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2016 (5) TMI 1030 - ITAT CHENNAI

2016 (5) TMI 1030 - ITAT CHENNAI - TMI - Penalty passed u/s.271D and 271E - borrowing the money in cash - Held that:- For the asst. year 2008-09, the assessee borrowed ₹ 20 lakhs and deposited by the assessee in bank account No.32 with UCO Bank. Thereafter the amount was transferred to M/s. ICICI Bank account. Similarly for the asst. year 2009-10, the assessee borrowed ₹ 20 lakhs and deposited with UCO Bank and M/s. ICICI Bank. For the asst year 2010-11 also, the assessee borrowed &# .....

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sec.273B of the Act comes to the rescue of the assessee, if the assessee show reasonable cause for borrowing the money in cash.

This is the case, where the assessee is having bank account, repeatedly borrowing the money in cash with gross violation of the Act. The plea of the ld. AR is that the creditors are genuine and confirmed by the parties and there was no revenue loss to the Department. Had it been, the creditors are not genuine, the AO would have invoked the provisions of sec.6 .....

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on the date of borrowing of cash and he has not placed any evidence to establish that there was bank balance on the date of borrowing. Thus we are inclined to reverse the order of the CIT(Appeals) in deleting the penalty and confirming the penalty levied u/s.271D of the Act for all these assessment years. - Decided against assessee - ITA Nos. 1959 to 1964/Mds/2013 - Dated:- 22-4-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER For The Appellant by .....

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case are that a survey u/s.133A of the Act was conducted in the business premises of Shri A. Kannan, Prop. of Vadamalayan Finance on 8.10.2011 by Income Tax Officer, Ward-I(1), Puducherry. M/s. Vadamalayan Finance gave money to different persons after deducting interest for 10 months. The amount is divided into 10 monthly instalments. Once the repayment of 10 monthly instalments are over, again the same person took further loan. He charged interest on the loan at 1% per month. The whole transac .....

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sh loan: 11.12.2005 20 lakhs Cash repayment: ₹ 2 lakhs A.Y. 2007-08 Cash loan: 06.12.2006 20 lakhs Cash repayment: ₹ 24 lakhs A.Y. 2008-09 Cash loan: 06.10.2007 20 lakhs Cash repayment: ₹ 24 lakhs A.Y. 2009-10 Cash loan: 07.08.2008 20 lakhs Cash repayment: ₹ 24 lakhs A.Y. 2010-11 Cash loan: 06.06.2009 20 lakhs Cash repayment: ₹ 24 lakhs A.Y. 2011-12 Cash loan: 07.04.2010 20 lakhs Cash repayment: ₹ 24 lakhs 19.08.2010 50 lakhs The information collected at the t .....

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e vide letter dated 23.02.2012 stated that penal proceedings relates to the transactions made by Late Sri K.Muthukaruppan who had passed away on 16.2.2012 and wanted certain time to furnish required information. Thereafter, the assessee complied with the penal proceedings before the Joint Commissioner of Income Tax, Puducherry and filed various details. Not satisfied with the submissions of the assessee, Joint Commissioner of Income Tax, Puducherry Range, Puducherry passed penalty orders u/s 271 .....

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mitted that penalty order passed by the CIT(Appeals) dated 28.8.2013 is having two parts. One is levy of penalty u/s.271D and another u/s.271E of the Act. The ld. AR further submitted that in that order, the CIT(Appeals) confirmed the penalty u/s.271E and deleted the penalty u/s.271D of the Act. 4. We have heard both the parties and perused the material on record. The ld. AR submitted that similar issue came for consideration before the Tribunal in assessee s own case in ITA Nos.1820 to 1825/Mds .....

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he assessees and Shri T.N. Betgiri, the learned Joint Commissioner of Income Tax, appearing for the Revenue. 16. It is to be seen that the particulars of loans taken by the assessees and repayments of loans made by the assessees, were collected in the course of survey conducted in the premises of Shri A. Kannan, who is carrying on the business of money lending under the name and style of Vadamalayan Finance . It is seen from the records, as observed by the Assessing Officer, that Shri A. Kannan .....

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repaying loans to him, it is obvious that the transactions must be in cash as insisted by Shri A. Kannan. That acts as a reasonable cause in the case of these assessees regarding acceptance and repayment of loans to Shri A. Kannan, who is the proprietor of M/s Vadamalayan Finance. 17. While considering the circumstances leading to accepting the loans in cash, and while deleting the penalty levied on assessees under Section 271D, the Commissioner of Income Tax (Appeals) might have considered thi .....

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ng formality. Equally is the circumstance created by the mode of money lending business carried on by Shri A. Kannan. 19. The Commissioner of Income Tax (Appeals), while deleting the penalty levied under Section 271D, has appreciated the circumstance which compelled the assessees transaction in cash; but he has somehow failed to take the same yardstick in appreciating the circumstances in which the assessees were compelled to make the repayments of loans in cash. 20. The Hon ble Supreme Court in .....

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wful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. 21. When we examine the facts and circumstances of the cases placed before us, we find that the Commissioner of Income Tax (Appeals), who has justifiably deleted the penalty levied under Section 271D, has acted against the principle declared by Hon ble Supreme Court in the abo .....

