D.b. Income Tax Appeal v. M/S Lokhpat Film Exchange, (Cinema), Jodhpur

1.D.B. INCOME TAX APPEAL NO.61/2002 CIT-II, Jodhpur Vs. M/s Lokhpat Film Exchange, (Cinema), Jodhpur. 2.D.B. INCOME TAX APPEAL NO.32/2002 CIT-II, Jodhpur Vs. M/s Lokhpat Film Exchange, (Cinema), Jodhpur. Date : 23.01.2007 PRESENT HON'BLE MR. JUSTICE RAJESH BALIAHON'BLE MR. JUSTICE CHATRA RAM JAT Mr. Sangeet Lodha for the appellant.Mr. Anjay Kothari for the respondent. ________ BY THE COURT:- (PER HON'BLE RAJESH BALIA, J.) Learned counsel for the revenue submits thatthe record of the assessee prior to 1991 is not availableand hence, they are unable to produce the same beforethe Court. Heard learned counsel for the parties. These two appeals arise out of two separateorders passed by the Assessing Officer levying penaltyunder Section 271-B and 271-E in respect of certaintransactions between the assessee firm and its partners described as deposits from the partners. Thetransaction relates to receipt of deposit during theaccounting period relevant to assessment year 1990-91from its partners Shri Jay P. Motinani and Shri BhagwatiChandnani by way of deposits. The Assessing Officerconsidering it to be intra party transactions of depositotherwise then by way of cheque or bank draft invitingthe provisions of Section 266 SS and 267 T andconsidering these payments and repayments were inviolation of Sections 269 SS and 269 T imposed penaltyunder Sections 271 D and 271 E respectively forreceiving the deposit in cash and payment in cash. The assessee had claimed that in view of thefact that partners and firm are not independent of eachother and the firm is not juristic person, thesetransactions cannot be considered as intra person butwere only for the purpose of carrying on partner's ownbusiness. The fact that under the Income Tax Act, thefirm and partners of the firm are recognised asindependent units, the same cannot be treated for allpurposes to be separate and independent. The assessee had contended that in that view of the matter, they hadnot violated the requirement of Sections 269 SS and 269T while conducting these transactions. However, theAssessing Officer did not accept this explanation andrejected the plea of the assessee and imposed penaltiesunder Sections 271 B and 271 E. The penalties were not sustained by the CIT (Appeals). The Tribunal relying on a decision in CIT,Madras Vs. R.M. Chidambaram Pillai etc. [1977] 106 I.T.R.292 wherein the Supreme Court has said that therecannot be a contract of service, in strict law, between afirm and one of its partners so as to consider the salarypaid to the partner as income from salary held that forthe purpose of Sections 269 SS and 269 T also the firmand partners cannot be considered to be separate entityand deleted the penalty. Hence, these two appeals are before usraising the common issue in both appeals. The firm was constituted with a particularobject of constructing cinema and is now no more inexistence. Section 273 B has mitigated the penalty to belevied under Section 271 D, 271 and E by providing thatwhere assessee is able to establish that there wasreasonable cause for failure to comply with Sections 269SS and 269 T, no penalty is leviable. By considering the decision of the SupremeCourt in the aforesaid decision and considering the factsthat under the general provision relating to PartnershipAct that partnership firm is not a juristic person and forinter relationship different remedies are provided toenforce the rights arising out of their inter setransactions, the issue about separate entities apart, itcannot be doubted that the assessee has acted bona fideand his plea that inter se transactions between thepartners and the firm are not governed by the provisionsof Section 269 SS and 269 T was bona fide andreasonable ground existed on which they had notadhered to the requirement of conducting the By considering the decision of the SupremeCourt in the aforesaid decision and considering the factsthat under the general provision relating to PartnershipAct that partnership firm is not a juristic person and forinter relationship different remedies are provided toenforce the rights arising out of their inter setransactions, the issue about separate entities apart, itcannot be doubted that the assessee has acted bona fideand his plea that inter se transactions between thepartners and the firm are not governed by the provisionsof Section 269 SS and 269 T was bona fide andreasonable ground existed on which they had notadhered to the requirement of conducting the transaction through bank only. Therefore, on the factsfound by the Assessing Officer as well as the Tribunal,the assessee was otherwise not liable to be subjected topenalty. In view thereof, we hold that no interferenceis called for in the order of the Tribunal setting aside thepenalty under Sections 271 D and 271 E. The appeals are, therefore, dismissed. Noorder as to costs. , J. [ RAJESH BALIA ], J. babulal/