George v. The Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & THE HONOURABLE MRS. JUSTICE ANU SIVARAMAN WEDNESDAY, THE 30TH DAY OF OCTOBER 2019 / 8TH KARTHIKA, 1941 ITA.No.228 OF 2019 AGAINST THE ORDER/JUDGMENT IN ITA 475/2017 OFI.T.A.TRIBUNAL,COCHIN BENCH APPELLANT:- N.S.S. KARAYOGAMBRANCH NO. 1365, NEERKUNNAM, ALAPPUZHA 688 005. BY ADVS.SRI.T.M.SREEDHARAN (SR.)SMT.NISHA JOHNSRI.V.P.NARAYANANSMT.DIVYA RAVINDRANSRI.R.BHASKARA KRISHNAN -RESPONDENT: THE COMMISSIONER OF INCOME TAXPUBLIC LIBRARY BUILDING, SHASTRI ROAD, KOTTAYAM 686001. R1 BY ADV. SRI.P.K.RAVINDRANATHA MENON (SR.)R1 BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON30.10.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.K.ABDUL REHIM,. & ANU SIVARAMAN, JJ. = = = = = = = = = = = = = = = = = = I.T.A.No.228 of 2019 = = = = = = = = = = = = = = = = = = = Dated this the 30[th] day of October, 2019 C.K.Abdul Rehim,J 1.The assessee had filed the above appeal challenging an orderof the Income Tax Appellate Tribunal, Cochin Bench in ITANo.475/Coch/2018, dated 8.5.2019, dismissing the appeal filedby the appellant challenging an order of the first appellateauthority, the Commissioner of Income Tax (Appeals), dated9.7.2018. Revenue is the respondent in the appeal.of the Income Tax Appellate Tribunal, Cochin Bench in ITANo.475/Coch/2018, dated 8.5.2019, dismissing the appeal filedby the appellant challenging an order of the first appellateauthority, the Commissioner of Income Tax (Appeals), dated9.7.2018. Revenue is the respondent in the appeal. 2.The appellant is a society constituted in the year 1951, whichis a company registered under Section 25 of the CompaniesAct, 1956, corresponding to Section 8 of the Companies Act,2013. While finalising the assessment of income tax of theappellant with respect to the year 2005-2006, the AssessingOfficer found that, during the previous year relevant to theassessment year concerned, the assessee had conductedfinance business by violating the provisions contained inSection 269SS of the Income Tax Act by accepting deposits inis a company registered under Section 25 of the CompaniesAct, 1956, corresponding to Section 8 of the Companies Act,2013. While finalising the assessment of income tax of theappellant with respect to the year 2005-2006, the AssessingOfficer found that, during the previous year relevant to theassessment year concerned, the assessee had conductedfinance business by violating the provisions contained inSection 269SS of the Income Tax Act by accepting deposits in ITA.No.228/19 cash from various clients, exceeding the sum of Rs.20,000/-.On the recommendation of the Assessing Authority, penaltyproceedings under Section 271D of the Act was initiated bythe Additional Commissioner of Income Tax, Alappuzha Range.To a notice proposing imposition of penalty, the appellantreplied that it is a charitable organisation rendering socialservices to the weaker section of the society, having no incomechargeable to tax under provisions of the Act. It is stated thatthe appellant was under a bona fide belief that the provisionsof the Income Tax would not apply to them, being a charitableorganisation. It was contended that, under the 2[nd] proviso toSection 269SS, there exists an exemption because thedepositor as well as the acceptor have got agricultural income.It was also contended that the violation if any was only due tothe ignorance, which need to be condoned. At the time ofhearing afforded to the appellant, the contentions werereiterated. The original authority found that the transactionsin question will not fall within the category provided under the2[nd] proviso to Section 269SS. It was held that there occurred aclear contravention of Section 269SS on the part of the ITA.No.228/19 ITA.No.228/19 assessee, without any reasonable cause and that they areliable to be imposed with penalty under Section 271D. Thecontention based on the ignorance, putforth was not accepted,by holding that the assessee was doing large scale financebusiness dealing with public, extending to crores of rupees.Therefore the ignorance of the provisions of law cannot be putforth as an excuse. It is further found that the contention putforth to the effect