The Commissioner Of Income Tax,Chennai v. M/S.rashi Injection Moulders139, Sidco Industrial Estate,Thirumudivakkam,Chennai - 600 032

In the High Court of Judicature at Madras Dated: 11.08.2014 Coram The Honourable Mr.JUSTICE R.SUDHAKARandThe Honourable Mr.JUSTICE G.M.AKBAR ALI Tax Case (Appeal) Nos.940 & 941 of 2013& M.P.No.1 of 2013 The Commissioner of Income tax,Chennai. .... Appellant in both T.C.As Vs. M/s.Rashi Injection Moulders139, Sidco Industrial Estate,Thirumudivakkam,Chennai - 600 032. .... Respondent in both T.C.As APPEALs under Section 260A of the Income Tax Act against theorder of the Income Tax Appellate Tribunal "C' Branch, Chennai, dated24.8.2012 and made in ITA No.944 /Mds/2012 (TCA No.940/2014) andC.O.No.94/Mds/2012 (TCA No.941/2014) filed against the order of theCommissioner of Income Tax (Appeals)-VIII, Chennai, dated 25.1.2012and made in ITA/106-11(A)-VIII, filed against the order of theAssistant Commissioner of Income Tax, Business Range -IV, Chennai-34darted 31.12.2010 in GIR No.PAN No.AAifr5688M for the assessment year2007-2008. Standing Counsel for Income Tax--------- The above Tax Case (Appeals) are filed by the Revenue as againstthe order of the Income Tax Appellate Tribunal in the appeal filed bythe Revenue as well as the cross objection filed by the assessee,raising the following substantial questions of law: "1. Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal was right inupholding the order of CIT(A) who had deleted the penaltyhttps://hcservices.ecourts.gov.in/hcservices/ of Rs.35,33,242/- levied under Section 271D? 2. Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal was right indeleting the penalty especially when the cash loansamounting to Rs.35 lakhs was received by the assessee fromthe Creditors where the banking facilities are availableand no reasonable cause for taking the loans in cash orany exceptional circumstances had been stated by theassessee? 3. Whether the genuineness of a loan is not areasonable cause postulated under Section 271D andtherefore levy of penalty under Section 271 D is properespecially in the places where the creditors resided thereis banking facility available?" 2. The assessment year in this case is 2007-08. Therespondent/assessee is engaged in the manufacture of plasticcomponents. The assessee filed returns for the relevant assessmentyear on 01.04.2008 showing certain amounts as loans. The said returnwas selected for scrutiny. Besides the loan availed from banks, itwas found that there were sundry loans for a sum of Rs.70,54,153/- ason 31.3.2007. The documents submitted by the assessee were verified,more particularly the ledger, which reflected cash loan accepted bythe assessee for an amount not less than Rs.18,000/-. The GeneralLedger Pages 247 to 255 showed loans "by cash". In the course of thisproceeding, the Department wanted to verify the genuineness of thosetransactions and on 01.12.2009, the Authorised Representative of theappellant submitted 24 individuals with address at KanyakumariDistrict and have claimed that they were agriculturists and they hadincome out of agriculture and they have lent the amount to theassessee without interest. Consequent to this, the Departmentcompleted the assessment under Section 143(3) of the Income Tax Act.However, with regard to the sundry loan, taking note of the balance ason 31.3.2007, the Assessing Officer initiated penalty proceedingsunder Section 271D of the Income Tax Act for violation of Section 269SS of the Income Tax Act and the Authority imposed penalty ofRs.35,33,242/-. As against which, the assessee preferred an appealbefore the Commissioner of Income Tax (Appeals). 3. The Commissioner of Income Tax (Appeals) accepted thecontention of the assessee that the penalty proceedings was notsustained on the ground of limitation and also on merits and allowedthe appeal filed by the assessee holding as follows: 3. The Commissioner of Income Tax (Appeals) accepted thecontention of the assessee that the penalty proceedings was notsustained on the ground of limitation and also on merits and allowedthe appeal filed by the assessee holding as follows: "Over and above, the legal position as mentionedabove, the AR of the appellant submitted confirmationletters from all the loan creditors and also ledgerabstract from the books of the accounts for sundry loansreceived during the year under consideration. Theappellant has borrowed loans to the extent ofRs.35,30,978/- as on 31.3.2006 relating to the previous https://hcservices.ecourts.gov.in/hcservices/ assessment year and during the year has taken cash loansto the tune of Rs.35,35,242/-. All the loan amount