The DCIT, Central Circle, Vijayawada V. Sri M Malakondaiah, Hyderabad

ITA 160/VIZ/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50270 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 11-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T L PETER
• Assessee Lawyers: A V RAGHURAM
• Keywords: Search and seizure; Bonafide belief; Reasonable cause; Documents seized; Set aside
• Section: 273B; 271D

Judgement Text

ITA NO 160 OF 2011 M MALAKONDAIAH HYDERABAD PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.160/VIZAG/2011 ASSESSMENT YEAR: 2001-02 DY.COMMISSIONER OF INCOME TAX CENTRAL CIRCLE, VIJAYAWADA VS. M. MALAKONDAIAH, HYDERABAD (APPELLANT) (RESPONDENT) PAN NO:ADUPM 0073 A DEPARTMENT BY: SHRI T.L. PETER, CIT (DR) RESPONDENT BY: SHRI A.V. RAGHURAM, ADVOCATE ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE O RDER DATED 13.01.2011 PASSED BY LEARNED CIT (A), VIJAYAWADA AN D IT RELATES TO THE ASSESSMENT YEAR 2001-02. 2. THE PENALTY OF RS.56.00 LAKHS LEVIED BY THE ADDI TIONAL CIT, HAVING BEEN DELETED BY THE LEARNED CIT (A), THE REVENUE IS IN APPEAL BEFORE US ASSAILING THE DECISION OF THE LEARNED CIT (A). 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE IS THE MANAGING DIRECTOR OF A COMPANY NAMED M/S R.K.TOWNSH IP PROMOTERS PVT. LTD AND THE SAID COMPANY IS ENGAGED IN THE REAL EST ATE BUSINESS. THE ASSESSEE IS ALSO A TRUSTEE OF A SOCIETY NAMED M/S S RI KRISHNA EDUCATIONAL SOCIETY (HEREINAFTER SOCIETY). THE REVENUE CARRI ED OUT SEARCH AND SEIZURE OPERATIONS IN THE BUSINESS AND RESIDENTIAL PREMISES OF THE ASSESSEE ON 12.12.2005. THE DOCUMENTS SEIZED DURING THE COURSE OF SEARCH REVEALED THAT THE ASSESSEE WAS TAKING LOANS IN CASH DURING T HE YEAR UNDER ITA NO 160 OF 2011 M MALAKONDAIAH HYDERABAD PAGE 2 OF 7 CONSIDERATION IN VIOLATION OF THE PROVISIONS OF SEC TION 269SS OF THE ACT. THE AGGREGATED AMOUNT OF LOANS SO TAKEN STOOD AT RS.56. 00 LAKHS AS DETAILED BELOW: REF PAGE AB/RKTP/30 NAME OF THE LENDER DATE OF TRANS AMOUNT IN RS. ASSESSMENT YEAR 2001-02 69 G. SILPA 07/03/2001 1000000 70 G. NIRLUPA LAKSHMI 1000000 71 G. RAVI 1000000 72 G RAVI 500000 73 G. SRINIVASULU 500000 74 G. VENU 600000 76 G. ESWARAMMA 500000 77 G. VENKAIAH 500000 TOTAL 5600000 HENCE THE ADDITIONAL COMMISSIONER OF INCOME TAX IN ITIATED PROCEEDINGS UNDER SECTION 271D OF THE ACT IN ORDER TO LEVY PENA LTY UNDER THAT SECTION FOR VIOLATION OF THE PROVISIONS OF SEC. 269SS OF THE AC T. THE VARIOUS SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE ADDL. C IT IN THIS CONNECTION HAS BEEN SUMMARIZED BY THE LEARNED CIT (A) AS UNDER : I) IT WAS EXPLAINED TO THE ADDITIONAL COMMISSIONER T HAT THE ASSESSEE IS A TRUSTEE OF SRI KRISHNA EDUCATIONA L SOCIETY, JUBILEE HILLS, HYDERABAD. THE