Madras H.C : no penalty under sections 271D and 271E is warranted for the loan transactions made in cash by the assessee with its sister concerns

High Court Of Madras

CIT vs. Deccan Designs (India) (P.) Ltd.

F.M. Ibrahim Kalifulla And M.M. Sundresh, JJ.

Assessment Year : 2004-05

Section : 271D

Tax Case (Appeal) No. 732 Of 2010

July 20, 2010


F.M. Ibrahim Kalifulla. J. – The Revenue has come forward with this appeal and the following question of law is raised :

“Whether, on the facts and circumstances of the case, the Tribunal was right in holding that no penalty under sections 271D and 271E is warranted for the loan transactions made in cash by the assessee with its sister concerns ?”

2. The assessing authority based on the facts culled out that the assessee had accepted and received amounts in excess of Rs. 20,000 in cash to a total extent of Rs. 52,80,000 and Rs. 44,60,000 respectively from its sister concern, held that there was no satisfactory evidence or details to justify any reasonable cause under section 273B of the Income-tax Act or a case of exigency or urgency was made out. On that basis, he levied penalty under sections 271D and 271E of the Income-tax Act to the tune of Rs. 52,80,000 and Rs. 44,60,000 respectively. When the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) a remand report was called for by the first appellate authority and after getting the views of the assessee on the remand report, has rendered a finding that the reasons were common and were for the purpose of wage distribution, factory expenses and petty cash. There is also finding that the assessee was a sick company and had to be served from its closure. The Commissioner of Income-tax (Appeals), therefore, held that when the creditors and debtors are genuine, that the transactions were genuine, that the money was withdrawn from the current account on OD facility of the sister concern and such transactions were meant for payment of wages and to save the sick company from its closure, the other findings in the remand report cannot be accepted. The Commissioner of Income-tax (Appeals), therefore, deleted the penalty levied by the assessing authority.

3. The Tribunal in the appeal preferred by the Revenue also examined the issue and noted that the transactions were in the nature of loans or deposits in the course of business of the assessee and such transactions were undertaken in current accounts between sister concerns. It also held that those transactions were undertaken out of business exigency and there was no scope to doubt the genuinity of the transactions. The Tribunal, therefore, by relying upon the decisions of this court in CIT v. Balaji Traders [2008] 303 ITR 312 (Mad)/167 Taxman 27 (Mad.), CIT v. Kundrathur Finance & Chit Co. [2006] 283 ITR 329 (Mad) and CIT v. Ratna Agencies [2006] 284 ITR 609 (Mad), declined to interfere with the order of the Commissioner of Income-tax (Appeals).

4. Having heard Mr. J. Narayanasamy, standing counsel for the appellant and having perused the orders impugned in this appeal, we are also convinced that there were enough reasons offered by the assessee to justify the cash transactions, which is made with its sister concern. The factual findings rendered by the Commissioner of Income-tax (Appeals) to the effect that such transactions were made by the assessee with a view to save its existence and mainly incurred for the purpose of disbursement of salary to the employees cannot be disturbed in the absence of any contra material evidence placed before this court. If the said finding of the Commissioner of Income-tax (Appeals), cannot be disturbed, it will have to be held that there were reasonable cause and that there were also exigencies, which forced the assessee to indulge in such transactions and consequently, imposition of penalty under sections 271D and 271E were uncalled for.

5. In fact, the application of the earlier decisions of this court to the facts of this case were more appropriate and, therefore, we are not inclined to interfere with the conclusions of the Commissioner of Income-tax (Appeals) as confirmed by the Tribunal. The mere fact that at any given point of time, the assessee had cash balance of Rs. 50,000 that cannot be a ground to hold that on the sole ground, the transactions would become either not genuine or the circumstances, which necessitated the transactions were unreasonable or that there was no exigency warranting such transactions. We, therefore, do not find any merit in this appeal. This appeal fails and the same is rejected. No costs.

[Citation : 347 ITR 580]

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