Ita/196/2014 Of Listin Stephen v. The Deputy Commissioner Of Income Tax, Kottayam

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI FRIDAY ,THE 08TH DAY OF MARCH 2019 / 17TH PHALGUNA, 1940 ITA.No. 196 of 2014 AGAINST THE ORDER IN ITA 204/COCH/2014 of I.T.A.TRIBUNAL,COCHINBENCH DATED 04-07-2014 APPELLANT/RESPONDENT: LISTIN STEPHEN MUDEEKUNNEL HOUSE, UZHAVOOR P.O., KOTTAYAM - 686 634. BY ADVS.SRI.ANIL D. NAIRKUM.SOUMYA PRAKASHSMT.C.S.SULEKHA BEEVISRI.JOSE JOSEPH (CHEMPLAYIL)SRI.R.SREEJITH RESPONDENT/APPELLANT: THE DEPUTY COMMISSIONER OF INCOME TAX, KOTTAYAM-686001 BY ADV. SRI.JOSE JOSEPH, SC,GOI FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 08.03.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT Abdul Rehim,J The above appeal, filed under Section 260A of the IncomeTax Act, 1961 (“the Act” for short) is instituted against an order of theIncome Tax Appellate Tribunal, Cochin Bench, in ITANo.204/Coch/2014, dated 4.7.2014. 2.Assessment on the income of the appellant with respect tothe year 2009-10 was completed under Section 143(3) of the Actthrough the order of the Assessing Authority, on 25.10.2011. It isreflected in the assessment order that there were heavy credits in thebank accounts of the assessee by way of cash, during the yearconcerned. With respect to the source of such cash credits, theassessee explained that those were amounts received by way of loansfrom various persons and credited in cash to his bank accounts.According to the assessee, this was done to show that there wereregular transactions in his bank account, for the purpose of producingproof before an authority from whom he was trying to get a visa. TheAssessing Authority had accepted the explanation with respect to thesource of the amounts, while finalising the assessment. But the JointCommissioner of Income Tax had initiated a proceedings for imposition of penalty, under Section 271D of the Act, on the basis thatthe assessee had accepted the amounts, which were credited in thebank accounts, from various persons in cash, in violation of theprovisions contained under Section 269SS of the Act. In theexplanation submitted to the show cause notice, the assesseeadmitted that he received the loans by way of cash, in violation of therestraint contained under Section 269SS of the Act. According to theassessee, such loans received in cash were deposited in the bankaccounts maintained by him with the South Indian Bank, UzhavoorBranch and Dhanalaxmi Bank, Pala Branch. It is stated that, on thesame day itself, the loan amounts were repaid to the respectivecreditors. Before the Joint Commissioner, the assessee raised acontention that the loan amounts were not utilised for any businesspurposes and that he had repaid the loans to the creditors. But suchexplanation was not found acceptable to exonerate him from theliability with respect to violation of the provisions contained inSection 269SS of the Act. Argument of the assessee that he hadrepaid the loans through account payee cheques and that thecreditors have cleared those cheques through their bank accounts,was also not accepted as a reasonable ground to deny the liability withrespect to the violation. While examining the question as to whether the assessee was successful in showing any reasonable cause for thefailure as contemplated under Section 273 B, the Joint Commissionerobserved that, since the persons from whom the loans were availedwere having bank accounts, nothing prevented the assessee fromtaking or accepting the loans through account payee cheque or bankdrafts. Therefore it was found that, there is no reasonable causeshown for accepting the loans otherwise through account payeecheques or drafts, in violation of Section 269SS of the Act. The JointCommissioner also found that, it is not an isolated instance ofacceptance of the loan amount in cash. The loans were accepted fromseven different persons on different dates in different amounts.Therefore it was found that the assessee does not deserve the benefitof Section 273B. Accordingly, penalty proposed to the tune ofRs.24,57,000/-, was confirmed. 3.The assessee challenged the order of the JointCommissioner in appeal before the Commissioner of Income Tax(Appeals). The Commissioner (Appeals) had allowed the appeal andthe order imposing the penalty was set aside, on the finding that thesource for receipt of the loans was properly explained and it is provedthat the amounts were later returned. It was found that theAssessing Officer, after being convinced of the above said fact, has not noted any violation of Section 269SS. Therefore it was found thatthere seemed to be no attempt of evasion of tax or for induction ofblack money to the business. Relying on a decision of this Court inCommissioner of Income Tax v. P K Shamsuddin (ITANo.237/2010) (not seen reported) it was held that, furnishing thesource of lenders, which is accepted by the department itself, is areasonable cause which can be considered against imposing penalty,because when the source is provided the violation becomes technical.Finding that the above said decision would squarely apply, it was heldthat the assessee was successful in showing reasonable cause comingwithin the purview of Section 273 B of the Act. 4.In the appeal filed by the Department (Revenue) before theIncome Tax Appellate Tribunal, Cochin Bench, the findings of theCommissioner (Appeals) were reversed. Relying on a decision of theHonourable Supreme Court and other decisions rendered by thisCourt, the Appellate Tribunal observed that, the fact that the amountswere returned to the lenders immediately cannot be taken as a reasonto exonerate the assessee from the liability of penalty. It was foundthat, the assessee had failed to establish any reasonable cause foraccepting the loans for more than Rs.20,000/- from various persons incash, otherwise than through crossed cheques or demand drafts, in violation of Section 269SS. Finding that there exists no legal andacceptable reasons to exonerate the assessee from the liability ofpenalty under Section 271D of the Act, the appeal filed by theRevenue was allowed. The assessee is challenging the order of theAppellate Tribunal in this appeal. 