SOCIETY WAS IN URGENT NEED OF FUNDS AND APPROACHED THE APPELLANT F OR MOBILIZATION OF THE SAME. ON REQUEST, THE APPELLANT WHO IS A MEMBER IN THE SAID SOCIETY INCURRED CASH LOAN FROM 8 PARTIES AS GIVEN IN ANNEXURE. THIS LOAN WAS INCUR RED ON 7.3.2001. IMMEDIATELY THE AMOUNT WAS DEPOSITED IN THE BANK OF BARODA, ABIDS BRANCH, HYDERABAD AND CHEQUES WERE ISSUED TO THE SOCIETY. THE AMOUNT WAS REALIZED FROM THE SOCIETY BY CHEQUES AND THE SAME W AS DEPOSITED IN THE BANK ACCOUNT. THEREAFTER THE CASH WAS WITHDRAWN AND THE AMOUNT WAS PAID BACK TO VARIOUS PERSONS WHO ADVANCED THE AMOUNT TO HELP THE SOCIETY . IT WAS PLEADED THAT TAKING INTO ACCOUNT THE NATURE O F TRANSACTION AND THE CIRCUMSTANCES IN WHICH THE AMOU NTS WERE MOBILIZED, THE SAME DOES NOT TAKE THE CHARACTE R OF A LOAN OR A DEPOSIT. IT WAS SUBMITTED THAT NO PENALT Y SHOULD BE IMPOSED ON THIS AMOUNT. ITA NO 160 OF 2011 M MALAKONDAIAH HYDERABAD PAGE 3 OF 7 II) IT WAS SUBMITTED IN COURSE OF HEARING THAT THE APPEL LANT WAS UNDER BONAFIDE BELIEF THAT NO PENALTY IS IMPOSA BLE SINCE THE APPELLANT WAS UNDER THE BONAFIDE BELIEF T HAT THE AMOUNT MOBILIZED WAS NEITHER A LOAN OR DEPOSIT AND THAT THE TRANSACTION WAS ARRANGED TO DEMONSTRATE TH AT THE SOCIETY HAS FINANCIAL STABILITY TO RUN THE INST ITUTION AT THE TIME OF INSPECTION BY CONCERNED AUTHORITIES. III) IT WAS EXPLAINED THAT THE TRANSACTION WAS GENUINE AN D REFLECTED IN THE BOOKS OF THE SOCIETY. THE QUICK SUCCESSION IN WHICH THE TRANSACTION TOOK PLACE THRO UGH BANK BY CHEQUES WITH THE SOCIETY WOULD PROVE THAT THERE WAS NO MALAFIDE INTENTION AND TAX EVASION ANG LE FOR WHICH THE RELEVANT PROVISIONS WERE ENACTED. IT W AS EXPLAINED THAT THERE WAS NO TAX EVASION ANGLE IN TH E ENTIRE TRANSACTION. IV) IT WAS ALSO SUBMITTED THAT THERE WAS A REASONABLE CA USE FOR DEFAULT IN THE GIVEN FACTS OF THE CASE. V) SUPPORTING CASE LAWS WERE CITED INCLUDING THAT OF T HE JURISDICTIONAL ITAT. THE ADDITIONAL CIT WAS NOT CONVINCED WITH THE EXPLA NATIONS OF THE ASSESSEE AND ACCORDINGLY LEVIED A PENALTY OF RS.56.00 LAKHS UNDER SECTION 271D OF THE ACT. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT (A), WHO DELETED THE PENALTY WITH THE FOLLOWING OBS ERVATIONS: 12. THERE IS NO DISPUTE OVER THE FACT THAT THE AP PELLANT HAD RAISED FUNDS IN CASH IN HIS INDIVIDUAL CAPACITY FOR WHICH PROMISSORY NOTES WERE EXECUTED BY HIM. SUCH TRANSAC TIONS ARE PURELY FINANCE TRANSACTIONS IN THE NATURE OF LOANS TO WHICH THE PROVISIONS OF SEC.269SS ARE SQUARELY APPLICABLE. TH E GENUINENESS OF THE TRANSACTIONS ARE NOT IN DISPUTE. A CONFIRMATION LETTER FROM THE SOCIETY HAS ALSO BEEN BROUGHT ON RECORD BY THE APPELLANT. AS SEEN FROM THE RECORD, T HE TRANSACTION INVOLVING RAISING OF THE LOAN AMOUNTS A ND REPAYMENT IS