The Commissioner Of Income Taxchennai v. Mr.d.muralikrishna

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 23.02.2015 THE HONOURABLE MR.JUSTICE R.SUDHAKARANDTHE HONOURABLE MR.JUSTICE R.KARUPPIAH The Commissioner of Income TaxChennai. Vs. Mr.D.Muralikrishna Tax Case Appeal filed under Section 260-A of the Income Tax Act,1961 against the order dated 17.07.2014 made in I.T.A.No.626/Mds/2014 on the file of the Income Tax Appellate Tribunal, Madras“D” Bench, Chennai, for the assessment year 2010-2011. against the Order of the Commissioner of Income Tax (Appeals)VII, Chennai 34, dated 26.11.2013 in ITA No.952/13-14-GIR No/PAN/TAN-AHAPM 3377K for the Assessment Year 2010-2011. JUDGMENT This Tax Case (Appeal) is filed by the revenue as against theorder dated 17.07.2014 made in I.T.A.No. 626/Mds/2014 on the file ofthe Income Tax Appellate Tribunal raising the following substantialquestions of law: “i) Whether on the facts and in thecircumstances of the case, the Tribunal wasright in deleting the penalty levied u/s.271D especially when the assessee hadaccepted the cash loan in violation of Sec.269 SS and no reasonable cause was shown? ii) Is not the finding of the Tribunalbad by deleting the penalty levied u/s. 271Despecially when no reasonable cause has been https://hcservices.ecourts.gov.in/hcservices/ shown for accepting the loans in cash? iii) Whether the finding of theTribunal is proper especially when Sec. 273 Bclearly states that no penalty is imposableon the assessee if he proves that there was areasonable cause and the Tribunal on a wrongnotion states that the transaction is genuineespecially when the Section does not speakanything about the genuineness of thetransaction?” 2.The brief facts of the case are as follows:- The respondent/assessee, who is an individual trading in leather,filed the return of income on 23.09.2010. Assessment was completedunder Section 143(3) of the Act on 28.11.2011. Later, during thecourse of scrutiny assessment proceedings, the Assessing Officerrequired the assessee to furnish sources of purchase of property(flat) worth Rs.90,16,528/-. The assessee furnished the details ofthe sources and the Assessing Officer accepted the sources furnishedby the assessee. But, the Assessing Officer found that the assesseeborrowed a sum of Rs.20,00,000/- in cash from his family members andit is in violation of Section 269SS of the Act. The Assessing Officerinformed the above said violation to the Additional Commissioner ofIncome Tax. The Additional Commissioner of Income Tax issued showcause notice to the assessee as to why the penalty under Section 271Dof the Act should not be levied for violation of Section 269 SS ofthe Act for accepting loan in cash instead of account payeecheque/draft. The representative of the assessee submitted hisexplanation as follows:- “The assessee had to take possession ofthe flat on or before a particular date fixedby the builder. In order to avoid theinterest charge on the outstanding amount, hewas under pressure and had to arrange theoutstanding amount within the short period oftime. He did not have enough time to get thepayments through account payee cheque or draftfrom the lenders and make the payments afterrealization. The assessee's intention was to take possession of flat within time fixed.” 3.The Authorised representative also produced the confirmationletter dated 12.06.2012 obtained from the creditors to prove that theloans were genuine. The Assistant Commissioner has not doubted thegenuineness of the transaction (ie.,) the appellant received theloans from his relatives for purchase of the property. But, theAssistant Commissioner came to a conclusion that the assessee has not https://hcservices.ecourts.gov.in/hcservices/ given any sufficient cause for accepting the loans in cash.Therefore, the Assessing Officer levied a penalty of Rs.20,00,000/-as per the provision of Section 271D of the Income Tax Act forviolation of Section 269SS of the Act. take possession of flat within time fixed.” 3.The Authorised representative also produced the confirmationletter dated 12.06.2012 obtained from the creditors to prove that theloans were genuine. The Assistant Commissioner has not doubted thegenuineness of the transaction (ie.,) the appellant received theloans from his relatives for purchase of the property. But, theAssistant Commissioner came to a conclusion that the assessee has not https://hcservices.ecourts.gov.in/hcservices/ given any sufficient cause for accepting the loans in cash.Therefore, the Assessing Officer levied a penalty of Rs.20,00,000/-as per the provision of Section 271D of the Income Tax Act forviolation of Section 269SS of the Act. 4.Challenging the above said order of penalty levied underSection 271D of the Act, the assessee preferred an Appeal before theCommissioner of Income Tax (Appeals) and the CIT (Appeals) consideredthe submission of both sides and also relied on three decisionsreported in (i) CIT Vs Bhagwati Prasad Bajoria (HUF) (2003) 263 ITR487 (Guw.); (ii) CIT Vs. Manoj Lalwani (2003) 260 ITR 590 (Raj.);and (iii) CIT Vs. Saini Medical Store (2005) 276 ITR 79 (P & H), andfinally accepted the explanation given by the assessee as genuine andtherefore allowed the appeal and deleted the penalty ofRs.20,00,000/- levied under Section 271D of the Income Tax Act. 5.Aggrieved by the above said order of the CIT (Appeals), therevenue preferred an Appeal before the Income Tax Appellate Tribunal,'D' Bench, Chennai. The Tribunal concurred with the findings of theCIT (Appeals) and dismissed the appeal filed by the revenue. Therelevant portion of the order passed by the Tribunal is extracted asfollows:- “7. In the case on hand, assessee haspurchased house property which is not in dispute,assessee has obtained cash loans from mother-in-law, brother-in-law and co-brother which is alsonot in dispute. The transactions are genuine andthe assessee was compelled to take cash loans toclear off outstanding amounts payable to thebuilder and therefore in such circumstances, itcannot be said that there is no reasonable causein accepting cash loans from family members. Inview of the above decision of the jurisdictionalHigh Court, we hold that there is a reasonablecause in accepting cash loans. In suchcircumstances, penalty under Section 271D is notexigible. Thus, we sustain the order of theCommissioner of Income Tax (Appeals) and rejectthe grounds of appeal raised by the Revenue.” 6.Aggrieved over the above said order of the Tribunal, theRevenue preferred this Appeal. The learned counsel appearing for therevenue mainly contended that the assessee had not taken loan in cashon a single day but received the loan amount over a span of 40 days,which was more than sufficient to get the above said loan amountthrough banking channel for making payment for purchase the property. https://hcservices.ecourts.gov.in/hcservices/ Further, the learned counsel pointed out that the assessee has notgiven any specific reason for accepting the money in cash andtherefore, the assessee is liable to pay penalty. 7.We have heard the learned standing counsel appearing for theRevenue and perused the orders passed by the Tribunal and theauthorities below. 8.Admittedly in the instant case the assessee purchased theproperty worth about Rs.90,16,528/- and all the authorities belowaccepted that the sources furnished by the assessee are genuine. https://hcservices.ecourts.gov.in/hcservices/ Further, the learned counsel pointed out that the assessee has notgiven any specific reason for accepting the money in cash andtherefore, the assessee is liable to pay penalty. 7.We have heard the learned standing counsel appearing for theRevenue and perused the orders passed by the Tribunal and theauthorities below. 8.Admittedly in the instant case the assessee purchased theproperty worth about Rs.90,16,528/- and all the authorities belowaccepted that the sources furnished by the assessee are genuine. 9.Before adverting to the law on the point, it is appropriateto set out the scope and ambit of Section 269SS of the Act and theapplicability of Section 271D of the Act. Section 269SS prohibitsacceptance of any loan or deposit exceeding Rs.20,000/- otherwisethan by way of account payee cheque or bank draft. If Section 269SSis contravened, the department is empowered to invoke Section 271D ofAct and impose penalty equal to the loan amount. However, Section273B of the Act postulates that if the assessee shows reasonablecause, penalty under Section 271D need not be imposed. 10.Keeping in mind the said principle, let us analyse as towhether the assessee has shown reasonable cause for deletion ofpenalty. 11.The CIT (Appeals) and Tribunal relied on the following threedecisions:- (i) CIT Vs Bhagwati Prasad Bajoria (HUF) (2003) 263 ITR 487(Guw.); (ii) CIT Vs. Manoj Lalwani (2003) 260 ITR 590 (Raj.); and (iii) CIT Vs. Saini Medical Store (2005) 276 ITR 79 (P & H), and accepted the explanation given by the assessee for receivingthe loan in cash and finally came to the conclusion that there was areasonable cause for accepting the same. For better appreciation,the relevant portions of three decisions are extracted as follows:- CIT Vs Bhagwati Prasad Bajoria (HUF) (2003)263 ITR 487 (Guw.) “The facts which emerged in the case arethat as the result of advancement of theloan by Umadatta Jhunjunwala on threedifferent dates of assessee has executed thepromissory notes in favour of her. The transaction of loan has found place in thebooks of accounts of the assessee as well asthe lender of the loan. None of theauthorities have reached the conclusion thatthe transaction of the loan was not genuineand it was a sham transaction to cover upthe unaccounted money. It was held that thedeletion of penalty u/s 271 D wasjustified.” CIT Vs Manoj Lalwani (2003) 260 ITR 590(Raj.) “U/s 273B a judicial discretion is left withthe assessing authority not to levy apenalty u/s 271D if the authority issatisfied that there was a reasonable causefor not complying with the provisions ofSec. 