases are identical, these appeals were heard together and are disposed of by a common order.
2. The three assesses became partners of a partnership firm M/s Jai Laxmi Cane Crusher at Village Kukavi, Distt. Saharanpur, UP. Each of these partners introduced capital of Rs. 1,50,000/- in the books of firm. The capital introduced was received by them from their grandfather Shri Rodhu Singh through cheque drawn on District Cooperative Bank.
3. The AO issued notice Under Section 148 requiring the assessee to file return of income. The assessee filed the return of income declaring income in the form of salary and interest from the above referred firm. In the course of assessment, the AO required the assessee to furnish evidence about nature and source of deposit made by them. The assessee submitted that the amount was received from their grandfather out of his bank account. The grandfather had sizeable agricultural land generating agricultural income for providing financial help. The AO was satisfied about the genuineness of the loan. However, on further enquiry, the AO found that the amount was received by way of bearer cheque. He accordingly concluded that the amount was received otherwise than by account payee cheque and hence, in violation of provisions of Section 269SS of the Act. In the assessment order dated 27.1.2003, the AO being Income-tax Officer, Deoband, noted that “No doubt the loan was raised by the assessee from his grandfather through bearer cheque and also the grandfather was in possession of agricultural land and the loan was given out of sale proceeds of agricultural income to grandson (the assessee) but the assessee has violated the provisions of Section 269SS of the Act for which a separate show cause notice has been issued vide notice dated 10.1.2003. Penalty proceedings are being, initiated for committing the default for accepting the loan in cash i.e. through bearer cheque”.
4. Subsequently, another show cause notice dated 8.10.2003 was issued to the assessee requiring him to show cause as to why penalty Under Section 271D may not be imposed as there is contravention of Section 269SS. This show cause notice was issued by Addl. CIT, Saharanpur. The assessee submitted that notice dated 8.10.2003 is time barred as per provisions of Section 275(1)(c) of the Income-tax Act. Reliance was placed on the decision of ITAT, Jodhpur Bench in the case of Hissaria Bros. v. CIT 73 TTJ 1 and in the case of Dillu Cine Enterprises (P) Ltd. 80 ITD 484. It was also submitted that the genuineness of amount has been accepted in the assessment order and, therefore, default, if any, is only technical in nature and no penalty be levied under such circumstances. The Addl. CIT levying the penalty held that the decision of the Tribunal has no force because penalty Under Section 271D cannot be imposed by ITO. The same can be imposed only by JCIT/ACIT. Thereafter, the ITO referred this case for imposition of penalty and a show cause notice has been issued only on 8.10.2003. Therefore, the penalty will be time barred only on 30.4.2004. The AO, being Additional CIT levying the penalty held that the assessee has deposited Rs. 1,50,000/- in the books of firm by raising a loan from his grandfather through a bearer cheque in his own name and after withdrawing cash himself therefrom. Thus, the provisions of Section 269SS is violated as the loan is otherwise than by account payee cheque. Since the provisions of Section 269SS is violated, penalty Under Section 271D is attracted.
5. Before learned CIT(A), assessee reiterated the submissions made before Addl. CIT. It was further submitted that Shri Rodhu Singh and the assessee both are having agricultural income and neither of them has any income chargeable to tax and hence, no penalty should be imposed as the matter is covered by the exception provided in second proviso to Section 269SS of the Act. Alternatively, it was submitted that the assessee had to purchase cane crusher and therefore, he was in urgent need of funds. To meet this urgency, he accepted the cash through grandfather. Considering the urgency of circumstances, penal action ought not to be taken The amount taken by the assessee from the grandfather was not loan or deposit but was a financial help.