SPREAD OVER SEVEN DAYS. THE AMOUNTS RA ISED FROM THE EIGHT LENDERS WAS DEPOSITED IN THE APPELLA NTS BANK ACCOUNT FROM WHICH A CHEQUE WAS ISSUED TO THE SOCIE TY. THE ITA NO 160 OF 2011 M MALAKONDAIAH HYDERABAD PAGE 4 OF 7 EXPLANATION THAT THE SOCIETY WHICH RUNS AN ENGINEER ING COLLEGE WAS IN NEED OF URGENT FUNDS FOR A SHORT PERIOD TO S HOW ITS FINANCIAL STATUS BEFORE INSPECTING AUTHORITIES HAS NOT BEEN DISPUTED BY THE ADDL. COMMISSIONER. HE HAS ALSO ACC EPTED THAT THE LOANS WERE RAISED BY THE APPELLANT IN HIS CAPAC ITY IN SRI KRISHNA EDUCATIONAL SOCIETY. IT WOULD APPEAR FROM TH E PENALTY ORDER THAT THE ADDL. COMMISSIONER HAD CONCLUDED THA T THE LEVY OF PENALTY WAS AUTOMATIC WITHOUT TAKING INTO CONSID ERATION THE CIRCUMSTANCES AND REASONABLE CAUSE SHOWN BY THE APP ELLANT. IN THE CASE OF HINDUSTAN STEEL LTD VS. STATE OF ORIS SA 83 ITR 26 (SC), THE HON'BLE SUPREME COURT HELD THAT THE PO WER TO IMPOSE PENALTY WOULD HAVE TO BE EXERCISED JUDICIALL Y AND NOT MECHANICALLY. IN THE CASE OF ADIT VS. KUMARI A.B. SA NTHI 255 ITR 258 (2002), THE HON'BLE SUPREME COURT HELD THAT THE HARDSHIP OF THE PROVISIONS OF SEC.271D WOULD BE SUB STANTIALLY MITIGATED BY THE PROVISIONS OF SEC. 273B IF THERE W AS A GENUINE AND BONAFIDE TRANSACTION. IN THE CASE OF DILLU CINE ENTERPRISES PVT. LTD., VS. ADDL. CIT 80 ITD 484 (2002), THE HON 'BLE ITAT, HYDERABAD BENCH HELD THAT MERE TECHNICAL BREACH OF THE PROVISIONS, WHERE THE TRANSACTIONS ARE HELD TO BE G ENUINE, DOES NOT ATTRACT PROVISIONS OF SEC.269SS AND PENALT Y UNDER SECTION 271D. IN THE INSTANT CASE, THE TRANSACTIONS ARE GENUINE AND THE EXPLANATION OF A REASONABLE CAUSE PUT FORTH BY THE APPELLANT HAS NOT BEEN REJECTED BY THE ADDL. COMMIS SIONER. CONSIDERING THE EXPLANATION, I AM OF THE VIEW THAT I T WOULD CONSTITUTE A REASONABLE CAUSE FOR CONTRAVENTION OF SEC. 269SS AS CONTEMPLATED IN SEC.273B OF THE ACT AND THEREFOR E, THE APPELLANT IS ENTITLED TO RELIEF FROM THE RIGOURS OF SEC.271D. THE LEVY OF PENALTY OF RS.56,00,000/- IS HELD TO BE UNS USTAINABLE, UNDER THE FACTS AND CIRCUMSTANCES AND ACCORDINGLY T HE PENALTY LEVIED IS CANCELLED. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTE D THAT THE LEARNED CIT (A) WAS NOT CORRECT IN GIVING UNDUE IMPORTANCE TO THE TRANSACTIONS ENTERED INTO BETWEEN THE ASSESSEE AND M/S SRI KRISH NA EDUCATIONAL SOCIETY FOR THE REASON THAT THE IMPUGNED PENALTY HAS BEEN L EVIED ONLY IN RESPECT OF LOANS TAKEN BY THE ASSESSEE IN VIOLATION OF THE PRO VISIONS OF SEC.269SS AND NOT IN CONNECTION WITH THE FINANCIAL TRANSACTIONS E NTERED BY THE ASSESSEE WITH THE SOCIETY CITED ABOVE. HE FURTHER SUBMITTED THAT AS PER THE PROVISIONS OF SEC. 273B, WHAT IS REQUIRED TO BE SEE N IS WHETHER THERE WAS A REASONABLE CAUSE FOR THE