DCIT, Salem V. M/s. Thakadoor Spinning Mills (P) Ltd., Dharmapuri

ITA 258/CHNY/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5232 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 17-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: G BASKAR
• Keywords: Search and seizure; Reasonable cause
• Section: 273B; 271D; 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI (BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER) .. I.T.A. NO. 258/MDS/2011 ASSESSMENT YEAR : 2005-06 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, SALEM. (APPELLANT) V. M/S THAKADOOR SPINNING MILLS (P) LTD., 1-C, RAMALINGA CHETTY STREET, DHARMAPURI 636 701. PAN : AAAFE5525G (RESPONDENT) APPELLANT BY : SHRI P.B. SEKARAN RESPONDENT BY : SHRI G. BAS KAR O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, ITS GRIEVANCE IS THAT THE CIT(APPEALS) HAD RELIED ON A DECISION OF THIS TRIBU NAL IN I.T.A. NO. 98/MDS/09 DATED 30.4.2010 WHICH HAS NOT BEEN ACCEPT ED BY THE DEPARTMENT. ACCORDING TO REVENUE, THIS TRIBUNAL IN I.T.A. NO. 98/MDS/09, RELIED ON BY THE CIT(APPEALS) ORDER FOR GIVING RELIEF TO THE ASSESSEE, HAD IN TURN, PLACED RELIANCE ON TWO OTHER DECISIONS, I.T.A. NO. 258/MDS/11 2 NAMELY, DCIT V. VIGNESH FLAT HOUSING PROMOTERS (200 7) 107 TTJ (CHENNAI) 848 AND CIT V. KUNDRATHUR FINANCE AND CHI T CO. (2006) 283 ITR 329 (MAD.), AND FACTS OF THESE CASES WERE D IFFERENT AND DISTINGUISHABLE. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE WAS LEVIED PENALTY UNDER SECTION 271D OF INCOME-TAX ACT, 1961 (HEREINAFTER C ALLED THE ACT) IN RESPECT OF AMOUNTS RECEIVED BY THE ASSESSEE FROM TE N MONEY LENDING FIRMS BELONGING TO ONE BUSINESS GROUP AT ERODE. AS SESSEE HAD DISCOUNTED POST DATED CHEQUES AND RECEIVED UNCROSSE D CHEQUES IN LIEU WHICH WAS ENCASHED BY IT DIRECTLY FROM THE BAN K. THE FINANCIERS LATER ON COLLECTED THE CHEQUES OF THE ASSESSEE ON T HE DUE DATES. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE COULD NOT ESTABLISH WITH A BONAFIDE REASON AS TO WHY AMOUNTS WERE RECEIVED FRO M THE MONEY LENDING FIRMS OTHER THAN BY ACCOUNT PAYEE CHEQUES A ND ACCOUNT PAYEE DEMAND DRAFTS. THIS RESULTED IN LEVY OF PENA LTY UNDER SECTION 271D OF THE ACT. 3. IN ITS APPEAL BEFORE THE LD. CIT(APPEALS), ASSES SEE RELIED ON DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN A SSESSEES OWN CASE I.T.A. NO. 258/MDS/11 3 FOR ASSESSMENT YEAR 2004-05 WHERE A PENALTY LEVIED ON SIMILAR FACTUAL SITUATION WAS DELETED BY THIS TRIBUNAL. FO LLOWING THE ABOVE MENTIONED ORDER OF THIS TRIBUNAL, THE CIT(APPEALS) DELETED THE PENALTY FOR THE IMPUGNED ASSESSMENT YEAR ALSO. 4. WHEN THE MATTER CAME UP BEFORE US, THE LEARNED D .R., ASSAILING THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT PENAL TY WAS RIGHTLY LEVIED AND RELIANCE PLACED BY THE CIT(APPEALS) ON T HE DECISION OF CO- ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN C ASE FOR ASSESSMENT YEAR 2004-05 WAS NOT CORRECT. 5. PER CONTRA, THE LEARNED A.R. SUPPORTED THE ORDER OF THE CIT(APPEALS). 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. WE FIND THAT FACTUAL SITUATION FOR THE IMPUGNED ASS ESSMENT YEAR WHICH GAVE RISE TO THE LEVY OF PENALTY UNDER SECTIO N 271D OF THE ACT WAS EXACTLY SIMILAR TO WHAT EXISTED FOR ASSESSMENT YEAR 2004-05, WHERE ALSO SIMILAR PENALTY WAS LEVIED. IN THE APPE AL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2004-05, THIS TRIBUNAL HAD VIDE ITS ORDER DATED 30.4.2010 HELD AS UNDER:- I.T.A. NO. 258/MDS/11 4 2. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY HAD RECEIVED AMOUNTS TOTALING TO RS.71,50,0 00/- IN CASH FROM CERTAIN VERIFIABLE CREDITORS FOR DISCOUNTING I TS OWN POST DATED CHEQUES. THIS FACT IS EVIDENT FROM THE TAX AUDIT R EPORT IN FORM 3- CD FURNISHED ALONG WITH THE RETURN OF INCOME FOR TH IS YEAR. THE DETAILS OF THE LOANS SO RECEIVED ARE AS UNDER:- SL.NO. NAME OF THE ASSESSEE AMOUNT OF LOAN 1. PARVATHI FINANCE, ERODE RS.5,00,000 2. SHANKAR TEXTILES, ERODE RS.9,00,000 3. THIRUPATHY FABRICS, ERODE RS.6,00,000 4. THIRUPATHY FINANCE, ERODE RS.3,00,000 5. THIRUPATHY TEX, ERODE RS.8,00,000 6. THIRUPATHY TEXTILES, ERODE RS.12,00,000 7. THIRUPATHY STORES, ERODE RS.9,50,000 8. VENKATESH MILLS, ERODE RS.19,00,000 3. CONSEQUENTLY, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE TO EXPLAIN AS TO WHY PENALTY U/S 271D OF THE ACT, F OR THE VIOLATION OF THE PROVISIONS OF SECTION 269SS, SHOULD NOT BE LEVI ED. IN REPLY, IT WAS EXPLAINED BY THE ASSESSEE AS UNDER:- GENERALLY THE FINANCE COMPANIES IN ERODE AND SALEM DISTRICTS GRANT LOANS BY WAY OF DISCOUNTING PARTIES OWN CHEQUES. THE CHEQUE DISCOUNT AMOUNTS WERE CLEARED ONLY BY WAY OF ACCOUNT PAYEE CHEQUES. MY CLIENT INCURRED HEAVY LOSS IN EXPORT BUSINESS DURING THE PREVIOUS YEARS; THEY WERE IN URGENT NEED OF MONEY TO MOBILIZE COTTON AND WASTE COTTON FOR UNINTERRUPTED PRODUCTION. MY CLIENT ACCEPTED CASH FOR THEIR URGENT NEEDS. MOREOVER, MY CLIENT I.T.A. NO. 258/MDS/11 5 FOLLOWED THE SAME WAY, THE GENERAL PRACTICE FOLLOWED FOR CHEQUE DISCOUNTS. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS SUBMITTED THAT THE ALLEGED CONTRAVENTION OF SECTION 269SS WAS DUE TO REASONABLE CAUSE. THUS YOUR HONOUR IS PRAYED THAT IN THE LIGHT PROVISION OF SECTION 273B THE PENALTY PROCEEDINGS MAY PLEASE BE DROPPED. 4. HOWEVER, THE ASSESSING OFFICER (THE ADDITIONAL C OMMISSIONER OF INCOME TAX) WAS NOT SATISFIED WITH THE ABOVE EXP LANATION OF THE ASSESSEE AND AFTER HOLDING THAT THE ASSESSEE HAD VI OLATED THE PROVISIONS OF SECTION 269SS LEVIED A PENALTY OF RS. 71.5 LAKHS U/S 271D OF THE ACT. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WH O, IN TURN, HAS DELETED THE PENALTY OF RS.41.5 LAKHS AND SUSTAINED THE PENALTY OF RS.30 LAKHS. NOW, BOTH THE PARTIES ARE IN APPEAL A ND HAVE FILED THEIR RESPECTIVE APPEALS. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY PERUSED THE ENTIRE RECORDS AVAILABLE BEFORE US INCL UDING THE PAPER BOOK FILED BY THE ASSESSEE. IT WAS FOUND FOR A FAC T THAT THE ASSESSEE HAD TO MAKE IMMEDIATE PAYMENTS IN CASH DUE TO ITS B USINESS EXIGENCY AND IN THAT CASE CASH LOANS WERE OBTAINED BY IT. IT IS ALSO FOUND FOR A FACT THAT ALL THE LOANS TAKEN ARE GENUI NE AND RECORDED IN THE BOOKS OF ACCOUNTS. IT IS ALSO AN UNDISPUTED FA CT THAT THE ASSESSEE WAS INCURRING HUGE BUSINESS LOSSES, TO THE TUNE OF RS.148 CRORES, UNTIL 31 ST MARCH, 2003 AND THE CREDITORS OF THE ASSESSEE COMPANY WERE PRESSING HARD FOR PAYMENT OF MONEY IN CASH. IT IS TRUE THAT TECHNICALLY THE PROVISIONS OF SECTION 269 SS HAVE BEEN VIOLATED AS THE ASSESSEE HAS ACCEPTED LOANS IN CASH EXCEEDING RS.20,000/- BUT SECTION 273B OF THE ACT PRESCRIBES FOR EXONERATION FROM THE GUILLITONE OF THE PROVISIONS OF SECTION 26 9SS IN CASE THE ASSESSEE CAN SHOW A REASONABLE CAUSE FOR SUCH VIOLA TION IN RECEIVING, LOANS EXCEEDING RS.20,000/- IN CASH, OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR DEMAND DRAFT. IN THIS REGARD SETTL ED POSITION OF LAW IS THAT LEVY OF PENALTY UNDER THIS SECTION IS N OT MANDATORY BUT DEPENDS ON THE DISCRETION OF THE CONCERNED AUTHORIT Y. IN THIS REGARD, I.T.A. NO. 258/MDS/11 6 THE DECISION OF HON'BLE APEX COURT IN THE CASE OF A DIT VS. KUMARI A.B. SHANTHI REPORTED IN 255 ITR 258 (SC) CAN BE CI TED. IN THIS DECISION, THE HON'BLE APEX COURT HAS OBSERVED AS UN DER:- THE OBJECT OF INTRODUCING SECTION 269SS IS TO ENSURE THAT A TAX PAYER IS NOT ALLOWED TO GIVE FALSE EXPLANATION FOR HIS UNACCOUNTED MONEY, OR IF HE HAS GIVEN SOME FALSE ENTRIES IN HIS ACCOUNTS, HE SHALL NOT ESCAPE BY GIVING FALSE EXPLANATION FOR THE SAME. DURING SEARCH AND SEIZURES UNACCOUNTED MONEY IS UNEARTHED AND THE TAX PAYER 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 LATER TO SUIT THE PLEA OF THE TAX PAYER. THE MAIN OBJECT OF SECTION 269SS WAS TO CURB THIS MENACE. AS REGARDS THE TAX LEGISLATIONS, IT IS A POLICY MATTER, AND IT IS FOR PARLIAMENT TO DECIDE IN WHICH MANNER THE LEGISLATION SHOULD BE MADE. OF COURSE, IT SHOULD STAND THE TEST OF CONSTITUTIONAL VALIDITY. THE OBJECT SOUGHT TO BE ACHIEVED WAS TO ERADICATE THE EVIL PRACTICE OF MAKING OF FALSE ENTRIES IN THE ACCOUNT BOOKS AND LATER GIVING EXPLANATION FOR THE SAME. 6. AS WE HAVE MENTIONED ABOVE, ALL THE TRANSACTIONS IN QUESTION ARE GENUINE. THESE TRANSACTIONS ARE FOUND RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND ALSO RECORDED IN THE B OOKS OF THE CREDITORS (LENDER OF THE LOAN). THE ASSESSEE HAS E XPLAINED THAT IN VIEW OF THE NATURE OF ITS BUSINESS IT HAD TO MAKE C ASH PAYMENTS AND FOR THAT PURPOSE CASH RECEIPTS WERE REQUIRED URGENT LY. ALTHOUGH THE ASSESSING OFFICER HAS ACCEPTED IT AS A FACT THAT TH E ASSESSEE COMPANY HAD TO PAY IN CASH BUT STILL HE HAS NOT ACC EPTED THIS REASON AS A MITIGATING CIRCUMSTANCE. IN OUR CONSIDERED OP INION, BONAFIDE AND GENUINE TRANSACTIONS ARE NOT HIT BY THE PROVISI ONS OF SECTION 269SS. IN THIS REGARD, THE DECISION OF HONBLE CHE NNAI C BENCH REPORTED