Annexure J: True Copy Of The Judgment Of The High Court Of Delhi In The Case Of Cit v. M/S.samora Hotels Pvt. Ltd.the Case Of Cit Vs. M/S.samora Hotels Pvt. Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY, THE 13TH DAY OF MARCH 2018 / 22ND PHALGUNA, 1939 I.T.A.No.199 of 2013 ---------------------------- AGAINST THE ORDER IN ITA.No.720/COCH/2010 DATED 31-01-2013OF INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN. --------------------------------------- APPELLANT(S)/RESPONDENTS: ----------------------------------------------- THE COMMISSIONER OF INCOME TAX, TRICHUR. BY SENIOR COUNSEL FOR GOI (TAXES) SRI.P.K.R.MENON & STANDING COUNSEL FOR GOI (TAXES) SRI.JOSE JOSEPH. RESPONDENT(S)/RESPONDENTS/APPELLANTS: M/S AL- AMEEN EDUCATIONAL TRUST, KULAPULLY P.O., SHORNUR - 2. BY ADVS. SRI.T.M.SREEDHARAN (SENIOR ADVOCATE) SRI.V.P.NARAYANAN SMT.BOBY M.SEKHAR SMT.DIVYA RAVINDRAN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13-03-2018,ALONG WITH I.T.A.NO.2O3 OF 2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:- I.T.A.No.199 of 2013 APPENDIX APPELLANT(S)' ANNEXURES:- --------------------------------------------- ANNEXURE A: TRUE COPY OF THE ASSESSMENT ORDER U/S.143(3) DT.27.06.2007. ANNEXURE B: TRUE COPY OF THE PENALTY ORDER U/S.271D DT.31.03.2008. ANNEXURE C: TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) DATED 26.10.2010. ANNEXURE D: TRUE COPY OF THE ORDER OF THE ACCOUNTANT MEMBER. ANNEXURE E: TRUE COPY OF THE ORDER OF THE JUDICIAL MEMBER. ANNEXURE F: TRUE COPY OF THE REFERENCE ORDER BY THE ACCOUNTANT MEMBER. ANNEXURE G:TRUE COPY OF THE REFERENCE ORDER BY THE JUDICIAL MEMBER. ANNEXURE H: TRUE COPY OF THE ORDER OF THE THIRD MEMBER. ANNEXURE I: CERTIFIED COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 31.1.2013 BASED ON THE ORDER OF THE \THIRD MEMBER, WITH A COPY.TRIBUNAL DATED 31.1.2013 BASED ON THE ORDER OF THE \THIRD MEMBER, WITH A COPY. ANNEXURE J: TRUE COPY OF THE JUDGMENT OF THE HIGH COURT OF DELHI IN THE CASE OF CIT Vs. M/S.SAMORA HOTELS PVT. LTD.THE CASE OF CIT Vs. M/S.SAMORA HOTELS PVT. LTD. ANNEXURE K: TRUE COPY OF THE JUDGMENT OF THE HON'BLE HIGH COURT IN THE CASE OF CIT Vs. P.K.SHAMSUDDIN.THE CASE OF CIT Vs. P.K.SHAMSUDDIN. RESPONDENT(S)' ANNEXURES:-NIL. ------------------------------------------------ vku/-[ true copy ] “C.R.” K. Vinod Chandran & Ashok Menon, JJ. ------------------------------------------------------- I.T.A.Nos.199 of 2013 & 203 of 2013 ------------------------------------------------------- Dated, this the 13[th] day of March, 2018JUDGMENT Vinod Chandran. J: The Revenue is in appeal against the common orderof the Tribunal for the assessment years 2005-06 and 2006-07.The issue relates to acceptance of loans and deposits other thanby way of Cheque or Draft, in violation of Section 269SS of theIncome Tax Act, 1961 [for brevity “the Act”] and the resultantpenalty levied under Section 271D, totaling the amounts soaccepted. The Bench of two members of the Tribunal wrote splitverdicts. The Administrative Member (for brevity “AM”] affirmedthe orders of the Additional Commissioner, as affirmed by thefirst appellate authority; remanding to the extent of furtherverification of the loan of Rs.49,00,000/- received from thedaughter of the President of the Trust. The Judicial Member [forbrevity “JM”], however, did not agree with the AM and wrote aseparate order finding the explanation offered by the assessee ITA Nos.199/2013 &- 2 - 203/2013 to be satisfactory to enable the assessee to be absolved of thepenalty under Section 273B; by reason of which the matter wasplaced before a third member. The third member, theVice-President of the Tribunal concurred with the JM's order. 2. The questions of law arising from the above order, asframed by another Division Bench of this Court while admitting theappeals, are as follows: Whether on the facts and circumstances of the case: ITA Nos.199/2013 &- 2 - 203/2013 to be satisfactory to enable the assessee to be absolved of thepenalty under Section 273B; by reason of which the matter wasplaced before a third member. The third member, theVice-President of the Tribunal concurred with the JM's order. 