M/S Sona Paper Boards Ltd v. Joint Commissioner Of Income Tax

ITA No. 142 of 2009 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH M/s Sona Paper Boards Ltd. Versus Joint Commissioner of Income tax ITA No. 142 of 2009 Date of Decision: 20.4.2011 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Sunish Bindlish, Advocate for the appellant. Ms. Urvashi Dhugga, Senior Standing Counsel,for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal has been filed by the assessee under Section260A of the Income Tax Act, 1961 (in short “the Act”) against the orderdated 28.2.2008 passed by the Income Tax Appellate Tribunal,Chandigarh Bench “A” (hereinafter referred to as “the Tribunal”) in ITANo. 569/Chandi/2006 for the assessment year 2002-03, claiming thefollowing substantial questions of law:- (1)Whether on facts and circumstances of the case theorder of the Tribunal confirming the penalty underSection 271D for Rs.1,70,000/- was perverse?order of the Tribunal confirming the penalty underSection 271D for Rs.1,70,000/- was perverse? (2)Whether the order of the Tribunal confirming penaltyu/s 271D was justified in a case where there was nou/s 271D was justified in a case where there was no finding of any malafide or evasion of tax? (3)Whether the Tribunal was right in upholding thepenalty u/s 271D when the genuineness of thetransaction was not in dispute?penalty u/s 271D when the genuineness of thetransaction was not in dispute? (4)Whether the imposition of penalty u/s 271D merely for technical mistake can be sustained? (5)Whether, on the facts and circumstances of the case,there was reasonable cause for the assessee toreceive the loans and deposits in cash and not byaccount payee cheque or bank draft as required u/s269SS and, as such, the penalty levied under S.271D for receiving the loans and deposits in cash,was not proper and unjustified?there was reasonable cause for the assessee toreceive the loans and deposits in cash and not byaccount payee cheque or bank draft as required u/s269SS and, as such, the penalty levied under S.271D for receiving the loans and deposits in cash,was not proper and unjustified? (6)Whether on facts and circumstances of the case theorder of the Tribunal confirming penalty underSection 271D of the Act was not justified in view ofthe settled law of the Supreme Court and variousHigh Courts of the country?” 2.Briefly stated, the facts necessary for adjudication aspleaded in the appeal are that the assessee filed its return on31.10.2002 for the assessment year 2002-03 declaring nil income. The assessment under Section 143(3) of the Act was completed on28.12.2004. During the course of assessment proceedings, it wasnoticed that the assessee had accepted loans/deposits in violation ofthe provisions of Section 269SS of the Act. The Assessing Officerissued a show cause notice under Section 271D of the Act to the assessee and accordingly imposed a penalty of Rs.6,38,000/- videorder dated 24.8.2005. On appeal by the assessee, the Commissionerof Income Tax (Appeals) [in short “the CIT(A)”] vide order dated7.4.2006 deleted the aforesaid penalty. Feeling aggrieved, thedepartment took the matter in appeal before the Tribunal. The Tribunalvide order dated 28.2.2008 upheld the order of the CIT(A) deleting thepenalty amounts of Rs.1,40,000/- and Rs.3,28,000/-, but set aside theorder relating to the penalty of Rs.1,70,000/-. Hence, the presentappeal by the assessee. 3.We have heard learned counsel for the parties. assessee and accordingly imposed a penalty of Rs.6,38,000/- videorder dated 24.8.2005. On appeal by the assessee, the Commissionerof Income Tax (Appeals) [in short “the CIT(A)”] vide order dated7.4.2006 deleted the aforesaid penalty. Feeling aggrieved, thedepartment took the matter in appeal before the Tribunal. The Tribunalvide order dated 28.2.2008 upheld the order of the CIT(A) deleting thepenalty amounts of Rs.1,40,000/- and Rs.3,28,000/-, but set aside theorder relating to the penalty of Rs.1,70,000/-. Hence, the presentappeal by the assessee. 3.We have heard learned counsel for the parties. 