The Commissioner Of Income Tax, Tamil Nadu-I, Madras v. M/S.jayasakthi Benefit Fund Limited7/12 Lic Nh

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 18.12.2007 CORAM THE HON'BLE MR.JUSTICE K.RAVIRAJA PANDIANANDTHE HON'BLE MRS.JUSTICE CHITRA VENKATARAMAN Tax Case (Appeal) No.325 OF 2004 The Commissioner of Income Tax, Tamil Nadu-I, Madras Appellant v. M/s.Jayasakthi Benefit Fund Limited7/12 LIC NH 1, Seran StreetMaraimalai NagarChennai – 603 209. Respondent Appeal preferred under Section 260A of the Income-tax Act, 1961against the order of the Income-tax Appellate Tribunal, D Bench, Chennaidated 22.8.2003 made in I.T.A. No.167/Mds/2001 for the assessment year1997-98 as against the Commissioner of Income Tax (Appeals) V, Chennai 34dated 23.4.2000 made in IT/WT/GT/Appeal No.170/2000-2001 for theAssessment year 1997-1998 and as against the order of the JointCommissioner of Income Tax, Range I, Chennai - 34 dated 6.4.2000 in CR.No. 64/2000-2001/RI for the assessment year 1997-98. For Appellant : Mr.J.Naresh Kumar Standing Counsel for ITFor Respondent: Mr.V.S.Jayakumar JUDGMENT (Judgment of the Court was delivered by K.RAVIRAJA PANDIAN, J.) The appeal has been admitted on the following question of law: “Whether on the facts and in the circumstances of the case, the Appellate Tribunal has erred in deleting the penaltyimposed under Section 271D of the Act by holding that theassessee did not contravene the provisions of Section 269SS ofthe Income-tax Act? 2. The relevant assessment year is 1997-98. The assessee is running abenefit Fund and doing finance business. The assessing officer initiatedpenalty proceedings under Section 271D of the Income-tax Act on thepremise that the assessee had violated the provisions of Section 269SS ofthe Income-tax Act, 1961 by taking or accepting loans or deposits fromvarious persons otherwise than account payee cheques or account payeedrafts exceeding Rs.20,000/-. Though a detailed statement as to thenature and location of the business concern of the assessee and the reasonfor accepting the amounts not by account payee cheques and account payeedrafts has been placed before the assessing officer, the assessing officerwas of the opinion that the assessee was deserved to be penalised underSection 271D of the Income-tax Act, 1961 and thus imposed penalty ofRs.3,98,987/- on the assessee under section 271D of the Income Tax Act,1961. On appeal, the first appellate authority on considering thestatement filed by the assessee in accepting deposits from nine of thedepositors and the reason for accepting the same in cash, was opined thatthe assessing officer had not given pointed details of the infringement ofthe relevant provisions by the persons with specific details so as toarrive at the amount of penalty. The Commissioner of Income Tax (Appeal)further observed that the order of the assessing officer imposing penaltywas brief and not a speaking one, that the assessee has given detailsthereby shown reasonable cause as per the provisions of Section 273B forfailure to comply with the provisions of Section 269SS. He furtherrelying upon the decision of the Tribunal in the case of Commissioner ofIncome Tax v. Kundrathur Finance and Chit Company, (2006) 283 ITR 329which was similar to the case on hand, deleted the penalty levied by theassessing officer. The Revenue carried the matter on appeal to the Income-tax Appellate Tribunal, which by its order dated 22.8.2003 affirmed theorder of the Commissioner of Income-tax (Appeals) on all the reasoninggiven by the Commissioner of Income Tax (Appeals) and held that theCommissioner of Income-tax (Appeals) was perfectly justified in deletingthe penalty under Section 271D and dismissed the appeal. The correctnessof the same is put in issue in this appeal before us by formulating theabove question of law. 3. We heard the argument of the learned counsel on either side andperused the materials on record. 3. We heard the argument of the learned counsel on either side andperused the materials on record. 4. Before the Commissioner of Income-tax (Appeals), the assessee hasstated nine instances of receipt of deposits over and above Rs.20,000/- bycash and has given details that the depositors were agriculturists andmade the deposits from out of their savings from agricultural income andfurther stated that none of the persons from whom the deposits werereceived in cash were having any bank accounts. That was confirmed by thedepositors concerned. The circumstances under which such deposits receivedhave also been explained by the assessee by submitting that the assesseewas located in Maraimalai Nagar which is a suburb of Chennai city and theresidents in that area are mostly agriculturists and hardly having anybank account, that the assessee caters the needs of the agriculturists,labourers and house-wives, who do not have bank account and the assesseealso stated that there was a turmoil in the finance business with thenumber of finance companies breaking down unable to repay the depositstaken from the public and in those compelling circumstances, the assesseehad to oblige his customers by accepting the deposits in cash andrefunding deposits in cash in order to establish credibility in businessamong the assessee's customers and further explained that the assessee wasfinancing to agriculturists mainly and to people of very small means. Theassessee could not insist on cheque payments for deposit as the depositorswere not aware of the banking operations. Each of the depositor has alsoconfirmed the deposit made by them out of their agricultural income orsmall savings and that they were not having any banking transactions. 