FAILURE TO ADHERE THE PROV ISIONS OF SEC. 269SS ITA NO 160 OF 2011 M MALAKONDAIAH HYDERABAD PAGE 5 OF 7 R.W.S. 271D OF THE ACT. IN THE INSTANT CASE, THE MA IN BUSINESS OF THE ASSESSEE IS REAL ESTATE BUSINESS. THOUGH THE ASSES SEE CLAIMS THAT THE SOURCES FOR THE CHEQUES ISSUED TO THE SOCIETY ARE T HE IMPUGNED LOANS, YET THE ASSESSEE HAS FAILED TO PROVE THAT THE LOANS SO OBTAINED BY HIM ONLY WERE USED TO ISSUE THE CHEQUES TO THE SOCIETY, PART ICULARLY IN VIEW OF THE FACT THAT THE ASSESSEE IS OTHERWISE HANDLING HUGE F UNDS IN HIS REAL ESTATE BUSINESS. EVEN OTHERWISE, THE ASSESSEE HAS FAILED TO FURNISH ANY EVIDENCE IN SUPPORT OF HIS CLAIM THAT THE FUNDS WERE TRANSFE RRED TO THE SOCIETY FOR A TEMPORARY PERIOD IN ORDER TO IMPROVE THE FINANCIAL STRENGTH OF THE SOCIETY. ACCORDINGLY THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE EXPLANATIONS FURNISHED BY THE ASSESSEE CANNOT BE TA KEN AS A REASONABLE CAUSE AND CONTENDED THAT THE IMPUGNED PENALTY LEVIE D BY THE ADDL. CIT SHOULD BE CONFIRMED. THE LEARNED DEPARTMENTAL REPRE SENTATIVE RELIED UPON THE FOLLOWING CASE LAWS IN SUPPORT OF HIS CONTENTIO NS: (A) DHANJI R. ZALTE VS. ACIT (2004) (265 ITR 204 (BOM). (B) KASI CONSULTANT CORPORATION VS. DCIT (2009) (311 IT R 419 (MAD). (C) R.K. SINGHAL VS. CIT (2009) (221 CTR (RAJ) 412). (D) CIT VS. SHOR SHOT INDIA (P) LTD. (2008) 2 DTR (DEL) 124). (E) CIT VS. SUNIL KUMAR GOEL (2005) (274 ITR 53 (P&H) (F) BHALOTIA ENGINEERING WORKS PVT LTD VS. CIT (2005) ( 275 ITR 399). 6. ON THE OTHER HAND THE LEARNED AUTHORISED REPRESE NTATIVE, BY PLACING HEAVY RELIANCE ON THE ORDER OF THE LEARNED CIT (A), SUBMITTED THAT THE SOCIETY WAS IN URGENT NEED OF FUNDS IN ORDER TO DIS PLAY ITS FINANCIAL STABILITY AT THE TIME OF INSPECTION BY SOME OFFICIALS AND HEN CE ASSESSEE WAS CONSTRAINED TO TAKEN THESE LOANS ON BEHALF OF M/S S RI KRISHNA EDUCATIONAL SOCIETY IN CASH IN VIOLATION OF THE PROVISIONS OF S EC. 269SS OF THE ACT. THE ASSESSEE TRANSFERRED THE FUNDS TO THE SOCIETY ON 8. 3.2001 AND THEY WERE RECEIVED BACK ON 13.3.2001. THE ASSESSEE HAS ALSO FILED CONFIRMATION LETTER OBTAINED IN THIS REGARD BEFORE THE ADDL. CIT. ACC ORDINGLY HE SUBMITTED THAT ITA NO 160 OF 2011 M MALAKONDAIAH HYDERABAD PAGE 6 OF 7 THE EXPLANATIONS OF THE ASSESSEE CONSTITUTE A REASO NABLE CAUSE AND HENCE THE ORDER OF THE LEARNED CIT (A) SHOULD BE UPHELD. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT TH E ASSESSEE HAS OBTAINED THE IMPUGNED LOANS AGGREGATING TO RS.56.00 LAKHS IN CASH IN VIOLATION OF THE PROVISIONS OF SEC. 269SS OF THE ACT. AS PER THE PR OVISIONS OF SEC. 271D OF THE ACT, IF A PERSON TAKES OR ACCEPTS ANY LOAN OR D EPOSIT IN CONTRAVENTION OF THE PROVISIONS OF SEC. 269SS, HE SHALL BE LIABLE TO PAY, BY WAY OF PENALTY, A SUM EQUAL TO THE AMOUNT OF LOAN OR DEPOSIT SO TAKEN OR ACCEPTED. AS PER THE PROVISIONS OF SEC. 273B OF THE ACT, THE PENALTY CITED ABOVE SHALL NOT BE IMPOSABLE IF THE ASSESSEE PROVES THAT THERE WAS REA SONABLE CAUSE FOR THE SAID FAILURE. 