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observed that during search and seizures, unaccounted money was unearthed and they would usually give the explanation that he had borrowed or received deposits from his relatives or friends that it is easy for the so-called lender also to manipulate his records later to suit the plea of the taxpayer. The Hon ble Apex Court observed that the main object of Section 269SS was to curb this menace. 23. In the present case, no adverse circumstances existed against these assessees as apprehended by Ho .....

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as well as lenders are all regularly assessed to income-tax. The identity of the parties are beyond doubt. The factum of loan and repayments are beyond doubt. The genuineness of the transactions is also not in doubt. It is also established by the assessees that there existed similar emergency for repaying the loan in cash, as the emergency which prompted them to take loans in cash. Therefore, this is a case where there is a reasonable cause for the assessees to repay the loans in cash. In such c .....

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er of the Tribunal. The above findings of the Tribunal is only passing remarks and it cannot be said it is finding on the issue before us. In the present case, there was a survey u/s.133A of the Act conducted at the business premises of Sri A. Kannan, Prop. Of Vadamalayan Finance on 8.10.2011 by the Income-tax Officer, Ward-I(1), Puducherry. During the course of survey it was found that Sri Kannan was having money lending business and he chose to give loans to only selected group of persons. He .....

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id by cash are as follows: A.Y. 2006-07 Cash loan: 11.12.2005 20 lakhs Cash repayment: ₹ 2 lakhs A.Y. 2007-08 Cash loan: 06.12.2006 20 lakhs Cash repayment: ₹ 24 lakhs A.Y. 2008-09 Cash loan: 06.10.2007 20 lakhs Cash repayment: ₹ 24 lakhs A.Y. 2009-10 Cash loan: 07.08.2008 20 lakhs Cash repayment: ₹ 24 lakhs A.Y. 2010-11 Cash loan: 06.06.2009 20 lakhs Cash repayment: ₹ 24 lakhs A.Y. 2011-12 Cash loan: 07.04.2010 20 lakhs Cash repayment: ₹ 24 lakhs 19.08.2010 5 .....

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he assessee continuously borrowing money from same persons in cash. It is also on record that the assessee is having bank account as seen in the asst. year 2006-07, the assessee borrowed ₹ 20 lakhs and deposited in bank account No.781 with UCO Bank. Thereafter, the said amount was transferred to M/s. New India Palmer Foods Pvt. Ltd. In the asst. year 2007-08, the assessee borrowed ₹ 20 lakhs and deposited in bank account No.32 with UCO Bank. This is the bank account of Muthu Silk Hou .....

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h and deposited by him in UCO Bank and M/s. SBI. For the asst. year 2001-12, the assessee borrowed ₹ 20 lakhs and ₹ 50 lakhs and deposited in the account of SBI. Though the assessee is having bank account, he borrowed the money in cash and later deposited the same in the bank accounts. The ld. AR pleaded that due to urgency and compulsion, money was repeatedly borrowed in cash. The assessee has not explained the nature of urgency or compulsion. The provisions of sec.273B of the Act c .....

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f revenue loss is not a reason to consider the levy of penalty u/s.271D of the Act. The provisions of sec.269SS of the Act is constitutionally valid in view of the judgment of the High Court in the case of ADIT v. Kum A.B.Shanthi (255 ITR 258), wherein it was observed as under : Section 269SS of the Income-tax Act, 1961, prescribing the mode of taking or accepting certain loans or deposits, is not discriminatory and is not violative of article 14 of the Constitution of India ; nor was it enacted .....

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money, or if he makes some false entries, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money is unearthed and the taxpayer would usually give the explanation that he had borrowed or received deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records to suit the plea of the taxpayer. The main object of section 269SS was to curb this menace of making false entries in the account books and l .....

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settled law that the heads of legislation given in the Lists in the Seventh Schedule to the Constitution should not be construed in a narrow or pedantic way. If any Legislature makes an ancillary or subsidiary provision which incidentally transgresses its jurisdiction for achieving the object of such legislation, it would be a valid piece of legislation. The entries in a legislative list should be given their fullest meaning and widest amplitude and be held to extend to all ancillary and subsid .....

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c is enacted, such legislation would certainly be within the competence of Parliament. When a provision in a statute is challenged on the ground of colourable legislation, what has to be proved to the satisfaction of the court is that though the statute ostensibly is within the legislative competence of the Legislature in question, in substance and in reality, it covers a field which is outside its legislative competence. 5.3 Further, business exigencies shall be supported by evidence. The asses .....

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urt in the case of P. Muthukarupan v. JCIT (375 ITR 243), wherein it was held, dismissing the appeals : (i) that the entire transactions took place in Pondicherry, a major city and there was no reason why the assessee should not have repaid the amount by cheque or demand draft through the bank, assuming he had received the loan in cash. The entire transaction between the assessee, a financier and the financier who was also financing a large number of persons, was apparently to evade tax, which c .....

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ng business in the names of third parties. The assessee on his part had repeatedly, for every assessment year, conducted the business in the same manner receiving and repaying the loan amount in cash. Hence, these could not be called bona fide transactions and there was no reasonable cause. The conduct of the parties is important to exercise the discretion under section 273B . As the assessee had not passed the test of reasonable cause showing his bona fides, the provisions of section 273B were .....

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