2. The questions of law arising from the above order, asframed by another Division Bench of this Court while admitting theappeals, are as follows: Whether on the facts and circumstances of the case: “i.The Tribunal is right in law in interfering with the order ofpenalty levied under Section 271D of the Income Tax Act;penalty levied under Section 271D of the Income Tax Act; ii.Is the approach and conclusion of the Tribunal inaccordance with law;accordance with law; iii.Did the Tribunal appreciate the import of Section 271D inits correct perspective?its correct perspective? iv.Is not the order of the Tribunal against Section 271D ofthe I.T.Act?the I.T.Act? v.Did the assessee discharge the burden of proof?” 3. The learned Senior Counsel Sri.P.K.R.Menonappearing for the Revenue took us through Section 269SS andSection 271D as also the provisions for penalty under Sections271C, 271CA and 271E to point out that all these are civil liability,which would not require mens rea to be found, for imposition of ITA Nos.199/2013 &- 3 - 203/2013 penalty. The learned Senior Counsel would refer to the intentionbehind the introduction of Section 269SS, which is to plug inflow ofblack money into the economy and also to surmount the variousmeasures adopted by individuals to launder unaccounted income.According to the learned Senior Counsel, the Tribunal erred insofaras finding that there was reasonable cause pleaded by theassessee; when the only contention raised by the assessee wasignorance of law. There could be no such contention raised as areasonable cause and the assessee is an educational Trustrunning professional colleges, who has sufficient wherewithal toget legal opinion on these aspects. 4. The learned Senior Counsel appearing for theassessee Sri.T.M.Sreedharan would, at the outset, submit thatthere is no question of law arising from the order of the Tribunal. Itis argued that the advances were raised from the staff members,since the construction of the buildings were going on. Thegenuineness of the transaction is proved by the fact that the saidamounts received in cash were deposited in the Bank on the sameday. Certain advances received were also returned by way ofcheque, to the staff members. With respect to the loan taken from ITA Nos.199/2013 & 203/2013 - 4 - the daughter of the President of the Trust, it is argued that there isclear evidence that she had taken a loan from the Bank and hadadvanced it to the Trust; since at that point the President of theTrust was abroad and there was immediate need of funds. 5. The Revenue contends that the decision relied on bythe majority of the Tribunal members in Commissioner of Income Tax v. P.K.Shamsuddin in I.T.A.No.237 of 2010 dated 04.02.2011has been distinguished by another Division Bench in K.V.Georgev. Commissioner of Income Tax in I.T.A.No.279 of 2013 dated18.12.2013. The learned Senior Counsel for the Revenue alsorelies on Commissioner of Income-tax (TDS), Cochin v.Thomas Muthoot [(2015) 233 TAXMAN 557 (Ker.)], ManuralHuda Trust v. Commissioner of Income Tax [2016 (3) KHC683], Grihalakshmi Vision v. Addl.CIT [(2015) 379 ITR 100(Ker.)], Commissioner of Income Tax (TDS) v. MuthootBankers [(2017) 398 ITR 276 (Ker) and CIT v. Muthoot Bankers(Aryasala) [(2016) 385 ITR 51 (Ker.)] to contend that “reasonablecause, as applied to a human action is that which would constraina person of average intelligence and ordinary prudence” (sic- Dy.CIT Vs. Adinath Industries {[2001] 252 ITR 471 (Delhi)}. ITA Nos.199/2013 & 203/2013 - 5 - ITA Nos.199/2013 & 203/2013 - 5 - Ignorance of law under no circumstance can be a reasonablecause; especially here, looking at the status and stature of theassessee. 