Tc/49/2004 Of Commissioner Of Income Tax v. M/S.balaji Traders

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR.JUSTICE P.D.DINAKARAN ANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.No.49 of 2004 Commissioner of Income TaxTrichy... Appellant M/s.Balaji Traders. .. Respondent PRAYER: Appeal under Section 260A of the Income Tax Act,against the order of the Income Tax Appellate Tribunal,Madras 'C' Bench, dated 12.6.2002 in ITA.No.1347/Mds/1995.Against the order of Commissioner of Income Tax (Appeals)VI Madras – 34 dated 8295 in IT/WT/GT/APPEAL NO. 470/94-95TRY; against the proceedings of the Deputy Commissioner ofIncome Tax Tiruchirappalli dated 19.07.1994 in C NO. 10(8)94-95) (Delivered by P.D.DINAKARAN,J.) At the instance of the Revenue, the appeal isdirected against the order of the Income-tax AppellateTribunal dated 12.6.2002 in ITA.No.1347/Mds/1995, raisingthe following substantial questions of law: 1. Whether on the facts and in the circumstancesof the case, the Appellate Tribunal was right inlaw in holding that no penalty is leviable undersection 271-D when there has been repeatedviolations of section 269 SS on the ground thatthe creditors are genuine persons and there was https://hcservices.ecourts.gov.in/hcservices/ no revenue loss to the Exchequer? 2. Whether on the facts and in the circumstances ofthe case, the Appellate Tribunal was right in law inholding that no penalty is leviable under section 271-D,on the ground that taking a loan in cash for depositinginto the assessee's bank to make necessary arrangementsfor honouring cheques is a reasonable cause forviolating the provisions of section 269 SS of theIncome-tax Act? 2.1. The respondent assessee filed its return for theassessment year 1993-94 showing a total income of Rs.11,710/-which was initially taken up for assessment under section1 143(1)(a) of the Income-tax Act, 1961 (in short 'the Act'). When theassessment was taken up for scrutiny, it was found that theassessee had availed cash borrowings exceeding Rs.20,000/- forabout 36 times in the course of the year attracting section 269-SS of the Act which contemplates that all borrowings exceedingRs.20,000/- should only be in the form of cheque or demand draft. 2.2. Accordingly, notice under section 271-D of the Act wasissued to the assessee for imposing penalty. In response to thenotice, the assessee filed a detailed explanation dated 22.5.1994stating that the cash borrowings were for urgent necessity to payto master weavers most of whom were living in rural and sub-urbanareas where banking facility was very much less and that most ofthe loans had been utilised for making payments to bank accountsto honour its cheque commitment to financial corporations who werealso income-tax assessees and interest income was admitted by themin their accounts. It is contended that all the transactions weremade out of business exigency and therefore, they are bona fideand reasonable. However, the assessing officer refused to acceptthe above explanation and levied penalty to the tune ofRs.12,30,000/-, by order dated 19.7.1994. 2.3. Aggrieved by the order of assessing officer imposing penalty,the assessee filed appeal before the Commissioner of Income-tax(Appeals), who, by order dated 8.2.1995, even though observed thatthe assessee could have obtained loans by cheques or demand draftsin its favour and deposited the same in current account, rendereda finding that loans were taken mostly to make payments to masterweavers living in village and suburban areas where bankingfacility was very much less and that loans were taken to meet theimmediate business need and hence, there existed reasonablecause. However, the Commissioner of Income-tax (Appeals)directed the assessing officer to levy penalty on certaintransactions to the tune of Rs.4,30,000/-. 2.3. Aggrieved by the order of assessing officer imposing penalty,the assessee filed appeal before the Commissioner of Income-tax(Appeals), who, by order dated 8.2.1995, even though observed thatthe assessee could have obtained loans by cheques or demand draftsin its favour and deposited the same in current account, rendereda finding that loans were taken mostly to make payments to masterweavers living in village and suburban areas where bankingfacility was very much less and that loans were taken to meet theimmediate business need and hence, there existed reasonablecause. However, the Commissioner of Income-tax (Appeals)directed the assessing officer to levy penalty on certaintransactions to the tune of Rs.4,30,000/-. 