VAKEEL SINGH KANSANA VS ADDITIONAL COMMISSIONER OF INCOME TAX -(ITAT)

1. This appeal by the assessee is directed against the order of the ld. CIT(A) dated 16.03.2016 in the AY 2006-07, confirming the penalty u/s 271D of the Income Tax Act, 1961 (inshort, the ‘Act’). The assessee has taken the following grounds:

“1. That the Ld. Commissioner of Income tax (Appeals) erred in confirming the penalty u/s 27 ID of the Act for Rs.170000/- without considering the facts and circumstances of the case whereas the Ld. CIT (Appeals) and Hon'ble Tribunal has considered said amount as income hence the penalty u/s 27ID of Rs. 170000/- is against the law and deserves to be deleted.

2. That the Ld. Addl. Commissioner of Income Tax Range-3, Gwalior as well as Ld. Commissioner of Income tax (Appeals) erred in levy and confirming the penalty u/s 27ID of the Act without giving proper and reasonable opportunity to the assessee, hence the levy of penalty u/s 271D of Rs. 170000/- is against the law and deserves to be deleted.”

2. At the outset, the counsel for the assessee objected the action the ld. CIT(A) contending that he has erred in confirming the penalty u/s 27 ID of the Act for Rs.170000/- on the facts and circumstances of the case since, in quantum appeal the Ld. CIT (Appeals) and Hon'ble Tribunal has considered said amount as income and hence, the penalty u/s 27ID of Rs. 170000/- is against the law and deserves to be deleted.

3. The facts as per record are that the Assessing Officer has noticed that the assessee has received three loans in cash in contravention of provisions of Section 269SS of the Act and for this default, penalty u/s 271D of Rs.1,70,000/- was imposed on the assessee by the Addl. CIT, Range 3 Gwalior on reference made by ITO-Ward 3(1), Gwalior. The ld. CIT(A) vide impugned order dated 16.03.2016, confirmed the penalty by observing as under:

5.1 Without deliberating much on the above, undisputed position (as made out in para 4.1 of this order) of the appeal is that the appellant has received loans/deposits in cash in violation of provisions of section 269SS of the Act. Just because mischievously or erroneously the amount got treated by the CIT(A) as freight receipts admitted position that they were loans as such cannot be ignored. Since they were the loans received in cash in violation of the provisions of section 269SS of the Act, the act of the appellant in committing violation of law cannot be taken lightly and admitted position cannot be allowed to be disturbed.

5.2 Without prejudice to what has been submitted above, here, it must be mentioned that since loan, amount of Rs.1,70,000/- as such has not ultimately been taxed the argument of the appellant that since they have got ultimately treated as income penalty u/s 27lD is not leviable is not acceptable and is held to be factually incorrect because only 7.5% of 1,70,000 got taxed and not the entire sum. As a matter of fact admitted position isit impugned sums of Rs.1,70,000/- were of the nature of loans that is why they were admitted to have been returned by account payee cheques later. In view of this admitted position the only thing left to be considered is whether there was any reasonable cause with the appellant for violating the provisions of section 269SS and to receive them, in cash. Since, till now no reasonable cause has been shown by the appellant to receive them in cash, the order of the Additional Commissioner in levying penalty of Rs.1,70,000/- is hereby confirmed and the appeal is hereby dismissed.

4. Ld. counsel for the assessee has filed a synopsis along with case laws which is duly certified. The relevant part of the synopsis is reproduced as under:

“4. The learned AO noted deposits in bank account of the assessee being S.B. A/c no. 881 of Bank of India, Deendayal Nagar, Gwalior aggregating to Rs. 2.00 lakhs and CD A/c No. 92 deposits aggregating to Rs. 25,33,153 total aggregating to Rs. 27,33,153/-.

5. These deposits in both the bank accounts as per para 5 of the assessment order paper book page no. 36 were taxed as unexplained money u/s 69A of the Income tax Act, which is wholly illegal.

6. That in para 8 of the assessment order AO further noted that out of credit in bank account no. 881 of Deendayal Nagar of Rs. 2.00 lakhs (already included in the income as aforesaid), the credit of Rs. 1,0,0,000, 30,000 and 40,000 were said to be loans taken by the assessee in cash and returned back by cheque. Thus, according to the AO the assessee has contravened the provision 269(SS) of the Income tax Act and the penalty proceedings were initiated u/s 271D of IT Act. He estimated the income from 4 Dumpers at Rs. 1.5 lakhs, instead of Rs. 1,16,800 and made other additions as well. The assessee went in Appeal before CIT Appeal.

