M/s Karna Sree Developers & Builders, V. JCIT,

ITA 1325/BANG/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85983 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 07-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 10-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR K SHANKAR PRASAD JT
• Assessee Lawyers: S K BABU PRASAD
• Keywords: Non-deduction of tax; Reasonable cause
• Section: 273B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.1325/BANG/2013 ASSESSMENT YEAR : 2007-08 M/S. KARNASREE DEVELOPERS & BUILDERS, NO.26, KARNASREE POINT, 3 RD FLOOR, ANANDNAGAR, MARATHALLI ROAD, BANGALORE. PAN: AAGFK 4666G VS. THE JOINT COMMISSIONER OF INCOME TAX, RANGE 7, BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI S.K. BABU PRASAD, ADVOCATE RESPONDENT BY : DR. K. SHANKAR PRASAD, JT. CIT(DR) DATE OF HEARING : 07.01.2015 DATE OF PRONOUNCEMENT : 23.01.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 26.6.2013 OF THE CIT(APPEALS), LTU, BANGALORE RELAT ING TO ASSESSMENT YEAR 2007-08. ITA NO.1325/BANG/2013 PAGE 2 OF 10 2. THIS APPEAL ARISES OUT OF AN ORDER PASSED BY THE JT. CIT, RANGE 7, BANGALORE IMPOSING PENALTY ON THE ASSESSEE U/S. 271 D OF THE ACT. THE PROCEEDINGS RELATE TO A.Y. 2007-08. 3. THE ASSESSEE IS A PARTNERSHIP FIRM. IT IS ENGAG ED IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL APARTMENTS AND DEVELOPM ENT OF RESIDENTIAL SITES. IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE A.Y . 2007-08 COMPLETED BY THE AO U/S. 143(3) OF THE ACT BY AN ORDER DATED 30.11.2009, THE AO NOTICED THAT ASSESSEE HAD TAKEN A CASH LOAN OF RS.9 ,95,000 ON 22.11.06 FROM SHRI RAVINDRA REDDY AND RS.1,10,000 ON 8.11.06 FROM SHRI G.T. VIJAY KUMAR. 4. AS PER THE PROVISIONS OF SECTION 269SS OF THE A CT, NO PERSON SHALL TAKE OR ACCEPT FROM ANY OTHER PERSON ANY LOAN OTHER WISE THAN BY AN ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT, W HERE THE AMOUNT OF SUCH LOAN OR THE AGGREGATE AMOUNT OF SUCH LOAN IS R S.20,000 OR MORE. U/S. 271D OF THE ACT, IF A PERSON TAKES OR ACCEPTS ANY L OAN IN CONTRAVENTION OF THE PROVISIONS OF SECTION 269SS, HE SHALL BE LIABLE TO PAY BY WAY OF PENALTY, A SUM EQUAL TO THE AMOUNT OF LOAN SO TAKEN OR ACCEP TED. U/S. 273B OF THE ACT, NO PENALTY SHALL BE IMPOSABLE ON THE PERSON FO R ANY FAILURE REFERRED TO IN SECTION 269SS R.W.S. 271D OF THE ACT, IF HE PROV ES THAT THERE WAS A REASONABLE CAUSE FOR THE SAID FAILURE. 