M/s. Sri Sarvaraya Sugars Limited, V. THE Addl.CIT, Kakinada

ITA 304/VIZ/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 85494 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 02-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bonafide belief; Reasonable cause
• Section: 40A(3); 273B

Judgement Text

1 I.T.A. NO.304/VIZ/2013 ASSESSMENT YEAR:2008-09 IN THE INCOME TAX APPELLATE TRIBUNAL, VISHAKHAPATNA M BEFORE S/SHRI D.MANMOHAN (VP) & J.SUDHAKAR REDDY (A M) I.T.A. NO.304/VIZ/2013 ASSESSMENT YEAR:2008-09 M/S. SRI SARVARYA SUGARS LIMITED, CHELLURI, EAST GODAVARI DISTRICT. VS. ADDL. CIT, KAKINADA RANGE, KAKINADA PAN/GIR NO. : AAECS 6554 N ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI G.V.N. HARI RESPONDENT BY : SHRI MANOJ KUMAR DATE OF HEARING : 02/12/2014 DATE OF PRONOUNCEMENT : 5/12/2014 O R D E R PER J.SUDHAKAR REDDY, AM THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-11, MUMBAI CAMP OFFICE: VISAKH APATNAM, DATED 16.1.2013, WHEREIN, THE ORDER OF ADDL. COMMISSIONER OF INCOME TAX, KAKINADA LEVYING PENALTY UNDER SECTION 271D OF THE ACT HAS BEEN UPHELD. 2. THE FACTS OF THE CASE, AS BROUGHT OUT FROM THE P ENALTY ORDER, ARE EXTRACTED BELOW FOR READY REFERENCE: THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPAN Y HAS ACCEPTED CERTAIN DEPOSITS FROM THE FARMERS DIRECTLY DEPOSITED IN THE BANK ACC OUNT OF THE COMPANY. SUCH DEPOSITS 2 I.T.A. NO.304/VIZ/2013 ASSESSMENT YEAR:2008-09 WERE AGGREGATED TO RS.53,71,000/-. THE ASSESSEE COM PANY EXPLAINS AT PAGE-2 OF ITS LETTER DATED 8,6.2011 ASUNDER: ...... AS THE FARMERS NUMBERING TO 116 WHO HAS MADE PUBLIC DEPOSITS WITH THE COMPANY TOTALING TO RS.83.71 LAKHS DURING THE FINANCIAL YEA R 2007-08 (WRONGLY QUOTED AS 2006- 07), REFERRED TO ABOVE MOST OF THEM BEING PUBLIC DE POSITS WITH THE COMPANY, BY DEPOSITING CASH WITH THE COMPANY. WHEN THE COMPANY REFUSED TO ACCEPT THE SAID DEPOSITS REMITTANCE OF CASH, THE SAID FARMERS APPRO ACHED BANK OF BARODA, CHELLURI WHERE THE COMPLY OPERATES A BANKING-ACCOUNT, AND DE POSITED IN CASH IN THE BANKING ACCOUNT MAINTAINED BY THE COMPANY THROUGH 'BANK PAY -IN-SLIPS DULY SIGNED BY THEM, WITH THE SAID BRANCH OF BANK OF BARODA. FURTHER, TH E SAID FARMERS HAVE MADE THE APPLICATIONS DULY SIGNED FOR PUBLIC DEPOSITS IN THE PRESCRIBED FORM BY ENCLOSING THE 'PAY- IN-SLIP' FOR THE AMOUNTS DEPOSITED DIRECTLY WITH TH E BANK.' THE ASSESSEE COMPANY FILED COPIES OF PAY-IN-SLIPS OF THE ALL THE SAID 116 FARMERS WHO MADE CASH DEPOSITS INTO THE BANK. 3. THE ASSESSEE COMPANY PLEADED BEFORE THE ASSESSIN G OFFICER, THAT IT REASONABLY AND GENUINELY BELIEVED THAT THE ACT OF 'DIRECT DEPOSIT OF CASH WITH THE BANK' BY THE SAID FARMERS DO NOT CONTRAVENE THE PROVISIONS OF THE INCOME TAX ACT , FOR THE REASON THAT THE COMPANY HAD NOT ACTUALLY RECEIVED CASH DIRECTLY, AS THE MONIES WERE DIRECTLY DEPOSITED IN THE BANK ACCOUNT. THE EXPLANATION SUBMITTED BY THE ASSESSEE BEFORE THE AS SESSING OFFICER IS SUMMARIZED BY HIM AS BELOW: ( 1 ) AS SUBMITTED ABOVE, THOUGH THERE HAS BEEN A TECHNICAL BREACH OF PROVISIONS OF SECTION 269SS OF THE ACT, THERE IS A REASONABLE CAU SE FOR ACCEPTING THE DEPOSIT BY WAY OF DIRECT DEPOSIT INTO COMPANY'S BANK ACCOUN T