5.Based on the pleadings, this Court formulated thesubstantial question of law, as to whether the appellant was successfulin proving that there was reasonable cause for any failure to complywith the provisions of Section 269SS of the Act. 6.Heard Sri. Anil D Nair, learned counsel for the appellant andSri. Jose Joseph, learned Standing Counsel for Government of India(Taxes). 7.Section 269SS prohibits any person from accepting fromany other person any loan or deposit otherwise by an account payeecheque or an account payee bank draft, if such loan or deposit isRs.20,000/- or more. In the case at hand, it is not in dispute that theassessee had accepted loans in cash from seven distinct persons ondifferent dates spreading over between 9.4.2008 and 6.2.2009,different amounts ranging from Rs.1,50,000 to Rs.4,00,000/- andcredited those amounts into his bank accounts. It is also not indispute that the contravention in this regard will attract imposition of 6.Heard Sri. Anil D Nair, learned counsel for the appellant andSri. Jose Joseph, learned Standing Counsel for Government of India(Taxes). 7.Section 269SS prohibits any person from accepting fromany other person any loan or deposit otherwise by an account payeecheque or an account payee bank draft, if such loan or deposit isRs.20,000/- or more. In the case at hand, it is not in dispute that theassessee had accepted loans in cash from seven distinct persons ondifferent dates spreading over between 9.4.2008 and 6.2.2009,different amounts ranging from Rs.1,50,000 to Rs.4,00,000/- andcredited those amounts into his bank accounts. It is also not indispute that the contravention in this regard will attract imposition of penalty under Section 271D, to the tune of a sum equal to the amountof such receipt. The assessee can be exonerated from the liabilityonly if he could prove that there was reasonable cause for the failurein not accepting the loan amounts either in crossed cheques ordemand drafts. So the crucial question to be considered is as towhether the appellant was successful in establishing any reasonablecause, with respect to the above said failure or violation, ascontemplated under Section 273B. 8.The factum of repayment of the loans on the date of theirreceipt itself through crossed cheques drawn in the name of thelenders, and the non-utilization of the money by the assessee for anyof his business purposes, were established before the authoritiesconcerned. The purpose for acceptance of the loans and crediting ofthe amounts in the bank account of the assessee is also not seendisputed. Fact that there was no attempt of evasion of payment of taxor induction of black money into the business, cannot also bedisputed. But, whether those undisputed facts alone can be taken asreasonable cause for exonerating the appellant from the liability ofpenalty, for the violation committed under Section 269SS, is thequestion to be decided. 9.Case law referred by both sides assumes importance. In Commissioner of Income Tax v. P K Shamsuddin (ITANo.237/2010)(unreported) a Division Bench of this Court observedthat, furnishing source of the lenders, which is accepted by thedepartment itself, is a reasonable cause against the levy of penalty,because when the source is provided the violation becomes technical.It was found that the conclusions arrived by the tribunal inexonerating the appellant therein have to be upheld, because there isno tax evasion involved or black money introduced into the business.On the facts of the said case, evidence was to the effect that thecreditors had borrowed bank loans and the money was given in cashto the assessee after drawing from the loan accounts of the lenders.This Court found that, acceptance of the above said reason by theTribunal as a reasonable cause under Section 273B need to beconfirmed, because there arose no substantial question of lawwarranting interference of this Court. 10.In K.V. George v. Commissioner of Income Tax[(2014) 42 Taxman.com 261 (Kerala)] a Division Bench of thisCourt had distinguished P.K Shamsuddin's case (supra) on thefactual aspects by finding that, the source of the fund of the creditorsin the said case was not from the bank and induction of black money 10.In K.V. George v. Commissioner of Income Tax[(2014) 42 Taxman.com 261 (Kerala)] a Division Bench of thisCourt had distinguished P.K Shamsuddin's case (supra) on thefactual aspects by finding that, the source of the fund of the creditorsin the said case was not from the bank and induction of black money cannot be ruled out. On the facts of that case, it was observed thatno materials were available in proof to show that the transaction wasgenuine and there existed a reasonable cause for receiving theamount in cash. Referring to a decision of the Honourable SupremeCourt in Assistant Director of Inspection (Investigation)V.Kumari A.B Santhi [(2002) 255 ITR 258] it was observed that,if there was a genuine and bonafide transaction and the tax payercould not get a loan or deposit by account payee cheque or accountpayee demand draft for some bonafide reasons, the authority vestedwith the power to impose penalty was at discretion not to levypenalty. If the assessee is capable of explaining before the concernedauthority that there was a reasonable cause for the violation and fornot receiving the loan by way of account payee cheque or demanddraft, then the penalty shall not be levied. 