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P. Muthukaruppan Versus The Joint Commissioner of Income Tax, Pondicherry Range, Pondicherry

2015 (7) TMI 848 - MADRAS HIGH COURT

Penalty u/s 271D and u/s 271E - accepting and repayment of loan in cash in excess of ₹ 20,000/- within the purview of the provisions in section 269SS and section 269T - Held that:- The sworn statement recorded from Mr.A.Kannan, Prop. of M/s Vadamalayan Finance, in response to the summons issued under Section 131 on 21.9.2011 shows that the financier has admittedly lent a huge amount of ₹ 74 lakhs to various parties by cash and he has also admitted that he had lent ₹ 2 lakhs to .....

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ing the same by cash in contravention of the provisions of Section 269T, cannot seek the support of Section 273B. The appellant has not explained as to the urgency, compulsion or any other important circumstance for the breach and that too repeatedly. Taking into account the conduct of the assessee, the assessing authority, after giving repeated reasonable opportunities, finding no explanation whatsoever, was unable to exercise his discretion under Section 273B and accordingly imposed the penalt .....

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ed 29.5.2014 for the assessment years 2008-09, 2009-10, 2010-11, 2011-12 & 2012-13 respectively, has brought all these tax case appeals raising the following substantial questions of law:- "(1) Whether the Appellate Tribunal is correct in law in upholding the orders of the respondent in levying penalty u/s 271D of the Act for accepting loan in cash in excess of ₹ 20,000/- within the purview of the provisions in section 269SS of the Act for the assessment years 2008-09 to 2011-12 e .....

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ing the penalties imposed u/s 271D & 271E of the Act by overlooking the fact of emergency borrowings in cash and the repayments in relation thereto both on the commercial/business as well as personal compulsions/ reasons, thereby establishing the reasonable/sufficient cause as contemplated in section 273B of the Act and further thereby vitiating the respondent's action in proceeding in the matter of levy of such penalties for the assessment years under consideration on the facts and in t .....

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yan Finance without assigning proper reasons and justification. 3. Arguing on the substantial questions of law, Mr.S.Sridhar, learned counsel for the appellant in all the appeals, heavily assailing the impugned order, submitted that the appellant received show cause notices under Sections 271-D and 271-E of the Income Tax Act dated 16.12.2011 from the assessing authority, namely, Joint Commissioner of Income Tax, Pondicherry Range, Pondicherry calling upon him to submit his explanation. On recei .....

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ed to him on 16.2.2012, 6.3.2012 & 17.4.2012 and the assessee sent his letters dated 23.2.2012, 15.3.2012 & 19.4.2012 seeking adjournment. However, when he sent his Chartered Accountant Mr.Jayachander to attend the hearing on 14.5.2012, sadly, for the reasons best known to him, it appears that he has not attended the hearing, as a result, the assessing authority has erroneously passed the impugned order holding him guilty under Sections 269SS and 269T of the Income Tax Act, consequently, .....

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hence not violating the objective of the statute. (ii) The learned JCIT failed to appreciate the fact that the transactions are all genuine and bona fide and the appellant could not get the loan by account payee cheque or demand draft as the lender insisted on transacting in cash and the said fact has been confirmed by the lender.'' When the appellant has specifically taken a ground that the transactions were all genuine and bona fide, inasmuch as he was unable to get the loan by account .....

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his fact to the notice of the appellate authority, making it clear that the transactions are all genuine and bona fide, therefore the appellate authority, in all fairness, ought to have accepted the grounds and justification taken by the appellant, but, unfortunately and erroneously, the order passed by the assessing authority has been confirmed by the appellate authority, he pleaded. 4. Aggrieved by the same, the appellant again went before the Income Tax Appellate Tribunal again taking a speci .....

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for exercise of its discretionary power to set aside the penalty orders imposed under Sections 271-D and 271-E of the Act. But sadly, the Tribunal also, having received justification from the appellant, once again wrongly confirmed the orders passed by the authorities below, as a result, he was constrained to come to this Court by way of the present tax case appeals. The learned counsel for the appellant further submitted that when the appellant has admittedly received the cash amounts in quest .....

