The ITO, Ward-4(2), Ahmedabad V. Kinariwala Spinners Ltd., Ahmedabad

ITA 2327/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9779 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-09-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 18-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Reasonable cause; TDS
• Section: 273B; 271D; 271E

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABA D (BEFORE HON'BLE SHRI G.D. AGRAWAL, V.P. (AZ) & HON BLE SHRI T.K. SHARMA, J.M.) I.T.A. NOS. 2327 & 2328/AHD./2008 ASSESSMENT YEAR : 2004-2005 INCOME TAX OFFICER, WARD-4(2), -VS.- KINARIWAL A SPINNERS LTD., AHMEDABAD AHMEDABAD (PAN : AAACK 8011 E) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. MADHUSUDAN, S R. D.R. RESPONDENT BY : SMT. URVASHI SHODHAN O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THESE TWO APPEALS FILED BY THE REVENUE ARE AGAINST TWO SEPARATE ORDERS DATED 28.03.2008 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VII I, AHMEDABAD CANCELLING THE PENALTY OF RS.10,16,000/- AND RS.7,72,000/- LEVIED BY THE ASSE SSING OFFICER UNDER SECTION 271D AND 271E OF THE INCOME TAX ACT, 1961 RESPECTIVELY FOR THE A SSESSMENT YEAR 2004-05. 2. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN ITA NO. 2327/AHD/2008 FOR THE ASSESSMENT YEAR 2004-05 ARE THAT THE JT. CIT, RANGE -4, AHMEDABAD VIDE ORDER DATED 28.09.2007 LEVIED THE PENALTY OF RS.10,16,000/- UNDER SECTION 271D FOR VIOLATION OF PROVISIONS CONTAINED IN SECTION 269SS OF THE INCOME TAX ACT, 1961. ON APPEA L, IN THE IMPUGNED ORDER DATED 28.03.2008, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VI II, AHMEDABAD IN APPEAL NO.CIT(A.)- VIII/JC-4/97/2007-08 CANCELLED THE SAME FOR THE REA SONS GIVEN IN PARA 5, WHICH READS AS UNDER :- 5. I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. C AREFULLY. I FIND THAT THE DIRECTORS HAVE WITHDRAWN THE ABOVE AMOUNTS FROM THEIR BANK ACCOUNTS AND HAVE DEPOSITED IN CASH IN COMPANYS BANK ACCOUN TS FOR MEETING VARIOUS EXPENSES LIKE FUEL, FOR MAKING COMPLIANCE O F STATUTORY REQUIREMENT OF TDS AND TO PAY SALARIES AND WAGES TO WORKERS OF THE FACTORY WHICH BECOME DUE AND PAYABLE BY 10 TH EVERY MONTH. THE COMPANY WAS GOING THROUGH FINANCIAL CRISIS AND OPERATIONS OF THE COMP ANY WERE SHUT DOWN SINCE 2005. THE BANKER, KALUPUR COMMERCIAL COOPERAT IVE BANK LTD. HAD ALSO TAKEN POSSESSION OF THE PROPERTY OF THE COMPAN Y. AS THE COMPANY COULD NOT MANAGE THE FUNDS ON THE DUE DATE OF THE S TATUTORY REQUIREMENTS OF THE WORKERS PAYMENT, THE APPELLANT HAD TO BORROW FROM THE DIRECTORS. THE GENUINENESS OF TRANSACTIONS HAS NOT BEEN DOUBTE D BY THE A.O. IN VIEW 2 ITA NOS . 2327 & 2328/AHD/2008 OF THE ABOVE FACTS, I FIND THAT THE APPELLANT HAD R EASONABLE CAUSE WITHIN THE MEANING OF SECTION 273B OF THE ACT TO ACCEPT TH E SAID AMOUNTS IN CASH FROM THE DIRECTORS FOR MEETING THE VARIOUS EXPENSES . THE DECISIONS CITED BY THE A.O. SUPPORT THE CASE OF THE APPELLANT. IN VIEW OF THE ABOVE FACTS, THE LEVY OF PENALTY IS HELD TO BE NOT JUSTIFIED AND THE SAME IS DELETED. AGGRIEVED WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. THE FACTS RELATING TO CONTROVERSY INVOLVED IN IT A NO. 2328/AHD/2008 FOR THE ASSESSMENT YEAR 2004-05 ARE THAT JT. CIT, RANGE-4, AHMEDABAD V IDE ORDER DATED 28.09.2007 LEVIED THE PENALTY OF RS.7,72,000/- UNDER SECTION 271E OF THE ACT FOR VIOLATION OF PROVISIONS CONTAINED IN SECTION 269T OF THE INCOME TAX ACT, 1961. ON APPEAL , IN THE IMPUGNED ORDER DATED 28.03.2008 IN APPEAL NO.CIT(A.)