that the appellant had no motive to violatethe law, will not in any manner help the assessee to escapefrom the penal provisions. Therefore penalty to the tune ofRs.4,74,46,248/- was imposed under Section 271D. 3.The appellant was unsuccessful in the first appeal filed beforethe CIT (Appeals). They were equally unsuccessful before theAppellate Tribunal in the first round of second appeal, whichwas disposed of through Annexure F order dated 31[st] July2013. In an Income Tax Appeal filed challenging the said orderbefore this court, in ITA No.19/2014, the matter was remandedfor fresh consideration by the Assessing Officer. Before thiscourt it was contended based on the decision reported in K.V. ITA.No.228/19 George v. Commissioner of Income Tax [2014 (42) Taxman.com261 (Kerala)] that the authorities have failed to consider theaspect of 'reasonable cause' contemplated under Section273B, on the factual scenario that there existed no bankingfacility in the locality and most of the depositors arepensioners and agriculturists. It was contended that therecould be more than one reason why the receipt of money wasaccepted in cash, like ignorance of the provision, non-availability of banking facility in locality etc. Further,contention was raised to the effect that, there was failure toexamine as to whether the entire cash receipts, which werethe subject matter of penalty, were above Rs.20,000/- or below.This court found that, going through the orders of theAssessing Officer and the first appellate authority andAppellate Tribunal, there exists inconsistency in theexplanations of the assessee with respect to what was the'reasonable cause' for receiving the amounts in cash inviolation of Section 269SS. This Court found that, whilereferring to the scope of Section 269SS in K.V.George's case(supra) it was clearly held that, the only consideration would be as to what was the 'reasonable cause' for receiving suchhuge amount by way of cash or what was the reason for notreceiving the loan or deposit by way of account payee check ordemand draft . It was found that the burden is on the asesseeto establish such 'reasonable cause' in a convincing manner.However, the matter was remitted back by this court to theAssessing Officer for fresh consideration, mainly on the basisthat it has to be re-checked as to whether all the transactionsare with respect to amounts above Rs.20,000/-. Incidentally itwas observed that even though there is no specific consistentstand with respect to the reasonable cause, since the matter isremitted back, no prejudice would be caused to the revenue ifan opportunity is given to the assessee to explain suchtransactions. Therefore the officer was directed to accept theexplanation if any offered by the assessee. 4.After remand of the matter, the original authority hadconsidered the issue afresh. Having found that the assesseecould not establish any 'reasonable cause' with respect ofacceptance of the deposits in cash, exceeding the permissibleconsidered the issue afresh. Having found that the assesseecould not establish any 'reasonable cause' with respect ofacceptance of the deposits in cash, exceeding the permissible ITA.No.228/19 4.After remand of the matter, the original authority hadconsidered the issue afresh. Having found that the assesseecould not establish any 'reasonable cause' with respect ofacceptance of the deposits in cash, exceeding the permissibleconsidered the issue afresh. Having found that the assesseecould not establish any 'reasonable cause' with respect ofacceptance of the deposits in cash, exceeding the permissible ITA.No.228/19 limit, imposition of the penalty was re-affirmed. However, afterverification of each transactions of deposit, the amount ofpenalty was re-worked to Rs.4,74,15,591/-. The appellantchallenged the fresh order in appeal before the first appellateauthority and subsequently before the Tribunal. It wasconcurrently found that the assessee was not successful indischarging the burden by establishing that there existed'reasonable cause' for not receiving the deposits by way ofaccount payee cheque or demand drafts. Hence they havefailed in proving before the officer with respect to existence