I.t.a v. The Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE ACTING CHIEF JUSTICE MRS.MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE WEDNESDAY, THE 18TH DAY OF DECEMBER 2013/27TH AGRAHAYANA, 1935 ITA.No. 279 of 2013 --------------------------- [AGAINST THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH DATED 26-07-2013 IN I.T.A. NO.22/COCH/2012-AY-2007-08] ............. APPELLANT/RESPONDENT/ASSESSEE: --------------------------------------------------------- SRI. K.V. GEORGE, KANNIKKATTU NITHIN VIHAR, AROOR P.O., ALAPPUZHA - 11. BY SRI.T.M.SREEDHARAN, SENIOR ADVOCATE, ADVS.SRI.V.P.NARAYANAN, SMT.BOBY M.SEKHAR, SMT.DIVYA RAVINDRAN. RESPONDENT/APPELLANT/REVENUE: ------------------------------------------------------- THE COMMISSIONER OF INCOME TAX, PUBLIC LIBRARY BUILDING, SHASTRI ROAD, KOTTAYAM - 686 001. BY ADV. SRI.JOSE JOSEPH, S.C. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07-11-2013, THE COURT ON 18-12-2013 DELIVERED THE FOLLOWING: Prv. APPENDIX PETITIONER'S ANNEXURES: ANNEXURE-B: COPY OF THE NOTICE NO.ADDL.COM/4/2010-11 DTD. 23/06/2010 ISSUED BY THE JOINT COMMISSIONER OF INCOME TAX, ALAPPUZHA.DTD. 23/06/2010 ISSUED BY THE JOINT COMMISSIONER OF INCOME TAX, ALAPPUZHA. ANNEXURE-C: COPY OF THE REPLY DTD. 29/06/2010 GIVEN BY THE APPELLANT TO THE JOINT COMMISSIONER OF INCOME TAX, ALAPPUZHA.APPELLANT TO THE JOINT COMMISSIONER OF INCOME TAX, ALAPPUZHA. ANNEXURE-D: COPY OF THE ORDER DTD. 29/06/2010 ISSUED BY THE JOINT COMMISSIONER OF INCOME TAX, ALAPPUZHA.COMMISSIONER OF INCOME TAX, ALAPPUZHA. ANNEXURE-F: COPY OF THE MEMORANDUM OF APPEAL FILED BY THE DEPARTMENT BEFORE THE I.T.A.T, COCHIN BENCH.DEPARTMENT BEFORE THE I.T.A.T, COCHIN BENCH. ANNEXURE-I: COPY OF THE CERTIFICATE DTD. 25/10/2013 ISSUED BY THE STATE BANK OF TRAVANCORE, CHERTHALA BRANCH TO THE QUALITY FOOD PRODUCT INDUSTRIES, CHERTHALA.STATE BANK OF TRAVANCORE, CHERTHALA BRANCH TO THE QUALITY FOOD PRODUCT INDUSTRIES, CHERTHALA. ANNEXURE-J: COPY OF THE CERTIFICATE DTD. 25/10/2013 ISSUED BY STATEBANK OF TRAVANCORE, CHERTHALA BRANCH TO THE QUALITY FOOD PRODUCT INDUSTRIES, CHERTHALA.BANK OF TRAVANCORE, CHERTHALA BRANCH TO THE QUALITY FOOD PRODUCT INDUSTRIES, CHERTHALA. RESPONDENTS' ANNEXURES: NIL. //TRUE COPY// P.A. TO JUDGE. MANJULA CHELLUR, C.J. & A.M.SHAFFIQUE, J. ---------------------------------------------------- --------------------------------------------------- J U D G M E N T Shaffique, J. The appeal is filed by the assessee against the order of theIncome Tax Appellate Tribunal, Cochin Bench in ITA No.22/Coch/2012 with reference to the assessment year 2007-2008. 2. The appellant had filed their return of income for theassessment year 2007-2008 on 10.3.2008 declaring total incomeof Rs. 2,59,830/-. The return was scrutinized after issuingnotice under S. 143(2) of the Income Tax Act and theassessment was completed under S. 143(3) by order dated23.12.2009. 3. By a notice dated 23.6.2010 the Joint Commissioner ofIncome Tax called upon the appellant to furnish extract of theledger account of six creditors in whose names amount was dueand payable. It was indicated that the appellant hadaccepted loan exceeding the limits specified under S.269SS from six creditors during the financial year 2006-2007 for therelevant assessment year 2007-2008. Appellant submitted hisexplanation. However, penalty was imposed under S. 271Dequal to the loan amount taken amounting to Rs.29,47,500/-.The appellant preferred an appeal before the Commissioner ofIncome Tax (Appeals). It is found that the levy of penalty underS.271D was not justified. The revenue preferred a furtherappeal before the Income Tax Appellate Tribunal. The Tribunalreversed the order of the Commissioner of Income Tax (Appeal)and restored the order of penalty. from six creditors during the financial year 2006-2007 for therelevant assessment year 2007-2008. Appellant submitted hisexplanation. However, penalty was imposed under S. 271Dequal to the loan amount taken amounting to Rs.29,47,500/-.The appellant preferred an appeal before the Commissioner ofIncome Tax (Appeals). It is found that the levy of penalty underS.271D was not justified. The revenue preferred a furtherappeal before the Income Tax Appellate Tribunal. The Tribunalreversed the order of the Commissioner of Income Tax (Appeal)and restored the order of penalty. 4. The main contention urged by the appellant is that theTribunal should have followed the decision of this Court in CITv. P.K.Shamsuddin (ITA No. 237/2010) wherein it was heldthat when the factual position of the source of fund isaccepted by the Department is a reasonable cause against levyof penalty since the violation becomes technical. It is furthercontended that the following question of law arises forconsideration in the above appeal: “(i) Whether on the facts and in thecircumstances of the case and having regardto the principle of law laid down by this Hon'ble Court in the case of CIT v. P.K.Shamsudheen in I.T.A. No. 239 of 2011, theAppellate Tribunal justified in law and facts inreversing the order of the Commissioner ofIncome Tax (Appeals), Cochin, in I.T.A. No.4/Alp./CIT(A)-IV/2010-11 and restoring thepenalty levied under S.269SS by the JointCommissioner of Income Tax? (ii) Did not the Appellate Tribunal err in notfollowing the binding precedence in thedecision in Shri. P.K.Shamsudheen's case aswell as the decisions of other Hon'ble HighCourts of Punjab and Haryana, Rajasthan andMadras, reported in 276 ITR 79 (P & H) (CITv. Saini Medical Stores, (260 ITR 590 (Raj) &303 ITR 99 (Mad.) (CIT v. Lakshmi Trust Co)and 283 ITR 329 (Mad.) (CIT v. KundrathurFinance & Chit Co.) respectively anddismissing the appeal? (iii) Is not the order of the Appellate TribunalAnnexure -G arbitrary and illegal and liable tobe set aside?”