BY RESPECTIVE FARMERS. (2) THE DEPOSITS ACCEPTED BY VARIOUS DEPOSIT HOLDE RS ARE PROPERLY BEEN VERIFIED BY THE ASSESSING AUTHORITY DURING ASSESSMENT PROCEEDIN GS AND FOUND TO BE IN ORDER. (3) THE COMPANY'S CASHIER HAS NOT ACCEPTED CASH IN HIS OFFICE AND NO CASH RECEIPT HAS BEEN ISSUED TO THE RESPECTIVE FARMERS AND RECO RDED IN CASH BOOK MAINTAINED 3 I.T.A. NO.304/VIZ/2013 ASSESSMENT YEAR:2008-09 BY THE COMPANY. THIS IS EVIDENT FROM THE SIGNATURES ON BANK PAY-IN-SLIPS AND FIXED DEPOSIT APPLICATION AS SUBMITTED ABOVE. BEIN G A DIRECT DEPOSIT INTO THE BANK BY THE DEPOSIT HOLDER HIMSELF, THE COMPANY HAD TO ACCOUNT FOR THE SAID DEPOSIT IN ITS BANK BOOK ONLY. (4) THE CONCERNED OFFICIALS HAVE GENUINELY BELIEVED THAT DIRECT DEPOSIT INTO THE BANK BY THE DEPOSIT HOLDER IS NOT A CONTRAVENTION OF THE PROVISIONS OF THE ACT. (5) THE DEPOSITS WERE RECEIVED FROM GENERAL PUBL IC IN RESPONSE TO THE ADVERTISEMENT GIVEN IN NEWS PAPERS, BASED ON AN APP LICATION IN THE PRESCRIBED FORMAT, CONTAINING FULL AND COMPLETE DETAILS OF THE DEPOSIT HOLDER- LIKE FULL NAME, COMPLETE POSTAL ADDRESS, THE SOURCE FOR THE AMOUNT SO DEPOSITED, NOMINEE'S NAME, ETC. (6) THE DEPOSITS ACCEPTED BY THE COMPANY HAVE BEEN APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY. (7) THE COMPANY ISSUED STAMPED RECEIPTS DULY SIGNE D BY THE MANAGING DIRECTOR OF THE COMPANY. (8) THE DEPOSITS WERE REPAID ON THEIR RESPECTIVE DA TES OF MATURITY TO THE RESPECTIVE DEPOSITORS. (9) TRANSACTIONS ARE CONFIRMED BY THE RESPECTIVE DEPOSIT HOLDERS. 4. THE ASSESSEE RELIED ON A NUMBER OF DECISIONS AS UNDER: I) CIT VS. RATNA AGENCIES (284 1TR 609)(MAD) (II) CIT VS. MANOJ LALWARU, 260 ITR 590 (RAJ) (III) CIT VS. JANASHAKTI BENEFIT FUND LTD., (303 IT R 29)(MAD) (IV) BHAGVATII PRASAD BAJORIA (263 1TR 487(GAU) (V) OMEC ENGINEERS VS. CIT, 294 ITR 599 (JHAR) 5. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE FOR THE FOLLOWING REASONS: (A) THE PROVISIONS OF SECTION 269SS DOES NOT GIVE ANY E XCEPTION. 4 I.T.A. NO.304/VIZ/2013 ASSESSMENT YEAR:2008-09 (B) A PLAIN READING OF SECTION 269SS GIVE A MEANING THA T THE ASSESSEE SHOULD NOT ACCEPT ANY LOAN / DEPOSIT IN CASH IN EXCESS OF R.S .20,000/-. (C) THE SECTION DOES NOT SAY THAT IF THE TRANSACTIO N IS FOUND TO BE GENUINE, NO PENALTY SHOULD BE LEVIED FOR BREACH OF THE PROVISION. D)THE ASSESSEES EXPLANATION THAT INITIALLY THOUGH COMPANY REFUSED TO ACCEPT DEPOSITS FROM FARMERS, THE FARMERS HAVE DIRECTLY DEPOSITED C ASH INTO COMPANY'S ACCOUNT IS FOUND TO BE ILLOGICAL. (E) THE INTENT OF LEGISLATURE WOULD BE DEFEATED IF THE ASSESSED REASONING HAS TO BE ACCEPTED. HE, ACCORDINGLY, LEVIED THE PENALTY UNDER SECTION 271D OF THE ACT. 6. AGGRIEVED BY THE PENALTY ORDER, THE ASSESSEE CAR RIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE FIRST APPELLATE AUT HORITY CAME TO A CONCLUSION THAT THE ASSESSEE COULD NOT DEMONSTRATE THAT IT HAS REASONABLE CAUSE FOR ITS FAILURE TO ACCEPT THE AMOUNT IN COMPLIANCE TO SECTION 269SS OF THE ACT. HE RECORDE D THAT THERE IS NOTHING ON RECORD TO SHOW THAT THERE WERE BONAFIDE REASONS FOR NOT ACCEPTING THE SAID AMOUNTS THROUGH ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT. AFTER REFERRING TO VARIOUS CASE