Madras H.C : Section 269T read with Section 271E is not applicable even though the Tribunal having found that the assessee had repaid the loans in cash, otherwise than by a accounting payee cheque or draft in contravention of Section 269T

High Court Of Madras

CIT-I, Chennai Vs. T. Perumal (Indl.)

Section : 269SS, 269T, 271D, 271E And 273B

R. Sudhakar And R. Karuppiah, JJ.

Tax Case (Appeal) Nos. 759 & 760 Of 2014

M.P. No. 1 Of 2014

October 29, 2014

JUDGMENT

R. Sudhakar, J. – The above Tax Case (Appeals) are filed by the Revenue as against the orders of the Income Tax Appellate Tribunal raising the following substantial questions of law:

‘T.C.(A)No.759 of 2014 : Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that Section 269SS read with Section 271D is not applicable even though the Tribunal having found that the assessee had borrowed loans aggregating to Rs.20,000/- or more otherwise than through accounting payee cheque or draft in contravention of Section 269 SS?

“T.C.(A)No.760 of 2014 : Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that Section 269T read with Section 271E is not applicable even though the Tribunal having found that the assessee had repaid the loans in cash, otherwise than by a accounting payee cheque or draft in contravention of Section 269T?”‘

2. In the above Tax Case (Appeals), the Revenue has challenged the orders of the Tribunal relating to the levy of penalty under Sections 271D and 271E of the Income Tax Act. However, the Revenue has not challenged the order of the Tribunal with regard to the quantum appeal decided in favour of the respondent/assessee.

3. The assessment in these cases relates to the assessment year 2006-07. The respondent/assessee is engaged in the business of civil construction. The assessee had filed return of income for the assessment year 2006-07, in which the assessee had debited various expenses like, payment of accounting charges, etc. According to the Assessing Officer, the assessee had to deduct tax at source under Section 194J of the Income Tax Act before making payment to the payee. It is the claim of the respondent/assessee that he was a labour supervisor and consequent to the sincere and dedicated work, he was awarded labour contract by his clients. He had no resources to finance the construction and hence he resorted to take loans from friends at time of emergency, particularly on Saturdays when labour payments have to be made. He also made certain payments in cash with regard to purchase of civil construction material and for accounting purposes without deducting tax at source. The Assessing Officer disallowed the accounting charges paid under Section 40(a)(ia) of the Income Tax Act, thereby added the entire amount under Section 68 of the Income Tax Act and imposed penalty under Sections 271D and 271E of the Income Tax Act.

4. Aggrieved by the order of the Assessing Officer, the assessee 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 assessee preferred appeals before the Income Tax Appellate Tribunal. The Tribunal allowed the appeals filed by the assessee – both in respect of quantum as well as penalty. Aggrieved by the same, the Revenue is before this Court challenging the order of the Tribunal with regard to the levy of penalty only.

5. Heard learned standing counsel appearing for the Revenue and perused the materials placed before this Court.

6. The Tribunal decided the quantum appeal in I.T.A.No.1284/Mds/2010 holding that the payment made towards accounting charges to the site accountants was wrongly disallowed under Section 40a(ia) of the Income Tax Act and it was not covered under Section 194J of the Income Tax Act. The Tribunal held that the explanation of the assessee that Section 40a(ia) of the Income Tax Act was introduced during the assessment year in question and the assessee’s plea of bona fide mistake and impression that it will apply only for the next assessment year was accepted primarily on the ground that the assessee has admitted this amount as income and paid tax thereon and there is no loss to the Revenue and further more, the confusion in the mind of the assessee was justified on account of the fact that the provision was introduced from 01.04.2006. Hence, the Tribunal ordered deletion of this addition in the income.

7. Insofar as the payment made to the Hardware company in cash, the Tribunal noticed that out of the total payment of Rs.41,53,008/-, a sum of Rs.74,647/- alone stands paid in cash and consequently, the Tribunal ordered deletion of the addition of Rs.14,647/- made under Section 40A(3) of the Income Tax Act. Insofar as taking loans from friends are concerned, the Tribunal reversed the findings of the Assessing Officer and that of the Commissioner of Income Tax (Appeals) that it should be added as an undisclosed income under Section 68 of the Income Tax Act and came to the conclusion that the evidence given by the assessee in support of such short term loan within the assessment year is supported by individual affidavits of the persons from whom the amount was borrowed. The Tribunal observed that the Assessing Officer declined to look into those affidavits for paucity of time and summarily rejected the evidence, as not acceptable. The Tribunal found that the Assessing Officer did not deal with the explanation given by the assessee, which is based on individual affidavit of the persons from whom the money was borrowed, duly notarised. The Tribunal, however, gave credence to those statements made on oath and held that it was the duty of the Officer to examine the same before any decision is taken on the correctness or otherwise of the deposition made in the affidavit. Placing reliance on the decision reported in the case of Mehta Parikh & Co. v. CIT [1956] 30 ITR 181 (SC), the Tribunal decided the quantum appeal in favour of the assessee. Against which, the Revenue has not chosen to file any appeal.