7. Assessee filed a detailed reply before CITAppeal dtd. 18.11.09 which is at page 26 to 28 of the Paper Book at page 27 para 2, assessee submitted before CIT Appeal that all the credits in the bank account amounting to Rs. 27,43,153/- added by the AO as unexplained money is added without allowing proper opportunity to the assessee. These were the entire gross receipts of freights of Dumpers which were deposited in the bank. No books of account were maintained by the assessee and that assessee shown the income of Dumpers Plying u/s 44AE of the Income tax Act. Hence this addition of Rs. 27,33,153/- deserved to be deleted.

8. The CIT Appeal vide appeal dtd. 09.02.2010 page 23 of the Paper book at para 5.2 noted as under :-

"On perusal of details, it is seen that the appellant has submitted that amount of Rs. 15,16,090/- in A/c No. CD 92 represents the receipts out of freight received on account of plying of dumpers. Similarly, Rs. 40,000/~ have been mentioned as freight receipts in A/c No. 881. As the appellant has declared gross profit rate of 7.5% in his return declaring income of Rs. 1,16,800/~ from freight receipts, 7.5% of freight receipts which works out to Rs.2,04,986/- is added to the income of the appellant instead of the entire amount of Rs. 27,33,153/- taken by the AO. Further, the appellant has also declared amount of Rs.1,68,500/~ in his A/c No. CD 92 as received from Shri Arvind Sikarwar. As the appellant has failed to give any detail or confirmation. for the same, the same amount of Rs.1,68,500/- is also treated as income from undisclosed sources in case of the appellant. Thus, total addition on this account comes to Rs. 3,73,486/-. The appellant, thus gets a relief of Rs. 23,59,667/-".

9. CIT Appeal deleted the addition of Rs. 33,200/- added by the AO as additional income from Dumper Plying. Applying section 44AE of the Income tax Act. AO estimated the income of Dumpers Plying at Rs. 1,16,800/- as shown by the assessee in place of Rs. 1,05,000/- as per calculation u/s 44AE of IT Act.

10. Both assessee and department went in appeal before the ITAT. The Department went against the deletion of Rs. 33,200/- deleted by the CIT Appeal for applying assessment of income of dumpers u/s 44AE of Income tax Act and also went against the application of rate of 7.5% net income on total receipts as per bank deposits of Rs. 27,33,153/- instead of taxing whole. receipts taxed by the AO.

11. The Hon'ble ITAT vide para 8 of the ITAT order dtd. 09.08.12 held as under: -

"We have considered the rival submissions and the material on record. It is not in dispute that the assessee did not maintain any books of account and even in his submissions and affidavit filed before the AO, it was admitted that the assessee did ' not maintain any books of account. The assessee maintained only four dumpers during the assessment year under appeal. Therefore, the income was correctly computed by applying the provisions of section 44E of the Act. Even on ground No. 1 of the departmental appeal, we have confirmed the findings of the Id. CIT(A) that income has to be computed by applying the provisions of section 44AE of the IT Act. The assessee explained that substantial receipts from freight were received from different customers, which is deposited in the bank accounts of the assessee.”

Therefore, the Id. C1T (A) correctly held that the entire addition of Rs. 27,33,153/-should not be made and only the profit is to be estimated. However, the Id. CIT (A) failed to note that by applying the provisions of section 44AE, the income of the assessee had already been computed at Rs. 1,05,000/- which was sufficient business income of the assessee, as the assessee has already declared excess income of Rs. 1,16,800/- in the return of income. Therefore, further addition of Rs. 2,04,986/- by applying the profit rate of 7.5% is clearly unjustified. Rather, it would amount to double taxation of computing the business income of the assessee separately as against the business income already computed u/s 44AE of the IT Act. Therefore, further addition of Rs. 2,04,986/- is clearly unjustified.

We accordingly, set aside the orders of the authorities below and delete the addition of Rs. 2,04,986/-. The Id. CIT (A), however, correctly held that the addition on account of deposits in the bank account should not be considered for the purpose of making the addition of Rs. 27,33,154/- because it contained substantial freight receipts. Therefore, there is no merit in ground no. 3 of the departmental appeal. The same is dismissed".

