Tca/13/2014 Of Director Of Income Tax v. M/S Young Men Christian Assn

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR. JUSTICE R.SUDHAKARANDTHE HONOURABLE MR. JUSTICE G.M.AKBAR ALI Director of Income TaxExemptions, Chennai... Appellant in all the appeals M/s.Young Men Christian Association223, NSC Bose Road, Esplanade, Chennai... Respondent in all the appeals TCA Nos.13 to 15 of 2014 u/s 260-A of the Income Tax Act filedagainst the order of the Income Tax Appellate Tribunal, Madras 'B'Bench, dated 29.4.13 in ITA Nos.1661, 2002 & 2003/MDS/2012 for theassessment years 2008-2009 and 2009-2010. against the ordered ofIncome Tax Appellate Tribunal "B" Bench Chennai dt 15.5.2013 in ITANos.294 Mds/2012 1661/Mds/2012 and 2002, 2003 2004/mds/2012, andagainst the orders of Commissioner of Income Tax (Appeals) XIINungambakkam, Chennai-34 dt 10.5.12 ,18.7.12 and 23.7.12 inITA.Nos.347/2011-12 ITA.Nos.252/2011-12 AND ITA.Nos.346/2011-12 andarising out of the Assessment order of Joint Commissioner of IncomeTax(OSD)(Exemptions)II,Chennaidt30.12.2011inPAN/G1.No.AAATY0296N. For Appellant: Mr. J.Narayanasamy In all these appeals, the following questions of law have beenraised :- “i) Whether the Tribunal was justified in upholdingthe order of the Commissioner of Income Tax (Appeals)that no penalty is leviable under Sections 271-D and271-E in a case of cash loan transaction recorded by https://hcservices.ecourts.gov.in/hcservices/ the Department as a case of undisclosed incomesubject to tax under Section 68 of the Income Tax Act. ii) Whether the Tribunal was justified in holdingthat penalty under Section 271-D is not leviable onthe assessee on the ground of exceptionalcircumstances in terms of Section 273-B.” 2. The brief facts, insofar as the first issue is concerned,which flows from the case of the Department is that the assessee, toget over certain financial difficulties, borrowed certain amounts andrepaid certain amounts for the assessment year 2009-2010. Theamounts taken by way of cash, according to the department, was Rs.1Crore and the amount that was returned was Rs.50 Lakhs. This amount,in the course of original assessment proceedings, was treated by theAssessing Authority as credit of income from unexplained/unidentifiedsource and is liable to tax under Section 68 of the Income Tax Act(for short 'the Act'). That issue, however, remains as such.Pending the same, the Department issued show cause notice dated13.06.11, initiating penalty proceedings on the transaction relatingto receipt of Rs.1 Crore and payment of Rs.50 Lakhs in the followingmanner :- 3. There is yet another transaction, where a sum of Rs.25 Lakhswas received from one Meenakshi as loan and, therefore, notice underSection 271-D was issued for contravention of Section 269-SS of theAct. The notices were resisted by the assessee resulting in anorder being passed in the first case by the Joint Commissioner ofIncome Tax Exemptions, holding that there is a clear contravention ofSection 269-SS and Section 269-T liable for penalty under Section271-D of the Act in respect of receipt of Rs.1 Crore and Section 271-E in respect of payment of Rs.50 Lakhs made to third party. In thethird case, the authority held that the receipt of Rs.25 Lakhs bycash from one Meenakshi is a violation of Section 269-SS and,therefore, penalty under Section 271-D was levied, against whichappeals were filed by the assessee before the Commissioner of IncomeTax (Appeals). 4. All the three appeals, filed by the assessee, came to beallowed by the Commissioner (Appeals) in the following manner :- i) Insofar as the transaction relating to receipt ofRs.1 Crore for the assessment year 2009-2010 and payment ofRs.50 Lakhs for the same assessment year is concerned, theappellate authority, placing reliance on the assessment https://hcservices.ecourts.gov.in/hcservices/ 4. All the three appeals, filed by the assessee, came to beallowed by the Commissioner (Appeals) in the following manner :- i) Insofar as the transaction relating to receipt ofRs.1 Crore for the assessment year 2009-2010 and payment ofRs.50 Lakhs for the same assessment year is concerned, theappellate authority, placing reliance on the assessment https://hcservices.ecourts.gov.in/hcservices/ order, where the amount has been treated as undisclosedincome and subject to levy of tax under Section 68 of theAct, came to the conclusion that the Department havingaccepted the transaction as one of money coming fromunexplained and unidentified source and, therefore, liableto tax under Section 68 of the Act, the provisions ofSection 269-SS will not be attracted. ii) Insofar as the amount taken as loan from oneMeenakshi is concerned, the Commissioner, relying uponcertain details submitted by the assessee, held that thesaid amount received should be treated as a genuinetransaction and in view of the compelling circumstances,thought it fit that it should not be subject to penalty byinvoking the provisions of Section 273-B. 5. Assailing the order passed by the Commissioner of Income Tax(Appeals), the Revenue preferred a bunch of six appeals before theIncome Tax Appellate Tribunal. The Appellate Tribunal, onconsideration of the materials placed before it, concurred with theviews of the Commissioner of Income Tax (Appeals) and dismissed theappeals filed by the Revenue. Aggrieved against the said dismissal,the Revenue is before this Court in these appeals. 6. Heard the learned standing counsel appearing for theappellant and also perused the orders passed by the Tribunal, theCommissioner of Income Tax (Appeals) as well as the assessment ordersand the other materials available on record. In this regard, it willbe useful to refer to Section 269-SS and Section 269-T andcorresponding Section 271-D and Section 271-E, which is extractedhereunder :- “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 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: Provided that the provisions of this section shallnot apply to any loan or deposit taken or acceptedfrom, or any loan or deposit taken or accepted by,-- (a) Government ; (b) any banking company, post office savings bank orco-operative bank ; (c) any corporation established by a Central, Stateor Provincial Act ; (d) any Government company as defined in section 617of the Companies Act, 1956 (1 of 1956) ; (e) such other institution, association or body orclass of institutions, associations or bodies whichthe Central Government may, for reasons to be recordedin writing, notify in this behalf in the OfficialGazette. Provided further that the provisions of this sectionshall not apply to any loan or deposit where theperson from whom the loan or deposit is taken oraccepted and that person by whom the loan or depositis taken or accepted are both having agriculturalincome and neither of them has any income chargeble totax under this Act. Explanation.--For the purposes of this section,-- (c) any corporation established by a Central, Stateor Provincial Act ; (d) any Government company as defined in section 617of the Companies Act, 1956 (1 of 1956) ; (e) such other institution, association or body orclass of institutions, associations or bodies whichthe Central Government may, for reasons to be recordedin writing, notify in this behalf in the OfficialGazette. Provided further that the provisions of this sectionshall not apply to any loan or deposit where theperson from whom the loan or deposit is taken oraccepted and that person by whom the loan or depositis taken or accepted are both having agriculturalincome and neither of them has any income chargeble totax under this Act. Explanation.--For the purposes of this section,-- (i) "banking company" means a company to whichthe Banking Regulation Act, 1949 (10 of 1949), appliesand includes any bank or banking institution referredto in section 51 of that Act ; (ii) "co-operative bank" shall have the meaningassigned to it in Part V of the Banking RegulationAct, 1949 (10 of 1949) ;(iii) "loan or deposit" means loan or deposit ofmoney.********* https://hcservices.ecourts.gov.in/hcservices/ 269T. Mode of repayment of certain loans ordeposits.—No branch of a banking company or a co-operative bank and no other company or co-operativesociety and no firm or other person shall repay anyloan or deposit made with it otherwise than by anaccount payee cheque or account payee bank draft drawnin the name of the person who has made the loan ordeposit if– (a) the amount of the loan or deposit together withthe interest, if any, payable thereon, or (b) the aggregate amount of the loans or depositsheld by such person with the branch of the bankingcompany or co-operative bank or, as the case may be,the other company or co-operative society or thefirm, or other person either in his own name orjointly with any other person on the date of suchrepayment together with the interest, if any, payableon such loans or deposits, is twenty thousand rupeesor more : Provided that where the repayment is by a branch ofa banking company or co-operative bank, suchrepayment may also be made by crediting the amount ofsuch loan or deposit to the savings bank account orthe current account (if any) with such branch of theperson to whom such loan or deposit has to be repaid. *Provided further that nothing contained in thissection shall apply to repayment of any loan ordeposit taken or accepted from— (i) Government ; (ii) any banking company, post office savingsbank or co-operative bank ; (iii) any corporation established by a Central,State or Provincial Act ; (iv) any Government company as defined in section617 of the Companies Act, 1956 (1 of 1956) ; (v) such other institution, association or bodyor class of institutions, associations or bodieswhich the Central Government may, for reasons to berecorded in writing, notify in this behalf in theOfficial Gazette. https://hcservices.ecourts.gov.in/hcservices/ Explanation.–For the purposes of this section,– (i) “banking company” shall have the meaningassigned to it in clause (i) of the Explanation tosection 269SS ; (ii) “co-operative bank” shall have the meaningassigned to it in Part V of the Banking RegulationAct, 1949 (10 of 1949) ; (iii) “loan or deposit” means any loan or deposit ofmoney which is repayable after notice or repayableafter a period and, in the case of a person otherthan a company, includes loan or deposit of anynature.*********271D. 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 topay, by way of penalty, a sum equal to the amount ofthe loan or deposit so taken or accepted. (2) Any penalty imposable under sub-section (1)shall be imposed by the *Joint Commissioner. (ii) “co-operative bank” shall have the meaningassigned to it in Part V of the Banking RegulationAct, 1949 (10 of 1949) ; (iii) “loan or deposit” means any loan or deposit ofmoney which is repayable after notice or repayableafter a period and, in the case of a person otherthan a company, includes loan or deposit of anynature.*********271D. 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 topay, by way of penalty, a sum equal to the amount ofthe loan or deposit so taken or accepted. (2) Any penalty imposable under sub-section (1)shall be imposed by the *Joint Commissioner. 271E. Penalty for failure to comply with theprovisions of section 269T.--(1) If a person repaysany **loan or deposit referred to in section 269Totherwise than in accordance with the provisions ofthat section, he shall be liable to pay, by way ofpenalty, a sum equal to the amount of the **loan ordeposit so repaid. (2) Any penalty imposable under sub-section (1)shall be imposed by the *Joint Commissioner.” 7. We find from the order of the Tribunal, in the case oftransaction relating to receipt of Rs.1 Crore and payment of Rs.50Lakhs, the Tribunal, having considered the order of the AssessingAuthority that it is a case of unexplained cash receipt and treatedas own income of the assessee, which is subjected to tax underSection 68 of the Act, held that the question of treating it astransaction in violation of Sections 269-SS or 269-T does not ariseas it stands mutually excluded. 8. In this context, it would be useful to place reliance onthe decision in Diwan Enterprisess V. Commissioner of Income-Tax and https://hcservices.ecourts.gov.in/hcservices/ others (2000) 246 ITR 571), wherein the Delhi High Court held as follows :- “That the Assessing Officer had discarded the theoryof the assessee having taken any loan. He accepted thesurrender of the amount as income of the assessee. Itwas open to the Assessing Officer not to accept thesurrender, treat the amount as loan and then to holdthe petitioner liable to penalty under section 271Dfor non-compliance with section 269SS. The AssessingOfficer cannot be permitted to treat the amount ofloan as income for the purpose of assessing taxthereon while framing the assessment and at the same time to treat it as a loan for the purpose ofsection 269SS read with section 271D and subject thetransaction to penalty. Such proceedings would beself-contradictory. For non-compliance with theprovisions of section 269SS, the genuineness of thetransaction as loan was doubted by the AssessingOfficer and so the amount was surrendered by theassessee. The surrender was accepted by the AssessingOfficer as income of the assessee. It ceased to be aloan and, therefore, the very foundation forinitiating the proceedings for and levying penaltyunder section 271D was lost. Sub-section (1) ofsection 271D begins with the words “if a person takesor accepts any loan or deposit”. The Assessing Officerhad recorded a finding that the amount of Rs. 30,000was the income of the assessee. Impliedly he hadrecorded a finding that it was neither any loan nor adeposit. The question of the provisions of section269SS having been contravened was then lost inoblivion and could not have rearisen at any subsequentstage or in subsequent proceedings. The penaltyimposed under section 271D read with section 269SScannot, therefore, be sustained.” 9. In yet another decision in Commissioner of Income-Tax V.Standard Brands Ltd. ( 2006) 285 ITR 295), once again, the Delhi HighCourt held as under :- 9. In yet another decision in Commissioner of Income-Tax V.Standard Brands Ltd. ( 2006) 285 ITR 295), once again, the Delhi HighCourt held as under :- “In so far as the quantum issue is concerned, theCommissioner of Income-tax (Appeals) in a separateorder dated September 6, 2000, came to the conclusion(in paragraph 7.2 of the said order) that the additionunder section 158BC of the Act could not be sustainedand that the Assessing Officer could at best havetaken action under section 147 of the Act.Accordingly, the addition of Rs. 3 lakhs was deletedwithout prejudice to the action that the Assessing https://hcservices.ecourts.gov.in/hcservices/ Officer may take for taxing this amount in regularassessment proceedings including proceedings undersection 147 of the Act.” 10. The Tribunal, taking note of the above said decisions,accepted the stand of the assessee that there was no justificationfor imposition of penalty under Sections 271-D and 271-E, as it isnot a transaction in contravention of Section 269-SS and 269-T. Inthe light of the proposition of law expounded by the Delhi High Courtin the above cited decisions, which has been rightly relied on by theTribunal, we find no reason to take a different view as we find thatthe reasons of the Commissioner of Income Tax (Appeals), as observedby the Tribunal, justifies a case of undisclosed income at the handsof the assessee subject to tax under Section 68 of the Act. 11. Insofar as the loan transaction relatable to the moneyreceived from one Meenakshi for a sum of Rs.25 Lakhs is concerned,the Tribunal, after considering the reasons for such a transaction,was inclined to accept the reasoning of the Commissioner of IncomeTax (Appeals) that it is a case, where the assessee, under compellingcircumstances, had accepted cash loan and, therefore no penalty needbe levied by invoking the provisions of Section 273-B of the Act. Inthis context, it would be useful to refer to Section 273-B of theAct, which reads as under :- “273B. Penalty not to be imposed in certain cases.--Notwithstanding anything contained in the provisionsof clause (b) of sub-section (1) of section 271,section 271A, section 271AA, section 271B, section271BA, section 271BB, section 271C, section 271CA,section 271D, section 271E, section 271F, section271FA, section 271FB, section 271G clause (c) orclause (d) of sub-section (1) or sub-section (2) ofsection 272A, sub-section (1) of section 272AA orsection 272B or sub-section (1) of section section272BB or sub-section (1) of section 272BBB or clause(b) of sub-section (1) or clause (b) or clause (c) ofsub-section (2) of section 273, no penalty shall beimposable on the person or the assessee, as the casemay be, for any failure referred to in the saidprovisions if he proves that there was reasonablecause for the said failure.” 