FULL TEXT OF THE ITAT JUDGMENT 

This appeal filed by the assessee is directed against the order dated 27.01.2016 of the CIT(A), New Delhi relating A.Y. 2007-08.

2. Levy of penalty of Rs. 4 lakhs u/s 271D of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’ for short] by the JCIT, Range – 24, New Delhi which has been confirmed by the ld. CIT(A) is the only issue raised by the assessee in the grounds of appeal.

3. Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 31.10.2007 declaring total income of Rs. 2,47,310/-. The A.O completed the assessment u/s 143(3) of the Act accepting the said return of income. Subsequently, the Assessing Officer informed the JCIT that the assessee has taken cash loan of Rs. 1 lakh and 3 lakhs on 01.04.2006 and 30.09.2006 respectively from Meena Sood for which penalty proceedings u/s 271D of the Act may be initiated. The JCIT, thereafter, issued show cause notice u/s 271 D of the Act to the assessee. The assessee, in its reply, submitted that the transactions were between family members for acquiring a house for their living and all had pooled their resources which were genuine transactions for acquiring the property for mutual benefit of the family and the intention was not to evade taxes.

3.1 However, the JCIT was not convinced with the explanation given by the assessee. According to him, if it was so, there was no need to show the amount as loan and money could have been directly transferred to the bank account of the seller. He further noted that Smt. Meena Sood was maintaining bank account with Indian Bank, Mehrauli Road, New Delhi, and therefore, there was no need to keep such huge cash at home. The JCIT further noted that Smt Meena Sood and Shri Sunil Kumar Sood were depositing cash in the bank below Rs. 50,000/- and the reason for the same was not explained. Rejecting the various explanations given by the assessee, the JCIT levied penalty of Rs. 4 lakhs u/s 271 D of the Act.

4. Before the ld. CIT(A), it was argued that the penalty proceedings were initiated after a gap of four years and eight months and it was not initiated within reasonable time. Therefore, such penalty proceedings should be quashed. It was further submitted that money was taken for purchase of a house. The wife of the assessee only helped the assessee in acquiring the two properties for benefit of the whole family. Out of these two properties, one was for the residence of the family and the other was for the office of the assessee. These life-long assets were purchased from the pooled resources of family members. It was further argued by the ld. counsel for the assessee that the pooling of resources was done for a very genuine cause for acquiring properties for personal use and no attempt was made by the assessee to evade any tax.

5. However, the ld. CIT(A) was not convinced with the arguments advanced by the assessee and confirmed the penalty so levied by observing as under:

“3.4 I have considered the submissions of the appellant and the facts of the case. The appellant submits that the penalty proceedings were initiated after a gap of 4 years and 8 months and the initiation of proceedings should be within a reasonable time and if the principle of reasonableness is not followed, the IT proceedings will never reach a finality. The above plea of the appellant has been carefully perused. In this case, the penalty proceedings were completed within 6 months from the date of issue of notice on 28.08.2014 and therefore, the same has been passed as per law. The claim of the appellant that the resources of the family members were pooled to purchase properties contradicts the claim of the appellant that the money was taken as loan to be returned back as the same was not required as all the family members were going to stay together. Moreover, the source of Smt. Meena Sood, wife of the appellant has not been explained properly by the appellant and the only explanation given is that the loan was advanced out of her past savings without any supporting evidence. Further, the appellant has also not explained the reasons for keeping the money by Smt.Meena Sood in cash for such a long period despite having a bank account and also depositing the same below Rs.50.000/- in the bank account on 7 occasions as discussed by the AO in the penalty order. The explanation of the appellant that Smt. Meena Sood had a PAN and had no problem in depositing sum in excess of Rs.50,000/- but the deposit of cash will depend on the availability of cash cannot be accepted for reasons that on a singly occasion the deposts was in excess of Rs. 50,000 but on all 7 ocassions the deposits were less than Rs.48,000/- which clearly shows the intent to evade tax. The plea of the appellant that necessary verification of the said cash should have been done in the case of Smt. Meena Sood is also not acceptable because the same has been claimed as cash loan by the appellant and the provisions of Section 269SS are for curbing unaccounted money disguised as cash loan. Therefore, in the given facts of the case, the AO was justified in levying penalty u/s 27ID amounting to Rs.4 Lacs and the same is confirmed. Ground No. l of the appeal is dismissed.

4. As a result the appeal is dismissed.”

Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before the Tribunal.

