C.i.t v. M/S.shreenathji Corpn

O/ITR/4/2003 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABADINCOME TAX REFERENCE NO. 4 of 2003 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER =========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ C.I.T.....Applicant(s) Versus M/S.SHREENATHJI CORPN.....Respondent(s) ================================================================ Appearance: MRS MAUNA M BHATT, ADVOCATE for the Applicant(s) No. 1MS NIYATI K SHAH, ADVOCATE for the Respondent(s) No. 1 ================================================================CORAM: HONOURABLE MR.JUSTICE KS JHAVERIandHONOURABLE MR.JUSTICE K.J.THAKERDate : 10/12/2014ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.By way of this reference, the Tribunal has referred the following questions of law to this Court for consideration:- “1. Whether the Appellate Tribunal is right in law and on facts in deleting the penalty levied under Section 271D of the Act ? 2. Whether, the Appellate Tribunal has correctly appreciated the facts on record so as to impliedly reach to a conclusion that ignorance of law was a proper excuse ? ” 2.The facts of this case are that the Assessing Officer during the course of assessment proceedings noted that the assessee firm accepted loans/deposits of Rs.20,000/- each from 13 parties totalling to Rs.2,60,000/- in cash, in contravention of the provisions of Section 269SS of the Income Tax Act. The Assessing Officer, therefore, reported the matter to the Deputy Commissioner of Income Tax for initiation of proceedings under Section 271D of the Income Tax Act. On a show cause notice issued by the Deputy Commissioner of Income Tax, the assessee explained that the said deposits were taken in O/ITR/4/2003 JUDGMENT cash for business expediency. The Assessing Officer, accepted the deposits as genuine and bonafide, however, the Deputy Commissioner of Income Tax not did not accept the explanation given by the assessee and imposed penalty of Rs.2,60,000/- under Section 271D of the Act. 2.1.Against the said order, the assessee filed an appeal before the CIT(A). The CIT(A) confirmed the order of penalty and dismissed the appeal filed by the assessee. Being aggrieved by the order of the CIT(A), the assessee filed an appeal before the Tribunal. The Tribunal allowed the said appeal and cancelled the penalty imposed on the assessee. Pursuant to the order of the Tribunal, the revenue filed reference application under Section 256(1), which has led to reference of the present application. 3.Learned Senior advocate Mr. Bhatt, appearing for the appellant-revenue has pointed out that the tribunal has committed an error in reversing the order of the CIT(A) and in cancelling the penalty. He further submitted that on the same day, the assessee accepted the sum of Rs.20,000/- each from 13 parties, totalling to Rs.2,60,000/- in cash. Therefore, he submitted that the act of the assesseee is nothing but a systematic act to avoid the provisions of Section 269SS and its rigour. 3.Learned Senior advocate Mr. Bhatt, appearing for the appellant-revenue has pointed out that the tribunal has committed an error in reversing the order of the CIT(A) and in cancelling the penalty. He further submitted that on the same day, the assessee accepted the sum of Rs.20,000/- each from 13 parties, totalling to Rs.2,60,000/- in cash. Therefore, he submitted that the act of the assesseee is nothing but a systematic act to avoid the provisions of Section 269SS and its rigour. 3.1.Learned senior advocate for the appealing-revenue has drawn our attention to Section 269SS of the Income Tax Act, which reads as under:- “269SS No person shall, after the 30[th ]day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if - (a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or (b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the deposit or is remaining unpaid (whether repayment has fallen due or not),the amount or the aggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is thousand rupees or more: Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by, - (a) government; (b) any banking company, post office savings bank or co-operative bank; (c) Any Corporation established by a Central, State or Provincial Act; (d) any Government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956); (e) suchotherinstitution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing notify in this behalf in the Official Gazettee; Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposits is taken or accepted and the persons by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act. Explanation – For the purposes of this section,- (i)“banking company” means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of the Act (ii) “co-operative Bank” shall have the meaning assigned to it in part V of the Banking Regulation Act, 1949 (10 of 1949); (iii )“loan or deposit” means loan or deposit of money 3.2.He also drew our attention to Section 271D, which reads as under:- Penalty for failure to comply with the provisions of section 269SS 271D (1) if a person takes of accepts any loan or deposit in contravention of the provisions of Section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted. (2) Any penalty imposable under sub-section (1) shall be imposed by the joint Commissioner.” 