Gururaj Mini Roller Flour Mills v. $The Addl. Commissioner Of Income-Tax, Range-I, Hyderabad

*THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A. No. 231 of 2003 (Judgment of the Bench delivered by the Hon’ble Sri Justice L. Narasimha Reddy) %12-11-2014 Gururaj Mini Roller Flour Mills ..appellantVs.$The Addl. Commissioner of Income-tax,Range-I, Hyderabad. ..Respondent !Counsel for the appellant : Sri Y. Ratnakar ^Counsel for the Respondent : Sri S.R. Ashok, Sr. Counsel< GIST: > HEAD NOTE: ? Cases referred THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A. No. 231 of 2003 JUDGMENT: (Per the Hon’ble Sri Justice L. Narasimha Reddy) The appellant is a partnership firm. Its partners have alsobrought into existence some other firms, such as M/s Venkateshwara Modern Rice Mill, M/s Yellaiah Gupta Transport. The appellant submitted its returns, year after year, and was beingassessed to tax. On the return submitted for the assessment year1992-93, an order under Section 143 of the Income Tax Act (for short ‘the Act’) was passed on 29-03-1995. However, on theallegation that certain payments, exceeding Rs.20,000/- were made incash during that assessment year, in violation of Section 269-T of theAct, a show cause notice was issued proposing to levy penalty underSection 271-E of the Act. It was alleged that a sum of Rs.2,48,300/-was paid to M/s Yellaiah Gupta Transport and Rs.24,000/- to Smt. D.Sarada Mohan, through cash. The appellant submitted its explanation stating that it was onlya book adjustment to the sister concern, M/s Yellaiah Gupta Transport,and no cash was paid. As regards the payment to Smt. Sarada Mohan, it was stated that her husband was the legaladvisor, and with a view to help her, on account of bereavement, due to his death, the amount was paid. In respect of assessment year 1993-94, it was alleged thatRs.1,99,573/- was paid to M/s Yellaiah Gupta Transport incontravention of Section 269-T and a sum of Rs.1,23,000/- wasreceived from the said firm, in contravention of Section 269-SS of theAct. Notices, referable to Sections 271-E and D respectively, wereissued. Explanations were also submitted. The Assessing Officer passed three separate orders dated 27-03-1997, levying penalty as proposed through the show causenotices. Aggrieved by the said order, the appellant filed three appealsbefore the Commissioner of Income Tax (Appeals)-I Hyderabad. Theappeals were rejected through separate orders dated 09-12-1997. Thereupon, the appellant filed I.T.A.Nos.151 to 153/HYD/98, before theHyderabad Bench of the Income Tax Appellate Tribunal. The appealswere dismissed by the Tribunal through a common order dated 30-06-2003. The same is challenged in this further appeal, under Section260-A of the Act, by raising the following questions of law: 1. “Whether the levy of penalty of Rs.2,72,300/- under section271E(1) for assessment year 1992-93 is justified in the facts andcircumstances of the case.271E(1) for assessment year 1992-93 is justified in the facts andcircumstances of the case. 2. Whether the levy of penalty of Rs.1,99,573/- under section271E(1) for assessment year 1993-94 is justified in the facts andcircumstances of the case.271E(1) for assessment year 1993-94 is justified in the facts andcircumstances of the case. 3. Whether the levy of penalty of Rs.1,23,000/- under section271D(1) for assessment year 1993-94 is justified in the facts andcircumstances of the case.271D(1) for assessment year 1993-94 is justified in the facts andcircumstances of the case. 4. Whether the payments made into the account of Yelliah GuptaTransport account amounting to Rs.2,48,300/- for the year ended31.3.92 and Rs.1,99,573/- for the year ended 31.3.93 could beTransport account amounting to Rs.2,48,300/- for the year ended31.3.92 and Rs.1,99,573/- for the year ended 31.3.93 could be 2. Whether the levy of penalty of Rs.1,99,573/- under section271E(1) for assessment year 1993-94 is justified in the facts andcircumstances of the case.271E(1) for assessment year 1993-94 is justified in the facts andcircumstances of the case. 3. Whether the levy of penalty of Rs.1,23,000/- under section271D(1) for assessment year 1993-94 is justified in the facts andcircumstances of the case.271D(1) for assessment year 1993-94 is justified in the facts andcircumstances of the case. 4. Whether the payments made into the account of Yelliah GuptaTransport account amounting to Rs.2,48,300/- for the year ended31.3.92 and Rs.1,99,573/- for the year ended 31.3.93 could beTransport account amounting to Rs.2,48,300/- for the year ended31.3.92 and Rs.1,99,573/- for the year ended 31.3.93 could be said to be repayment of deposit and whether the provisions ofsection 269T are attracted.section 269T are attracted.5. Whether the payment to Smt. Sarada Mohan amounting toRs.24,000/- during the year ended 31.3.92 relevant toassessment year 1992-93 could be said to be repayment ofdeposit and whether the provisions of section 269T are attracted.Rs.24,000/- during the year ended 31.3.92 relevant toassessment year 1992-93 could be said to be repayment ofdeposit and whether the provisions of section 269T are attracted. 