LAWS, HE, INTER ALIA , HELD AT PARA 4.3.9, AS FOLLOWS: IN VIEW OF THE JUDGEMENT OF HONBLE JHARKHAND HIGH COURT IN CASE OF OMEC ENGINEER (SUPRA) AND JUDGEMENTS OF HONBLE DELHI HI GH COURT IN CASE OF DIWAN ENTERPRISES (SUPRA) AND STANDARD BRANDS LTD (SUPRA) , IT IS EVIDENT THAT THE COURTS ARE OF THE DIVIDED OPINION ON THE LEVY OF PENALTY U /S.271D FOR THE REASONS WHETHER CASH DEPOSITS ARE ADDED AS INCOME OR IT IS NOT ADDED AS INCOME. FURTHER, SUPREME COURT IN CASE OF KUMARI A.B.SHANTI , 255 ITR 258 (SC) HAS HELD THAT PENALTY U/S.271D IS NOT LEVIABLE IF THERE IS R EASONABLE CAUSE FOR SUCH FAILURE AND THE TRANSACTION IS GENUINE. 7. THEREAFTER, HE DISMISSED THE APPEAL OF THE ASSES SEE BY HOLDING AS UNDER: 4.3.10 THE LD. AR HAS ARGUED THAT THE MONEY WAS DEP OSITED BY THE DEPOSITORS DIRECTLY INTO ITS BANK ACCOUNTS AND IT HAD NO CONTR OL OVER SUCH DEPOSITS. IN THIS REGARD, THE APPLICATION FORMS HAVE BEEN EXAMINED. I N THE APPLICATION FORMS, UNIQUE DEPOSITOR NUMBER HAS BEEN GIVEN TO EACH DEPO SITOR. FURTHER IN THE ADVERTISEMENT ISSUED FOR DEPOSITS, THE ASSESSEE COM PANY HAS INVITED DEPOSITS IN CHEQUE OR DEMAND DRAFT ONLY. HOWEVER, THE FORMS CON TAIN A COLUMN FOR CASH DEPOSIT ALSO. FURTHER, THE BANK ACCOUNT NUMBER OF T HE ASSESSEE CANNOT BE 5 I.T.A. NO.304/VIZ/2013 ASSESSMENT YEAR:2008-09 KNOWN TO THE LARGE NUMBER OF DEPOSITORS TO FACILITA TE THE CASH DEPOSITS DIRECTLY IN THE BANK ACCOUNT OF THE ASSESSEE WITHOUT KNOWLEDGE AND EXPRESS OR IMPLIED CONSENT OF THE ASSESSEE OR ITS EMPLOYEES. IF THE AS SESSEE HAS CONVEYED ITS BANK ACCOUNT NUMBER TO THE DEPOSITORS EITHER DIRECTLY OR INDIRECTLY, IT HAS CONSENTED TO DEPOSIT IN CASH AND THE DEPOSITOR MAKING DEPOSITS I N THE BANK ACCOUNT HAS ACTED AS AN AGENT OF THE ASSESSEE FOR THE PURPOSE OF MAKI NG CASH DEPOSITS IN THE ACCOUNTS OF THE ASSESSEE. THEREFORE, THE ARGUMENT T HAT THE DEPOSITOR HAS DIRECTLY DEPOSITED THE CASH AND IT HAS NO ROLE IN A CCEPTING THE CASH DEPOSITS IS MISPLACED. MOREOVER, THE OBJECTIVE OF LEGISLATURE W HILE IN INCORPORATING SECTION 269SS AND 27ID IS NOT FULFILLED UNLESS THE ASSESSEE SHOWS THE SATISFACTION OF THE AO THAT THE MONEY ACCEPTED IN CASH IS THE DISCLOSED INCOME OF THE DEPOSITORS ALSO. UNLESS THE CASH DEPOSITS ARE PROPERLY EXPLAIN ED IN THE HANDS OF DEPOSITORS, IT CANNOT BE HELD AS A GEN UINE TRANSACTIONS TO THE EFFECT OF BLOCKING CIRCULATION OF BLACK MONEY OF DEPOSITORS. IT IS ALSO NOT SHOWN IN THIS CASE THE DEPOSITORS COULD NOT GET DEMAND DRAFT OR MAKE A DEPOSIT BY ACCOUNT PAYEE CHEQUE BEFORE MAKING THE CASH DEPOSITS MORE SO WHEN THE DEPOSITS HAS BEEN MADE BY THE DEPOSITORS IN BANK ONLY - MEANING T HEREBY, THE DEPOSITORS HAVE ACCESS TO BANK. 8. LD COUNSEL FOR THE ASSESSEE, SHRI G.V.N. HARI SU BMITTED THAT THE ASSESSEE WAS UNDER BONAFIDE BELIEF THAT IF CASH IS NOT RECEIVED BY TH E ASSESSEE DIRECTLY AND IF CASH IS DEPOSITED DIRECTLY IN ASSESEES BANK ACCOUNT, THEN THERE WOUL D HAVE BEEN NO VIOLATION OF SECTION 269SS OF THE ACT. HE PLEADED THAT THIS BONAFIDE AND GENUINE BELIEF OF NOT VIOLATING THE TECHNICAL REQUIREMENTS OF LAW HAS TO BE CONSIDERED AS REASONA BLE CAUSE AND PENALTY SHOULD NOT HAVE BEEN LEVIED. 