-VIII/JC-4/98/2007-08, THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS)-VIII, AHMEDABAD CANCELLED THE SAME FOR TH E DETAILED REASONS GIVEN IN PARA 5, WHICH READS AS UNDER :- 5. I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHOR IZED REPRESENTATIVE CAREFULLY. THE APPELLANT HAD TAKEN CERTAIN LOANS FR OM DIRECTORS FOR MEETING VARIOUS EXPENSES OF THE COMPANY FOR STATUTO RY COMPLIANCE OF TDS AND FOR MAKING PAYMENTS OF SALARIES AND WAGES TO WO RKERS, THE SAID LOANS WERE REPAID IN CASH TO THE DIRECTORS AS THE COMPANY S OPERATIONS WERE CLOSED SINCE 2005 AND KALUPUR COM. COOPERATIVE BANK HAS TAKEN POSSESSION OF THE COMPANY PROPERTY FROM 20 TH APRIL, 2005 AND THE BANKING ACTIVITIES WERE SUSPENDED. THE APPELLANT HAD WITHDR AWN CASH TO REPAY THE LOANS TAKEN FROM DIRECTORS. THE TRANSACTIONS HAVE N OT BEEN DOUBTED BY THE A.O. IN THE ABOVE CIRCUMSTANCES, I HOLD THAT THE AP PELLANT HAD REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273B OF THE ACT FOR MAKING REPAYMENT IN CASH AND ACCORDINGLY THE LEVY OF PENALTY IS HELD AS NOT JUSTIFIED AND THE SAME IS DELETED. AGGRIEVED WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING BEFORE US, SHRI K. MADHUS UDAN, LD. SR. D.R. APPEARING ON BEHALF OF THE REVENUE CONTENDED IN RESPECT OF BOTH THE APPEAL S THAT THE ASSESSEE COMPANY ACCEPTED THE LOAN AMOUNTING TO RS.6,96,000/- IN CASH FROM DIRECT OR SHRI PRASHANT KINARIWALA AND RS.3,20,000/- IN CASH FROM SHRI SHITAL PRASHANTBHAI KINARIWALA IN VIOLATION OF PROVISIONS CONTAINED IN SECTION 269SS OF THE INCOME TAX ACT, 1 961. THE ASSESSEE COULD HAVE ACCEPTED THESE LOANS THROUGH ACCOUNT PAYEE CHEQUES/ BANK DRAFTS. T HE LEARNED COMMISSIONER OF INCOME TAX 3 ITA NOS . 2327 & 2328/AHD/2008 (APPEALS) CANCELLED THE PENALTY ON THE GROUND THAT THERE WAS REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273B OF THE ACT. HE SUBMITTED TH AT THERE WAS NO REASONABLE CAUSE, THE PENALTY OF RS.10,16,000/- WAS RIGHTLY LEVIED BY THE ASSESSING OFFICER AND LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS NOT JUSTIFIE D IN CANCELLING THE SAME. 4.1. SIMILARLY IN RESPECT OF PENALTY LEVIED UNDER SECTION 271E, THE LD. D.R. CONTENDED THAT THE ASSESSEE HAD RE-PAID LOANS OF RS.3,12,000/- IN CASH TO SHRI PRASHANT KINARIWALA AND RS.4,60,000/- TO SHRI SHITAL PRASHANTBHAI KINARIWALA IN VIOLATION OF PROVISIONS CONTAINED IN SECTION 269T OF THE INCOME TAX ACT, 1961. FOR THIS VIOLATION ALSO, THE LD. D.R. SUBMITTED THAT THERE WAS NO REASONABLE CAUSE AND PENALTY OF RS.7,72,000/- WAS R IGHTLY LEVIED UNDER SECTION 271E OF THE ACT AND LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS NOT JUSTIFIED IN CANCELLING THE SAME. 5. ON THE OTHER HAND, SMT. URVASHI SHODHAN, LD. COU NSEL APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). SHE CONTENDED THAT THE LOANS FROM THE DIRECTORS WERE TA KEN FOR MEETING VARIOUS EXPENSES OF THE COMPANY, I.E. STATUTORY COMPLIANCE OF TDS AND FOR M AKING PAYMENTS OF SALARIES AND WAGES TO WORKERS. THE SAID LOANS WERE ACCEPTED IN CASH AND T HEREAFTER REPAID IN CASH TO THE DIRECTORS BECAUSE THE COMPANYS OPERATIONS WERE CLOSED SINCE 2005 AND KALUPUR COM. COOPERATIVE BANK HAS TAKEN POSSESSION OF THE COMPANY PROPERTY FROM 2 0 TH APRIL, 2005 AND THE BANKING ACTIVITIES WERE SUSPENDED. IN THESE CIRCUMSTANCES, THE ASSESSE E-COMPANY HAS ACCEPTED CASH LOANS AND REPAID THE SAME TO THE DIRECTORS OF THE COMPANY. TH E LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THERE WAS REASONABLE CAUSE WITHIN THE MEANING OF SE CTION 273B OF THE ACT, THEREFORE, THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) IN RESPECT OF BOTH THE APPEALS BE UPHELD. 6. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. BEFORE BOTH THE AUTHORITIES BELOW, THE ASSES SEE PLEADED THAT THERE WAS REASONABLE CAUSE FOR ACCEPTING AND RE-PAYING CASH LOANS/ DEPOSITS. T HE ASSESSING OFFICER REJECTED THE SAME AND ON APPEAL IN THE IMPUGNED ORDER, THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) ACCEPTED THIS PLEA OF THE ASSESSEE. SECTION 274(1) PROVIDES THAT NO ORDER IMPOSING A PENALTY SHALL BE MADE UNLESS THE ASSESSEE HAS BEEN HEARD, OR HAS BEEN GIV EN A REASONABLE OPPORTUNITY OF BEING HEARD. SECTION 273B PROVIDES THAT NO PENALTY SHALL BE IMPO SED ON THE PERSON OR THE ASSESSEE FOR FAILURE REFERRED TO IN THE SAID PROVISIONS INCLUDING SECTIO N 271, IF HE PROVES THAT THERE WAS REASONABLE 4 ITA NOS . 2327 & 2328/AHD/2008 CAUSE FOR THE SAID FAILURE. THE KEY WORDS IN THE SE CTION 273B ARE REASONABLE CAUSE ON PROOF OF WHICH NO PENALTY SHALL BE IMPOSABLE. WHAT CONSTIT UTES A REASONABLE CAUSE, IT DEPENDS UPON FACTS AND CIRCUMSTANCES OF EACH CASE. WE REPRODUCE THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF AZADI BACHAO ANDOLAN VS.- UNI ON OF INDIA REPORTED IN [2001] 252 ITR 471 (DELHI) AS UNDER :- REASONABLE CAUSE AS APPLIED TO HUMAN ACTION IS THA T WHICH WOULD CONSTRAIN A PERSON OF AVERAGE INTELLIGENCE AND ORDI NARY PRUDENCE. THE EXPRESSION REASONABLE IS NOT SUSCEPTIBLE OF A CLE AR AND PRECISE DEFINITION; FOR AN ATTEMPT TO GIVE A SPECIFIC MEANING TO THE WO RD REASONABLE IS TRYING TO COUNT WHAT IS NOT NUMBER AND MEASURE WHAT IS NOT SPACE. IT CAN BE DESCRIBED AS RATIONAL ACCORDING TO THE DICTATES OF REASON AND IS NOT EXCESSIVE OR IMMODERATE. THE WORD REASONABLE HAS IN LAW THE PRIMA FACIE MEANING OF REASONABLE WITH REGARD TO THOSE CIRCUMST ANCES OF WHICH THE ACTOR, CALLED ON TO ACT REASONABLY, KNOWS OR OUGHT TO KNOW. REASONABLE CAUSE CAN BE REASONABLY SAID TO BE A CAUSE WHICH PR EVENTS A MAN OF ORDINARY PRUDENCE AND AVERAGE INTELLIGENCE, ACTING UNDER NORMAL CIRCUMSTANCES, WITHOUT NEGLIGENCE OR INACTION OR WA NT OF BONA FIDES. 7. IN THE PRESENT CASE, THE COMPANYS OPERATIONS WE RE CLOSED SINCE 2005 AND KALUPUR COM. COOPERATIVE BANK HAS TAKEN POSSESSION OF THE COMPAN YS PROPERTY FROM 20 TH APRIL, 2005 AND THE BANKING ACTIVITIES WERE SUSPENDED. IN THESE CIRCUMS TANCES, THE ASSESSEE-COMPANY WAS FORCED TO ACCEPT LOAN IN CASH FROM DIRECTORS OF THE COMPANY F OR MAKING PAYMENTS OF SALARIES AND WAGES TO THE WORKERS. THESE LOANS WERE ALSO REFUNDED IN CASH . AS THE COMPANYS OPERATIONS WERE CLOSED SINCE 2005, IN OUR OPINION, THE ASSESSEE WAS PREVEN TED BY SUFFICIENT CAUSE IN ACCEPTING OR RE- PAYING LOAN THROUGH A/C. PAYEE CHEQUE OR BANK DRAFT . IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ACCEPTED TH AT THERE WAS REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273B FOR ACCEPTING OR RE-PAYING LOAN IN CASH. WE, THEREFORE, INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) CANCELLING THE PENALTY OF RS.10,16,000/- AND RS.7,72,000/- LEVIED BY THE ASSE SSING OFFICER UNDER SECTION 271D AND 271E OF THE INCOME TAX ACT, 1961 RESPECTIVELY. 8. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 24.09.201 0 SD/- SD/- (G.D. AGRAWAL) (T.K. SHARMA ) VICE-PRESIDENT (AZ) JUDICIAL MEMBER DATED : 24 / 09 / 2010 5 ITA NOS . 2327 & 2328/AHD/2008 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT CONCERNED (4) CIT(A.) CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.