3.3.By making such submissions, learned senior advocate for the appellant-revenue has submitted that the present appeal deserves to be allowed and the issues referred are required to be answered in favour of the department. 4.Learned counsel for the respondent-assessee has supported the order of the Tribunal and submitted that the Tribunal after appreciating the material available on record has allowed the appeal of the assessee and deleted the penalty imposed on the assessee, therefore, there is no germane reason to interfere with the impugned order of the Tribunal. (2) Any penalty imposable under sub-section (1) shall be imposed by the joint Commissioner.” 3.3.By making such submissions, learned senior advocate for the appellant-revenue has submitted that the present appeal deserves to be allowed and the issues referred are required to be answered in favour of the department. 4.Learned counsel for the respondent-assessee has supported the order of the Tribunal and submitted that the Tribunal after appreciating the material available on record has allowed the appeal of the assessee and deleted the penalty imposed on the assessee, therefore, there is no germane reason to interfere with the impugned order of the Tribunal. O/ITR/4/2003 JUDGMENT 4.1. Learned advocate for the respondent has relied upon the decision of the Bombay High Court in the case of Commissioner of Income Tax Vs. Madhukar B. Pawar, reported in [2009] 319 ITR, 255. more particularly paragraph No.4, which reads as under:- “4. It is now well settled that circulars issued by CDBT are statutory in character and are binding on the Departmentalauthorities.The authorities including AO and other consequently would be bound by that circular. In the instant case, CDBT for the purpose of attracting Section 271D has set out that the loan or deposit should be in excess of Rs.20,000. It is true that what CDBT has stated may be contrary to the express language of Section 269 SS which uses the expression “Twenty thousand rupees or more”. The law and the CBDT circular can be spelled out from the following judgments of the Supreme Court. In Navnit Lal C. Javeri v. K.K. Sen AAC Manu/SC/0147/1964 : [1965]561 ITR 198(SC), a Constitution Bench of the supreme Court observed “it is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under Section 5(8) of the Act. ”Navnit Lal (supra) was followed in Ellerman Lines Ltd. v. CIT Manu/SC/0345/1971:[1971] 821, ITR 913 (SC). In UCO Bank v. CIT Manu/SC/0389/1999 : [1999] 237, ITR 889 (SC), the law was restated and it was held that circular of CBDT are legally binding on the Revenue and this binding character attaches to the O/ITR/4/2003 JUDGMENT circulars even if they be found not in accordancewiththecorrection interpretation of the section and they departordeviatefromsuch construction, when they are issued in exercise of the statutory powers under Section 119. It was however clarified that the Board cannot pre-empt a judicial interpretation of the scope and ambit of the provision and further could not impose a burden on the taxpayer higher than what the Act itself, on a true interpretation, envisages. It was obserged that the Board has the statutory power under Section 119 to tone down the rigour of the law for the benefit of the assessee by issuing circularstoensureaproper administration of the fiscal statute. In CSTv.IndraIndustries MANU/SC/0577/2000 : (2001) 168 CTR (SC) 50 : MANU/SC/0577/2000 : (2001) 248 ITR 338, the Court further observed that the taxing authority cannot be heard to advance an argument that it is contrary to that interpretation.” 5.We have heard learned advocates appearing for both the parties and perused the material on record. While deciding the appeal of the assesee, the Tribunal in Nos. 6.2 to 6.6, has observed as under:- “ Before we examined the question regarding the existence or absence of reasonable cause for the purprose of S. 271D, it would be appropriate to see the legislative intention or the object for which the provisions of S.269SS were inserted by the Finance Act, 1984. The Board in its Circular No.387, dt. 5.We have heard learned advocates appearing for both the parties and perused the material on record. While deciding the appeal of the assesee, the Tribunal in Nos. 6.2 to 6.6, has observed as under:- “ Before we examined the question regarding the existence or absence of reasonable cause for the purprose of S. 271D, it would be appropriate to see the legislative intention or the object for which the provisions of S.269SS were inserted by the Finance Act, 1984. The Board in its Circular No.387, dt. O/ITR/4/2003 JUDGMENT 6[th] July, 1984 elaborately explained the scope and intention of inserting the provisions of S.269SS in the following words in para 32.1 and 32.2:- 32.1.Unaccounted cash found in the curse of search carried out by the IT Department is often explained by taxpayers as representing loans taken from or deposits made by various persons. Unaccounted income is also brought into the books of account in the form of such loans and deposits, and taxpayers are also able to get confirmatory letters from such persons in support of their explanation. 