9. HE FURTHER SUBMITTED THAT THE TOTAL DEPOSIT CALC ULATED BY THE ASSESSEE WAS MORE THAN R.4.66 CRORES AND OUT OF THIS, ONLY WITH RESPECT TO AN AMOUNT OF RS.83.71 LAKHS, WHERE THE FARMERS, WHO ARE THE DEPOSITORS IN THIS CASE, HAD G ONE DIRECTLY TO THE BANK AND DEPOSITED THE AMOUNT THROUGH BANK PAY-IN-SLIPS SIGNED BY THEM AND THEREAFTER, SUBMITTED THE SAME FOR ISSUANCE OF FIXED DEPOSIT RECEIPTS. HE FURTHER SUB MITTED THAT FOR THE FIRST TIME IN THE HISTORY OF THE ASSESSEE COMPANY, SUCH A PROCEDURE HAD OCCURRED AND IF AT ALL IT IS CONSIDERED AS OFFENCE, IT SHOULD BE CONSIDERED AS FIRST OFFENCE OF THE COMPAN Y. HE FURTHER SUBMITTED THAT THE DEPOSITORS ARE FARMERS AND DEPOSITS ARE GENUINE AND THE UNDISP UTED FACT THAT THERE IS NO OTHER BANK IN THE VICINITY OF THE ASSESSEE FACTORY. HE PLEADED THAT MOST OF THE FARMERS DO NOT HAVE BANK ACCOUNTS. HE FURTHER SUBMITTED THAT EVEN IN CASES WHERE THEY HAD BANK ACCOUNTS, THE BALANCE IN THE SAID BANK ACCOUNT IS MINIMAL AND THESE FARME RS WOULD NOT BE ENTITLED TO CHEQUE FACILITY. HE FURTHER SUBMITTED THAT IN ORDER TO AVOID THE EXP ENDITURE, THE FARMERS CHOSE TO DEPOSIT THE 6 I.T.A. NO.304/VIZ/2013 ASSESSMENT YEAR:2008-09 MONEY IN ASSESSEES BANK ACCOUNT AS THEY HAD TO PAY COMMISSION IN PREPARING THE DEMAND DRAFTS. HE POINTED OUT THAT THE GENUINENESS OF THE TRANSACTION AND FACTS OF THE CASE ARE NOT DISPUTED BY THE REVENUE AUTHORITIES AND IN SUCH A S ITUATION, THE VIOLATION, IF ANY, IS ONLY A TECHNICAL VIOLATION AND PENALTY OF SUCH MAGNITUDE S HOULD NOT HAVE LEVIED FOR VENIAL AND TECHNICAL BREACH OF THE PROVISIONS. ON A QUERY FRO M THE BENCH, HE SUBMITTED THAT THE ASSESSEE HAD ADVERTISED IN THE NEWS PAPERS U/S. 58A OF THE C OMPANIES ACT, 1956 AND THE AMOUNTS WERE RECEIVED IN PURSUANCE TO SUCH ADVERTISEMENT. HE RE LIED ON THE FOLLOWING CASE LAWS: I) CIT VS. SMT SHELLY PASSI (2013) 350 ITR 227 (P& H) II) CIT VS. GRANDHI VENKATA RAMANA(ITA NO.244 OF 2 003) ORDER DT.28.10.14 III) CIT VS. MAA KHODIYAR CONSTRUCTION,(2014) 365 ITR 474 (GUJ) IV) CIT VS. RASHI INJECTION MOULDERS(2014) 368 ITR 527 (MAD) 10. LD D.R., SHRI MANOJ KUMAR, ON THE OTHER HAND, C ONTROVERTED THE ARGUMENTS OF LD COUNSEL FOR THE ASSESSEE AND SUBMITTED THAT ON PERUSAL OF A PPLICATION FOR THE PURPOSE OF MAKING FIXED DEPOSITS WITH THE ASSESSEE, WHICH IS PART OF ASSESS EES PAPER BOOK, DEMONSTRATE THAT THERE ARE THREE COLUMNS I.E. BY WAY OF CHEQUE, BY WAY OF DEMA ND DRAFTS AND BY WAY OF CASH. HE ARGUED THAT THIS DEMONSTRATES THAT THE ASSESSEE HAS AN INT ENTION TO ACCEPT THE DEPOSITS BY WAY OF CASH. HE REFERRED TO PARA 4.3.10 OF LD CIT(A)S O RDER AND SUBMITTED THAT UNLESS THE ASSESSEE CONVEYED ITS BANK ACCOUNT NUMBER TO THE DEPOSITORS EITHER DIRECTLY OR INDIRECTLY, AND CONSENTED TO DEPOSIT IN CASH DIRECTLY INTO THE BANK ACCOUNT, THE QUESTION OF ASSESSEE MAKING SUCH DEPOSITS DIRECTLY INTO THE BANK DOES NOT ARISE. HE ARGUED T HAT THE ASSESSEE HAS TO BE HELD RESPONSIBLE FOR SUCH ACT. HE REFERRED TO PAGE 10 OF PB TO DEMO NSTRATE THAT THE QUANTUM OF DEPOSIT IN CERTAIN CASES IS ABOUT RS.5 LAKHS AND ARGUED THAT T HE SUBMISSION OF THE ASSESSEE THAT THE FARMERS DO NOT HAVE BANK ACCOUNT AND IN CASES WHERE THEY HAVE BANK ACCOUNT AND BALANCE ARE MINIMAL NOT ENTITLING THEM FOR ISSUE OF