6. Assuming while denying there was any failure, whether theexplanation given by the assessee for the payment into theaccount and withdrawal from the account of Yellaiah GuptaTransport account can be said to be covered by reasonablecause attracting the provisions of section 273B of the Income TaxAct.explanation given by the assessee for the payment into theaccount and withdrawal from the account of Yellaiah GuptaTransport account can be said to be covered by reasonablecause attracting the provisions of section 273B of the Income TaxAct. 7. Whether the provisions of section 271D(1) and Section 271E(1)give any discretion in the matter of levy of quantum of penalty orthese sections make it mandatory that the penalties levied shouldbe at 100% of the amount paid, borrowed or deposited withoutany discretion for reduction.give any discretion in the matter of levy of quantum of penalty orthese sections make it mandatory that the penalties levied shouldbe at 100% of the amount paid, borrowed or deposited withoutany discretion for reduction. 8. Whether the conclusion of the Tribunal that the decision of theSupreme Court in the case of Arjun Ghaswala reported in 252ITR at page 1 has impliedly over ruled the decision of the HighCourt in ITD vs. Laxmi Enterprises reported in 185 ITR 595 iscorrect”.Supreme Court in the case of Arjun Ghaswala reported in 252ITR at page 1 has impliedly over ruled the decision of the HighCourt in ITD vs. Laxmi Enterprises reported in 185 ITR 595 iscorrect”. Sri Y. Ratnakar, learned counsel for the appellant submits thatcertain cash adjustments had to be made, between the appellant andits sister concerns, particularly in view of the dissolution of the firm, M/sVenkateshwara Rice Mill, and the Assessing Officer himself did notfind fault with such adjustment, when he passed orders under Section143(3) of the Act. He contends that the very fact that proceedings were initiated underSection 271-E, on the one hand, and Section 271-D, on the other hand,in relation to the same agencies, discloses that the so-called payment and receipt was nothing, but a book adjustment. Hefurther submits that payment of small amount to the widow of theCounsel was treated as a violation of Section 269-T of the Act and penalty was imposed. Learned counsel submits that none of the authorities have taken into account, the mandate underSection 273-B of the Act, and the penalty was imposedindiscriminately. He contends that the very fact that proceedings were initiated underSection 271-E, on the one hand, and Section 271-D, on the other hand,in relation to the same agencies, discloses that the so-called payment and receipt was nothing, but a book adjustment. Hefurther submits that payment of small amount to the widow of theCounsel was treated as a violation of Section 269-T of the Act and penalty was imposed. Learned counsel submits that none of the authorities have taken into account, the mandate underSection 273-B of the Act, and the penalty was imposedindiscriminately. Sri S.R. Ashok, learned Senior Counsel for the respondent, on the other hand, submits that the tax audit report in relation to theappellant revealed that several transactions, otherwise than throughcrossed cheques, as required under law, have taken place andaccordingly proceedings were initiated. He submits that though a pleawas raised to the effect that it was only a book adjustment, the samewas not substantiated, and accordingly it was treated as a payment of cash. In the return submitted by the appellant for the assessmentyears, referred to above, the details of various transactions werementioned. It has already been mentioned that three partnership firmswere constituted, by almost with the same persons. One of the firms,i.e. M/s Venkateshwara Rice Mill is said to have been dissolved. It is adifferent matter that the prescribed procedure in this behalf was notfollowed. The Assessing Officer did not find any illegality in theinternal adjustment of the funds, or accounts, among the firms. It wasalmost by way of reopening of the orders of assessment, that noticesunder Sections 271-D and E were issued. The cash transactions by the assesses, or the public, in general, were treated as one of the devices to create black, orunaccounted money, since it becomes difficult to verify the same. As astep to curb this, the Parliament amended Section 40-A of the