12. Thus the Hon'ble ITATUp held application of section 44AE of the Income Tax Act and deleted the addition of Rs. 2,04,986/- maintained by CIT Appeal on total bank deposits of Rs. 27,33,154/- held to be on account of freight receipts both by CIT Appeal and HAT. Also dismissing the department appeal against the addition of bank deposits of Rs. 27,33,154/- of the assessee in the bank accounts held to be covered in the income already estimated in respect of 4 dumpers at Rs. 1,16,800.00 u/s 44AE of the Income Tax Act.

13. In view of this finding of ITAT, the nature of the receipts of the bank credits in bank account no. 881 of Bank of India is the freight receipts and not the loan received by the assessee. Since the income is already estimated u/s 44AE for 4 Dumpers, hence no addition was made. Assessee has also confirmed the receipts to be freight receipts vide para 2 of Paper Book at page no. 27 reply given to CIT Appeal which was accepted by the CIT Appeal and he also recorded the same finding in respect of bank deposit being freight receipts. Thus on account of concurrent finding of facts of CIT Appeal and ITAT In assessee case with regard to bank deposits being freight receipts, there is no basis now to held that these are loans, as discussed in the order u/s 271D and confirmed by CIT Appeal. Both these orders have been passed without actually appreciating the facts of the case and the findings recorded by the ITAT In their order. The order of CIT Appeal is against the facts and utter disregard of the order of ITAT and may kindly be cancelled and penalty levied may kindly be cancelled.

14. With regard to position of case laws, assessee is enclosing herewith the following decisions in the Paper Book for your honours kind consideration :-

a. CIT Vs Standard Brands Ltd reported in 2006 285 ITR page 295 Paper Book page 39 -41

b. DCIT Aurangabad Vs Rudramani Construction Co. ITA No. 622 - 625/PIM/2010 Pune Bench, Paper Book page 42 to 44.

c. ACIT Ahmedabad V/s ShyamCorpn. Ahmedabad, ITA No. 3098 to 3102/Ahmedabad/2009 for A.Y. 1995-96 to 1997-98 5th March, 2012, Paper Book page no. 45 - 49.

15. In all these cases, it has been held that when the amount has already been considered as income and has been treated as part of the receipts of the income then section 269SS and 269T have not application and penalty u/s 271D cannot be imposed as it is not a loan or cash deposit in violation of these sections and section has no application.

16. Assessee further relies on the following decisions of 44AE :-

a. CIT Kanpur V/s Nitin Soni (2012) 207 Taxman page 332, Paper Book No.50. In these cases, it has been held that where section 44AE and 44ADhave been applied. No further addition of other source can be made.

These judgments have been followed by Hon'ble ITAT in assessee case atpara 6 of the ITAT order.

b. Diwan Enterprise V/s CIT reported in 246 ITR page 571 Delhi High Court, Paper Book Page no. 58.

c. CIT Rohtak V/s Smt. Kamlesh (2013) 217 Taxman 272.

d. CIT V/s Laxmi Trust Co. (2008) 303 ITR page 99 Madras. This order isagainst the penalty u/s 269SS/271D and court has taken a view when thetransaction is bonafide in cash, the penalty is not leviable. In view of these position of facts and law, it is submitted that the penalty of Rs. 1,70,000/- levied u/s 271D may kindly be cancelled.”

5. The ld. DR relied on the order of the lower authorities. In his synopsis, he referred para 8 of the assessment order which reads as under:

"On going through the copy of SB account No. 881 maintained in the Bank of India, Deendayal Nagar Branch, Gwalior, it reveals that during the year under consideration the assessee has received Rs. 1,00,000/- in cash on 03.06.2005 from Shri Halke Singh which the assessee himself admitted at S. No. 7 on his reply filed on 13.08.2008 placed on record and returned this amount back to Shri Halkesingh on 16.06.2005 through cheque bearing No. 62865 in contravention of provisions of section 269SS of the Income tax Act. SimilarlyRs. 30,000/- &Rs. 40,000/- have also been received by the assessee in cash from Shri Ahender and Shri Hemant on 02.06.2005 & 28.06.2005 respectively and returned these amounts to the above persons back on 11.06.2005 & 02.07.2005 through cheque No. 62863 & 62868 respectively in contravention of provisions of section 269SS of the Income Tax Act. Since the assessee has contravened the provisions of section 269SS of the Income Tax Act, therefore, penalty proceedings u/s. 271D are initiated."