. 5. The Tribunal after referring to S. 269SS and S.271D of the Income Tax Act found that after 30[th] of June, 1984 thereis a mandate that no person shall accept or take loan or depositfrom any person other than an account payee cheque or I.T.A. No. 279 of 2013 4 account payee bank draft, if such loan or deposit exceeds Rs.20,000/-. The constitutional validity of the said provision wasupheld by the Madras High Court. It was further indicated inK.R.M.V.Ponnuswamy Nadar Sons v. Union of India(1992) 196 ITR 431 (Mad)) that the assessee will have toshow that there was a reasonable cause for failure to receive oraccept loan or deposit by way of account payee cheque oraccount payee bank draft. In Asst. Director of Inspection(Investigation) v. Kumari A.B. Shanthi (2002) 255 ITR258 (S.C.) it is held that if there was a genuine and bona fidetransaction and the taxpayer could not get a loan or deposit byaccount payee cheque or account payee demand draft for somebona fide reason, the authority vested with the power to imposepenalty has a discretionary power not to levy penalty. TheTribunal also found that the failure in the case is not receivingthe loan, but the receipt or acceptance of amounts exceedingRs. 20,000/- by way of account payee cheques or demand drafts.If the assessee is capable of explaining to the satisfaction of theconcerned authority that there was a reasonable cause or failureto receive the loan or deposit by way of account payee cheque I.T.A. No. 279 of 2013 or demand draft, then the penalty shall not be levied.Therefore reasonable cause for receiving the loan or depositin cash has to be proved by the assessee. I.T.A. No. 279 of 2013 or demand draft, then the penalty shall not be levied.Therefore reasonable cause for receiving the loan or depositin cash has to be proved by the assessee. 6. It is not in dispute that for exercising jurisdiction underS.269SS read with S. 271D, there should be receipt of loan ordeposit by the assessee by way of cash. It is an admitted factthat the assessee had received substantial amounts from hiscreditors by way of cash. What is the reasonable cause forreceiving such a huge amount by way of cash or what is thereason for not receiving the loan or deposit by way of accountpayee cheque or demand draft is a matter to be explained bythe assessee. The reasonable cause in the present case is notforthcoming is the finding of the Tribunal. It is contended bylearned counsel appearing for the appellant that since theappellant had to put up an industrial unit and he was not in aposition to get loan from the bank he had to collect cash fromvarious agriculturists, who are residing in the State of TamilNadu and since it is found that the transactions were genuineand bona fide, there was no reason to impose penalty on thepetitioner. As rightly observed by the Tribunal setting up an I.T.A. No. 279 of 2013 industry/business is a long process and it is for the assessee to demonstrate with sufficient material that he required cashurgently to meet his requirements. It was open for him to provethat he had applied for loan and he was awaiting for loan. Nosuch materials are available. In the absence of any proof toshow that the transaction was a genuine transaction and thatthere was a reasonable cause for receiving the amount in cash, itmay not be possible for this Court to come to a conclusion thatthe assessee is not liable for payment of penalty. 7. Having regard to the settled position of law, the burdenis on the assessee to prove that there was reasonable cause forreceiving cash from various persons. In the absence of anysuch proof we are of the view that the Tribunal was justified inrejecting the contentions of the appellant. Now coming toP.K.Shamsuddin's case, the contention taken was ignorance oflaw. That apart, it was found that the assessee took cash fromrelatives and friends who had taken loan from Banks forhelping the assessee and such persons could not haveissued cheques. It is in that circumstances, when the source offunds were found to be accepted by the Department, the I.T.A. No. 279 of 2013 Division Bench opined that there is no tax evasion or blackmoney introduced in the business. That is not the situationhere. The source of funds of the creditors was not from theBank and introduction of black money cannot be ruled out.There is a clear finding by the assessing officer that no proofwas furnished regarding earnings of agricultural income bythe creditors. Hence P.K.Shamsuddin's case does not apply tothe facts of this case. For that reason itself we do not thinkthat there is any perversity in the findings of the Tribunal andsince no question of law arises for consideration, the appeal isliable to be dismissed and we dismiss the appeal. Sd/- MANJULA CHELLUR, CHIEF JUSTICE Sd/-JUDGE A.M.SHAFFIQUE, rka