IN THE CASE OF DCIT VS. VIGNESH FLAT HOUSI NG PROMOTERS (2007) 107 TTJ (CHENNAI) 848 IS RELEVANT. LIKEWISE , THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. KUNDRATHUR FINANCE AND CHIT CO. REPORTED IN (2006) 283 ITR 329 (MAD) HAS A LSO CANCELLED I.T.A. NO. 258/MDS/11 7 PENALTY LEVIED U/S 271D WHEN THE CASH BORROWALS WER E FOUND GENUINE AND BONAFIDE. THE PROVISIONS OF SECTION 27 1D ALSO ADMIT A REASONABLE CAUSE, WHICH HAS NOT BEEN REALLY CONSIDE RED AND EXAMINED BY THE AUTHORITIES IN ITS CORRECT PERSPECT IVE. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS CLEARLY ME NTIONED THAT THESE LOANS WERE TAKEN IN CASH AS THE ASSESSEE COMP ANY NEEDED MONEY TO MAKE PAYMENT IN CASH. BUT HE HAS DIFFEREN TIATED BETWEEN CASH LOAN TAKEN AND DEPOSITED IN BANK AND THE AMOUN T WHICH WAS UTILIZED FOR PAYMENT TO CREDITORS IN CASH. WHATEVE R AMOUNT WAS DEPOSITED IN ASSESSEES BANK ACCOUNT AFTER RECEIVIN G IT IN CASH HAS BEEN TREATED TO BE IN VIOLATION OF SECTION 269SS AN D THE REST HAS BEEN TREATED AS EXPLAINED WITH REASONABLE CAUSE. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS OF THE P ARTIES IN THE LIGHT OF THE ABOVE MENTIONED UNDENIABLE FACTS, WE A RE NOT IN AGREEMENT WITH THE FINDINGS OF THE LEARNED COMMISSI ONER OF INCOME TAX (APPEALS) TO THE EXTENT THAT IN CASE THE CASH A MOUNT RECEIVED IS DEPOSITED BY THE ASSESSEE IN ITS BANK, THERE WOULD NOT BE ANY REASONABLE CAUSE TO RECEIVE THE LOAN IN CASH. IN F ACT, WHEN IT IS FOUND THAT THE ASSESSEE HAD RECEIVED CASH FROM PART IES FOR MAKING PAYMENT IN CASH FOR ITS BUSINESS PURPOSE, A REASONA BLE CAUSE WOULD ARISE TO HELP THE CASE OF THE ASSESSEE. THEREAFTER , WHETHER THE AMOUNT IS PAID IN CASH OR DEPOSITED IN THE BANK WOU LD MAKE NO MATERIAL DIFFERENCE IN SO FAR AS LEVY OF PENALTY IS CONCERNED. ONCE THE EXPLANATION IS FOUND TO BE REASONABLE AS A CAUS E TO RECEIVE CASH PAYMENT EXCEEDING RS.20,000/-, ITS APPLICATION THER EAFTER WOULD NOT MATTER MUCH. THEREFORE, IN OUR CONSIDERED OPINION, NO PENALTY AT ALL IS EXIGIBLE IN THIS CASE FOR VIOLATION OF SECTION 2 69SS AS THERE EXISTS A REASONABLE CAUSE AS PROVIDED U/S 273B OF THE ACT IN FAVOUR OF THE ASSESSEE. IN OUR CONSIDERED VIEW, THE ENTIRE PENAL TY OF RS.71.50 LAKHS HAS TO BE CANCELLED / DELETED. HENCE, WE ORD ER TO DELETE THE ENTIRE PENALTY. CONSEQUENTLY, THE APPEAL OF THE AS SESSEE STANDS ALLOWED AND THAT OF THE REVENUE STANDS DISMISSED. 7. NOTHING HAS BEEN BROUGHT OUT BY THE LEARNED D.R. TO TAKE A DIFFERENT VIEW FOR THE IMPUGNED ASSESSMENT YEAR. L D. CIT(APPEALS) I.T.A. NO. 258/MDS/11 8 HAVING FOLLOWED THE TRIBUNAL ORDER FOR ASSESSMENT Y EAR 2004-05 IN ASSESSEES OWN CASE, WE DO NOT FIND ANY REASON FOR INTERFERENCE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON THE NINETEENTH DAY OF APRIL, 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 19 TH APRIL, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-II, COIMBATORE (4) CIT, CENTRAL, CHENNAI (5) D.R. (6) GUARD FILE