6. The learned Senior Counsel appearing for the assessee would take us through the decision in AssistantDirector of Inspection (Investigation) v. Kum.A.B.Shanthi[(2002) 255 ITR 258 (SC)], in which the Constitutional validity ofSection 269SS was upheld. The decision was relied on to urge thatSection 273B, which speaks of reasonable cause intendsmitigation of undue harshness in cases of genuine and bona fidetransactions. Commissioner of Income Tax v. Saini MedicalStore [(2005) 276 ITR 79 (P&H), Commissioner of Income Taxv. Kundrathur Finance & Chit Co. [(2006) 283 ITR 329 (Mad)],Commissioner of Income Tax v. Lakshmi Trust Co. [(2008) 303ITR 99 (Mad)], Commissioner of Income Tax v. Manoj Lalwani[2003) 260 ITR 590 (Raj)] and a decision in I.T.A.No.86 of 2010dated 12.01.2011 [Commissioner of Income Tax v. Smt.RosaryPrem] are also relied on. 7. The facts indicate that for the year 2005-06, therewere loans and advances of Rs.1,29,40,000/- and in the second ITA Nos.199/2013 & 203/2013 - 6 - year [2006-07] Rs.15,25,000/-. In the first year, out ofRs.1,28,40,000/-, Rs.49,00,000/- is with respect to the loanadvanced from the daughter of the President; a furtherRs.1,00,000/- again a loan from the daughter, having been paid incheque. The AM in his order remanded the issue regardingRs.49,00,000/- for fresh consideration on verification of therelevant facts and adjudication on merits, since a specificcontention was taken of the daughter having taken loan from aBank and advanced it on the very same day to the Trust. The JMpassing the order at the first instance and the Vice-President afterthe split verdicts; deleted the penalty in toto. 8. The explanation of the assessee was manifold: (i)no evasion of tax , hence no penalty can be levied, (ii) depositstaken from staff were refundable, (iii) Rs.50 lakhs was a loan takenfrom one Zeenath, since cash was required urgently and (iv) nopenalty proceedings issued by A.O. The loans and deposits takenfrom staff members was detailed in a list produced at Annexure-B.Annexure-B also indicated that some of those loans were repaid bycheques. The Addl. Commissioner who passed the original orderunder Section 271D found that there is no mandate of detection of ITA Nos.199/2013 &- 7 - 203/2013 evasion to impose penalty. Section 269SS was intended atplugging inflow of black money, to ensure transactions above athreshold limit are traceable and there is no differentiation as far asgenuine transactions are concerned. The contention of refundableadvance even if accepted, would not offer any mitigation to theassessee insofar as the penalty imposed under Section 271Dsince the law does not distinguish refundable or non-refundableloans or deposits. As far as urgent requirement of funds, it wasfound that the ground raised is of a general and vague naturewithout any substantiating material produced. The next contentionas to the Assessing Officer having not initiated any proceedingswas rejected on the finding that the Assessing Officer had clearlyrecorded in the assessment order, the fact of the assessee havingaccepted loans and advances in violation of Section 269SS andnoticed the penalty proceedings initiated separately. The A.Cimposed penalty on the amounts received by the assessee otherthan by way of cheque or drafts. The first appellate authority alsoaffirmed the same. The Tribunal, by majority deleted the penalty onthe ground that the assessee had offered a reasonable cause forhaving accepted money in cash. ITA Nos.199/2013 &- 8 - 203/2013 ITA Nos.199/2013 &- 8 - 203/2013 9. As to reasonable cause, various decisions wereplaced before us. P.K.Shamsuddin was a case in which anassessee who retired from a Circus Company, started an industryand took loans from various Banks through his relatives. A DivisionBench of this Court found that borrowers from Bank havingthemselves taken a loan could not have issued cheques to furtherlend the amounts and in such circumstance there was areasonable cause put forth. Especially in the context of there beingno possibility of tax evasion or infusion of black money, theexplanation offered by the assessee was found to be plausible.K.V.George was a case in which the assessee again contendedignorance of law as a ground for having