5. BEFORE THE JCIT, THE ASSESSEE SUBMITTED THAT TH E LOAN WAS TAKEN TO MEET EMERGENT PAYMENTS TO VENDORS AND FOR MAKING LA BOUR PAYMENTS. THE ITA NO.1325/BANG/2013 PAGE 3 OF 10 AO DID NOT CONSIDER THE CLAIM OF THE ASSESSEE FOR E XISTENCE OF A REASONABLE CAUSE AND IMPOSED PENALTY ON THE ASSESSE E OF A SUM EQUAL TO THE AMOUNT OF LOAN TAKEN IN CONTRAVENTION OF PROVIS IONS OF SECTION 269SS OF THE ACT. 6. BEFORE THE CIT(APPEALS), THE EMERGENT SITUATION UNDER WHICH CASH LOANS WERE TAKEN BY THE ASSESSEE WAS EXPLAINED BY T HE ASSESSEE. THE LD. CIT(A) DEALT WITH THE ISSUE AS FOLLOWS:- 4. THE EMERGENT NATURE OF BUSINESS NEEDS FOR WHICH THE CASH LOANS WERE AVAILED WAS EXAMINED WITH REFERENCE TO T HE EVIDENCES FURNISHED. IT IS SEEN THAT THE LOAN OF RS. 9.5 LAK H TAKEN FROM RAVINDRA REDDY ON 22.11.2006 WAS DEPOSITED IN THE A PPELLANTS BANK ACCOUNT IN FEDERAL BANK ON 2 DATES - RS.5 LAKH ON 23.11.2006 AND RS. 3,95,000 ON 27.11.2006. THE AR O F THE APPELLANT SUBMITTED THAT CHEQUES HAD BEEN ISSUED TO 2 PARTIES FOR WHICH THE BALANCE IN THE APPELLANTS BANK ACCOUNT W AS INADEQUATE. IN ORDER TO AVOID THE CONSEQUENCES U/S. 138 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881 FOR DISHONOURING O F CHEQUES DUE TO INSUFFICIENCY OF FUNDS, THE APPELLANT RESORT ED TO THE CASH LOAN FROM A FRIEND. THE 2 PARTIES TO WHOM CHEQUES W ERE ISSUED WERE M/S. SREE ENTERPRISES (RS.4,00,000) AND M/S. T ULASI CONCRETE(RS.4,15,950). THE FOLLOWING EXTRACT FROM T HE APPELLANTS BANK ACCOUNT IS REPRODUCED TO SHOW THE SEQUENCE OF DEPOSIT AND CLEARING OF CHEQUES: (IN RS.) DATE WITHDRAWAL DEPOSIT BALANCE REMARKS 23.11.2006 1,23,000 23.11.2006 5,00,000 6,23,000 OUT OF CASH LOAN 23.11.2006 4,00,000 2,23,000 SREE ENTERPRISES CHEQUE CLEARED 24.11.2006 RS.15,051 (TRANSFER DD) 2,07,949 25.11.2006 (SATURDAY) 10,000 (TRANSFER SHAMALAL) 1,97,949 ITA NO.1325/BANG/2013 PAGE 4 OF 10 25.11.2006 (SATURDAY) 32,000 (TO KRISHNA) 1,65,949 25.11.2006 (SATURDAY) 4,15,950 2,50,000 (DR) CHEQUE TO TULASI CONCRETE CLEARED BY BANK WITHOUT BALANCE BEING AVAILABLE IN ACCOUNT 27.11.2006 (MONDAY) 3,95,000 1,44,999 OUT OF CASH LOAN 4.1 IT IS EVIDENT FROM THE ABOVE DETAILS THAT THE CHEQUE OF RS. 4 LAKH TO SREE ENTERPRISES COULD NOT HAVE BEEN CLEARE D GIVEN THE AVAILABLE BANK BALANCE OF RS. 1,23,000 AND, HENCE, MONEY HAD TO BE PUT INTO THE BANK TO KEEP THE BALANCE SUFFICIENT FOR CHEQUE CLEARANCE. TO THE EXTENT OF RS.4 LAKH, THEREFORE, R EPRESENTING THE CHEQUE GIVEN TO SREE ENTERPRISES, THE APPELLANTS EXPLANATION REGARDING EMERGENT CONDITION FOR TAKING CASH LOAN A PPEARS TO BE LEGITIMATE. WITH REGARD TO THE CHEQUE ISSUED TO M/S TULASI CONCRETE, HOWEVER, I AM UNABLE TO ACCEPT THE APPELL ANTS CONTENTION REGARDING EMERGENT REQUIREMENT OF CASH S INCE THE BANK CLEARED THE CHEQUE OF THE PARTY ON A SATURDAY I.E., ON 25.11.2006 WITHOUT SUFFICIENCY OF BALANCE BEING INS ISTED UPON. SINCE THE CHEQUE WAS NOT DISHONOURED, NO LIABILITY WOULD HAVE ARISEN FOR THE ASSESSEE U/S. 138 OF THE NEGOTIABLE INSTRUMENTS ACT. HENCE, THE NECESSITY OF DEPOSITING CASH INTO THE BA NK ACCOUNT WAS NOT DICTATED BY ANY EXTRAORDINARY CIRCUMSTANCES OR EXIGENCY. 