CHEQUE BOOK S IS FACTUALLY INCORRECT. HE CONTENDED THAT NO REASON IS GIVEN BY THE ASSESSEE AND MERELY STATI NG THAT THERE IS BUSINESS STRINGENCY DOES NOT COME TO THE RESCUE TO THE ASSESSEE AND FOR THIS PROPOSITION, HE RELIED ON THE JUDGEMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF P. BASKAR VS CIT, 340 ITR 560 (MAD). HE SUBMITTED THAT THE ASSESSEE COMPANY IS VERY OLD COMPANY AND I GNORANCE OF LAW OR FIRST TIME OFFENCE IS NOT AN EXCUSE. HE RELIED ON THE ORDER OF LD CIT(A) AND SUBMITTED THAT THE SAME SHOULD BE UPHELD. 7 I.T.A. NO.304/VIZ/2013 ASSESSMENT YEAR:2008-09 11. IN REPLY, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE APPLICATION FORM OF DEPOSIT IS A STANDARD FORM DRAWN ON LOCAL BANK AND WHEN ASSESS EE COMPANY ACCEPTS THE DEPOSITS BELOW RS.20,000/- AND IN VIEW OF THIS, NO ADVERSE INFEREN CE SHOULD BE DRAWN ON THE BASIS OF MATERIAL PRINTED IN APPLICATION FORM FOR FIXED DEPOSITS. ON BUSINESS EXIGENCY, HE SUBMITTED THAT THE ARGUMENTS OF THE ASSESSEE WAS THAT IT DEPENDS ON P UBLIC DEPOSITS FOR RUNNING ITS BUSINESS AND HENCE, IN THE PROCESS OF GATHERING PUBLIC DEPOSITS, IT WAS UNDER BONAFIDE BELIEF THAT NOT TAKING THE AMOUNT IN CASH, THE AMOUNTS BEING DEPOSITED IN BANK ACCOUNT DIRECTLY COULD NOT VIOLATE THE PROVISIONS OF THE ACT. HE EMPHASIZES THE MAIN PLAN K OF ARGUMENTS IS REASONABLE CAUSE AND BONAFIDE BELIEF AND THAT IT FALL WITHIN THE KEN OF SECTION 273B. ON THE FARMERS KNOWING THE BANK ACCOUNT NO. OF THE COMPANY, HE SUBMITS THAT TH E COMPANY HAS MANY DEALINGS WITH THE FARMERS, AND THE BANK A/C IS KNOWN TO ALL. IT IS L IKE DEPOSITING MONEY IN A UNIVERSITY FOR FEE PAYMENTS. 12. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERA TION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, AND ON PERUSAL OF THE PAPERS ON RECORD AND OR DERS OF THE AUTHORITIES BELOW AS WELL AS CASE LAWS CITED, WE HOLD AS FOLLOWS: 12.1 116 FARMERS HAVE DIRECTLY DEPOSITED THE CASH I NTO THE BANK ACCOUNT OF THE ASSESSEE COMPANY AND PRODUCED RECEIPTS AS PROOF OF DEPOSIT BEFORE THE COMPANY, ALONGWITH APPLICATION OF FIXED DEPOSITS. THE ISSUE IS WHETHER THE PLEADING OF THE ASSESSEE THAT IT WAS UNDER THE BONAFIDE BELIEF THAT SUCH ACT OF DEPOSIT IN CASH IN THE ASSESSEES BANK ACCOUNT DIRECTLY DOES NOT VIOLATE S ECTION 269SS OF THE ACT CAN BE BELIEVED OR NOT. IF THIS EXPLANATION OF BONAFIDE B ELIEF IS ACCEPTED THAT IT HAS TO BE HELD THAT THE ASSESSEE HAS A REASONABLE CAUSE FOR THE TE CHNICAL VIOLATION. SECTION 269SS READS AS FOLLOWS: SECTION 269SS PROVIDES THAT ANY LOAN OR DEPOSIT SH ALL NOT BE TAKEN OR ACCEPTED FROM ANY OTHER PERSON OTHERWISE THAN BY AN ACCOUNT PAYEE CHE QUE OR ACCOUNT PAYEE BANK DRAFT IF, (A) THE AMOUNT OF SUCH LOAN OR DEPOSIT OR THE AGGRE GATE AMOUNT OF SUCH LOAN AND DEPOSIT ; OR 8 I.T.A. NO.304/VIZ/2013 ASSESSMENT YEAR:2008-09 (B) ON THE DATE OF TAKING OR ACCEPTING SUCH LOAN OR DEPOSIT, ANY LOAN OR DEPOSIT TAKEN OR ACCEPTED EARLIER BY SUCH PERSON FROM THE DEPOSITOR IS REMAINING UNPAID AND THE AMOUNT OR THE AGGREGATE AMOUNT REMAINING UNPAID ; OR (C) THE AMOUNT OR THE AGGREGATE AMOUNT REFERRED TO IN CLAUSE (A) TOGETHER WITH THE AMOUNT OR THE AGGREGATE AMOUNT REFERRED TO IN CLAUSE (B), IS TWENTY THOUSAND RUPEES OR MORE : (EMPHASIS OWN) SECTION 40A(3) READS AS FOLLOWS: '(3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN R ESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON I N A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT , EXCEEDS TWENTY THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPEN DITURE. IT CAN BE SEEN THAT THE WORDING IN BOTH THE SECTI ON ARE IDENTICAL. 13. THE HONBLE P&H HIGH COURT IN THE CASE OF CIT V S. SMT SHELLY PASSI, 350 ITR 227 (P&H) INTERPRETING THE PROVISIONS OF SECTION 40A(3) AT PA RA 5 HELD AS FOLLOWS: THE TRIBUNAL WHILE ACCEPTING THE PLEA OF THE ASSES SEE HAD CATEGORICALLY HELD THAT THE MONEY AMOUNTING TO RS.60,19,000/- WAS DIRECTLY DEPOSITED IN THE BANK ACCOUNT OF RCIL. REFERENCE WAS ALSO MADE TO THE PA PER BOOK WHICH HAD BEEN FILED BEFORE THE TRIBUNAL. ANOTHER FACTOR WHICH WA S CONSIDERED BY THE TRIBUNAL WAS THAT THE ASSESSEE WAS ONLY AN AGENT OF RCIL AND THEREFORE QUESTION OF ANY DISALLOWANCE IN THE HANDS OF THE ASSESSEE WAS NOT A TTRACTED. THE AFORESAID FINDINGS HAVE NOT BEEN SHOWN TO BE PERVERSE OR ERRO NEOUS IN ANY MANNER. 14. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT, RAJAHMUNDRY VS GRANDHI VENTAKATA RAMANA, I.T.T.A 244 OF 2003, JUDGEMENT DA TED 28.10.2014 UPHELD THE ORDER OF THE TRIBUNAL, WHICH FOLLOWED THE DECISION OF P&H HIGH C OURT IN THE CASE OF SMT SHELLY PASSI (SUPRA). IT HELD AS FOLLOWS: NOTWITHSTANDING THE FACT THAT THE RESPONDENT CANNOT CLAIM THE BENEFIT UNDER RULE 6DD(J) OF THE RULES, THE ATTENDANT CIRCUMSTANCES JUSTIFIED TH E VIEW TAKEN BY THE TRIBUNAL. IN ITS ORDER, THE TRIBUNAL REFERRED TO VARIOUS JUDGMENTS RENDERED BY DIFFERENT HIGH COURTS, MAY BE AS REGARDS THE PROPOSITION THAT IF AN ORDER IS PASSED AND IF THE BOOKS OF ACCOUNT OF AN ASSESSEE ARE NOT BELIEVED, AND THE BEST JUDGMENT ASSESSMENT MADE, EVERY DEDUCTION OR ALLOWANCE INCLUDING THE ONE REFERABLE TO SECTION 40A(3) OF TH E ACT CAN BE SAID TO HAVE BEEN DEALT WITH. WE DO NOT INTEND TO DWELL INTO THAT ASPECT BECAUSE IT WAS IN RELATION TO A DIFFERENT HEAD OF AMOUNT. 9 I.T.A. NO.304/VIZ/2013 ASSESSMENT YEAR:2008-09 WE HAVE ALREADY OBSERVED THAT THE PROHIBITION CONTA INED IN SECTION 40A(3) OF THE ACT IS NOT ABSOLUTE AND DOZENS OF EXCEPTIONS ARE CARVED OUT BY THE RULE MAKING AUTHORITY. AT LEAST IN THE EXCEPTIONS CONTAINED IN THE RULE, THE PAYMENT BY TH E ASSESSEE, AS WELL AS RECEIPT BY THE PAYEE ARE IN CASH. IN THE INSTANT CASE, THE PAYM ENT NO DOUBT WAS IN CASH BUT IT WAS DEPOSITED INTO THE BANK OF ACCOUNT OF THE RECIPIE NT. IT IS NOT A CASE WHERE THE CASH WAS PAID BY THE ASSESSEE AND WAS RECEIVED BY THE RECIPI ENT. AN INSTANCE OF CASH BEING, CREDITED TO THE ACCOUNT OF THE RECIPIENT STANDS ON A HIGHER FOO TING, COMPARED TO THE DIFFERENT HEADS, UNDER RULE 6DD OF THE RULES WHEN PAYMENT OF CASH, E VEN TO THE BANKS AND OTHER_ STATUTORY AGENCIES, IS RECOGNIZED, THERE IS NO REASON WHY THE DEPOSIT OF CASH INTO THE BANK ACCOUNT OF A RECIPIENT CANNOT BE REGARDED AS QUALIFYING FOR ALLOWANCES. FURTHER, THE OBJECTIVE UNDER THE ACT IS TO ENSURE T HAT THE INCOME OF AN ASSESSEE IS LEVIED TAX AND EVERY STEP IS TAKEN TO ENSURE THAT NO PART OF T HE INCOME ESCAPES THE TAXATION. THE PROHIBITION CONTAINED UNDER SECTION 40A(3) OF THE A CT IS MORE A MATTER, WHICH GENUINELY FALLS IN THE REALM OF THE BANKING REGULATION ACT A PROVI SION OF THAT NATURE CANNOT BE UNDERSTOOD JUST IN GRAMMATICAL MANNER. IN COMMISSIONER OF INCOME TAX VS SMT. SHELLY PASSI T THE PANJAB AND HARYANA HIGH COURT TOOK THE VIEW THAT THE CASH DEPOSITED TO THE BANK ACCOUNT OF A _RECIPIENT DOES NOT FALL WITHIN THE PURVIEW OF SECTION 40A(3) OF THE ACT.. TO THE SAME EFFECT IS THE JUDGEMENT OF THE GUJARAT HIGH CO URT IN ANUPAM TELE SERVICES VS INCOME TAX OFFICER. WE DO NOT FIND ANY BASIS TO INTERFERE WITH THE ORDE R PASSED BY THE TRIBUNAL. 15. WHEN THERE IS SUCH JUDICIAL OPINION THAT DIREC T DEPOSIT INTO A BANK ACCOUNT DOES NOT VIOLATE SECTION 40A(3)WHICH HAS THE SAME WORDING AS SECTION 269SS, THE SUBMISSION OF THE ASSESSEE THAT IT HAD BONAFIDE BELIEF THAT DIRECT DE POSIT OF CASH INTO BANK ACCOUNT DOES NOT VIOLATE THE PROVISIONS OF THE ACT IS TO BE ACCEPTED . 16. WHEN THE ASSESSEE ACTED UNDER BONAFIDE BELIEF, IT CONSTITUTES A REASONABLE CAUSE AS CONTEMPLATED UNDER SECTION 273B OF THE ACT. IN OUR VIEW, THE ASSESSEE HAS PROVED THAT THERE WAS REASONABLE CAUSE IN THIS CASE. 17. BE THAT AS IT MAY, THE LD CIT(A) IN HIS ORDER I NDICATES THE CONFLICTING DECISIONS ON THIS ISSUE AT PARA 4.3.9. HE HELD AS FOLLOWS; IN VIEW OF THE JUDGMENT OF HONBLE JHARKHAND HIGH COURT IN CASE OF OMEC ENGINEERS (SUPRA) AND JUDGMENTS OF HONBLE DELHI HI GH COURT IN CASES OF DIWAN ENTERPRISES (SUPRA) AND STANDARD BRANDS LTD (SUPRA, IT IS EVIDENT THAT THE COURTS ARE OF THE DIVIDED OPINION ON THE LEVY OF PENALTY U /S.271D FOR THE REASONS WHETHER CASH DEPOSITS ARE ADDED AS INCOME OR IT IS NOT ADDE D AS INCOME . FURTHER, SUPREME COURT IN CASE OF KUMARI A.B.SHANTI, 255 ITR 258 (SC) HAS HELD THAT PENALTY U/S.271D IS NOT LEVIABLE IF THERE IS REASON ABLE CAUSE FOR SUCH FAILURE AND THE TRANSACTION IS GENUINE. (EMPHASIS OWN) 10 I.T.A. NO.304/VIZ/2013 ASSESSMENT YEAR:2008-09 18. WHEN THERE IS ADMITTEDLY CONFLICTING DECISIONS OF VARIOUS COURTS ON THIS ISSUE, THEN INTERPRETATION THAT FAVOURS THE ASSESSEE SHOULD BE FOLLOWED AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V. VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC) . MORE SO, WHEN IT IS AN ISSUE OF LEVY OF PENALTY, FOR TECHNICAL AND V ENIAL BREACH OF PROVISIONS AND WHEN THE GENUINENESS OF THE TRANSACTIONS ARE NOT DOUBTED, TH EN THE VIOLATION OF TECHNICAL VIOLATION AND THE DECREE OF BURDEN ON THE PART OF THE ASSESSEE TO PROVE THAT IT HAD REASONABLE CAUSE FOR ALLEGED VIOLATION OF PROVISIONS SHOULD BE MUCH LESS ER AND COMMENSURATE THE NATURE OF TECHNICAL VIOLATION. 19. LD COUNSEL FOR THE ASSESSEE RELIED ON THE DECIS ION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. MAA KHODIYAR CONSTRUCTION, 365 ITR 474 (GUJ), WHEREIN, IT IS HELD AS FOLLOWS: .. THAT THE TRANSACTIONS WERE REFLECTED IN THE ACC OUNTS OF THE ASSESSEE AND THE ADVANCEMENT OF LOANS TO THE ASSESSEE HAD BEEN REFLE CTED IN THE BOOKS OF ACCOUNT OF THOSE PERSONS FROM WHOM THE LOANS HAD BE EN RECEIVED. THE IDENTITY OF THOSE PERSONS HAD BEEN WELL ESTABLISHED. THE AS SESSEE ALSO HAD GIVEN SATISFACTORY REASONS FOR TAKING SUCH LOANS. HIS BO NAFIDE BELIEF THAT SUCH TRANSACTIONS WOULD NOT ATTRACT THE PROVISIONS OF SE CTION 269SS ON THE GROUND THAT THEY WERE AGRICULTURALIST AND LIVED IN REMOTE VILLA GE WAS ONE OF THE GROUNDS WHICH HAD WEIGHED WITH BOTH THE AUTHORITIES. THE C ANCELLATION OF PENALTY WAS JUSTIFIED. 