accepted money otherthan by way of cheque in excess of the limit as prescribed underSection 269SS. This Court distinguished P.K.Shamsuddin andspecifically referred to Kum.A.B.Shanthi. In Kum.A.B.Shanthi, itwas held that 'if there was a genuine and bona fide transaction andthe taxpayer could not get a loan or deposit by account payeecheque or account payee demand draft for some bona fide reason,the authority vested with the power to impose penalty has adiscretionary power not to levy penalty'. K.V.George, the assessee ITA Nos.199/2013 & 203/2013 - 9 - contended before the Department that he was putting up anindustrial unit and had received loans from various agriculturistswho were residing in the State of Tamil Nadu. It was found thatthere was no proof of the same; not was there proof of theassessee having applied for a loan; which was not sanctioned anddisbursed in time, as pleaded. The Division Bench distinguishedthe decision in P.K.Shamsuddin on facts and upheld theimposition of penalty. What is discernible from a reading of theabove decisions is that P.K.Shamsuddin has application only inthe peculiar facts coming out in the said decision; and cannot beapplied across the board in all cases where there is violation ofSection 269SS leading to imposition of penalty under Section271D. 10. A.B. Shanthi found Sections 269SS and 271D tobe constitutionally valid. The amendment was found to have beenbrought in, to put an end to the practice of false and spuriousexplanation by the taxpayers, on recovery of unaccounted cash, inthe searches conducted by the I.T department and to plug theloopholes insofar as subsequent explanation offered of loans anddeposits; with confirmatory letters from third parties. The attack on ITA Nos.199/2013 & 203/2013 - 10 - the ground of violation of Article 14; since the lender or depositor;whose income the loan or deposit would be, has not been taxed orpenalised, was negatived. It was found that the amendmentintends to curb the menace of frivolous explanations being offeredfor unaccounted money, with certificates obtained from thirdparties, of loans and deposits. The borrower who adopts suchdevice, to account for unaccounted money, was found to havebeen rightly penalised especially viewing it from the angle of taxevasion. The penal provision, as it exists with Section 271D, whichreplaced the earlier provision providing for even imprisonment, wasfound to be neither draconian nor exproprietory in nature. Section273B was also noticed, which offered mitigation insofar as genuineand bonafide transactions, whenever reasonable cause is shownfor acceptance of cash. Mitigation cannot be without reasonablecause and the provision alone will not absolve a defaulterassessee of penalty, whenever an explanation is offered. It had tobe reasonable. What is reasonable is the vexing question for whichwe get some guidance from the decisions cited on both sides. 11. Saini Medical Store and Lakshmi TrustCompany are cases in which the two High Courts found no - 11 - 11. Saini Medical Store and Lakshmi TrustCompany are cases in which the two High Courts found no - 11 - substantial questions of law arising from the order of the Tribunal,which held the explanation offered by the respective assessees tobe reasonable so as to provide mitigation under Section 273B.From a reading of the aforesaid decisions nothing is discernible asto the facts or the explanation. Smt.Rosary Prem causedinterference to the penalty on the ground of limitation. None ofthese decisions are applicable to the facts of the present case. 12. Kundrathur Finance & Chit Co. carrying on chitbusiness offered an explanation for accepting cash deposits; thatits activities were carried on in a locality where no banking facilitywas available, which was found to be acceptable by the High Courtof Madras. Manoj Lalwani again was a case in which theassessee an exporter had obtained a cash loan from his brother-in-law, for the purpose of ensuring time bound supplies, from hissuppliers to fulfill his export obligations. It was in this context thatthe Rajasthan High Court found reasonable cause, especiallywhen the amounts were deposited in the bank account so as tosatisfy the demands of the assessee's suppliers. On facts, we donot see any of these decisions coming to the aid of the assesseeto be absolved from penalty; based on the frivolous explanation offered. 