COMMISSIONER OF INCOME TAX Vs. BHAGWATI PRASAD BAJORIA

JUDGEMENT

(1.) THE appeal is admitted on the following questions of law :

(2.) THE brief and necessary facts of the case are that during a search and seizure operation of the premises of one Umadutta Jhunjunwalla of Shillong large number of promissory notes were found and seized from his residence. Among them three promissory notes were found to have been executed by the assessee Bhagwati Prasad Bajoria, the present respondent. THEse promissory notes were of the date 15th May, 1995, for Rs. 1,50,000 26th Dec., 1996, for Rs. 2,00,000 and 8th Jan., 1996 for Rs. 1,00,000. THE promissory notes were executed by the assessee in favour of Jhunjunwalla for the amount which has been mentioned in the promissory notes to have been taken by him as loan. As the amount has not been paid to the assessee by account payee cheque or account payee bank draft, the penalty proceedings were taken up against the assessee for imposition of penalty under s. 271D of the Act. THE AO has found that there was contravention of the provision of s. 269SS of the Act and, therefore, the assessee is liable to pay the penalty. THE AO came to the conclusion that the explanation submitted by the assessee is not genuine as he could have taken the loan, if there was a pressing need, from nationalized banks and would not have approached the private money-lender for advancement of the loan amount and imposed penalty of Rs. 4,50,000, being the sum equal to the cash loan taken by the assessee, for failure to comply with the provision of s. 269SS of the IT Act.

(3.) SEC. 273B of the IT Act provides that notwithstanding anything contained in the provisions of s. 271D, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the provisions of s. 269SS of the IT Act, if there is a reasonable cause for such failure and if the assessee proves that there was a reasonable cause for failure to take a loan otherwise than by account payee cheque or account payee bank draft and in such circumstances the penalty shall not be levied. In view of this provision it is apparent that there is a discretion left with the authority concerned whether to levy the penalty or not in the given circumstances if the assessee comes and proves a reasonable cause for not accepting the loan by account payee cheque or account payee bank draft. In the matter of Asstt. Director of Inspection (Investigation) vs. Kum. A.B. Shanthi (2002) 174 CTR (SC) 513 : (2002) 255 ITR 258 (SC) the apex Court has reversed the judgment of the Madras High Court in (1992) 197 ITR 330 (Mad) (supra) wherein the Madras High Court quashed the provision of s. 269SS of the IT Act as ultra vires to the Constitution. That being the case the reasoning given by the CIT(A) and the Tribunal as regards validity of s. 269SS of the Act for not imposing penalty on the assessee could not stand.