6. The ld. counsel for the assessee strongly opposed the order of the ld. CIT(A) confirming the penalty so levied. He submitted that during F.Y. 2006-07 relevant to assessment year 2007-08, only an amount of Rs. 3 lakhs was taken as cash loan and an amount of Rs. 1 lakh was the opening balance. Therefore, rupees three lakhs was loan taken during the year and not Rs. four lakhs. The ld. counsel for the assessee further contended that penalty proceedings were initiated after a gap of four years and eight months, which is a pretty long period. It was submitted that although no time was provided for initiating penalty proceedings u/s 271 D of the Act, it is the settled law that if no time limit is statutorily provided, then the same has to be done within reasonable time. He submitted that the initiation of penalty proceedings after a gap of four years and eight months could not be said to be within reasonable time.

6.1 So far as merits of the case are concerned, he submitted that the assessee had taken cash loan from his wife for purchase of two properties during the F.Y. 2007-08. He submitted that the provisions of section 269SS do not bar genuine cash transactions of loan but bar only those transactions which are entered with the intention to evade taxes. These provisions are made to counteract evasion of tax but not to bar cash transactions between close relations. He submitted that in the instant case, it is not a case where unaccounted cash was found in the course of search and seizure operations. The assessee was helped by his wife for acquiring two properties out of which one was for the residence of family members and the other property was for office purposes.

7. So far as allegation of the ld. CIT(A) that no explanation was given for keeping cash in house for a long period in spite of the fact that the assessee’s wife has a bank account is concerned, the ld. counsel for the assessee submitted that there is no law barring keeping cash of any magnitude in house. The only bar is that cash should be from disclosed sources. Further, cash can be kept at home for numerous reasons. Therefore, the finding of the ld. CIT(A) on this aspect is not correct. Relying on various decisions, he submitted that the penalty so levied is not justified.

8. The ld. DR, on the other hand, supported the order of the ld. CIT(A).

9. We have considered the rival arguments made by both the sides, perused the orders of the A.O and the ld. CIT and the paper book filed on behalf of the assessee. We have also considered the various decisions relied upon by both the sides. We find the assessment order u/s 143(3) of the Act in the instant case was passed on 09.12.2009. Penalty notice u/s 271 D was issued to the assessee on 28.08.2014. Thus, there is gap of more than four and half years from the date of completion of assessment order and initiation of penalty proceedings. Although there is no time limit prescribed for initiation of penalty proceedings under the said provisions, however the courts are invariably holding that such proceedings should be initiated within a reasonable time. Since in the instant case such penalty proceedings have been initiated after a gap of more than four and half years from the completion of assessment proceedings u/s 143(3) of the Act, therefore, initiation of penalty proceedings, in our opinion, is barred by limitation.

9.1 Even otherwise also, the transaction is between husband and wife. Various benches of the Tribunal are holding that transaction of loan between husband and wife does not attract the provisions of section 269SS of the Act. The Kolkata Bench of the Tribunal in the case of Tuhinara Begum Hoogly Vs. JCIT Range 2, Hoogly ITA No. 2256/Kol/2014 order dated 04.10.2017 under somewhat similar circumstances cancelled the penalty levied u/s 271 D of the Act by observing as under:

“6. We have heard the rival submissions and we are of the view that the facts of the present case and the facts of the case referred to ITAT Kolkata in the case of Dr.B.G.Panda are identical . The Tribunal in the aforesaid case held as follows :-

“Section 26955 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 ITA N0.2256/Kol/2014-Tuhinara Begum A.Y.2010-11 3 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 Ps. 1 7.000 only and the balance amount of Ps. 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.

7. The ratio laid down in the aforesaid decision is clearly applicable to the facts and circumstances of the present case as the transaction in the present case was also between husband and wife. As laid down in the aforesaid decision, penalty in the facts and circumstances of the case ought not to have levied u/s 271D of the Act and penalty levied u/s 271D of the Act is directed to be cancelled and the appeal of the assessee is allowed.

8. In the result the appeal of the assessee is allowed.”

10. Since in the present case also the assessee had taken the loan from his wife for the purchase of house which is for the benefit of the whole family, therefore, following the decision cited [supra], we hold that penalty levied u/s 271D of the Act in the instant case is not justified. We, therefore, set aside the order of the ld. CIT(A) and direct the Assessing Officer to cancel the penalty so levied. Grounds raised by the assessee are allowed.

11. In the result, the appeal filed by the assessee is allowed.

Pronounced in the open court on 20.06.2018.