13. Muthoot Bankers (Aryasala) [(2016) 385 ITR 51 (Ker.)]was a case in which penalty under section 271C wasimposed for non-deduction of tax at source. The assessee offeredno explanation, but only prayed for a lenient view for the technicallapse. The first appellate authority as well as the Tribunal held, thatthe Assessing Officer did not establish absence of a reasonablecause and hence there could be no penalty imposed. Relying onThomas Muthoot it was held: “the burden under section 273B isentirely with the assessee and that a case which is beyond thecontrol of the assessee and which prevents a reasonable man ofordinary prudence acting under normal circumstances, withoutnegligence or inaction or want of bonafides, alone make out areasonable cause” (sic-para-6). The Division Bench found that theappellate authorities in the said case, shifted the burden on to therevenue; against the statutory mandate. The assessee having notestablished reasonable cause, the penalty was found to have beenproperly imposed, without any reasonable cause for mitigationunder Section 273B. 14. Thomas Muthoot elaborately dealt with the issue of what reasonable cause is. The penalty which came up forconsideration was for non-deduction of tax at source. The Tribunalinterfered with the penalty finding the belief, entertained by theassessees that there was no liability to deduct tax from the interestpaid by them, to the firm in which they were partners, wasreasonable. It was also found that the partnership firm haddisclosed the interest income, but had no liability to tax for reasonof the declared loss and hence there was no cause to find revenueloss. The Patna High Court in C I T Vs. Jagadish PrasadChoudhary (1995) 211 ITR 472, held “reasonable cause” to meana cause which is beyond the control of the assessee and whichprevents a reasonable man of ordinary prudence acting undernormal circumstances, without negligence or inaction or want ofbonafides, to satisfy the obligation under the Act. This view wasfollowed by the Delhi High Court in two cited decisions which alsofound favour with the Division Bench of this Court. On facts, it wasfound that the belief of the assessee of there being no liability todeduct tax, from the interest paid by the partners to the firm, wasonly a plea of ignorance of law, which was not reasonable,especially considering the status of the assessee, who has the ITA Nos.199/2013 &- 14 - 203/2013 ITA Nos.199/2013 &- 14 - 203/2013 services of experienced Chartered Accountants. The further findingof the Tribunal that there was no revenue loss, was held to beinconsequential as a defense against penalty;which also was not areasonable cause. 15. Manural Huda Trust dealt with the imposition ofpenalty under Section 271(1)(c) for concealment of income orfurnishing incorrect particulars of income. The assessment of theappellant for the subject year was complete and final disallowingthe deductions claimed, resulting in a finding of concealment ofincome, which led to penalty proceedings. The assessee asexplanation, submitted that the books of accounts were impoundedby the Revenue, disabling an audit and hence the wrongdeductions claimed. It was argued that Hindustan Steel Ltd Vs.State of Orissa (1969) 2 SCC 627 held that penalty will notordinarily be imposed, unless the party obliged, either acteddeliberately in defiance of law or was guilty of conductcontumacious or dishonest or acted in conscious disregard of itsobligation. The Division Bench relied on Chairman, SEBI Vs.Shriram Mutual Fund (2006) 5 SCC 361 to find that the ApexCourt had itself clarified the earlier decision in Hindustan Steel ITA Nos.199/2013 & 203/2013 - 15 - having been rendered in the context of a quasi-criminalproceeding; which principles laid down, having no applicationinsofar as a proceeding for imposition of civil liabilities. There canbe no doubt that in the present case also the explanation of theassessee, if found to be not tenable and reasonable, the penaltyimposed would be not one relating to a quasi-criminal proceedingand would be for civil liability. 