Act, byintroducing sub-section (3). It mandates that where an individualincurs expenditure exceeding a sum of Rs.20,000/-, payment thereof shall be through crossed cheque, or demand draft, and any deviationtherefrom shall entail in denial of reduction to the extent of 20%. Further steps in that direction were taken by introducing Chapter XX-B,through Income Tax (Second Amendment) Act, 1981. This Chaptercomprises of Sections 269-SS, 269-T and 269-TT. Correspondingprovisions in Chapter XXI, relating to penalties, were also included andcame to be renumbered as Section 271-D and 271-E. Section 279-SS prohibits any person from accepting loan ordeposit, otherwise than by an account payee cheque or draft, if the aggregate of the amount exceeds Rs.20,000/-. The Government Banking Companies established by the State orCentral Governments, etc., are kept outside this prohibition. The provision reads, “Mode of taking or accepting certain loans anddeposits. 269-SS. No person shall, after the 30thday of June,1984, take or accept from any other person (hereafter inthis section referred to as the depositor), any loan or depositotherwise than by an account payee cheque or account--payee bank draft if, (a) the amount of such loan or deposit or the aggregateamount 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 suchperson from the depositor is remaining unpaid (whetherrepayment has fallen due or not), the amount or theaggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to inclause (a) together with the amount or the aggregateamount referred to in clause (b), twenty thousand rupees ormore.” Section 271-D prohibits a company or cooperative societyfrom repaying to any person, any deposit, otherwise than throughaccount payee cheque or account payee Bank draft, if the amountexceeds Rs.10,000/-. Here again, certain exceptions are provided. Penal provisions corresponding to Section 269-SS and Section 269-Tare Sections 271-D and 271 E. They read as under: (b) on the date of taking or accepting such loan or deposit,any loan or deposit taken or accepted earlier by suchperson from the depositor is remaining unpaid (whetherrepayment has fallen due or not), the amount or theaggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to inclause (a) together with the amount or the aggregateamount referred to in clause (b), twenty thousand rupees ormore.” Section 271-D prohibits a company or cooperative societyfrom repaying to any person, any deposit, otherwise than throughaccount payee cheque or account payee Bank draft, if the amountexceeds Rs.10,000/-. Here again, certain exceptions are provided. Penal provisions corresponding to Section 269-SS and Section 269-Tare Sections 271-D and 271 E. They read as under: “Penalty for failure to comply with the provisions ofsection 269 SS. 271D. (1) If a person takes or accepts any loan or depositsin contravention of the provisions of section 269SS, he shallbe liable to pay, by way of penalty, a sum equal to theamount of the loan or deposit so taken or accepted. (2) Any penalty imposable under sub-section (1) shall beimposed by the Deputy Commissioner.imposed by the Deputy Commissioner. Penalty for failure to comply with the provisions ofsection 269 T. 271E. (1) If a person repays any deposit referred to insection 269T otherwise than in accordance with theprovisions of that section, he shall be liable to pay, by wayof penalty, a sum equal to the amount of the deposit sorepaid. (2) Any penalty imposable under sub-section (1) shall beimposed by the Deputy Commissioner.” The allegation against the appellant is that it received twodeposits in contravention of Section 269-SS and made two paymentsin contravention of Section 269-T of the Act, in a span of threeassessment years. Out of them, one payment is to a person by nameSmt. Sarada Mohan. The plea of the appellant was that the allegedpayments, in favour of M/s Yellaiah Gupta, or receipts from it, arenothing, but book adjustments, that too, in the light of dissolution of afirm, by name, M/s Venkateshwara Rice Mill. The payment to Smt. Sarada Mohan is said to be on account of the death of her husband, who was a legal advisor to the appellant. Though at the stage of passing of orders under Section 143(3) of theAct these contentions were accepted, they were disbelieved, at a later stage. -Receipt of Rs.20,000/ or more, in cash, or payment of the same-to a depositor, in a sum, exceeding Rs.10,000/, is not only prohibited,but also visits the assessee, with penal consequences.The assesseeaccused of violating it, would be exposed to the penalty of equalamounts.The other general penalties in the Act may also be in store.Therefore, it is only when the ingredients of the provisions of the Actare proved to be existing, that the