Ita/35/2012 Of M/S.soundarya Textiles v. The Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE WEDNESDAY, THE 8TH DAY OF JANUARY 2014/18TH POUSHA, 1935 ITA.No. 35 of 2012 ---------------------- AGAINST ORDER OF INCOME TAX APPELLAT4 TRIBUNAL, COCHIN BENCH IN ITA NO. 119/COCH/2010. APPELLANT(S)/APPELLANT: ------------------------- M/S.SOUNDARYA TEXTILES P.R.COMPLEX, PANOOR. BY ADVS.DR.K.B.MUHAMED KUTTY (SR.) SRI.K.M.FIROZ RESPONDENT(S)/RESPONDENT IN ITA: --------------------------------- THE ASSISTANT COMMISSIONER OF INCOME TAX RANGE-I, KANNUR-670 001. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 08-01-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Manjula Chellur, C.J. & A.M. Shaffique, J.=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=I.T.Appeal No. 35 of 2012=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=Dated this, the 8[th]day of January, 2014. J U D G M E N T Shaffique, J. This appeal is filed by the assessee against the orderof the Income-tax Appellate Tribunal, Cochin Bench, in ITANo. 119/Coch/2010 in respect of the assessment year 2005-2006. 2.The short facts involved in the above appeal arerelating to the contribution made by 12 persons amountingto Rs. 51,20,000/- during the assessment year 2005-2006.The assessing officer found that the assessee has acceptedthe aforesaid amount contravening the provisions of Section269SS of the Income-tax Act (for short ‘the Act’) andinitiated proceedings to impose penalty under Section271DD of the Act. The assessee tried to explain the saidallegation by contending that the aforesaid amounts werecollected from promoters who are not aware of theprovisions of the Income-tax Act for the purpose ofestablishing a business unit. They were supposed to bepartners in the above business activity conducted by theassessee and in so far as the amount is utilised for thepurpose of business, and that too, for want of liquid cash,the investigation was genuine. The assessing officer didnot find that the transaction as explained can be accepted I.T.Appeal No. 35 of 2012 -: 2 :- and hence imposed a penalty of Rs. 51,20,000/- equal tothe amount of cash loans taken by the assessee forcontravening the provisions of Section 269SS of theAct. Though the assessee filed an appeal, the samecame to be confirmed. The assessee preferred afurther appeal to the Tribunal, which resulted in theimpugned order confirming the penalty imposed on theassessee. 3.The assessee had raised the followingquestions of law in the memorandum of appeal: “Whether on the facts and in the circumstances ofthe case: 1.The Appellate Tribunal is justified in dismissingthe appeal against the imposition of penalty forthe reasons stated by it confirming the penaltywithout considering materials on records andsubmissions made by the appellant?the appeal against the imposition of penalty forthe reasons stated by it confirming the penaltywithout considering materials on records andsubmissions made by the appellant? 2.Is not the decision of the Appellate Tribunalcontrary to the well accepted principles of lawgoverning the issue as laid down by theHon’ble Supreme Court of India, this Hon’bleCourt and various other High Courts?contrary to the well accepted principles of lawgoverning the issue as laid down by theHon’ble Supreme Court of India, this Hon’bleCourt and various other High Courts? 3.Is not the penalty imposed unjust and illegal inthe light of the genuineness of the payment asrevealed by the confirmation letters disclosingthe sources of the fund?”the light of the genuineness of the payment asrevealed by the confirmation letters disclosingthe sources of the fund?” 4.On a perusal of the questions of law, we donot find that there is any material to substantiate the I.T.Appeal No. 35 of 2012 -: 3 :- 3.Is not the penalty imposed unjust and illegal inthe light of the genuineness of the payment asrevealed by the confirmation letters disclosingthe sources of the fund?”the light of the genuineness of the payment asrevealed by the confirmation letters disclosingthe sources of the fund?” 4.On a perusal of the questions of law, we donot find that there is any material to substantiate the I.T.Appeal No. 35 of 2012 -: 3 :- questions raised by the appellant. The main allegationraised by the assessing officer for imposing penalty wasthat the assessee-firm had received cash in excess ofRs. 20,000/- in violation of Section 269SS. Thecontention is that the persons who had paid the cashwere promoters of the firm who are supposed to bepartners and since contribution was made in the firstyear of business of the firm, the funds for the businesswas mobilised in the form of capital contribution.According to the appellant, the investment made by thepartners in their respective capital account is genuineand there is no violation of Section 269SS. The maincontention raised is that no penalty could have beenimposed on the assessee, if reasonable cause for thefailure for not receiving the loan by way of accountpayee cheque can be shown by the assessee. Theauthorities below as well as the Tribunal, on verificationof the materials on record, came to a finding that theaudit report and balance sheet of the assessee hadshown the outstanding amount as loan received from12 persons. Therefore, the contention that the amountsreceived by the assessee was from promoters/partnersof the firm was not accepted. 5.Section 269SS of the Income-tax Act reads asunder: I.T.Appeal No. 35 of 2012 -: 4 :- “269SS. Mode of taking or accepting certainloans and deposits- No person shall, after the 30[th] day of June, 1984,take or accept from any other person (hereinafter inthis section referred to as the depositor), any loan ordeposit otherwise than by an account payee cheque oraccount payee bank draft if,-- (a)the amount of such loan or deposit or theaggregate amount of such loan and deposit; or (b)on the date of taking or accepting such loan ordeposit, any loan or deposit taken or accepted earlierby such person from the depositor is remaining unpaid(whether repayment has fallen due or not), the amountor the aggregate amount remaining unpaid; or (c)the amount or the aggregate amount referred toin clause (a) together with the amount or theaggregate amount referred to in clause (b), is twenty thousand rupees or more.” The provisos to the above Section have no applicationto the case on hand and therefore a bare reading ofSection 269SS indicates that no person shall receivefrom any other person any loan or deposit other than byway of account payee cheque or account payee bankdraft, if the amount is Rs. 20,000/- or more. Of course,while imposing penalty, it is possible for the authoritiesto consider whether there was any reasonable cause forreceiving the said amounts without complying withSection 269SS. None of the authorities have foundthat the reasons stated are genuine and can be I.T.Appeal No. 35 of 2012 -: 5 :- accepted to avoid payment of penalty. On facts andmaterials relied on by the assessee, it is found by theauthorities that the contribution made by therespective persons was treated as a loan and theexplanation that they were to be made partners laterwas not accepted. Hence, we do not think that thesaid factual issues can be re-opened and challenged inthe present appeal. The findings of facts by theauthorities are neither perverse nor illegal in any form.Hence, we do not think that the questions of law nowraised by the appellant arise for consideration in thepresent appeal. Accordingly, the appeal is dismissed. Sd/- Manjula Chellur, Chief Justice. Sd/- A.M. Shaffique, Judge. Tds/ [True copy] P.S to Judge.