6. Learned CIT(A) held that the time limit for penalty would start from the show cause notice issued by the competent authority who has authority to levy penalty. Reliance was placed on the decision of Hon’ble Karnataka High Court in the case of Shan Bagh Restaurant, 266 ITR 393. He also held that provisions of Section 269SS read with Section 271D have been specifically put in Statute over and above the provisions of Section 68. Therefore, even if the genuineness of amount has been accepted, penalty can still be levied if attracted Under Section 271D of the Act. The assessee has not demonstrated why they were in urgent need of fund. Thus, mere statement regarding urgency without any evidence to the effect would not have any authenticity. The assessee herein have income other than agricultural income in the form of salary and interest income so the condition of second proviso to Section 269SS is not fulfilled. He accordingly confirmed levy of penalty. The assesses are now in further appeal before us.
7. Learned Counsel for assessee reiterated the submissions made before ld. CIT(A). He submitted that the amount was received on 24.9.96 from the grandfather. The very said sum was utilized on purchase of land and building for the factory premises, godown, machinery, engine etc. Even the sale deed mentions amount paid in cash. Thus, since assessee was required to pay the purchase consideration of the factory in cash, the amount was received from grandfather otherwise than by account payee cheque. He further submitted that ever since the amount was received in financial year 1996-97 till Asstt. Year 2002-03, the amount has not been repaid to the grandfather. This fortifies the contention that the amount was not received by way of loan but by way of financial help from the grandfather to, run the factory. As regards limitation, Shri Malik submitted that as per Section 275(1)(c), no order imposing a penalty under Chapter XXI shall be passed after expiry of the financial year in which the proceedings in the course of which action for imposition of penalty has been initiated are completed or six months from the end of the month in which action for imposition of penalty is initiated, whichever is later. As per the assessment order itself, the action for imposition of penalty has been initiated by issue of notice dated 10.1.2003. It may be a different fact that the penalty can be levied only by JCIT/Addl. CIT but the limitation will always expire as per provisions of Section 275(1)(c). For this purpose, reliance was placed on the decision of ITAT, Jodhpur Bench in the case of Hissaria Bros. As approved by Hon’ble Rajasthan High Court in the case of CIT v. Hissaria Bros. 291 ITR 244. Reliance is also placed on the decision of Hon’ble Bombay High Court in the case of CIT v. Chajjer Packaging and Plastics (P) Ltd. 214 CTR 389.
8. Shri Malik further submitted that the assessee, being agriculturist and residing in village did not have any other income. Prior to setting up of the partnership firm, all the assesses herein as well as their grandfather were having income only from agricultural operations and did not have any taxable income. Thus, on the date of receipt of loan they had no other income. Accordingly, in terms of Second proviso to Section 269SS, Section 271D was not attracted. He also submitted that the amount so received from grandfather has by way of financial help and should not be viewed as loan in strict sense. The default, if any, is a technical one for which penalty is not attracted, which is as high as the amount of loan received itself. The assessee at all time was under bonafide belief that the provision of Act are not attracted and the default being technical in nature do not justify levy of penalty as held by Hon’ble Supreme Court in the case of Hindustan Steels Ltd. v. State of Orissa 83 ITR 26.
9. Learned DR, on the other hand, sought to rely upon appellate order. She submitted that even though it is mentioned in assessment order that separate show cause notice has been issued vide notice dated 10.1.2003, that penalty proceedings are being initiated, the ITO cannot levy penalty Under Section 271D. Thus, the said initiation is invalid. Penalty Under Section 271D is to be imposed by Jt. Commissioner only. The Jt. Commissioner has issued the notice on 8.10.2003. Thus, the penalty levied by order dated 15.1.2004 is within the limitation period. She further submitted that though the assessee is stated to have received amount by way of loan by cheque, only after examination with the bank it was found that the amount was received by way of bearer cheques. The assessee has all the time shown the amount as received by way of loan. Whether it is treated as financial assistance or loan do not make any difference so long as amount is loan only and not gift. This being in violation of provisions of Section 269SS, penalty Under Section 271D is leviable.
10. We have carefully considered relevant facts, arguments advanced and the various decisions cited. Section 269SS provides that no person shall after 30th day of June, 1984 take or accept from any other person any loan or deposit otherwise than by account payee cheque or account payee bank draft if the amount of such loan on the date of taking or accepting such loan is Rs. 20,000/- or more. First proviso to Section 269SS prescribes that Section 269SS shall not apply to any loan or deposit taken or accepted by certain class of persons. Second proviso to Section 269SS which is relevant for our discussion is extracted herein:
Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act.
Reading the aforesaid proviso, it is clear that if the person from whom the loan is taken or accepted and the person by whom the loan is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act, Section 269SS do not apply to them. Section 269SS is a transaction specific and not related to any assessment year. Thus, the provision is attracted if say only on the date of taking or accepting the loan, the subsequent events do not govern the applicability of Section 269SS. Thus, on the date of acceptance of loan, if both the persons, namely, lender and borrower are having agricultural income and do not have income chargeable to tax under the Income-tax Act, Section 269SS is not applicable. There is logic behind this. Penalty Under Section 271D is attracted under Income-tax Act for alleged violation of certain provision contained in Income-tax Act. However, if a person is not an assessee at all under the Income-tax Act, merely because certain other provisions are contained in the Income-tax Act, as in the case in hand i.e. Section 269SS, 271D etc., the assessee cannot be penalized if he is not subject to the provisions of the Income-tax Act or the person is not an assessee in true sense. The word ‘assessee’ is defined in Section 2(7) of the Act. According to Section 2(7), assessee means a person by whom any tax or any other sum of money is payable under this Act. Thus, if no tax is payable by a person, he cannot be treated as an assessee so as to subject him to the rigors of Section 269SS and 271D. Admittedly, in the present case, the lender, namely, Shri Rodhu Singh, grandfather of appellants herein have only income from agricultural operations. All the three assesses prior to taking up of the loan did not have any income chargeable to tax under this Act. Only after the loan was received and invested in a partnership firm, income in the form of remuneration and interest accrued to them. However, before setting up of said business and on date of taking the loan, they did not have any other income. We accordingly hold that as per Second proviso to Section 269SS, the provisions of Section 269SS shall not apply. In that view of the situation, Section 271D cannot be invoked to levy penalty for alleged default of Section 269SS.
11. As regards limitation, we find that the limitation as prescribed in Section 275(1)(c) alone is made applicable. Section 275(1)(c) prescribes as under:
275(1) No order imposing a penalty under this Chapter shall be passed:
(a) …
(b) …
(c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty on or before the 31st day of March, 1989.
As per above provision, it is clear that no order imposing penalty Under Section 271D shall be passed after certain limitation. The limitation commences from the date the action for imposition of penalty has been initiated. Thus, it will be relevant to find out the date on which the action for imposition of penalty has been initiated. In the assessment order dated 27.1.2003, the ITO has clearly recorded a finding that “since the assessee has violated the provisions of Section 269SS of the Act for which a separate show cause notice has been issued vide notice dated 10.1.2003, penalty proceedings are being initiated for committing the default for accepting loan in cash i.e. through bearer cheque”. This conclusively proves that the action for imposition of penalty has been initiated on 10.1.2003 as recorded in assessment order dated 2.7.1.2003. It is a different fact that the ITO, who has so initiated the penalty is not competent to levy penalty Under Section 271D. However, it cannot be said that the action has not been initiated. Once the penalty proceedings have been initiated, whosoever is the competent authority has to pass an order imposing penalty if he is of the opinion that penalty Under Section 271D is attracted. The authority competent to levy penalty is thereafter not initiating the proceedings for imposition of penalty but is only exercising his powers. But merely because he chooses to exercise his powers after a considerable time he cannot get a fresh limitation if on earlier occasion, the action for imposition of penalty has already been initiated. He can only continue the action earlier taken and in all case the order imposing penalty shall be passed within the limitation prescribed Under Section 275(1)(c). Since the action for imposition of penalty has been initiated on 10.1.2003, as per Section 275(1) (c), the limitation period will expire on 31st July, 2003. Thus, the order passed Under Section 271D by Addl. Commissioner dated 29.12.2003/15.1.2004 is beyond the limitation and hence, not sustainable in law. Similar view has been adopted by ITAT, Jodhpur Bench in the case of Hissaria Bros and ITAT Hyderabad Bench in the case of Dillua Cine Enterprise P. Ltd. (supra). In the case before Hon’ble Bombay High Court in the case of Chhajer Packaging & Plastics P. Ltd., the following facts emerged:
Assessment of taxable income of respondent for the AY 1996-97 (financial year 1995-96) was carried out by the Departmental authorities and concluded with assessment order dated 30th March, 1999. The AO- Dy. CIT(Investigation), Circle II, Jalgaon, during the course of assessment noticed that the assessee had accepted loans/deposits exceeding Rs. 20,000 by modes otherwise than account payee cheques/demand drafts and had thus contravened Section 269SS of the Act. By his letter dated 30th March, 1999, he referred the matter to Addl. CIT, Range-II, Jalgaon for levy of penalty Under Section 271D of the Act.