269SS of the Act. In the present case,the Tribunal had found that the assessee wasan exporter and was in urgent need of themoney for complying with the time boundsupplies and, therefore, he took a loan ofRs.2,50,000/- from his brother-in-law. Outof the loan so taken, an amount ofRs.2,45,000/- was immediately deposited inthe bank, which indicated that the amount ofloan, in fact, was received by him. It wasonly to meet the emergent need of time boundsupplies that the loan was taken as he didnot have sufficient time and funds and thatthere was no intention to violate theprovisions of Sec. 269SS. The Tribunal hadacted in accordance with law in waiving thepenalty.” CIT Vs Saini Medical Store (2005) 276 ITR 79(P & H) “A combined reading of the provisions ofsections 271D and 273B of the I.T. Act,makes it clear that if the assessee showsreasonable cause for the failure to complywith any provision referred to therein, thepenalty for its violation shall not beimposable on the assessee. In the presentcase, the CIT(A) in his order dated18.01.1999, whereby the penalty u/s 271D ofthe Act was deleted, had accepted the https://hcservices.ecourts.gov.in/hcservices/ CIT Vs Saini Medical Store (2005) 276 ITR 79(P & H) “A combined reading of the provisions ofsections 271D and 273B of the I.T. Act,makes it clear that if the assessee showsreasonable cause for the failure to complywith any provision referred to therein, thepenalty for its violation shall not beimposable on the assessee. In the presentcase, the CIT(A) in his order dated18.01.1999, whereby the penalty u/s 271D ofthe Act was deleted, had accepted the https://hcservices.ecourts.gov.in/hcservices/ version given by the assessee that violationof the provisions of the Act was under abonafide belief of the assessee and the samewas not with any intention to avoid or evadethe tax. His findings have been confirmedin appeal by the Tribunal and hence theappeal is dismissed.” The scope and rationale behind theintroduction of this section was explainedby the Board in Circular No.387, dated06.07.1984 which reads as under:“Unaccounted cash found in the course ofsearches carried out by the Income TaxDepartment is often explained by tax payersas representing loans taken from or depositsmade by various persons. Unaccounted incomeis also brought into books of account in theform of such loans and deposits, and taxpayers are also able to get confirmatoryletters from such persons in support oftheir explanation. With a view to countering this device, whichenables tax payers to explain awayunaccounted cash or unaccounted deposits,the Finance Act has inserted a new section269SS in the Income Tax Act debarringpersons from taking or accepting, after 30[th]June 1984, from any other person any loan ordeposit otherwise than by an account payeecheque or account payee bank draft if theamount of such loan or deposit or theaggregate amount of such loan and deposit isRs.10,000/- or more.......” In this case, the loan transaction with therelatives were not doubled and only the modeof transaction was questioned as it was inviolation of Sec. 269SS of the Act.Considering the circumstances of thetransaction, I am of the opinion that thebreach is of venial in nature and relianceis placed on the decision in the case of CITVs. Parmanand (2004) 266 ITR 255 Delhi. Thedecision reads as under: “The Tribunal's order shows that theconclusion of the Tribunal that there wasreasonable cause in not strictly complyingwith the provisions of Sec. 269 SS of theAct is based on relevant factors. We findit difficult to hold that the view taken bythe Tribunal is either perverse or soirrational that no reasonable person, on thegiven facts, would have come to the sameconclusion. The findings recorded by theTribunal are essentially factual giving riseto no question of law much less asubstantial question of law. The appeal is accordingly dismissed.” In find, the appeal of the appellant isfully allowed and the penalty levied u/s271D of the Act at Rs.20,00,000/- is herebydeleted.” 12.Under similar circumstances, wherein an assessee receivedloan of Rs.20,99,393/- from her father-in-law, this Court inCommissioner of Income – Tax Vs. Smt.M.Yesodha reported in (2013) 351ITR 265 (Mad) held that since transaction is genuine and source ofsuch transaction has been disclosed, penalty could not be imposed.The relevant portion of the decision is extracted as follows:- The appeal is accordingly dismissed.” In find, the appeal of the appellant isfully allowed and the penalty levied u/s271D of the Act at Rs.20,00,000/- is herebydeleted.” 12.Under similar circumstances, wherein an assessee receivedloan of Rs.20,99,393/- from her father-in-law, this Court inCommissioner of Income – Tax Vs. Smt.M.Yesodha reported in (2013) 351ITR 265 (Mad) held that since transaction is genuine and source ofsuch transaction has been disclosed, penalty could not be imposed.The relevant portion of the decision is extracted as follows:- “10. The contention of the Revenue is thatthe amount received by the assessee from herfather-in-law has to be treated only as a loanand it is a loan, then the assessee is liableto pay penalty under Section 271D of theIncome-tax Act. Whether it is a loan or othertransaction, still the other provision, namely,Section 273B of the Income-tax Act, comes tothe rescue of the assessee, if she able to showreasonable cause for avoiding penalty underSection 271D of the Income-tax Act. TheTribunal has rightly found that the transactionbetween the daughter-in-law and the father-in-law is a reasonable transaction and a genuineone owing to the urgent necessity of money tobe paid to the seller. We find that this wouldamount to reasonable cause shown by theassessee to avoid penalty under Section 271D of https://hcservices.ecourts.gov.in/hcservices/ the Income-tax Act. 11. Referring to the decision CIT V.Kundrathur Finance and Chit Co. reported in(2006) 283 ITR 329 (Mad), this Court in thedecision CIT v. Lakshmi Trust Co., reported in(2008) 303 ITR 99 (Mad), held as follows (page101): “In the instant case, the Commissioner ofIncome -tax (Appeals) and the AppellateTribunal found on the facts that thetransactions were genuine and the identity ofthe lenders was also satisfied. The AppellateTribunal also upheld the order of theCommissioner of Income-tax (Appeals) that therewas no intention on the part of the assessee toevade the tax. Once the said finding as to thegenuineness of the transactions is arrived atby the Tribunal on the facts, following thedecision of this Court in CIT v. Ratna Agencies(2006) 284 ITR 609, wherein it was held thatthe finding recorded by the Tribunal in thisregard is a finding of fact and no question oflaw much less a substantial question of lawwould arise, we do not have any hesitation tohold that it may not be proper for this Courtto interfere with such a finding of fact.” 12. The Tribunal, referring to thedecision of this Court CIT v. Lakshmi Trust Co,reported in (2008) 303 ITR 99 (Mad), hasrightly allowed the appeal. We do not find anyerror or infirmity in the order of the Tribunalto warrant interference. Accordingly, thesubstantial question of law is answered infavour of the assessee and this tax case(appeal) stands dismissed. No costs.” 13.In the case on hand, the assessee has purchased a flat. Thesaid transaction is not disputed. That apart, the sources from whomhe obtained loan, namely, the mother-in-law, brother-in-law and co-brother, is also not disputed by the department. The main plea ofthe assessee before the authorities below is that he had to takepossession of the flat on or before a particular date fixed by thebuilder and he did not have enough time to get payments through https://hcservices.ecourts.gov.in/hcservices/ account payee cheque or drafts. 14.Under such circumstances, in our considered view, theTribunal and the CIT (Appeals) were justified in holding thatassessee has shown reasonable cause for deletion of penalty. For thereasons aforesaid, this appeal is dismissed and we find no questionof law warranting consideration. No costs. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar vsg To1.The Income Tax Appellate Tribunal, Madras “D” Bench, Chennai. 2.The Commissioner of Income Tax(Appeal) VII, Chennai 34 https://hcservices.ecourts.gov.in/hcservices/ account payee cheque or drafts. 14.Under such circumstances, in our considered view, theTribunal and the CIT (Appeals) were justified in holding thatassessee has shown reasonable cause for deletion of penalty. For thereasons aforesaid, this appeal is dismissed and we find no questionof law warranting consideration. No costs. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar vsg To1.The Income Tax Appellate Tribunal, Madras “D” Bench, Chennai. 2.The Commissioner of Income Tax(Appeal) VII, Chennai 34 3.The Asst.RegistrarIncome Tax Appellate Tribunal, 'D'BenchIIIrd Floor, Rajaji Bhavan,Chennai -9.1 cc to Mr.T.Ravi Kumar ,Advocate, SR.No.9665T.C.(A).No. 51 of 2015 ssi(co)pmk.24.3.2015