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Mr.Sridhar further submitted that the very same explanation and the ground taken by the appellant was accepted by the Tribunal in I.T.A.Nos.1820 to 1825/Mds/2013 dated 31.10.2013 for the assessment years 2006-07 to 2010-11, on that basis, the penalty imposed against the appellant was set aside. While that being the case, the Tribunal ought not to have disbelieved the case of the appellant. 5. Adding further, he has continued to argue that when the appellant was at the mercy of the financier, for .....

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sioner of Income Tax v. Rashi Injection Moulders, (2014) 90 CCH 025 (Mad); (iii) Commissioner of Income Tax v. MAA Khodiyar Construction, (2014) 365 ITR 474 (Guj.) (iv) Commissioner of Income Tax v. Lakshmi Trust Co., (2008) 303 ITR 99 (Mad.) (v) Commissioner of Income Tax v. Balaji Traders, (2008) 303 ITR 312 (Mad.) (vi) Commissioner of Income Tax v. Ratna Agencies, (2006) 284 ITR 609 (Mad.) (vii) Commissioner of Income Tax v. Sunil Kumar Goel, (2009) 315 ITR 163 (P&H) Further contending th .....

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allenge to the family transaction entered between two independent assessees based on an act of casualness, the Punjab and Haryana High Court came to the conclusion that when the assessee satisfactorily established the reasonable cause under Section 273-B of the Act, he must be deemed to have established sufficient cause for not invoking the penalty proceedings under Sections 271D & 271E of the Act against him. Since the observation and the ratio decided by the Punjab and Haryana High Court c .....

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dated 16.12.2011 under Sections 271D and 271E of the Act, received by him on the same date, immediately thereupon, he sent a letter dated 11.1.2012 seeking adjournment. The assessing authority, accepting his request, granted adjournment. Again on receipt of another notice dated 1.2.2012, by another letter dated 6.2.2012, the appellant sought adjournment on the ground that one of his close associate and senior citizen belonging to his community passed away. Accepting the said reason, the matter .....

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ing authority, the appellant miserably failed to show reasonable cause before the assessing authority to exercise his power under Section 273-B of the Act. In such circumstance, after inviting an order at the hands of the assessing authority, it is not open to him to challenge the said order either before the appellate authority, the Tribunal or this Court on merits. When the appellant has miserably failed to make use of the repeated opportunities given, he is not entitled to rely upon the obser .....

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ore merit in the submissions made by the learned counsel for the respondent-Department. For answering the issue, it will be useful to extract Sections 269SS and 269T of the Act, which read as follows:- ''Mode of taking or accepting certain loans and deposits. 269SS. No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee .....

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use (b), is [twenty] thousand rupees or more: Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,- (a) Government; (b) any banking company, post office savings bank or co-operative bank; (c) any corporation established by a Central, State or Provincial Act; (d) any Government company84 as defined in section 617 of the Companies Act, 1956 (1 of 1956); (e) such other institution, association or bod .....

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ct.] Explanation.-For the purposes of this section,- [(i) "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of that Act;] (ii) "co-operative bank" shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949); (iii) "loan or deposit" means loan or deposit of money.] Mode of repayment of certain loans or deposits 26 .....

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e banking company or co-operative bank or, as the case may be, the other company or co-operative society or the firm, or other person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such loans or deposits, is twenty thousand rupees or more: Provided that where the repayment is by a branch of a banking company or cooperative bank, such repayment may also be made by crediting the amount of such loan or deposit to .....

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t, 1956 (1 of 1956); (v) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette.] Explanation.-For the purposes of this section,- (i) "banking company" shall have the meaning assigned to it in clause (i) of the Explanation to section 269SS; (ii) "co-operative bank" shall have the meaning assigned to it in Part V of the Ba .....