5. Thus, it could be seen that the transactions were not camouflagedtransactions or out of account transactions but bona fide transactions bypersons of the avocation of agriculture and small traders and thus therewas a reasonable cause for the failure. In this context, it is pertinentto refer Section 273B of the Income-tax Act, which provides for penaltynot imposable in certain cases. The Section reads thus: “Penalty not to be imposed in certain cases.—Notwithstanding anything contained in the provisions ofclause (b) of sub-section (1) of section 271, section 271A,section 271AA, section 271B, section 271BA, section 271BB,section 271C, section 271D, section 271E, section 271F,section 271FA, section 271FB, section 271G, clause (c) orclause (d) of sub-section (1) or sub-section (2) of section272A, sub-section (1) of section 272AA or section 272B orsub-section (1) of section 272BB or sub-section (1) ofsection 272BBB or clause (b) of sub-section (1) or clause(b) or clause (c) of sub-section (2) of section 273, nopenalty shall be imposable on the person or the assessee, asthe case may be, for any failure referred to in the saidprovisions if he proves that there was reasonable cause forthe said failure.” (Emphasis supplied). 6. While upholding the constitutional validity of Section 269SS, theApex Court in the case of ASST.DIRECTOR OF INSPECTION (INVESTIGATION) VS.KUM.A.B.SHANTHI reported in (2002) 255 ITR 258 has observed that theobject of introducing section 269SS was to ensure that a taxpayer was notallowed to give false explanation for his unaccounted money, or if he madesome false entries, he shall not escape by giving false explanation forthe same. The main object of section 269SS was to curb this menace ofmaking false entries in the account books and later giving an explanationfor the same. The apex Court further observed that the undue hardship ofthe provisions of Section 271D which replaced section 276D providing forpenalty was substantially mitigated by the inclusion of Section 273Bproviding that if there was a genuine and bona fide transaction and thetaxpayer could not get a loan or deposit by account-payee cheque or demanddraft for some bona fide reason, the authority vested with the power toimpose penalty has a discretionary power not to levy the penalty. 7. In this case, the explanation offered with reference to thedeposits received by the assessee has been accepted not only by theappellate authority – the Commissioner of Income-tax (Appeals), but alsothe Tribunal and deleted the penalty levied by the assessing officer.There is no material available on record for us to suspect or reject thetransaction as not bona fide. Further, the Tribunal's decision relied onby the Commissioner of Income-tax (Appeal) as well as the Tribunal i.e.,Kundrathur Finance and Chit Companeis case for deleting the penalty hasbeen tested by the Division Bench of this Court in the case ofCOMMISSIONER OF INCOME-TAX VS. KUNDRATHUR FINANCE AND CHIT COMPANYreported in (2006) 283 ITR 329 and upheld the order of the Tribunal, whichconcluded that the reasoning given by the Finance Company for acceptingdeposits in cash was a genuine and bona fide transactions and held that ifthe transaction was a genuine and bona fide transaction, that the taxpayercould not get loan or deposit by account payee cheque or demand draft fora bona fide reason, the authorities are vested with the discretion not tolevy penalty. The above decision of the Division Bench reported in (2006)283 ITR 329 squarely covers the issue in this case also. 8. For the fore-going reasons, the appeal is dismissed and the orderof the Tribunal is confirmed. Sub Asst.Registrar usk To 1. The Assistant Registrar, Income Tax Appellate Tribunal Bench 'D' Rajaji Bhavan III Floor, Besant Nagar, Chennai. Income Tax Appellate Tribunal Bench 'D' Rajaji Bhavan III Floor, Besant Nagar, Chennai. 2. The Commissioner of Income Tax (Appeals) V, 121, Mahatma Gandhi Road, Chennai -34. 3. The Joint Commissioner of Income Tax, Range I, Chennai - 34. Range I, Chennai - 34. 4. The Commissioner of Income Tax, Tamilnadu - I, Madras. Tamilnadu - I, Madras. + one cc to Mr. Pushya Sitaraman, Advocate, SR.75125 + one cc to Mr. V.S.Jayakumar, Advocate, SR.75753 ASM(CO)DCP 07/01/2008 T.C. (A) No.325 of 2004