ofany 'reasonable cause' as contemplated under Section 273B,with respect to which interpretation was contained in K.V.George's case (supra). Before the Tribunal it was contendedthat, the management of the assessee was not aware of thepenal provision and that there was no intention of evading taxor for introduction of black money in the business in acceptingthe deposits in cash. But the Tribunal, by relying on thedecision of this Court in Listin Stephen v. Deputy Commissionerof Income Tax [2019 (2) KLT 221] (authored by one among us,C.K.Abdul Rehim, J.), held that the assessee in the case at ITA.No.228/19 hand was unable to prove that there existed compellingcircumstances for accepting deposits in cash and thereforethere exists no 'reasonable cause' as mandated under Section273B of the Act. Accordingly the second appeal was alsodismissed. 5.Heard Sri.T.M.Sreedharan, learned Senior Counsel appearingfor the appellant as well as Sri.P.K.Raveendranatha Menon,Senior Standing Counsel for Government of India (Taxes)appearing for the Revenue.for the appellant as well as Sri.P.K.Raveendranatha Menon,Senior Standing Counsel for Government of India (Taxes)appearing for the Revenue. 6.We take note of the fact that, in Listin Stephen's case (supra),after referring to a catena of decisions like the Commissionerof Income Tax v. P.K.Shamsudin [2011(1) KLT online 1211],K.V.George v. Commissioner of Income Tax (supra), AssistantDirector of Inspection (Investigation) v. Kumari A.B.Santhi[2002 (2) KLT Online 1007 (SC)], NSS Karayogam v.Commissioner of Income Tax [2014(2) KLT Online 1208] andGrihalakshmi Vision v. Additional Commissioner of Income Tax[2015 (4) KLT SN 88] and Commissioner of Income Tax,after referring to a catena of decisions like the Commissionerof Income Tax v. P.K.Shamsudin [2011(1) KLT online 1211],K.V.George v. Commissioner of Income Tax (supra), AssistantDirector of Inspection (Investigation) v. Kumari A.B.Santhi[2002 (2) KLT Online 1007 (SC)], NSS Karayogam v.Commissioner of Income Tax [2014(2) KLT Online 1208] andGrihalakshmi Vision v. Additional Commissioner of Income Tax[2015 (4) KLT SN 88] and Commissioner of Income Tax, ITA.No.228/19 ITA.No.228/19 Thrissur v.Al Ameen Educational Trust [2018 (1) KLT Online3133] held that the 'reasonable cause' contemplated underSection 273B should be a reasonable cause as to why or whatwas the reason which compelled the assessee to accept theloans or deposit in cash. In other words, it should be provedthat there existed reasonable and acceptable cause for notaccepting the loans or deposits through crossed cheques ordemand drafts. It was found that the mere proof regardinggenuineness of the transaction or the intention in acceptingthe amounts in cash or that there was no attempt to inductblack money into the business etc. cannot be considered as areasonable cause or as compelling circumstances providedunder Section 273B to avoid the penal action contemplatedunder Section 271D, with respect to violation of the provisionscontained under Section 269SS. 7.Analysed on the basis of the principle remaining settled asabove, contention raised all along by the assessee is that itwas due to ignorance of the provisions or due to lack ofbanking facilities in the area etc; cannot be accepted. Further contention that both the parties to the transaction were having agricultural income and therefore the transaction will fallwithin the purview of the 2[nd] proviso to Section 269SS, cannotalso be accepted, because the admitted case itself is that theappellant is a company doing finance business of moneylending and receiving deposits. 8.Lastly, learned Senior Counsel for the appellant has raised acontention that the assessee will fall within the exemptedcategory of banking company contained under the 1[st] provisoto Section 269SS. There is nothing to indicate that theassessee has got any registration as a banking company, asdefined under the Banking Regulation Act or not even to theeffect that the appellant is a 'non-banking financing company'having authorisation from the Reserve Bank of India.Therefore the said contention also cannot be accepted.contention that the assessee will fall within the exemptedcategory of banking company contained under the 1[st] provisoto Section 269SS. There is nothing to indicate that theassessee has got any registration as a banking company, asdefined under the Banking Regulation Act or not even to theeffect that the appellant is a 'non-banking financing company'having authorisation from the Reserve Bank of India.Therefore the said contention also cannot be accepted. 