12. The Tribunal, after considering the order passed by theCommissioner of Income Tax (Appeals) and also considering the plea ofcompelling circumstances for receipt of cash loan in terms of Section273-B of the Act, sustained the order of the Commissioner of IncomeTax (Appeals), the relevant portion of which is extracted hereunderfor easy reference :- https://hcservices.ecourts.gov.in/hcservices/ “31. On going through the order of the Commissionerof Income Tax (Appeals), we find that the assessee hasobtained cash loan from Smt.Meenakshi, who is anassessee, the identity is proved, the genuineness ofthe transaction is proved, therefore, it cannot besaid that the loan amount of Rs.25,00,000/- isunaccounted income of the assessee. We also noticefrom the assessment order that the cash loansintroduced by the assessee from other thanSmt.Meenakshi have been considered as unexplainedcredits by the Assessing Officer which shows that thecash loans obtained from Smt.Meenakshi is genuine loanand no such treatment was given to this loan of https://hcservices.ecourts.gov.in/hcservices/ “31. On going through the order of the Commissionerof Income Tax (Appeals), we find that the assessee hasobtained cash loan from Smt.Meenakshi, who is anassessee, the identity is proved, the genuineness ofthe transaction is proved, therefore, it cannot besaid that the loan amount of Rs.25,00,000/- isunaccounted income of the assessee. We also noticefrom the assessment order that the cash loansintroduced by the assessee from other thanSmt.Meenakshi have been considered as unexplainedcredits by the Assessing Officer which shows that thecash loans obtained from Smt.Meenakshi is genuine loanand no such treatment was given to this loan of Rs.25,00,000/- by the Assessing Officer whilecompleting the assessment. We also find that theassessee was forced to avail cash loans in order tomeet the requirements of payments to bank for reducingthe credit limit and to honour the cheques alreadyissued. The Department has not filed any evidence torebut the findings of the Commissioner of Income Tax(Appeals). In the circumstances, we sustain the orderof the Commissioner of Income Tax (Appeals) indeleting the penalty levied under section 271D of theAct and no interference is called for.” 13. Thus, it is clear from the record that the Commissioner ofIncome Tax (Appeals) and the Appellate Tribunal have gone into thegenuineness of the transaction and the reasons attributed by theassessee for obtaining the said loan in view of the compellingcircumstances, which is covered by relevant documents to support sucha transaction and, therefore, the authorities have rightly interferedwith the penalty imposed by invoking the provisions of Section 273-Bof the Act. Such a discretion exercised by the Commissioner ofIncome Tax (Appeals), which has been confirmed by the AppellateTribunal, in the considered view of this Court, does not warrantinterference. Further, this Court is of the considered view that noquestion of law, much less substantial question of law, arise forconsideration in these appeals. 14. For the foregoing reasons, we pass the following order: (i) There is no material warranting interferencewith the order passed by the Tribunal. (ii) All the appeals fail and the same aredismissed. Consequently, connected miscellaneouspetitions are closed. Sd/-Asst. Registrar.(C.S.IV) 31.7.14 /true copy/ Sub Asst. Registrar. To 1. The Income Tax Appellate Tribunal Madras 'B' Bench, Chennai. Madras 'B' Bench, Chennai. 2. Director of Income Tax Exemptions II Chennai. Chennai. 3. Joint Commissioner of Income Tax Exemptions Chennai. Chennai. 4. The Joint Commissioner of Income Tax OSD (Exemptions II), Chennai. Chennai. 5. The Commissioner of Income Tax Appeals XII, Chennai- 34. 6. The Assistant Registrar, Income Tax Appellate Tribunal, Rajaji Bhavan, IInd floor, Besant Nagar, Chennai-90. Rajaji Bhavan, IInd floor, Besant Nagar, Chennai-90. 1cc to Mr. J. Narayanaswamy, Advocate Sr.30828ts(co)gs 31.7ts(co)gs 31.7