2.4. On further appeal by the assessee, the AppellateTribunal, by the impugned order dated 12.6.2002, in clear terms,rendered a finding that obtaining loans and making repaymentsinto bank account are not denied by the Revenue and thegenuineness of the transactions are not doubted either by theassessing officer or by the Commissioner of Income-tax (Appeals).The Appellate Tribunal also found that the identity of the debtorsis not disputed and all the credits were from established partiesand the loans were genuine as agreed by the Commissioner ofIncome-tax (Appeals). In the said order, the Appellate Tribunalheld as under: "... the assessee while carrying out their businessissued cheques to various parties and the same to behonoured on the relevant dates. If the commitment isnot honoured the assessee is bound to lose itscredibility in the market. Therefore, the assessee hadto make necessary arrangements for honouring the chequesissued by them. In this context of the businessexigency, the assessee was forced to take cash loans forthe purpose of depositing them into the bank account ofthe assessee for honouring the commitment, namely,issuance of cheque for a particular date. This cannotbe said to be unreasonable. The purpose of section269SS is to prevent tax evasion. This has been broughtto the notice of the Commissioners by Circular No.551dated 23.1.1990 reported in 183 Statute 67. In thepresent case, the assessee had consciously made the TDS.The creditors are genuine persons and the transactionswere never doubted by the authorities below. There wasno revenue loss to the State exchequer. Considering allthese factual position, we are unable to accept theconclusion drawn by the authorities below. For allthese reasons and discussions and considering the factsand materials, we cancel the levy of penalty sustainedby the CIT (Appeals). It is ordered accordingly." 3.1. Assailing the said order of the Appellate Tribunal,Mr.Nareshkumar, learned counsel appearing for the Revenue contendsthat section 269-SS is intended to prevent evasion of tax by cashtransactions involving more than Rs.20,000/-. According to him,since there are 36 transactions attracting section 269-SS, thesame cannot be construed as bona fide and reasonable. It isfurther contended that the business exigency for cashtransactions would arise in one or two transactions subject to theprovisos to section 269-SS of the Act which read as follows: " 269SS. Mode of taking or accepting certain loansand deposits.--No person shall after the 30th day ofJune, 1984, take or accept from any other person(hereafter in this section referred to as thedepositor), any loan or deposit otherwise than by anaccount 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 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 amount orthe aggregate amount remaining unpaid ; or " 269SS. Mode of taking or accepting certain loansand deposits.--No person shall after the 30th day ofJune, 1984, take or accept from any other person(hereafter in this section referred to as thedepositor), any loan or deposit otherwise than by anaccount 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 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 amount orthe aggregate 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), is twenty thousand rupees or more: Provided that the provisions of this section shall notapply to any loan or deposit taken or accepted from, orany loan or deposit taken or accepted by,-- (a) Government ; (b) any banking company, post office savings bank or co-operative bank ; (c) any corporation established by a Central, State orProvincial Act ; (d) any Government company as defined in section 617 ofthe Companies Act, 1956 (1 of 1956) ; (e) such other institution, association or body or classof institutions, associations or bodies which theCentral Government may, for reasons to be recorded inwriting, notify in this behalf in the Official Gazette. Provided further that the provisions of this sectionshall not apply to any loan or deposit where the personfrom whom the loan or deposit is taken or accepted andthat person by whom the loan or deposit is taken oraccepted are both having agricultural income and neitherof them has any income chargeable to tax under thisAct." (Emphasis supplied) 3.2. Since the transactions are not protected by the provisosto section 269-SS of the Act, it is contended by the learnedcounsel appearing for the Revenue that the Revenue is justifiedin imposing penalty under section 271-D of the Act, which readsthus: "271-D. Penalty for failure to comply with theprovisions of section 269SS.