as perthe ledger extract under the head sundry loans accountpage No.247 to 255 were below Rs.20,000/- accepted in cashfrom the agriculturists and have been accepted during thecourse of assessment proceedings. On verifying theconfirmation letters all the loan creditors have mentionedspecifically in their confirmation letters that the aboveamount are given as hand loan basis returnable on shortnotice without interest since they do not have bankaccount, they paid the amount in cash to the appellant.Once having accepted the genunity of the loan creditorsand also all the loans received are below Rs.20,000/- incash there is no cash for the assessing officer to invokethe provisions u/s 269SS as can be seen from the noticeissued by the Addl. Commissioner of Income Tax vide herletter dated 07.06.2010 in which the appellant was askedto furnish details of persons who have lend money inexcess of Rs.20,000/- contravening provision of section269SS of the IT Act. Since all the loans received in cashare below Rs.20,000/- and accepted all the loans for theirgenunity during the assessment proceedings therefore thereis no case for the either assessing officer or Addl.Commissioner for levying penalty u/s.271D and hence thepenalty levied by the Addl. Commissioner u/s.271D imposinga penalty of Rs.35,33,242/- is therefore deleted." 4. As against which, the Department has filed an appeal beforethe Income Tax Appellate Tribunal, which, partly allowed the appeal,(wrongly stated as appeal dismissed). In so far as the limitation isconcerned, the Tribunal held as follows: "12. Taking cue from the Hon'ble Special Benchdecision, we also have no hesitation to hold that in thepresent case as well, the ACIT/A.O. had no jurisdiction toissue notice of penalty under sec.271D read with sec.274 ofthe Act. Further, the competent authority issued notice on9.6.2010 followed by penalty order dated 31.12.2010 which isvalid in the eyes of law since it was passed within sixmonths from the end of month in which the penalty action wasinitiated. Hence, on limitation aspect only, we are of theview that the CIT(Appeals) has wrongly held the penaltyimposed under sec.271D of the Act as barred by limitation bycomputing it from the date of notice dated 3.12.2009(supra)." 5. On the merits of the case, the Tribunal accepted the findingsof the Commissioner of Income Tax (Appeals) to hold that the loantransactions were verified and found to be bona fide transactions. Inso far as it relates to the loan extended by the agriculturists, whodid not have bank accounts, 24 individuals were verified by the https://hcservices.ecourts.gov.in/hcservices/ 5. On the merits of the case, the Tribunal accepted the findingsof the Commissioner of Income Tax (Appeals) to hold that the loantransactions were verified and found to be bona fide transactions. Inso far as it relates to the loan extended by the agriculturists, whodid not have bank accounts, 24 individuals were verified by the https://hcservices.ecourts.gov.in/hcservices/ Assessing Officer and the documents submitted by them were accepted bythe Assessing Officer as genuine and consequently, the sundry loanaccount has been found to be in order and on that premise, theTribunal confirmed the order of the Commissioner of Income Tax(Appeals) holding that there is no case to doubt or lack credibilityin the assessee's version that these sundry loans were taken fromagriculturists and the purpose for which the loan was availed wouldfall within the parameters of the provision of Section 273B of theIncome Tax Act that there was reasonable cause for the assessee toavail the loan. The order of the Tribunal is extracted as below forbetter clarification: "13. Coming to merits of the case, it emerges that thepenalty was imposed on the assessee for alleged violation ofsec.269SS of the Act providing the assessee to provebonafides and genuineness of all loans in question. The CIT(Appeals) has found that all loans received by assessee incash are below Rs.20,000/- The assessee has also producedits ledger account coupled with creditors' confirmationletters who stated in unequivocal terms that they had lentthe money to the assessee without interest in cash in viewof absence of banking facility in the concerned locality.In our considered opinion, the assessee has successfullydischarged onus in leading above cogent evidence. It is notthe case of the Revenue that the amount received by theassessee per creditor in any case exceeds Rs.20,000/- whichcould endoubt the credibility of the assessee's version.Admittedly in assessment proceedings, neither there is anyaddition made by Assessing Officer, nor there is any iota ofany act on assessee's part concealment. Accordingly, we donot find any reason to interfere with CIT(Appeals)'Sfindings qua merits of the case." 6. Learned Standing Counsel appearing for the Revenue submitsthat there is no reasonable cause for having taken cash loan inroutine manner and no exceptional circumstances were shown for takingthe cash loan. Since the assessee did not have any agriculturalincome, the assessee had not satisfied the requirements of Section269SS of the Income Tax Act. Hence, he submits the order of theTribunal may be set aside. In support of his contention, he relied onthe decision reported in (2012) 340 ITR 560 (P.Baskar V. Commissionerof Income Tax). 