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ied upon by the appellant would be a case of money lending business by the financier repeatedly indulging in violation of the provisions of Sections 269SS & 269T of the Act. It is one thing to say that there was a compulsion on the part of the financier. Nevertheless, factually we find that the assessee has been taking loan and paying it in cash in total violation of the said provisions. The test insofar as non-levy of penalty under Sections 271D and 271E is established by Department. For in .....

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duct of the assessee was in breach of the said provisions on more than one occasion and there was no justification of any business interest or exigency to violate the provisions of Section 269SS and 269T. It is not good to say that the financier compelled him to take loan by cash and repay by cash. That would not justify a case of reasonable cause. We wish to clarify that none of the decisions cited by the learned counsel for the appellant would show that Sections 271D and 271E cannot be applied .....

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oment he received the loan in cash. The entire transaction between the assessee, a financier and the financier, who was also financing large number of persons, is apparently to evade the provisions of the tax authorities, which came to light after a survey was conducted and some documents and records were seized. Therefore, it is a case of infraction of law and it cannot be said to be a mere technical or venial breach. Indeed, it is a clear case of prejudice caused to the Revenue, because the na .....

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and there is a reasonable cause. As a matter of fact, the conduct of the parties is more important to exercise the discretion under Section 273B of the Act. As the assessee has not passed the test of reasonable cause showing his bona fides, the provisions of Section 273B do not get attracted, more so, in a case of no explanation offered in spite of giving repeated chances therefor. On the facts in issue before us, there appears to be no justification to claim the benefit of Section 273B of the A .....

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n was done in cash only, namely, no cheque or draft came into play; that the appellant was also found as one of the borrowers, as he received cash loan of ₹ 15 lakhs on 21.6.2007 and the same was found to be repaid in cash for the assessment year 2008-09. For the assessment year 2009-10, the appellant received ₹ 20 lakhs on 23.4.2008 and he repaid the same in cash. In the same assessment year on 7.3.2009, he had received another sum of ₹ 20 lakhs, but there is no proof of repay .....

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orn statement recorded from Mr.A.Kannan, Prop. of M/s Vadamalayan Finance, in response to the summons issued under Section 131 on 21.9.2011 shows that the financier has admittedly lent a huge amount of ₹ 74 lakhs to various parties by cash and he has also admitted that he had lent ₹ 2 lakhs to the appellant. When a specific question was posed to him as to whether he was doing the money lending business by cheque or cash, he has answered that till then he has been doing the money lend .....

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rtant circumstance for the breach and that too repeatedly. As a matter of fact, Section 273B shows that no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions, if he proves that there was reasonable cause for the said failure. In the case on hand, as mentioned above, when the appellant was issued with the show cause notice under Sections 271D & 271E on 16.12.2011, having sent a letter dated 11.1.2012 seeking adjourn .....

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t appeared on 11.5.2012, thereafter, sadly, no one appeared. That apart, the assessee had not even filed any reply nor even the particulars called for vide order sheet entry dated 11.5.2012 and letter dated 2.5.2012. In the above background, taking into account the conduct of the assessee, the assessing authority, after giving repeated reasonable opportunities, finding no explanation whatsoever, was unable to exercise his discretion under Section 273B and accordingly imposed the penalty under Se .....

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learned counsel for the appellant placing reliance on the judgment of this Court in the case of Commissioner of Income Tax v. Balaji Traders, (2008) 303 ITR 312 (Mad), which held that if (i) there was business exigency forcing the assessee to take cash loans for the purpose of honouring the commitment viz., issuance of cheque on a particular date; (ii) the creditors were genuine persons and the transactions were never doubted by the authorities below; and (iii) there was no revenue loss to the S .....

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ssee neither came forward to file any reply nor even bothered to take part in the enquiry to explain the genuineness of the transaction. In addition thereto, in the case on hand, as the financier has been doing money lending business for 30 long years by giving and taking back loan amounts only through cash, there has been a huge revenue loss to the exchequer. It is not a case of business exigency. Hence the contention that there was no revenue loss to the exchequer is not tenable plea. Therefor .....

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