5. THE BALANCE OF THE CASH LOANS, AFTER THE ABOVE DEPOSITS INTO THE BANK ACCOUNT, ARE STATED TO HAVE BEEN USED FOR MAKING PAYMENTS TO LABOURERS FOR WHICH THE CASH BOOK AND C ASH VOUCHERS WERE PRODUCED FOR EXAMINATION. THE PAYMENTS HAVE OS TENSIBLY BEEN MADE TOWARDS MASON WORK, BAR BENDING, PAINTING , ELECTRICAL WORK, CANTERING, EARTH WORK, PLUMBING, STONE WORK E TC. THE LABOURERS TO WHOM PAYMENTS HAVE BEEN SHOWN IN THE A SSESSEES BOOK ARE NOT THE EMPLOYEES OF THE FIRM. THE AR EXPL AINED THAT FOR EACH KIND OF WORK SUCH AS PLUMBING, CANTERING, MASON WORK ETC. ONE MAIN SKILLED PERSON ALONG WITH HIS TEAM WO ULD BE ASSIGNED THE WORK AND HE WOULD RECEIVE THE PAYMENT FOR THE ENTIRE GROUP BY SIGNING ON THE CASH VOUCHERS. NO BI LLS WERE RAISED BY THE LABOURERS ON THE APPELLANT FIRM. ON E XAMINATION OF THE CASH VOUCHERS (WHICH, STRANGELY ENOUGH, DO NOT CONTAIN THE VOUCHER NUMBER REFLECTED IN THE CASH BOOK) IT IS EV IDENT THAT THEY SUFFER FROM NUMEROUS DEFICIENCIES IN THEIR EVIDENTI ARY VALUE. ITA NO.1325/BANG/2013 PAGE 5 OF 10 VERY GLARINGLY, MANY OF THEM DO NOT CARRY ANY SIGNA TURE OR ANY REFERENCE TO BILLS EVEN WHEN THEY ARE IN RESPECT OF MATERIALS SUPPLIED/PURCHASED. MANY DO NOT CARRY THE NAME OF T HE RECIPIENT ALSO. THE FOLLOWING VOUCHERS OF ONE DATE, FOR INSTA NCE, FALL IN THIS CATEGORY: 22.11.2006 BY MATERIAL - MUD & GRAVEL - RS. 5,0 00 BY MATERIAL - PAINT - RS. 10,000 BY LABOUR - EARTH WORK - RS. 16,000 BY MANJUNATH - JELLY - RS. 8,900 BY LABOUR - STONE WORK - RS. 10,000 BY MATERIAL - HARDWARE ITEMS - RS. 18,916 5.1 FROM THE VOUCHERS, IT IS SEEN THAT MULTIPLE PA YMENTS HAVE BEEN MADE TO THE SAME PERSON FOR THE SAME WORK ON T HE SAME DAY AND THE SIGNATURES OF THE PERSONS ON THE VARIOUS VO UCHERS DO NOT TALLY WITH EACH OTHER. SOME SAMPLE OF THE CLAIM IS REPRODUCED BELOW: ITA NO.1325/BANG/2013 PAGE 6 OF 10 5.2 THE TRANSACTIONS AS ABOVE APPEAR TO BE CLEARLY IN THE NATURE OF SMALL CONTRACTS AWARDED FOR SPECIFIC ITEM S OF WORK WHICH ARE ADMITTEDLY UNDERTAKEN BY THE PERSON AND H IS GROUP FROM START TO FINISH. IN FACT, IN ONE OF THE VOUCHE RS PERTAINING TO PRABHAKAR DT. 23.11.2006 FOR RS.15,684, THE DESCRIP TION IS MENTIONED AS LABOUR CONTRACT. NO TDS HAS, HOWEVER , BEEN DEDUCTED FROM THE PAYMENTS AND THE AR EXPLAINED THA T THIS WAS BECAUSE THE PERSONS IN QUESTION DID NOT HAVE PROPER BANK ACCOUNTS OR BUSINESS SET UP. THIS, HOWEVER, DOES NO T TAKE AWAY THE LIABILITY OF THE ASSESSEE FOR MAKING TDS. SINCE LEDGER ACCOUNTS IN RESPECT OF EACH INDIVIDUAL REFLECTING T HE VALUE OF THEIR WORK DONE THROUGH BILLS RAISED ON OR UPTO A PARTICU LAR DATE HAS NOT BEEN MAINTAINED BY THE APPELLANT, IT IS NOT POSSIBL E TO VERIFY THE CLAIM THAT PAYMENTS TO THE LABOURERS AS SHOWN WERE URGENTLY REQUIRED