7. We heard learned Standing Counsel appearing for the Revenueand perused the materials placed before this Court. 8. We find in this case that the Authorities below have on factsclearly accepted, after proper verification, that the sundry loanshave been extended by the agriculturists within the limits prescribedunder Section 269SS of the Income Tax Act and the bonafides of thetransactions is not doubted. The genuineness of the sundry creditorshttps://hcservices.ecourts.gov.in/hcservices/ have also been verified. The assessee has also given reasonableexplanation for availing such loan, which has been accepted by theAuthorities below. Therefore, on facts, there appears to be nodispute in the present case. Therefore, the Commissioner of IncomeTax (Appeals) and the Income Tax Appellate Tribunal are justified inholding that there was no case for invocation of Section 271D of theIncome Tax Act on the alleged violation of Section 269SS because, asthe assessee in this case has satisfied the test of reasonable causeas required under Section 273B of the Income Tax Act. have also been verified. The assessee has also given reasonableexplanation for availing such loan, which has been accepted by theAuthorities below. Therefore, on facts, there appears to be nodispute in the present case. Therefore, the Commissioner of IncomeTax (Appeals) and the Income Tax Appellate Tribunal are justified inholding that there was no case for invocation of Section 271D of theIncome Tax Act on the alleged violation of Section 269SS because, asthe assessee in this case has satisfied the test of reasonable causeas required under Section 273B of the Income Tax Act. 9. The above view was fortified by the decision of the ApexCourt reported in (2002) 255 ITR 258 (Assistant Director of Inspection(investigation) V. Kum.A.B.Shanthi), wherein it was held “it isimportant to note that another provision, namely section 273B was alsoincorporated which provides that notwithstanding anything contained inthe provisions of section 271D, no penalty shall be imposable on theperson or the assessee, as the case may be, for any failure referredto in the said provision if he proves that there was reasonable causefor such failure and if the assessee proves that there was reasonablecause for failure to take a loan otherwise than by account-payeecheque or account-payee demand draft, then the penalty may not belevied.” This decision was followed by this Court in the decisionreported in (2008) 303 ITR 312 (Commissioner of Income Tax V. BalajiTraders). 10. The decision relied on by the learned Standing Counselappearing for the Revenue reported in (2012) 340 ITR 560 (P.Baskar V.Commissioner of Income Tax) does not apply to the facts of the presentcase, as in that case, the Tribunal as well as the Authorities belowfound that there was no reasonable cause shown by the assessee fortaking cash loan. 11. The facts in that case are different from the case on handand it stands distinguished on that account. Here, the assessee hasshown reasonable cause for availing loan from the agriculturists,which was accepted by the Authorities below. The genuineness of thecreditors have been verified and the transactions were never doubtedby the Authorities below. Hence, we find no reason to interfere withthe order of the Tribunal as the reasonable cause is a finding offact. 12. Accordingly, we find no question of law much less anysubstantial question of law arises for consideration in the aboveappeals. Therefore, both the Tax Case (Appeals) stand dismissed. Nocosts. Consequently, M.P.No.1 of 2013 is also dismissed. Sd/-Assistant Registrar(CS-III)Dated: 27.08.2014//True Copy//Sub Assistant RegistrarslTo1.The Income Tax Appellate Tribunal "C" Bench, Chennai.2.The Commissioner of Income Tax (Appeals)-VIII,Chennai.3.The Asst.Commissioner of Income Tax, Chennai.+1cc to Mr.T.Ravikumar, Advocate Sr 36110KS(CO)km/28.8.Tax Case (Appeal) Nos.940 & 941 of 2013& M.P.No.1 of 2013