P.P Naolekar, C.J:— The appeal is admitted on the following questions of law:
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified and correct in law in upholding the order of the Commissioner of Income-tax (Appeals) deleting the penalty of Rs. 4,50,000 imposed on the respondent under section 271D of the Act?
Whether, on the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) as well as the Tribunal did not err in law in deleting the penalty of Rs. 4,50,000 imposed on the respondent under section 271D of the Income-tax Act, 1961?”
2. The brief and necessary facts of the case are that during a search and seizure operation of the premises of one Umadutta Jhunjhunwalla of Shillong a 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.
3. These promissory notes were of the date May 15, 1995, for Rs. 1,50,000, December 26, 1996, for Rs. 2,00,000 and January 8, 1996, for Rs. 1,00,000. The promissory notes were executed by the assessee in favour of Jhunjhunwalla 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, penalty proceedings were taken against the assessee for imposition of penalty under section 271D of the Act. The Assessing Officer has found that there was contravention of the provision of section 269SS of the Act and, therefore, the assessee is liable to pay the penalty. The Assessing Officer 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 nationalised 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 section 269SS of the Income-tax Act.
4. Aggrieved by the said order the assessee preferred an appeal before the Commissioner of Income-tax, Guwahati. The appellate authority was of the view that as the provision of section 269SS itself has been declared ultra vires in the decision rendered by the Madras High Court in the case of Kumari A.B Shanti v. Assistant Director of Inspection, [1992] 197 ITR 330, no penalty proceedings could have been taken for imposition of penalty under section 271D of the Income-tax Act. The appellate authority has also said that the loan appears to have been taken without following the prescribed mode as provided under section 269SS of the Act because the assessee was not aware of the rigours of law of requirement of payment of penalty under section 271D of the Act if the method of taking loan as provided under section 269SS is not followed. Consequent thereto the appellate authority set aside the order of imposition of penalty against an assessee. Aggrieved by the said order the Revenue preferred an appeal before the Income-tax Appellate Tribunal, Guwahati. The Tribunal accepted the order passed by the appellate authority and dismissed the appeal preferred by the Revenue. While dismissing the appeal in paragraph 5 of the judgment, the Tribunal has said that considering the facts of the case that the purpose for which section 269SS has been introduced, namely, to punish the tax evaders but at the same time not to punish the genuine transaction, and also taking into consideration the fact of the case that the transaction was genuine, there is no need to impose minimum penalty merely because the law required to do so. On this finding the Tribunal has accepted the order passed by the Commissioner of Income-tax.
5. The Revenue being aggrieved by the said order has preferred the present appeal. It is contended by learned senior counsel for the appellant that in two decisions rendered in K.R.M.V Ponnuswamy Nadar Sons (Firm) v. Union of India, [1992] 196 ITR 431 (Mad) and Sukhdev Rathi v. Union of India, [1995] 211 ITR 157 (Guj), the constitutional validity of section 269SS of the Act has been upheld by the Division Benches of the Madras High Court and the Gujarat High Court and thus, the learned members of the Tribunal as well as the Commissioner of Income-tax have erred in relying upon the decision rendered in Kumari A.B Shanthi alias Vennira Adai Nirmala v. Assistant Director of Inspection, Investigation, [1992] 197 ITR 330 (Mad). Learned senior counsel also urged that neither the Commissioner of Income-tax nor the Tribunal has given any reason for exercising the discretion in favour of the assessee for not imposing the penalty and, therefore, a case is made out for remand of the case to the appellate authority for reconsideration of the matter and decision thereon.
6. section 273B of the Income-tax Act provides that notwithstanding anything contained in the provisions of section 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 section 269SS of the Income-tax 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 Assistant Asstt. Director Of Inspection Investigation v. A.B Shanthi, [2002] 255 ITR 258, the apex court has reversed the judgment of the Madras High Court reported in [1992] 197 ITR 330, wherein the Madras High Court quashed the provision of section 269SS of the Income-tax Act as ultra vires the Constitution. That being the case the reasoning given by the Commissioner of Income-tax and the Income-tax Appellate Tribunal as regards the validity of section 269SS of the Act for not imposing penalty on the assessee could not stand.
7. The apex court in the matter of Assistant Asstt. Director Of Inspection Investigation v. A.B Shanthi, [2002] 255 ITR 258 has explained the object of introducing section 269SS and said (page 263):
“The object of introducing section 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money, or if he has given some false entries in his accounts, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money is unearthed and the taxpayer would usually give the explanation that he had borrowed or received deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records later to suit the plea of the taxpayer. The main object of section 269SS was to curb this menace. As regards the tax legislations, it is a policy matter, and it is for Parliament to decide in which manner the legislation should be made. Of course, it should stand the test of constitutional validity… The object sought to be achieved was to eradicate the evil practice of making of false entries in the account books and later giving explanation for the same.”
8. Keeping in view the object of introducing section 269SS, the Legislature has given discretion to the assessing authority under section 273B of the Income-tax Act to levy the penalty as provided under section 271D of the Act or not. Under section 273B if the court finds that there was a reasonable and sufficient cause for not imposing the penalty on the assessee in the given facts and circumstances of the case the penalty shall not be levied.
9. The facts which emerged in the case are that as the result of advancement of the loan by Umadutta Jhunjhunwalla on three different dates the assessee has executed the promissory notes in favour of Umadutta Jhunjhunwalla. The transaction of loan has found place in the books of account of the assessee as well as the lender of the loan. None of the authorities have reached the conclusion that the transaction of the loan was not genuine and it was a sham transaction to cover up the unaccounted money. It appears to us that the assessee felt need of money and thus he approached the money-lender for advancement of the money, the transaction is reflected in the promissory notes executed by the assessee in favour of the lender. When there is an immediate need of money the person cannot get such money from the nationalised bank to satisfy the immediate requirement. To satisfy the immediate requirement of money the person normally approaches the money-lender or his friend or relative who could lend money to him to satisfy his immediate requirement. In those circumstances it cannot be said that the assessee has entered into a transaction to avoid the payment of tax or to defraud the Revenue. The element of mens rea is not brone out from the nature and the manner in which the transaction was carried out. In these circumstances we do not find any justification or reasonable cause to remand the matter for adjudication afresh by the Commissioner of Income-tax for consideration of reasonableness with-in the meaning of section 273B of the Act. In the facts and circumstances of the case, we hold that the Tribunal was justified and correct in law in upholding the judgment of the Commissioner of Income-tax in deleting the penalty of Rs. 4,50,000 imposed on the assessee under section 271D of the Income-tax Act, though for different reasons.
10. The appeal stands dismissed.