Hon’ble Bombay High Court held as under:
In the matter at hands, the penalty proceedings arise out of assessment of income of the assessee for FY 1995-96 (AY 1996-97). It has come in the order of the CIT(A) that the assessment order was dated 30th March, 1999. Thus, the assessment proceedings are concluded on 30th march, 1999 i.e. within financial year 1998-99, corresponding assessment year being 1999-2000. Consequently, penalty could have been imposed latest by 31st March, 1999 since the assessment proceedings out of which penalty proceedings took birth, were completed on 3011 March, 1999. So far as second mode of computation of limitation is concerned, the later half of the Clause (c) of Section 275(1) of the Act is not that difficult to be understood. The penalty proceedings in the present matter were initiated by notice dated 6th April, 1999 and the period of limitation of six months is to be computed from the last date of the month in which the penalty proceedings were initiated. Thus, 30th April, 1999 would be starting point of limitation of six months and consequently, 29th October, 1999 would be the last date of period of limitation, computed in accordance with second half of Clause (c) of Section 275(1) of the Act.
Thus, in the case on hands, by computing limitation in both permissible ways, the period of limitation is either 31st March, 1999 or 29th October, 1999. 29th October, 1999 being later in time, that was the available outer limit for the Department to impose penalty. The order imposing penalty is passed on 13th March, 2000
Coming to the opening part of Sub-section (1), it says, “no order imposing penalty…shall be passed.” Thus, once the period of limitation prescribed by either of Clause (a) to (c) has expired, the Departmental authorities have no powers to impose penalty. The opening part rules out any possibility of taking initiation of proceedings as “sufficient compliance” or as keeping the proceedings within limitation. Language is so couched that the penalty proceedings are expected to be concluded before expiry of period of limitation.
In view of our above discussion and in view of the decision of ITAT referred above as well as that of Hon’ble Bombay High Court, we hold that the order imposing penalty is beyond the limitation period prescribed and hence, penalty Under Section 271D is cancelled.
12. We also find that the assessee was required to purchase land and factory premises along with machinery etc as per sale deed dated 24.9.96. Since they did not have their own funds, the assessee’s received the financial assistance from their grandfather and paid the sale consideration in cash. Though the amount was received by way of bearer cheque, this shows the urgency of funds and hence, were unable to route such transaction through bank. In a way, it can be considered as a reasonable cause within the meaning of Section 273B of the Act. Since the assessee has demonstrated reasonable cause in view of Section 273B, penalty Under Section 271D is not attracted. After all the transactions between the assessee and their grandfather is to be viewed as a financial help coming from elders in the family. Assessee cannot be presumed to have knowledge of the intricacies of the tax laws. For them it is a technical breach, if any, and hence, in view of the authoritative pronouncement of Hon’ble Supreme Court in the case of Hindustan Steel Ltd., penalty cannot be levied for such technical or venial breach.
13. We, therefore, cancel the penalty Under Section 271D on this count also.
In the result, all the appeals are allowed.
Pronounced in the open court on 25th April, 2008.