penal action can be taken.Section-269SS can be said to have been contravened, if only it is established-as a fact, that certain amount, exceeding Rs.20,000/ was received asloan or deposit, in cash, from a depositor, otherwise than in the form ofaccount payee cheque or Bank draft.The provision has already beenextracted. Except making reference to the relevant provisions of the Act,and the allegation contained in the show cause notices, the Assessing Officer did not indicate the method of payment. It was simply mentioned that everything was done in cash.The veryfact that from the same agencies, amounts were said to have beenreceived and repaid, as reflected in the books, discloses that it wasnothing, but book adjustment.Further, he did not give any specific-finding that the socalled receipts are in the form of loan or deposit orthe repayment was made thereof. All the three orders passed by theAssessing Officer are silent about the payment made to Smt. Sarada Mohan.The Appellate Commissioner as well as theTribunal proceeded on the same lines.They did not bestow any Except making reference to the relevant provisions of the Act,and the allegation contained in the show cause notices, the Assessing Officer did not indicate the method of payment. It was simply mentioned that everything was done in cash.The veryfact that from the same agencies, amounts were said to have beenreceived and repaid, as reflected in the books, discloses that it wasnothing, but book adjustment.Further, he did not give any specific-finding that the socalled receipts are in the form of loan or deposit orthe repayment was made thereof. All the three orders passed by theAssessing Officer are silent about the payment made to Smt. Sarada Mohan.The Appellate Commissioner as well as theTribunal proceeded on the same lines.They did not bestow any attention as to whether one of the sister concerns can take deposit, orloan, from another, without reflecting the same in the books of account.-The proceedings initiated under Sections 271D and E were treatedalmost in the ordinary sense. Obviously, anticipating that instances of indiscriminateinvocation of Sections 271 D and E and other analogous provisionsmay take place, the Parliament introduced Section 273-B.It reads. “Penalty not to be imposed in certain cases. 273 B.Notwithstanding anything contained in the-provisions of clause (b) of subsection (1) of section 271,section 271A, section 271B, section 271 BB, section 271C,section 271D, section 271E, section 271F, clause (c) or--clause (d) of subsection (1) or subsection (2) of section--272A, subsection (1) of section 272AA or subsection (1)-of section 272BB or clause (b) of subsection (1) or clause-(b) or clause (c) of subsection (2) of section 273, nopenalty shall be imposable on the person or the assessee,as the case may be, for any failure referred to in the saidprovisions if he proves that there was reasonable cause for”the said failure. From this, it becomes clear that if there exists reasonable cause--for failure to comply with Sections 271D and 271E, or other relatedprovisions, penalty need not be imposed.In other words, if an assessee bonafidely took a particular step, and that in turn,--resulted in contravention of Section 269SS or 269T of the Act, penaltycannot be imposed, as a matter of course. -- Making book adjustment of the funds, by a firm, visàvis itssister concern, can, by no means, be said to be the one, taken in clear violation or contravention of the said provisions.It is only whenan assessee has taken a decision to mobilize loans or deposits, and in -the process it has received amounts exceeding Rs.20,000/, otherwisethan through cash, that the contravention can be said to have beentaken place. - Similarly, Section 269T can be said to have been violated, if only the repayment to a depositor or a loanee exceeding a -sum of Rs.10,000/ was made, otherwise than through crossed chequeor demand draft.In the instant case, the Assessing Officer did notidentify the loanee or depositor and has simply invoked the provisions,in relation to an internal financial adjustment among the firms. Therefore, this Court is of the view that the acts and omissionsattributed to the appellant do not constitute violation of Sections 269-SS and 269-T, and if for any reason, such contravention is noticed, itstands condoned under Section 273-B and thereby, the proceedings initiated under Sections 271-D and 271-E of the Actare declared as untenable. The appeal is accordingly allowed. The miscellaneous petition filed in this appeal shall also stand disposed of. There shall be no order as to costs. __________________________ L.NARASIMHA REDDY, J. RAM,J. Dt.12-11-2014 __________________________ CHALLA KODANDA Note:L.R copy to be marked.(B/O)KO