20. IN THE CASE OF CIT VS RASHI INJECTION MOULDERS, 368 ITR 527 (MAD), THE HONBLE COURT HELD AS FOLLOWS: .. THAT THE FACTS WERE NOT IN DISPUTE. THEREFORE, THE CIT(A) AND THE TRIBUNAL WERE JUSTIFIED IN HOLDING THAT THERE WAS NO CASE FO R INVOCATION OF SECTION 271D ON THE VIOLATION OF SECTION 269SS BECAUSE AS THE ASSES SEE HAD SATISFIED THE TEST OF REASONABLE CAUSE AS REQUIRED UNDER SECTION 273B. THE PROPOSITION LAID DOWN IN THESE CASE LAWS, IN O UR VIEW, APPLY TO THE FACTS OF THE CASE. 21. LD D.R. RELIED UPON THE DECISION OF HONBLE MAD RAS HIGH COURT IN THE CASE OF KASI CONSULTANT CORPORATION VS DCIT, 311 ITR 419 (MAD). THIS WAS A CASE WHERE THE TRIBUNAL HAS HELD THAT THE ASSESSEE HAS NOT GIVEN REASONABLE EXP LANATION FOR ACCEPTING DEPOSITS OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE AND ACCOUNT PAYEE DRAF TS. THIS IS A CASE WHERE THE ASSESSEE HAS ACCEPTED THE DEPOSITS IN CASH. IT IS NOT A CAS E WHERE DEPOSITORS HAVE DIRECTLY DEPOSITED THE AMOUNT IN ASSESSEES BANK ACCOUNT. THUS, FACTUALLY THE CASES ARE NOT COMPARABLE. THE ISSUE WHETHER THE ASSESSEE HAS REASONABLE CAUSE OR NOT IS BASED ON THE PECULIAR FACTS OF EACH CASE. 11 I.T.A. NO.304/VIZ/2013 ASSESSMENT YEAR:2008-09 22. LD D.R. RELIED ON THE DECISION OF HONBLE MADRA S HIGH COURT IN THE CASE OF P. BHASKAR (SUPRA). 23. THE PROPOSITION LAID DOWN IN THIS CASE IS THAT , MERE STATEMENT THAT RECEIPT OF CASH WAS ON ACCOUNT OF BUSINESS EXIGENCY AND TO MEET THE LIQ UIDITY WITHOUT DEMONSTRATING THE SAME BY WAY OF EVIDENCE, CANNOT BE ACCEPTED AND PENALTY CAN BE LEVIED. IN THE CASE ON HAND, WE HAVE HELD THAT THE ASSESSEE HAS DEMONSTRATED THAT IT HAD BONAFIDE BELIEF THAT THE PROVISIONS OF THE ACT ARE NOT VIOLATED, IF THE FARMERS DIRECTLY DEPO SIT CASH INTO THE ASSESSEES BANK ACCOUNT AND WHEN SUCH PLEA IS SUPPORTED BY THE DECISION OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GRANDHI VENTAKATA RAMANA, (SUPRA) THOUGH IN THE CON TEXT OF U/S.40A(3) WHICH IS IDENTICALLY WORDED, WE HOLD THAT THE PROPOSITION LAID DOWN IN T HE CASE OF KASI CONSULTANT CORPORATION AND M/S. P. BHASKAR (SUPRA) ARE NOT APPLICABLE TO THE C ASE ON HAND. IN VIEW OF ABOVE DISCUSSION, WE HOLD THAT THE EXPLANATION OF THE ASSESSEE IS BON AFIDE AND THAT HE HAS DEMONSTRATED REASONABLE CAUSE AS CONTEMPLATED U/S.273B OF THE AC T AND HENCE, NO PENALTY CAN BE IMPOSED ON THE ASSESSEE. WE, ACCORDINGLY, DELETE THE PENAL TY IMPOSED ON THE ASSESSEE. 23. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5/12/201 4 . SD/- SD/- (D.MANMOHAN ) (J. SUDHAKAR REDDY) VICE PRESIDENT ACCOUNTANT MEMBER VISHAKHAPATNAM DATED 5 / 12/2014 PARIDA , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE : M/S. SRI SARVARYA SUGARS LIMITED, CHELLURI, EAST GODAVARI DISTRICT. 2. THE RESPONDENT. : ADDL. CIT, KAKINADA RANGE, KAKINADA 3. THE CIT(A) - VISAKHAPATNAM 4. CIT , VISAKHAPATNAM 5. DR, ITAT, VISHAKHAPATNAM 6. GUARD FILE. BY ORDER SR.PS, ITAT, VISHAKHAPATNAM //TRUE COPY//