TO BE MADE. CONFRONTED WITH ALL THE DEFECT S AS DESCRIBED ABOVE THE AR ALSO CANDIDLY ADMITTED THAT THERE WERE DEFICIENCIES IN THE VOUCHERS MAINTAINED AS FAR AS THEIR EVIDENTI ARY VALUE WAS CONCERNED. IN THE FACE OF THESE FACTS TAKEN IN TOTA LITY, IT IS DIFFICULT TO ACCEPT THE APPELLANTS CLAIM THAT THE CASH LOANS WERE AVAILED FOR EMERGENT LABOUR PAYMENT. IN FACT, THE VERY GENU INENESS OF THE CLAIM OF SUCH OUTGOINGS TOWARDS LABOUR PAYMENT IS I TSELF IN DOUBT GIVEN THE EVIDENCE PRODUCED. 7. WITH THE ABOVE OBSERVATIONS, THE LD. CIT(APPEALS ) WAS OF THE VIEW THAT THE ASSESSEE COULD NOT ESTABLISH EXISTENCE OF ANY REASONABLE CAUSE FOR AVAILING CASH LOANS, EXCEPT FOR RS.4 LAKHS. LEV Y OF PENALTY WAS ACCORDINGLY CONFIRMED, SUBJECT REDUCTION OF THIS AM OUNT. 8. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 9. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSE L FOR THE ASSESSEE. HE SUBMITTED THAT INSOFAR AS CASH LOAN TO THE EXTEN T OF RS.3,95,000 TAKEN FROM RAVINDRA REDDY IS CONCERNED, THE CIT(A) REFUSE D TO BELIEVE THE ITA NO.1325/BANG/2013 PAGE 7 OF 10 EXISTENCE OF A REASONABLE CAUSE ONLY ON THE GROUND THAT THE CHEQUE ISSUED TO TULASI CONCRETE WAS CLEARED BY THE BANKERS EVEN WITHOUT THE CASH DEPOSIT OF RS.3,95,000 MADE BY THE ASSESSEE ON 27.1 1.06. ACCORDING TO THE LD. COUNSEL, THE INSUFFICIENCY OF ENOUGH BALANC ES IN THE BANK ACCOUNT OF THE ASSESSEE ON 25.11.06 ON WHICH DATE THE CHEQUE F OR RS.4,15,950 WAS PRESENTED FOR PAYMENT TO TULASI CONCRETE WAS ITSELF SUFFICIENT TO SHOW THAT THERE EXISTED REASONABLE CAUSE FOR THE ASSESSEE TO HAVE ACCEPTED THE LOANS IN CASH, IN VIOLATION OF THE PROVISIONS OF SE CTION 269SS OF THE ACT. THE FACT THAT BANK CLEARED THE CHEQUES ON 25.11.06 CANNOT BE THE BASIS ON WHICH IT COULD BE SAID THAT THERE WAS NO REASONABLE CAUSE FOR THE ASSESSEE IN TAKING THE LOANS IN CASH. ACCORDING TO HIM, THE BANK CLEARED THE CHEQUE ON 25.11.06 WHICH WAS A SATURDAY ONLY ON THE ASSURA NCE OF THE ASSESSEE THAT ASSESSEE WOULD DEPOSIT CASH ON 27.11.06 I.E., MONDAY. IT WAS SUBMITTED THAT THESE CIRCUMSTANCES HAVE BEEN TOTALL Y IGNORED BY THE CIT(A). 10. THE LD. DR RELIED ON THE ORDER OF CIT(A). 11. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. FROM A PERUSAL OF THE BANK ACCOUNT OF THE ASSESSEE, WHICH IS EXTRACTED IN THE IMPUGNED ORDER OF THE CIT(A); IT IS CLEAR THAT AS ON 25.11.06, THE ASSESSEE HAD A BALANCE OF RS.1,65,949. ON THE SAME DAY I.E., ON 25.11.06, TULASI CONCRETE TO WHOM THE ASSESSEE HAD ISSUED A CHEQUE FOR RS.4,15,960 HAD PRESENTED THE SAME FOR PAYMENT. TH E BANK CLEARED THE ITA NO.1325/BANG/2013 PAGE 8 OF 10 CHEQUE, THOUGH BALANCE IN THE ASSESSEE'S BANK ACCOU NT WAS INSUFFICIENT. THE ASSESSEE ON 27.11.06 HAD DEPOSITED CASH OF RS.3 ,95,000 SO AS TO BRING THE