8. IN THE INSTANT CASE, THE LEARNED CIT(A) HAS DELETED THE PENALTY BY GIVING IMPORTANCE TO THE TRANSACTIONS ENTERED INTO BETWEEN THE ASSESSEE AND THE SOCIETY CITED ABOVE. HOWEVER, AS CONTENDED BY THE LEARNED D.R, THE VIOLATION OF PROVISIONS OF SEC. 269SS IS ON ACC OUNT OF TAKING LOANS IN CASH AND NOT IN CONNECTION WITH THE TRANSACTIONS EN TERED BY THE ASSESSEE WITH THE SOCIETY. HOWEVER, THE CONTENTION OF THE A SSESSEE IS THAT THE SOCIETY WAS IN URGENT NEED OF FUNDS IN ORDER TO SHO W ITS FINANCIAL STABILITY TO SOME INSPECTING AUTHORITIES AND SINCE THE SOCIETY C OULD NOT MOBILIZE THE FUNDS, THE ASSESSEE, BEING A TRUSTEE OF THE SOCIETY , WAS CONSTRAINED TO TAKE THESE LOANS IN CASH. HOWEVER, ON A SCRUTINY OF TH E RECORD, WE FIND THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE THIS EXPLANATIO N WITH ANY EVIDENCE, I.E., WHETHER THERE WAS REALLY AN INSPECTION IN THE HANDS OF THE SOCIETY, IF SO WHICH AUTHORITY HAS INSPECTED, WHAT WAS THE NECESSI TY AND PURPOSE OF PARKING FUNDS IN THE ACCOUNT OF THE SOCIETY ETC. A LL THESE QUESTIONS WHICH GO TO SHOW THE URGENT NECESSITY OF FUNDS HAVE NOT B EEN ANSWERED BY THE ASSESSEE BY ADDUCING PROPER EVIDENCES IN ORDER TO P ROVE THE VERACITY OF THE SAID EXPLANATIONS. THE ASSESSEE HAS ALSO NOT PRODU CED ANY EVIDENCE TO ITA NO 160 OF 2011 M MALAKONDAIAH HYDERABAD PAGE 7 OF 7 SUGGEST THAT IT WAS HIS RESPONSIBILITY TO ARRANGE T HE SAID FUNDS ON BEHALF OF THE SOCIETY. IN THE ABSENCE OF ANY SUCH EVIDENCE, I N OUR VIEW, THE EXPLANATIONS FURNISHED BY THE ASSESSEE CANNOT BE TA KEN AS A REASONABLE CAUSE IN TERMS OF SEC. 273B OF THE ACT. DURING THE COURSE OF HEARING, THE LEARNED A.R WAS ASKED ABOUT THE REPAYMENT DETAILS O F THE IMPUGNED LOANS AND THE SAME COULD NOT BE FURNISHED BY LEARNED A.R. THUS THE CLAIM OF THE ASSESSEE THAT THE IMPUGNED LOANS WERE TAKEN TO MEET THE SHORT TERM FUND REQUIREMENTS ALSO STANDS UNSUBSTANTIATED. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE UNABLE TO AGREE WITH THE VIEWS OF LEARNED CIT(A) AND ACCORDINGLY WE SET ASIDE HIS ORDER AND RESTORE THAT OF THE ASSESSING OFFICER. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOW ED. PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 22-06-2011 COPY TO 1 THE DY.COMMISSIONER OF INCOME TAX CENTRAL CIRCLE, VIJAYAWADA 2 SHRI M. MALAKONDAIAH, 305 DOYAN CHAMBERS, AMEERPE T, NEAR SARADHI STUDIOS, HYDERABAD 3 4. THE CIT CENTRAL, HYDERABAD THE CIT(A), VIJAYAWADA 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM