The Commissioner Of Income Tax - I Chennai v. Shri.t.perumal (Indl.)

In the High Court of Judicature at Madras Dated: 29.10.2014 Coram The Honourable Mr.JUSTICE R.SUDHAKARandThe Honourable Mr.JUSTICE R.KARUPPIAH Tax Case (Appeal) Nos.759 and 760 of 2014& M.P.No.1 of 2014 The Commissioner of Income tax - IChennai. .... Appellant in both T.C.(A)s/ RespondentVs. Shri.T.Perumal (Indl.)19, Muthumani Street,Varadarapuram,Choolaimedu, Chennai - 600 094. .... Respondent in bothT.C.(A)s/ Appellant APPEALs under Section 260A of the Income Tax Act against theorder dated 18.08.2011 made in I.T.A.Nos.1285 & 1286/Mds/2010 onthe file of the Income Tax Appellate Tribunal 'D' Bench, Chennai. 1.against the order of the Commissioner of Income Tax (Appeals)VIIINo.121, Nungambakkam, High Road, Chennai - 600 034 dated 12.05.2010in ITA Nos.23224/09-10 and 2.against the order of the Additional Commissioner of Income TaxBusiness Range IV Chennai 34 dated 22/6/2009 and made inAGWPP6728L/07-08/R-iv The above Tax Case (Appeals) are filed by the Revenue asagainst the orders of the Income Tax Appellate Tribunal raising thefollowing substantial questions of law:"T.C.(A)No.759 of 2014: Whether on the facts andin the circumstances of the case, the Income TaxAppellate Tribunal was right in holding that Section269SS read with Section 271D is not applicable eventhough the Tribunal having found that the assessee hadhttps://hcservices.ecourts.gov.in/hcservices/borrowed loans aggregating to Rs.20,000/- or more otherwise than through accounting payee cheque ordraft in contravention of Section 269 SS?"T.C.(A)No.760 of 2014: Whether on the facts and inthe circumstances of the case, the Income TaxAppellate Tribunal was right in holding that Section269T read with Section 271E is not applicable eventhough the Tribunal having found that the assessee hadrepaid the loans in cash, otherwise than by aaccounting payee cheque or draft in contravention ofSection 269T?"" 2. In the above Tax Case (Appeals), the Revenue haschallenged the orders of the Tribunal relating to the levy ofpenalty under Sections 271D and 271E of the Income Tax Act.However, the Revenue has not challenged the order of the Tribunalwith regard to the quantum appeal decided in favour of therespondent/assessee. 3. The assessment in these cases relates to the assessmentyear 2006-07. The respondent/assessee is engaged in the businessof civil construction. The assessee had filed return of income forthe assessment year 2006-07, in which the assessee had debitedvarious expenses like, payment of accounting charges, etc.According to the Assessing Officer, the assessee had to deduct taxat source under Section 194J of the Income Tax Act before makingpayment to the payee. It is the claim of the respondent/assesseethat he was a labour supervisor and consequent to the sincere anddedicated work, he was awarded labour contract by his clients. Hehad no resources to finance the construction and hence he resortedto take loans from friends at time of emergency, particularly onSaturdays when labour payments have to be made. He also madecertain payments in cash with regard to purchase of civilconstruction material and for accounting purposes without deductingtax at source. The Assessing Officer disallowed the accountingcharges paid under Section 40(a)(ia) of the Income Tax Act, therebyadded the entire amount under Section 68 of the Income Tax Act andimposed penalty under Sections 271D and 271E of the Income Tax Act. 4. Aggrieved by the order of the Assessing Officer, theassessee preferred appeals before the Commissioner of Income Tax(Appeals), who confirmed the order of the Assessing Officer,thereby dismissed the appeals. Aggrieved by the same, the assesseepreferred appeals before the Income Tax Appellate Tribunal. TheTribunal allowed the appeals filed by the assessee - both inrespect of quantum as well as penalty. Aggrieved by the same, theRevenue is before this Court challenging the order of the Tribunalwith regard to the levy of penalty only. 5. Heard learned standing counsel appearing for the Revenueand perused the materials placed before this Court. 6. The Tribunal decided the quantum appeal inI.T.A.No.1284/Mds/2010 holding that the payment made towardshttps://hcservices.ecourts.gov.in/hcservices/accounting charges to the site accountants was wrongly disallowed under Section 40a(ia) of the Income Tax Act and it was not coveredunder Section 194J of the Income Tax Act. The Tribunal held thatthe explanation of the assessee that Section 40a(ia) of the IncomeTax Act was introduced during the assessment year in question andthe assesse's plea of bona fide mistake and impression that it willapply only for the next assessment year was accepted primarily onthe ground that the assessee has admitted this amount as income andpaid tax thereon and there is no loss to the Revenue and furthermore, the confusion in the mind of the assessee was justified onaccount of the fact that the provision was introduced from01.04.2006. Hence, the Tribunal ordered deletion of this additionin the income. 7. Insofar as the payment made to the Hardware company incash, the Tribunal noticed that out of the total payment ofRs.41,53,008/-, a sum of Rs.74,647/- alone stands paid in cash andconsequently, the Tribunal ordered deletion of the addition ofRs.14,647/- made under Section 40A(3) of the Income Tax Act.Insofar as taking loans from friends are concerned, the Tribunalreversed the findings of the Assessing Officer and that of theCommissioner of Income Tax (Appeals) that it should be added as anundisclosed income under Section 68 of the Income Tax Act and cameto the conclusion that the evidence given by the assessee insupport of such short term loan within the assessment year issupported by individual affidavits of the persons from whom theamount was borrowed. The Tribunal observed that the AssessingOfficer declined to look into those affidavits for paucity of timeand summarily rejected the evidence, as not acceptable. TheTribunal found that the Assessing Officer did not deal with theexplanation given by the assessee, which is based on individualaffidavit of the persons from whom the money was borrowed, dulynotarised. The Tribunal, however, gave credence to thosestatements made on oath and held that it was the duty of theOfficer to examine the same before any decision is taken on thecorrectness or otherwise of the deposition made in the affidavit.Placing reliance on the decision reported in the case of MehtaParikh & Co., reported in 30 ITR 181, the Tribunal decided thequantum appeal in favour of the assessee. Against which, theRevenue has not chosen to file any appeal. 8. The Tribunal also allowed the appeals filed by the assesseewith regard to the penalty levied under Section 271D and 271E ofthe Income Tax Act. I.T.A.No.1285/Mds/2010 relates to repayment ofloan taken from friends in cash in contravention of Section 269T ofthe Income Tax Act; hence, suffering consequent penalty underSection 271E of the Income Tax Act. I.T.A.No.1286/Mds/2010 relatesto receiving of loan in cash in contravention of Section 269SS;hence suffering consequent penalty under Section 271D of the IncomeTax Act. In both the cases, the Tribunal held in favour of theassessee. 8. The Tribunal also allowed the appeals filed by the assesseewith regard to the penalty levied under Section 271D and 271E ofthe Income Tax Act. I.T.A.No.1285/Mds/2010 relates to repayment ofloan taken from friends in cash in contravention of Section 269T ofthe Income Tax Act; hence, suffering consequent penalty underSection 271E of the Income Tax Act. I.T.A.No.1286/Mds/2010 relatesto receiving of loan in cash in contravention of Section 269SS;hence suffering consequent penalty under Section 271D of the IncomeTax Act. In both the cases, the Tribunal held in favour of theassessee. 9. We have perused the order of the Tribunal. The Tribunal,in both the cases, has taken note of the explanation given by thehttps://hcservices.ecourts.gov.in/hcservices/assessee before the authorities below that he has engaged in the construction business and he has started from scratch; that he didnot have the financial capacity to undertake huge projects andtherefore he had to go for short term cash borrowings from friendsand known persons, which were repaid within the same assessmentyear and therefore, there was no need to reflect the same in thebooks of accounts; nevertheless the cause for taking this loan wason account of the need to pay the workers on weekends, namely, onSaturdays and Sundays on which date, there was no possibility ofimmediately accessing the bank. The exigency which forces theassessee to make such payment has been accepted and extracted inthe order of the Tribunal. The relevant portion of the order ofthe Tribunal reads as follows for better clarity: " 18. After considering the rival submissions, weare of the considered opinion that this penalty is notexigible. In view of the extenuatory circumstances asexplained by the assessee in the above part of theorder. We have deleted the entire amount of quantumadded from assessee's hands as above while deciding thequantum appeal. The Hon'ble Delhi High Court in thecases of CIT vs Standard Brands Ltd, 285 ITR 295 andDiwan Enterprises vs CIT, 246 ITR 571, has held that"where the assessee had claimed to have received loansin cash exceeding the prescribed limit of Rs.20,000/-but Revenue has treated the receipt as undisclosedincome of the assessee, initiation of proceedings u/s269SS r.w.s. 271D was not valid". The ratio laid downby the Hon'ble Delhi High Court in the above case,mutatis mutandis, squarely applies to the facts of thiscase. Moreover, any penalty provision in the Act admitsreasonable excuse which are sufficient to explain thefailures so committed. When the business of theassessee is such that he has to make payment in cashand has to make cash purchases, it is a reasonable causein the given facts and circumstances of the assessee'scase. The assessee has not found to hide this fact fromthe Department, hence, we order to delete the entirepenalty imposed by the Assessing Officer and allow theappeal". 10. We find much force in such explanation, considering thenature of business and also taking note of the fact that theassessee is not a big time civil construction contractor. TheTribunal primarily was of the view that the loans taken in thesecases were genuine and the exigency that arose out of the businesswas a cause for taking such loan. Since in the quantum appeal, theTribunal found that the assessee was bona fide in such transaction,the Tribunal in exercise of power under Section 273B, consideringthe reasonable cause submitted by the assessee, thought it fit toset aside the entire penalty by accepting the explanation given bythe assessee. No doubt, the decisions relied upon by the Tribunalreported in 285 ITR 295 (CIT Vs. Standard Brands ltd.) and 246 ITR571 (Diwan Enterprises Vs. CIT) may not be applicable to the factsof the present case, as we are not concerned with the case fallinghttps://hcservices.ecourts.gov.in/hcservices/under Section 68 of the Income Tax Act where initiation of proceedings under Section 269SS would become meaningless. Here isa case where the loan taken from friends and repayment of the samein cash. The reason that taking of loan is found to be genuine andthe same is for business exigency, it is not a case of undisclosedincome. If the assessee had not given a reasonable cause, thencertainly the initiation of proceedings for violation of 269SS and269T would be justified. We find in the present case thereasonable cause for not levying penalty exists and the Tribunalwas justified in allowing the assesse's appeal. On facts, theTribunal has clearly held in the quantum appeal there was a bonafide on the part of the assessee and as a consequence findingreasonable cause, thought it fit to delete the entire penalty. 11. We find no ground to interfere with the order of theTribunal. The assessee has shown the receipt of cash and repaymentof the same due to business exigency and that would amount toreasonable cause. The genuineness of the transaction to meet theimmediate necessity was accepted by the Tribunal in the quantumappeal and that would amount to reasonable cause in terms ofSection 273B of the Income Tax Act. Hence, we find no question oflaw much less any substantial question of law arises forconsideration in the above appeals. Sd/-Assistant Registrar (Co)Dated: 18/11/2014 To Sub Assistant Regisrar 2. The Commissioner of Income Tax (Appeals)-VIII, Chennai. 4. The Commissioner of Income Tax Chennai. ug(CO)JJM (19/11/2014)https://hcservices.ecourts.gov.in/hcservices/