BALANCE IN THE ASSESSEE'S BANK ACCOUNT FR OM (-) 2,50,000 TO (+) 1,44,999. THE LOAN FROM RAVINDRA REDDY IN CASH WAS AVAILABLE WITH THE ASSESSEE ON 22.11.2006. IN OUR VIEW, THE ABOVE PRO XIMITY OF THE LOAN AND DEPOSIT OF CASH INTO THE BANK ACCOUNT AND THE NON-A VAILABILITY OF SUFFICIENT CASH BALANCE AS ON 25.11.06 CLEARLY POINT OUT TO TH E EXISTENCE OF REASONABLE CAUSE FOR HAVING AVAILED CASH LOAN BY TH E ASSESSEE TO THE EXTENT OF RS.3,95,000. WE ARE THEREFORE OF THE VIE W THAT AS FAR AS LOAN TO THE EXTENT OF RS.3,95,000 AVAILED BY THE ASSESSEE F ROM RAVINDRA REDDY IS CONCERNED, THERE WAS A REASONABLE CAUSE FOR TAKING THE LOAN IN CASH AND THEREFORE PENALTY OUGHT NOT TO HAVE BEEN LEVIED U/S . 271D OF THE ACT TO THE EXTENT OF RS.3,95,000. LEVY OF PENALTY TO THIS EXT ENT IS DIRECTED TO BE DELETED. 12. WHAT NOW REMAINS FOR CONSIDERATION IS A SUM OF RS.1 LAKH AS CASH LOAN FROM RAVINDRA REDDY AND ANOTHER SUM OF RS.1,10 ,000 TAKEN FROM G.T. VIJAY KUMAR. AS FAR AS THESE TWO CASH LOANS ARE C ONCERNED, EXPLANATION OF THE ASSESSEE WAS THAT THE CASH LOANS WERE TAKEN FOR THE PURPOSE OF MAKING PAYMENTS TO LABOURERS. DETAILS FURNISHED BY THE ASSESSEE IN THIS REGARD CLEARLY SHOW PAYMENTS HAVING BEEN MADE TO LA BOURERS. CASH BOOK AND CASH VOUCHERS WERE PRODUCED FOR EXAMINATION BY THE ASSESSEE. THE CIT(A) HAS POINTED OUT CERTAIN INFIRMITIES IN THE E VIDENCE FILED BY THE ASSESSEE IN SUPPORT OF THE CASH PAYMENTS HAVING BEE N MADE TO THE ITA NO.1325/BANG/2013 PAGE 9 OF 10 LABOURERS. IN OUR VIEW, THESE INFIRMITIES CANNOT L EAD TO THE CONCLUSION THAT NO PAYMENTS WERE MADE. IN THE ASSESSMENT COMPLETED , GENUINENESS OF THESE PAYMENTS PRESUMABLY HAVE NOT BEEN DOUBTED. I N SUCH CIRCUMSTANCES, PAYMENT OF CASH TO THE LABOURERS CAN NOT BE DISBELIEVED. FAILURE TO DEDUCT TAX AT SOURCE ALSO CANNOT BE THE BASIS TO DISBELIEVE THE EXISTENCE OF REASONABLE CAUSE. IN THE CIRCUMSTANC ES, WE ARE OF THE VIEW THAT THE CASH LOANS WERE AVAILED FOR EMERGENT LABOU R PAYMENTS AND THERE WAS A REASONABLE CAUSE FOR AVAILING CASH LOANS. IN OUR VIEW, CONCLUSIONS TO THE CONTRARY HAVE BEEN ARRIVED AT BY THE LD. CIT (A) ON IRRELEVANT CONSIDERATIONS VIZ., DEFICIENCIES IN VOUCHERS AND F AILURE TO DEDUCT TAX AT SOURCE. WE THEREFORE HOLD THAT THE ASSESSEE HAS SA TISFACTORILY EXPLAINED THE EXISTENCE OF REASONABLE CAUSE FOR HAVING AVAILE D CASH LOANS. PENALTY IMPOSED IN RESPECT OF A SUM OF RS.1 LAKH AND RS.1,1 0,000 FROM RAVINDRA REDDY AND G.T. VIJAY KUMAR RESPECTIVELY IS HELD TO BE NOT SUSTAINABLE AND THE SAME IS DELETED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF JANUARY, 2015. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 23 RD JANUARY, 2015. /D S/ ITA NO.1325/BANG/2013 PAGE 10 OF 10 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.