4.Learned counsel for the assessee submitted that theTribunal was in error in confirming the penalty under Section 271Damounting to Rs.1,70,000/- for alleged violation of the provisions ofSection 269SS of the Act. According to the learned counsel, thepayment which was made by Smt. Kamla Devi Sethia to the assesseewas necessitated in the given circumstances and there existedreasonable cause for the same within the meaning of the provisions ofSection 273B of the Act. Reliance has been placed on the followingjudgments:- I.Asst. Director of Inspection (Investigation) v. Kum.A.B. Shanthi, [2002] 255 ITR 258; A.B. Shanthi, [2002] 255 ITR 258; II.Commissioner of Income Tax v. Sunil Kumar Goel,[2009] 21 DTR 43; and [2009] 21 DTR 43; and III.The Commissioner of Income Tax-I, Chandigarh v.M/s Sona Paper Boards Ltd., ITA No. 594 of 2008decided on 27.11.2008.M/s Sona Paper Boards Ltd., ITA No. 594 of 2008decided on 27.11.2008. 5.Learned counsel for the revenue, on the other hand,supported the order passed by the Tribunal. 6.After giving our thoughtful consideration to the respectivesubmissions of learned counsel for the parties, we find merit in thesubmission made by learned counsel for the assessee. 7.Explaining the object and purpose of introducing Sections269SS and 271D of the Act, the Supreme Court in Kum. A.B. Shantu'scase (Supra) had laid down as under:- “The object of introducing section 269SS is to ensurethat a taxpayer is not allowed to give falseexplanation for his unaccounted money, or if he hasgiven some false entries in his accounts, he shall notescape by giving false explanation for the same.During search and seizures, unaccounted money isunearthed and the taxpayer would usually give theexplanation that he had borrowed or receiveddeposits from his relatives or friends and it is easy forthe so-called lender also to manipulate his recordslater to suit the plea of the taxpayer. The main object of section 269SS was to curb this menace.” 8.Further, the Apex Court observed that Section 273B of theAct was incorporated whereby the assessee had an opportunity toexplain reasonable cause for failure to comply with the provisions ofSection 269SS of the Act. It was recorded:- “It is important to note that another provision, namely,section 273B was also incorporated which provides that notwithstanding anything contained in theprovisions of section 271D, no penalty shall beimposable on the person or the assessee, as thecase may be, for any failure referred to in the saidprovision if he proves that there was reasonablecause for such failure and if the assessee proves thatthere was reasonable cause for failure to take a loanotherwise than by account-payee cheque or account-payee demand draft, then the penalty may not belevied. Therefore, undue hardship is very muchmitigated by the inclusion of section 273B in the Act.If there was a genuine and bona fide transaction andif for any reason the taxpayer could not get a loan ordeposit by account-payee cheque or demand draftfor some bona fide reasons, the authority vested withthe power to impose penalty has got discretionarypower.” 9.In Sunil Kumar Goel's case (supra), this Court had theoccasion to consider regarding reasonableness of cause under Section273B of the Act where in a family transaction between two independentassessees based on an act of casualness but where the disclosure hadbeen made in the accounts and no tax effect was involved, it was heldthat this constituted “reasonable cause” under Section 273B of the Actand invoking of provision of Section 271D of the Act was not justified. 10.It requires mention that the revenue had challenged theorder of the Tribunal dated 28.2.2008 whereby deletion of penalty amount of Rs.1,40,000/- and Rs.3,28,000/-, i.e. Rs.4,68,000/- by theCIT(A) had been upheld. Income Tax Appeal No. 594 of 2008 (C.I.T.Vs. M/s Sona Paper Boards Ltd.) filed by the revenue was dismissed bythis Court on 27.11.2008. 11.Having analyzed to legal principles, referring to factualmatrix in the present case, it may be noticed that the assessee-company had pleaded that it had incurred huge losses and was in direneed of funds to discharge its liability towards creditors. Smt. KamlaDevi Sethia the director had sold her agricultural land at Bikaner andhad deposited the amount in Bank of Rajasthan Ltd. which wastransferred to the assessee-company at Chandigarh through on linefacility available with the banker. The amount so received was utilizedfor clearing the cheques issued to the creditors. The CIT(A) hadconcluded that the transaction was genuine and bonafide and there wasno loss to the revenue as there was no evasion of tax. The transactionhad also been accepted to be genuine during the assessmentproceedings. At this stage, it would be expedient to reproduce thefindings recorded by the CIT(A) while allowing the appeal of theassessee in paras 5, 9 and 11, which read thus:- “5.I