32.2.With a view to counter this device which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Finance Act, 1984, has inserted a new s. 269SS in the IT Act debarring persons from taking or accepting, after 30[th] June, 1984 from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of such loan or deposit of the aggregate amount of such loan and deposits is Rs.10,000 or more. This prohibition will also apply in cases where on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not) and the amount or the aggregate amount remaining unpaid is Rs.10,000 or more, the prohibition will also apply in cases where the amount of such loan of deposit, together with the aggregate amount remaining unpaid on the date on which such loan or deposit proposed to be taken is Rs.10,000 or O/ITR/4/2003 JUDGMENT more (raised to Rs.20,000 from 1[st] April, 1989) It is clear from the above circular by the Board that s. 269 was introduced with a view to counter various devices adopted by the tax evaders for explaining their unaccounted cash found during the course of search or for introducing their unaccounted income in the form of loans and deposits thereby counteringmajoreconomicevilof proliferation of black money etc. it would be worthwhile to point out that a harmonious construction of the relevant provisions of ss.273B and 271D would reveal that the use of the expression “shall be liable to pay” in s.271D and the provisions of s.273B providing that no penalty would be leviable if the person concerned proves that there was reasonable cause for the said failure, that these provisions give discretion to the authorities to impose the penalty or not to impose the penalty and such discretion has to be exercise in a just and fair manner having regard to the facts and material existing on records. 6.3. It would be evident from the facts given that the assessee received the said loans/deposits from the various parties in cash in contravention of provisions of section 269SS. We also note that these loans/ deposits have been accepted by the Revenue as genuine. The assessee during the course of penalty proceedings in written submissions filed claimed that the assessee carries on business of construction of building and in the course of such business large amount of labour charges and payments for raw material purchased from unorganized trading sectors and bricks etc. are required to be made after banking hours particularly on the festival days. If their demand for cash payment is not met they would cancel the contract work and refused to complete the work and would also prevent the other contractors from undertaking the work till their dues are settled. Raw material would also not be made available for construction on time if the payment is not made in cash on such occasions. According to the assessee the loans were raised from various parties to meet exigencies of construction work. According to the Revenue no details or evidence in support of such contention were filed by the assessee. According to the learned counsel for the assessee the assessee gave such written submissions before the Dy. CIT in response to the show cause notice given. The Dy. CIT never demanded any details or any evidence in support of such submissions made before him and as such there was no occasion nor any opportunity was given to file such details and evidence. We also note that the penalty proceedings were initiated by issue of a show-cause notice by the predecessor Dy. CIT and the present successor, Dy. CIT gave a reminder to the assessee about the proceedings already initiated and in reply theassesseesubmittedthewritten submissions. If the Dy. CIT was not satisfied with the explanation so given and required further details or evidence in support of the submissions made in written reply, he should have given an opportunity to the assessee produce required details and evidence. The Dy. CIT, however, passed the penalty order considering the written submission made without requiring the assessee to furnish any details or evidence in support of the written submission given. We also note that the assessee during the appellate proceedings also in its letter dated 26[th]October, 1994, asked for permission to produce books of accounts in support of the submissions made that the loans were taken because of business O/ITR/4/2003 JUDGMENT requirements but in spite of such request made first appellate authority also gave no such opportunity. In this view of the matter, we take that the submissions made in this behalf before the lower authorities were duly supported by the transactions recorded in the books of accounts maintained in the normal course of business. O/ITR/4/2003 JUDGMENT requirements but in spite of such request made first appellate authority also gave no such opportunity. In this view of the matter, we take that the submissions made in this behalf before the lower authorities were duly supported by the transactions recorded in the books of accounts maintained in the normal course of business. 