9.It is evident from the Annexure attached to the revised orderof the original authority, dated 27.6.2014 that, all thetransactions pertaining to the year concerned is listed and theof the original authority, dated 27.6.2014 that, all thetransactions pertaining to the year concerned is listed and the ITA.No.228/19 total amount was computed as Rs.4,74,15,591/-. The learnedSenior Counsel for the appellant pointed out that thetransaction listed under the Annexure includes variousamounts which are below the limit of Rs.20,000/-. If there isany error occurred in the computation of the quantum ofpenalty, it will be left open to the appellant to seekrectification in that respect before the original authority, whohad imposed the penalty. 10.Subject to the above observations, we do not find that anysubstantial question of law existing warranting interferencewith respect to the impugned order passed by the Tribunal.Consequently, the Income Tax Appeal fails and the same ishereby dismissed in limine.substantial question of law existing warranting interferencewith respect to the impugned order passed by the Tribunal.Consequently, the Income Tax Appeal fails and the same ishereby dismissed in limine. sd/- C.K.ABDUL REHIM (JUDGE) sd/-ANU SIVARAMAN(JUDGE) APPENDIX PETITIONER'S EXHIBITS: ANNEXURE ATRUE COPY OF THE ASSESSMENT ORDER DATED2.1.2007 PASSED BY THE DY. COMMISSIONEROF INCOME TAX, ALAPPUZHA.2.1.2007 PASSED BY THE DY. COMMISSIONEROF INCOME TAX, ALAPPUZHA. 10.Subject to the above observations, we do not find that anysubstantial question of law existing warranting interferencewith respect to the impugned order passed by the Tribunal.Consequently, the Income Tax Appeal fails and the same ishereby dismissed in limine.substantial question of law existing warranting interferencewith respect to the impugned order passed by the Tribunal.Consequently, the Income Tax Appeal fails and the same ishereby dismissed in limine. sd/- C.K.ABDUL REHIM (JUDGE) sd/-ANU SIVARAMAN(JUDGE) APPENDIX PETITIONER'S EXHIBITS: ANNEXURE ATRUE COPY OF THE ASSESSMENT ORDER DATED2.1.2007 PASSED BY THE DY. COMMISSIONEROF INCOME TAX, ALAPPUZHA.2.1.2007 PASSED BY THE DY. COMMISSIONEROF INCOME TAX, ALAPPUZHA. ANNEXURE BTRUE COPY OF THE ORDER OF THE CIT A IV KOCHI, IN I.T.A. NO. 19/ALPA/CIT A -IV/0708 DATED 30.10.2008.KOCHI, IN I.T.A. NO. 19/ALPA/CIT A -IV/0708 DATED 30.10.2008. ANNEXURE CTRUE COPY OF THE ORDER DATED 21.10.2011IN I.T.A. NO. 14/COCH/2009 OF ITAT, COCHIN BENCH.IN I.T.A. NO. 14/COCH/2009 OF ITAT, COCHIN BENCH. ANNEXURE DTRUE COPY OF THE ORDER NO. CR.39/ADDL.CIT/ALP/2008-09 DATED 26.6.2008 PASSED BY THE ADDL. COMMISSIONER OF INCOME TAX ALAPPUZHA.CR.39/ADDL.CIT/ALP/2008-09 DATED 26.6.2008 PASSED BY THE ADDL. COMMISSIONER OF INCOME TAX ALAPPUZHA. ANNEXURE ETRUE COPY OF THE ORDER OF THE CIT A-V KOCHI, DATED 17.11.2008.KOCHI, DATED 17.11.2008. ANNEXURE FTRUE COPY OF THE ORDER OF THE ITAT, COCHIN BENCH IN ITA NO. 118/C/2009 DATED 31.7.2013.COCHIN BENCH IN ITA NO. 118/C/2009 DATED 31.7.2013. ANNEXURE GTRUE COPY OF THE JUDGMENT DATED 25.2.2014 IN I.T.A. NO. 19/2014 OF THISHONBLE COURT.25.2.2014 IN I.T.A. NO. 19/2014 OF THISHONBLE COURT. ANNEXURE HTRUE COPY OF THE ORDER DATED 27.6.2014 PASSED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, ALAPPUZHA.PASSED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, ALAPPUZHA. ANNEXURE ITRUE COPY OF THE ORDER DATED 9.7.2018 IN I.T.A. NO. 2/CIT A KTM /2014-15 OF THE CIT A KOTTAYAM.IN I.T.A. NO. 2/CIT A KTM /2014-15 OF THE CIT A KOTTAYAM. ANNEXURE JTRUE COPY OF THE ORDER DATED 8.5.2019 IN I.T.A. NO. 475/COCH /2017 OF THE ITAT, COCHIN BENCH, COCHIN.IN I.T.A. NO. 475/COCH /2017 OF THE ITAT, COCHIN BENCH, COCHIN. ITA.No.228/19 ANNEXURE KTRUE COPY OF THE LIST OF DEPOSITORS, WHO DEPOSITED MONEY WITH THE APPELLANT FIRM. True copy PS to Judge