--(1) If a person takes oraccepts any loan or deposit in contravention of theprovisions of section 269SS, he shall be liable to pay,by way of penalty, a sum equal to the amount of the loanor deposit so taken or accepted. (2) Any penalty imposable under sub-section (1) shall beimposed by the Joint Commissioner". 4. Per contra, learned counsel appearing for the assessee,referring to two decisions of this Court in (i) CIT v. KundrathurFinance and Chit Co. (283 ITR 329) and (ii) CIT v. Ratna Agencies(284 ITR 609), contends that if the Appellate Tribunal issatisfied that the transactions are genuine and bona fide, penaltycould not be imposed under section 271-D of the Act, particularlywhen the amounts are found reflected in the assessment ofrespective parties/creditors and hence, there is no evasion oftax. He further contends that once the authorities below arrivedat a finding that when the transactions were made on account ofbusiness exigencies and the Tribunal was also satisfied that thetransactions were satisfactorily explained as to reasonable cause,there is no substantial question of law that arises in thismatter, as whether a particular transaction is genuine and bonafide is purely a question of fact. 5. We have given our careful consideration to the submissionsmade on either side. 6. This Court in CIT v. Kundrathur Finance and Chit Co. (283ITR 329), following the decision of Apex Court in Asst. Directiorof Inspection (Investigation) v. Kum.A.B.Shanthi (255 ITR 258),held that if there was genuine and bona fide transaction and thetax payer could not get a loan or deposit by account payee chequeor demand draft for some bona fide reason, the authority vestedwith the power to impose penalty has a discretion not to levypenalty. 5. We have given our careful consideration to the submissionsmade on either side. 6. This Court in CIT v. Kundrathur Finance and Chit Co. (283ITR 329), following the decision of Apex Court in Asst. Directiorof Inspection (Investigation) v. Kum.A.B.Shanthi (255 ITR 258),held that if there was genuine and bona fide transaction and thetax payer could not get a loan or deposit by account payee chequeor demand draft for some bona fide reason, the authority vestedwith the power to impose penalty has a discretion not to levypenalty. 7. In the instant case, the Commissioner of Income-tax(Appeals) and the Appellate Tribunal found that (i) there wasbusiness exigency forcing the assessee to take cash loans for thepurpose of honouring the commitment, viz., issuance of cheque on aparticular date; (ii) the creditors were genuine persons and thetransactions were never doubted by the authorities below; and(iii) there was no revenue loss to the State exchequer, andsatisfied that the assessee has shown reasonable cause for theabove transactions. 8. The authorities have also noticed that all thetransactions were brought into account of the assessee and therewere corresponding entries in the books of account of respectiveparties/creditors which satisfied the test of business exigency. 9. Once the said finding is arrived at by the Tribunal on facts,as held by the Delhi High Court in Commissioner of Income-tax(Appeals) v. Parma Nand (266 ITR 255), which was followed by thisCourt in CIT v. Ratna Agencies (284 ITR 609) that the findingrecorded by the Tribunal as to the reasonable cause is essentiallya finding of fact and no question of law much less a substantialquestion of law would arise, we do not have any hesitation tohold that it may not be proper for this Court to interfere withsuch a finding of fact. For all these reasons, answering the questions of lawreferred to us against the Revenue, the appeal stands dismissed.No costs.Na Sd/Asst.Registrar /true copy/ Sub Asst.Registrar To 1.The Assistant Registrar,Income Tax Appellate TribunalBench "C", Chennai.2.The Secretary, Central Board of Direct Taxes, New Delhi.3.The Commissioner of Income Tax (Appeals VI), Madras.4.The Deputy Commissioner of Income-tax, Tiruchirappalli.5.The Assistant RegistrarIncome Tax Appellate TribunalMadras Benches+ one cc to Mr. N. Muralikumaran, Advocate sr no. 63471TS(CO)NM(10.01.07) T.C.No.49 of 2004