11.This Court had occasion to deal with the issue again in thecase of NSS Karayogam v. Commissioner of Income Tax [(2014)364 ITR 81 (Kerala)]. Referring to the decision in K.V George'scase (supra) it was reiterated that, the only consideration would bewhether there existed any reasonable cause for receiving the amountby way of cash or whether there was a reason for not receiving theloan by way of account payee cheque or demand draft. It is held that burden is on the assessee to establish what was the reasonable cause. 12.In a still later decision of this Court in Grihalakshmivision v. Additional Commissioner of Income tax [(2015) 379ITR 100 (Kerala)], whileconfirming the orders passed imposingpenalty by upholding the findings that the assessee had failed toprove any reasonable cause as contemplated under Section 273B, itwas observed that, to take the benefit of Section 273B the assesseemust prove why the cash loan was accepted and whether there wasany reasonable cause for the failure to accept it in cheque or draft.The contention raised on the facts of the said case that the amount incash was taken from partners of the firm to meet urgent businessexpenditure, was not accepted as a reasonable cause by observingthat, there occurred failure to repay the amounts through accountpayee cheques or account payee bank draft. 13.An elaborate consideration of the issue is reflected in thelatest decision of this Court in the Commissioner of Income Tax,Trichur v. Al-Ameen Educational Trust [(2018)254 Taxman 402 (Ker)], where the assessee had offered the following explanations; i). No evasion of tax, hence no penalty can be levied. ii). Deposits taken from staffs were refundable. iii). Rs.5,00,000/- was a loan taken from one Zeenath, since cash was required urgently. iv).No penalty proceedings issued by Assessing Officer. 13.An elaborate consideration of the issue is reflected in thelatest decision of this Court in the Commissioner of Income Tax,Trichur v. Al-Ameen Educational Trust [(2018)254 Taxman 402 (Ker)], where the assessee had offered the following explanations; i). No evasion of tax, hence no penalty can be levied. ii). Deposits taken from staffs were refundable. iii). Rs.5,00,000/- was a loan taken from one Zeenath, since cash was required urgently. iv).No penalty proceedings issued by Assessing Officer. The assessee in that case had explained the details of loans anddeposits taken from its staff members and also indicated that some ofthose loans were repaid by cheques. This Court observed that, thecontention of refundable advance even if accepted, would not offer anymitigation to the assessee in so far as the penalty imposed underSection 271D, since the law does not distinguish refundable or notrefundable loans or deposits. As far as the urgent requirement offunds, it was found that the ground raised was of general or vaguenature, without any substantiating materials produced. Contentionthat the Assessing Officer had not initiated any proceedings wasrejected on the finding that it was clearly recorded in the assessmentorder about the assessee having accepted loans and advances inviolation of Section 269SS. After scanning various rulings, most ofwhich are cited herein above, this Court found that there is noreasonable cause shown, even if the claim of deposits from staff isaccepted as genuine, for the assessee to have not directed it to havebeen made by way of cheque or draft. 14.The principle emerging from the precedents cited above isthat, the reasonable cause contemplated under Section 273B shouldbe a reasonable cause as to why or what was the reason which compelled the assessee to accept the loans or deposits in cash. Inother words, it should be proved that there existed reasonable andacceptable cause for not accepting the loans or deposits throughcrossed cheques or demand drafts. When analysed based on thedictum as mentioned above, none of the facts contended or proved bythe appellant will constitute a valid explanation or reasonable causecoming within the purview of Section 273B. The mere proof that theloans were repaid through cheques drawn in the name of the lendersor that there was no attempt to induct black money into the business,itself cannot be considered as a reasonable cause or as a compellingcircumstance under which the mandate of Section 269SS can beviolated. It cannot be termed as a reasonable cause contemplatedunder Section 273B to condone the violation. Hence, we are of theopinion that, the appellant has not succeeded in bringing the casewithin the ambit of Section 273B, warranting exoneration fromimposition of penalty under Section 271D.15.The result of the above discussion is that, the question oflaw framed is answered against the appellant/assessee and in favourof the revenue. Consequently, the appeal is hereby dismissed. Sd/-C.K.ABDUL REHIM JUDGE Sd/-R. NARAYANA PISHARADI JUDGE lsn APPENDIX PETITIONER'S EXHIBITS: ANNEXURE-A:COPY OF THE ORDER OF ASSESSMENT DATED 25.10.2011 FOR THE YEAR 2009-2010 ISSUED TO THE APPELLANT. ANNEXURE-B:COPY OF THE PENALTY PROCEEDINGS AND DEMAND NOTICEISSUED TO THE APPELLANT DATED 26.09.2012. ANNEXURE-C:COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 22.01.2014. ANNEXURE-D:COPY OF THE POSTING NOTICE ISSUED TO THE APPELLANT. ANNEXURE-E:COPY OF THE TRIBUNAL ORDER DATED 04.07.2014 ISSUED TO THE APPELLANT. RESPONDENTS EXHIBITS: NIL TRUE COPY P.A TO JUDGE LSN