6.4.The assessee has placed strong reliance on the Board Circular No.572 explaining various Sections of Finance Act, 1990. Para 43 of the Circular explains, that s. 271D among others which was inserted w.e.f. 1[st] April, 1989; by the Direct Tax Laws (Amendment) Act, 1987 provides for the levy of penalty for failure to comply with the provisions of s.269SS for taking or accepting any loan or deposit in excess of Rs.20,000/- otherwise than by account payee cheque or bank draft. Further an advertisement dt. 26[th] March, 1992, appearing in the newspaper given by the Department was to the effect that loans/deposits exceeding Rs.20,000/- should be by account payee cheques or account-payee bank drafts; otherwise the amount in excess of Rs.20,000 loans/deposits would be considered as default in contravention of s.269SS and defaulter shall be liable to pay by way of penalty a sum equal to amount of loan/deposit as per s.271D. According to the learned counsel for the assessee the aforesaid Board circular as well as the advertisement given by Department for information of the taxpayer at large gave the impression that the default is committed and penalty is leviable only if the loan/deposit amount in cash involved is in excess of Rs.20,000 and not Rs.20,000. The facts in this behalf have neither been disputed nor denied by the Revenue. A plain reading of the circular as well as advertisement would no doubt makes one believe that only loan/deposit in excess of Rs.20,000 is required to be taken by account payee cheque or draft and such loan/deposit of Rs.20,000 or below that amount could otherwise be taken by cash. 6.5. Looking to the facts and circumstances we are of the opinion that the loan/deposits taken to meet urgent and immediate requirements of business and the impression gathered as taxpayers from the aforesaid circularandtheadvertisementdid constitute a reasonable cause for accepting the said loans/deposits of Rs.20,000 from each party in cash within the meaning of 273B of the Act. 6.6. The assessee has also strongly relied upon the decision of the Tribunal in the case of Vir Sales Corporation vs. Asstt. CIT(supra). We note that though this case of Vir Sales Corporation vs. Asstt. CIT(supra). We note that though this decision was cited before the CIT(A) but he has not considered the ratio of this decision in his order. We have gone through the order of the Tribunal and find that in that case also the penalty was levied under s. 271D as well as 271E. It was found therein that loans/deposits raised were to meet exigencies of business. For detailed and elaborate reasons discussed therein the penalty levied was cancelled. The aforesaid decision thus do support the present case of the assessee. explanation tendered by the assessee as also the reasonings adopted by the Tribunal and the principle laid down by the Bombay High Court in the case of Madhukar B. Pawar(supra), we are of the considered opinion that the Tribunal has O/ITR/4/2003 JUDGMENT rightly cancelled the penalty imposed on the assessee. 7.So far as the issue No.2 is concerned, we are of the opinion that ignorance of law cannot be a proper excuse. Therefore, we are of the view that the question No.2 is required to be answered in favour of the department. penalty levied was cancelled. The aforesaid decision thus do support the present case of the assessee. explanation tendered by the assessee as also the reasonings adopted by the Tribunal and the principle laid down by the Bombay High Court in the case of Madhukar B. Pawar(supra), we are of the considered opinion that the Tribunal has O/ITR/4/2003 JUDGMENT rightly cancelled the penalty imposed on the assessee. 7.So far as the issue No.2 is concerned, we are of the opinion that ignorance of law cannot be a proper excuse. Therefore, we are of the view that the question No.2 is required to be answered in favour of the department. 8.In that view of the matter, the question No.1 is answered in affirmative i.e. in favour of the assessee and against the revenue. Accordingly, we hold that the Tribunal was right in law and on facts in deleting the penalty levied under Section 271D of the Act. The issue No.2 is answered in negative i.e. in favour of the revenue and against the department. Therefore, we hold that ignorance of law was not a proper excuse. The reference stands partly allowed and disposed of accordingly. (K.S.JHAVERI, J.) (K.J.THAKER, J) pawan