16. In [2017] 398 ITR 276 (Ker.), Muthoot Bankers hadpaid interest to its sister concerns, on which there was nodeduction of tax at source under Section 194A. The JointCommissioner imposed penalty under Section 271C, in responseto which the assessee submitted that the non-deduction of tax wasnot deliberate and also that the recipient sister concerns hadincluded the interest income in their returns and paid tax thereon.There was, hence, no deliberate attempt to evade payment of tax,was the ground raised. The Tribunal deleted the penalty acceptingthe explanation, which was overturned by a Division Bench of thisCourt. The explanation did not come within the ambit of reasonablecause and there was even absence of such pleading as also proofand, hence, the penalty was rightly imposed was the finding. ITA Nos.199/2013 & 203/2013 - 16 - Grihalakshmi Vision was a case in which the assessee tookamounts in cash from the partners of the firm allegedly to meeturgent business expenditure. The explanation was concurrentlyfound by all the three fact finding authorities to be insufficient andnot a reasonable cause. The Division Bench refused to interferewith such finding of fact, holding that no question of law arises. 17. Thomas Muthoot and Manural Huda Trust applysquarely to the facts of the instant case. The questions of lawraised of deletion of penalty on the explanation offered, is in effect;on the perversity of the findings of the Tribunal. The onlyexplanation offered was that the deposits were those received fromthe staff, many of which were refunded by cheque. The explanationas to urgent requirement of funds, was only with respect to theloan from one Zeenath who is said to be the daughter of thePresident of the Trust. A.B. Shanthi upheld the provisions findingthe same to be intended at curbing the menace of unaccountedmoney being accounted on false claims of loans and advancesfrom third parties. The assessee does not proffer any explanationas to why the deposits were received from the staff. The deposit ofsuch funds in the bank account and refunds as claimed, also ITA Nos.199/2013 & 203/2013 - 17 - ITA Nos.199/2013 & 203/2013 - 17 - cannot be relied on to find a reasonable cause since these aremeasures adopted to evade tax as found by the Apex Court. Thereis also no reasonable cause shown, even if the claim of thedeposits from staff is accepted as genuine, for the assessee tohave not directed it to have been made by way of cheque or draft.The explanation is only ignorance of law which, as already foundcannot offer any mitigation under Section 273B; for which furthersupport is garnered from Sitaram Ramcharan Vs. M.N.Nagrashana A I R 1960 SC 2601. 18. Answering the questions of law; we hold that theTribunal erred egregiously in deleting the penalty levied underSection 271D, on the facts disclosed and cause shown, whichapproach and conclusions are perverse. The assessee failed todischarge its burden in proving that there was a reasonable causein accepting the deposits from staff members other than by way ofcheque or draft. The Tribunal failed to appreciate the import ofSection 271D in the correct perspective. We answer the questionsof law arising from the order of the majority, against the assesseeand in favour of the Revenue. We affirm the order of theAdministrative Member and in that context the remand made in this order, to further enquire about the facts and circumstances of theloan from Zeenath shall be gone into afresh by the AdditionalCommissioner. There shall be no order as to costs. Sd/-K.Vinod ChandranJudge vku/- Sd/- Ashok MenonJudge [ true copy ]