6. Further, referring para 5.1 of the CIT(A)’s order submitted that “just because mischievously or erroneously the amount got treated by the CIT(A) as freight receipts admitted position that they were loans as such cannot be ignored.”

7. We have heard both the parties and perused the material on records.The AO observed that theassessee has received in cash Rs.1.00 lakh, Rs. 30,000/- and Rs.40,000/- from Halke Singh, Shri Ahender and Shri Hemant on 03.06.2005, 02.06.2005 and 28.06.205 respectively in SB Account No. 881in contravention to the provisions of Section 269SS of the Act and initiated penalty u/s 271D of the Act for such default. The Ld counsel contended that these transactions had been added by the AO in the assessee’s total income as unexplained money u/s 69A of the Act and the ld. CIT(A) has also treated the amount of Rs.27,33,153/- as freight receipts (which includes cash deposits of Rs.2.00 lakhs in SB Account No.881 and Rs.25,33,153/- in current account no.92 ) with the direction to the AO to apply N.P. rate of 7.5% which is confirmed by the ITAT, Agra Bench in ITA No. 96/Agr/2010.

8. The ld. CIT(A) in quantum appeal, observed from the details filed by the assessee that amount of Rs.15,16,090/- in Account No. CD 92 represents the freight receipts on account of plying of dumpers; thatRs. 40,000/- have been mentioned as freight receipt in A/c. 881; thatthe assessee has also deposited amount of Rs.1,68,500/- in the A/c No. CD 92 as received from Shri Arvind Sikarwar; thatas the assessee has failed to give any detail or confirmation for the same, the same amount of Rs.1,68,500/- is also treated as income from undisclosed sources; that the deposits of Rs.2.00 lakh in the SB account no. 881 Bank of India and Rs.25,33,153/- in CD Account No. 92 aggregating to 27,33,153/- was added to the total income of the assessee,treating the entire bank deposits as freight receipt of dumpers, although the assessee has not maintained the books of account and directed the Assessing Officer to apply gross profit rate of 7.5% on the entire freight receipt of Rs.27.33,153/- which works out to Rs.2,04,986/- as against Rs1,16,086 the return income by the assessee u/s 44AE.

9. The ITAT, Agra Bench vide order dated 09.08.2012 in Para 8 confirmed the finding of ld. CIT(A) that income has to be computed by applying the provisions of Section 44AE of the Act. Considering the assessee’s explanation that substantial freight receipt of Rs.27,33,153/- which were deposited in the Bank account of the assessee should not be added and only profit is to be estimated from different customer,is correctly held by the CIT(A). It is observed by ITAT that by applying the profit rate of 7.5% would amounts to double taxation of business of income of the assessee,as the business income has already been computed u/s 44AE of the Act as per the return of income.

10. The ld. CIT(A) has referred to APB 16-17 details of the bank transaction in the bank account to show that on different dates Rs.1,68,500/- have been received from Shri Arvind Sikarwar and that same amount also represents freight receipt and therefore, no separate addition of Rs. 1,68,500/- should be made against the assessee. From the bank account at page 6 of the assessment order, it is seen that the assessee has received cash from the five persons in SB Account No.881 and CD92 and as per CIT(A) order an amount of Rs.1,68,500/- was deposited in A/c No. CD 92 as received in cash from Shri Arvind Sikarwar. Therefore, we find there is factual errorin the order of the lower authorities which the ld. DR could not reconcile with the support of relevant material evidence at the time of hearing. Merely stating that just because mischievously or erroneously the amount got treated by the CIT(A) as freight receipts admitted position that they were loans as such cannot be ignored is not sufficient to prove the charge of receipt of loans in cash, in contravention of provisions of Section 269SS of the Act.

11. It is evident from the above that the freight receipt from dumpers as deposited in bank account SB No. 881 and CD 92 by the assessee were treated as business/freight receipt by the ld. CIT(A). As such, the charge framed for levy of penalty get changed by treating the cash deposits in the bank account of the assessee as freight receipts and estimating income therefrom. The ld. DR has not controverted these facts.

12. In view of the above,we find that once the bank deposits are treated as freight receipt or business receipt for estimating income of the assessee, the same cannot be considered as loans in violation of Section 269SS of the Act. Therefore, we accept the grievance of the assessee as genuine and as such penalty levied u/s 271D is hereby deleted.

13. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 20/03/2018.

Sd/- Sd/-

(A.D. Jain) (Dr. Mitha Lal Meena)

Judicial member Accountant Member