8. The Tribunal also allowed the appeals filed by the assessee with regard to the penalty levied under Section 271D and 271E of the Income Tax Act. I.T.A.No.1285/Mds/2010 relates to repayment of loan taken from friends in cash in contravention of Section 269T of the Income Tax Act; hence, suffering consequent penalty under Section 271E of the Income Tax Act. I.T.A.No.1286/Mds/2010 relates to receiving of loan in cash in contravention of Section 269SS; hence suffering consequent penalty under Section 271D of the Income Tax Act. In both the cases, the Tribunal held in favour of the assessee.

9. We have perused the order of the Tribunal. The Tribunal, in both the cases, has taken note of the explanation given by the assessee before the authorities below that he has engaged in the construction business and he has started from scratch; that he did not have the financial capacity to undertake huge projects and therefore he had to go for short term cash borrowings from friends and known persons, which were repaid within the same assessment year and therefore, there was no need to reflect the same in the books of accounts; nevertheless the cause for taking this loan was on account of the need to pay the workers on weekends, namely, on Saturdays and Sundays on which date, there was no possibility of immediately accessing the bank. The exigency which forces the assessee to make such payment has been accepted and extracted in the order of the Tribunal. The relevant portion of the order of the Tribunal reads as follows for better clarity:

’18. After considering the rival submissions, we are of the considered opinion that this penalty is not exigible. In view of the extenuatory circumstances as explained by the assessee in the above part of the order. We have deleted the entire amount of quantum added from assessee’s hands as above while deciding the quantum appeal. The Hon’ble Delhi High Court in the cases of CIT v. Standard Brands Ltd, 285 ITR 295 and Diwan Enterprises v. CIT, 246 ITR 571, has held that “where the assessee had claimed to have received loans in cash exceeding the prescribed limit of Rs.20,000/- but Revenue has treated the receipt as undisclosed income of the assessee, initiation of proceedings u/s 269SS r.w.s. 271D was not valid”. The ratio laid down by the Hon’ble Delhi High Court in the above case, mutatis mutandis, squarely applies to the facts of this case. Moreover, any penalty provision in the Act admits reasonable excuse which are sufficient to explain the failures so committed. When the business of the assessee is such that he has to make payment in cash and has to make cash purchases, it is a reasonable cause in the given facts and circumstances of the assessee’s case. The assessee has not found to hide this fact from the Department, hence, we order to delete the entire penalty imposed by the Assessing Officer and allow the appeal’.

10. We find much force in such explanation, considering the nature of business and also taking note of the fact that the assessee is not a big time civil construction contractor. The Tribunal primarily was of the view that the loans taken in these cases were genuine and the exigency that arose out of the business was a cause for taking such loan. Since in the quantum appeal, the Tribunal found that the assessee was bona fide in such transaction, the Tribunal in exercise of power under Section 273B, considering the reasonable cause submitted by the assessee, thought it fit to set aside the entire penalty by accepting the explanation given by the assessee. No doubt, the decisions relied upon by the Tribunal CIT v. Standard Brands Ltd. [2006] 285 ITR 295/155 Taxman 383 (Delhi) and Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi) may not be applicable to the facts of the present case, as we are not concerned with the case falling under Section 68 of the Income Tax Act where initiation of proceedings under Section 269SS would become meaningless. Here is a case where the loan taken from friends and repayment of the same in cash. The reason that taking of loan is found to be genuine and the same is for business exigency, it is not a case of undisclosed income. If the assessee had not given a reasonable cause, then certainly the initiation of proceedings for violation of 269SS and 269T would be justified. We find in the present case the reasonable cause for not levying penalty exists and the Tribunal was justified in allowing the assessee’s appeal. On facts, the Tribunal has clearly held in the quantum appeal there was a bona fide on the part of the assessee and as a consequence finding reasonable cause, thought it fit to delete the entire penalty.

11. We find no ground to interfere with the order of the Tribunal. The assessee has shown the receipt of cash and repayment of the same due to business exigency and that would amount to reasonable cause. The genuineness of the transaction to meet the immediate necessity was accepted by the Tribunal in the quantum appeal and that would amount to reasonable cause in terms of Section 273B of the Income Tax Act. Hence, we find no question of law much less any substantial question of law arises for consideration in the above appeals.

12. In the result, both the Tax Case (Appeals) stand dismissed. No costs. Consequently, M.P. No.1 of 2014 is also dismissed.

[Citation : 370 ITR 313]