find force in the argument of the ld. A.R. thatthe object of the provisions being unearthing ofunaccounted money, the same are not applicable toa transaction which is done in an open manner,which is genuine and in which no unaccountedmoney is involved. Mere technical breach of theprovisions, while the transactions are held to be genuine, do not attract the provisions of section269SS or 269T. It is not the case of the departmentthat the amounts involved were sham orunaccounted transactions or that any other prejudicehad been caused to the revenue. Now, it may benoted that Chapter XXB of the Act begins with thehead “Requirement as to mode of acceptance,payment or repayment in certain cases to counteractevasion of tax.” It has been held that the term“certain” used therein, when read along with thelegislative intent of curbing tax evasions, clearlymeans that all loans and deposits are not caughtwithin its mischief. This Chapter attracts only“certain” loans or deposits that are brought in by thetaxpayer to explain away his unexplained cash orunaccounted deposit. This Chapter is definitely notintended to penalize genuine transactions, where notax evasion is involved. It is well settled that theheadings prefixed to sections or set of sections inmodern statues are regarded as preambles to thosesections. This view was approved by Farewell L.J. inFletcher vs. Birkenhead Corporation (1907) 1 K.B. 205. 205. 9.To my mind the subject transactions in thepresent matter, can be attributed to variousexigencies and vicissitudes of an assessee runninginto huge losses and in dire need of funds. It wouldalso be well to recall that there is no presumption thateverybody knows the law [Padampat Sugar Mills Co.Ltd. vs. State of UP & Ors. (1979) 1128 ITR 326(SC)]. Section 273B of the Act, enacts provisions ofoverriding nature and provides that notwithstandinganything contained in section 271D no penalty shallbe imposable if the assessee proves that there wasreasonable cause for accepting the loan or depositbeyond the prescribed monetary limit in cash. Thewords 'reasonable cause' have not been definedunder the Act but they could receive the sameinterpretation which is given to the expression'sufficient cause'. Therefore, in the context of thepenalty provisions, the words 'reasonable cause'would mean a cause which is beyond the control ofthe assessee. 'Reasonable cause' obviously meansa cause which prevents a reasonable man ofordinaryprudenceactingundernormalcircumstances, without negligence or inaction or wantof bona fides from restricting his cash borrowings towithin the specified limit. To my mind the realquestion that needs to be considered in such situations is, whether there is any taint of mala fidesor element of recklessness or ruse. I am of theopinion that where no want of bona fide can beimputed to the appellant, the word “sufficient cause”should receive liberal construction so as to advancesubstantial justice and I am fortified in this view bythe principles exposited in Woodward Governor IndiaPvt. Ltd. Vs. CIT (2002) 253 ITR 745 (Del). 10.XXXXXX 11.No loss of revenue is involved in this case.Even if there is any ignorance, which resulted in theinfraction of law, the default committed by theappellant was merely a technical and venial onewhich involved no evasion of tax. In my opinion bonafide belief coupled with the genuineness of thetransactions would constitute reasonable cause u/s273B for not invoking the provisions of section 271Dof the Act. It must be borne in mind that theSupreme Court in CIT Vs. Podar Cement (P) Ltd.(1977) 92 Taxman 541 (SC) has laid down thatprovisions of the Act could not be construed in amanner to make them an instrument of oppression.In R.B. Jodha Mal Kuthiala Vs. CIT (1971) 82 ITR570 (SC) it has been held that the tax laws have tobe interpreted reasonably and in consonance withjustice. To my mind, the levy of penalty in facts of the present case was not warranted.” 12.The circumstances narrated by the assessee justify takingof the amount from Smt. Kamla Devi Salathia in cash and the samebeing genuine and bonafide transaction offers reasonable cause underSection 273B of the Act as accepted by the CIT(A). The Tribunal haderred in reversing the said finding. Thus, the order of the Tribunal isunsustainable. 13.In view of the above, the questions of law are answered infavour of the assessee and against the revenue. The appeal standsallowed. (AJAY KUMAR MITTAL) JUDGE April 20, 2011gbs (ADARSH KUMAR GOEL) JUDGE