M/s Sree Sakthi Paper mills Ltd, Cochin V. ACIT, Ernakulam

ITA 389/COCH/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4361 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 03-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 15-02-2008
• Court: TRIBUNAL
• Department Lawyers: T J VINCENT
• Assessee Lawyers: K R SUDHAKARAN PILLAI
• Keywords: Reasonable cause
• Section: 273B; 271E

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.VIJAYAKUMARAN & SHRI SANJAY ARORA I.T.A.NO.389/COCH/2008 ASSESSMENT YEAR:2004-05 SREE SAKTHI PAPER MILLS LTD., ERNAKULAM. PA NO.AACCS 3363B VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-1, RANGE-2, ERNAKULUM. (APPELLANT) ( RESPONDENT ) APPELLANT BY SHRI K.R.SUDHAKARAN PILLAI RESPONDENT BY SHRI T.J. VINCENT, JR. D.R. O R D E R PER N.VIJAYAKUMARAN,J.M: THIS IS AN APPEAL BY THE ASSESSEE. THIS APPEAL I S DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-II, KOCHI, DATED 30-11-2007. THE ASSESSMENT YEAR INVOLVED IS 2004- 05. THIS APPEAL ARISES OUT OF THE LEVY OF PENALTY U/S.271E OF THE ACT. 2. THE ASSESSEE IS A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED. IN THE COURSE OF ASSESSME NT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT AS PE R TAX AUDIT REPORT, THE ASSESSEE COMPANY HAD REPAID DEPOS IT AND LOANS EXCEEDING RS.20,000/- IN CASH, TOTALING TO RS.11,93,000/-. ACCORDING TO THE ASSESSING OFFICE R, THESE ITA NO. 389/COCH/2008 SREE SAKTHI PAPER MILLS LTD. 2 TRANSACTIONS WERE MADE IN CONTRAVENTION OF THE PROV ISIONS OF SECTION 269T, PENALTY WAS LEVIABLE U/S.271E, AND AC CORDINGLY ISSUED A NOTICE. THOUGH THE CASE WAS POSTED FOR H EARING ON A NUMBER OF OCCASIONS, THE ASSESSEE DID NOT AVAIL T HOSE OPPORTUNITIES AND ACCORDINGLY THE ASSESSING OFFICER CONSTRAINED TO PASS A PENALTY ORDER U/S.271E ON 14- 6-2007 IMPOSING PENALTY OF RS.11,93,000/-. IN APPEAL, T HE LD. CIT(APPEALS) UPHELD THE LEVY OF PENALTY AND HENCE, THE ASSESSEE IS ON SECOND APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. THE SUBSTANCE OF THE ARGUMENTS IS THAT THE CONCERNED TRANSACTIONS ARE WITH GROUP CONCERNS. THE TRANSACT IONS RELATE TO RUNNING ACCOUNT EFFECT IN THE COURSE OF R EGULAR BUSINESS AND OF PURELY COMMERCIAL NATURE, AS EVIDEN CED BY THE ACCOUNT COPIES. THEY WERE ASSESSEES CLIENTS OR CUSTOMERS ENGAGED AS TRANSPORTING CONTRACTORS, BUYE RS OR SELLERS. NO INTEREST WAS PAID. IT WAS NOT A LOAN OR DEPOSIT UNDER THE COMPANIES (ACCEPTANCE OF DEPOSIT RULES) B UT OF A CURRENT ACCOUNT NATURE. NO PRO-NOTE OR OTHER DOCUM ENT WAS ISSUED. ALL GROUP CONCERNS INCLUDING THE ASSESSEE HAD URGENT CASH NEEDS. THE URGENT FINANCIAL NEED WAS OCCASIONALLY MET BY INTER-GROUP TRANSACTION BY ISSU ING ITA NO. 389/COCH/2008 SREE SAKTHI PAPER MILLS LTD. 3 CHEQUES WHICH GOT DISCOUNTED FROM BANKS. TO AVOID DISHONORING OF SUCH CHEQUES, CASH HAD TO BE REMITTE D BY THE GROUP INCLUDING THE ASSESSEE. IT IS IN THIS BACKGR OUND THE REPAYMENT WAS MADE IN CASH. THE TIME GAP BETWEEN THE TRANSACTIONS WERE VERY SHORT IN SOME CASES SAME DAY . IN OTHER CASE THE DURATION WAS 3, 5, 10 OR 21 DAYS. THE PARTNERS/SHAREHOLDERS OF THE 5 CONCERNS ARE ALSO SHAREHOLDERS OF THE ASSESSEE COMPANY AND ARE CLOSE RELATIVES OF THE DIRECTORS OF THE ASSESSEE COMPANY. ALL THE ENTITIES ARE ASSESSES AND THE TRANSACTIONS HAVE BEE N ACCOUNTED AND DISCLOSED BY ALL. SECTION 269T WAS INTRODUCED TO COUNTER EVASION OF TAX, AS EXPLAINED IN CIRCULAR NO.345 DATED 28-6-1982 [140 ITR (ST) 18]. HERE SI NCE THE TRANSACTIONS HAVE BEEN ACCOUNTED BY BOTH SIDES, THE RE IS NO INTENTION TO EVADE TAX. THERE IS NO INTENTION TO AVOID TAX BY ANY DUBIOUS METHOD. THE ASSESSEE ALSO PLACED R ELIANCE ON THE FOLLOWING DECISIONS: A) CIT VS. IDHAYAM PUBLICATIONS LTD. -285 ITR 221 ; B) CIT VS. SUNILKUMAR GOEL 315 ITR 163 (PH); C) MUTHOOT M. GEORGE BANKERS VS. ACIT (46 ITD 10); D) CIT VS. SAINI MEDICAL STORE - 277 ITR 420 (P&H); & E) RAJENDRA TRADING CO. - 48 ITD 210 (CHD.)(AT). ITA NO. 389/COCH/2008 SREE SAKTHI PAPER MILLS LTD. 4 4. THE LD. D.R. SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE LD. CIT(APPEALS) ONLY AFTER APPRECIATING THE FACTS OF THE CASE AND CONSID ERING THE DECISIONS RELIED UPON BEFORE HIM, CAME TO THE CONCL USION THAT THIS IS A FIT CASE FOR LEVY OF PENALTY U/S.271 E AND ACCORDINGLY CONFIRMED THE IMPOSITION OF PENALTY. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PRE CEDENTS RELIED ON. WE FIND THAT IN THE CASE OF RAJENDRA TRADING CO. REPORTED IN 48 ITD 210 (CHD.)(AT) AND THAT OF MUTHO OT M. GEORGE BANKERS 46 ITD 10 (COCH)(AT) IT HAS BEEN H ELD THAT THE TRANSACTIONS OF MONEY BETWEEN TWO SISTER C ONCERNS WHERE OWNERS/CONTROLLERS ARE SAME, CANNOT BE REGARD ED AS LOANS/DEPOSITS AND AS SUCH THE PROVISIONS OF SECTIO N 269T WOULD NOT APPLY, THOUGH IN THE CASE OF UNIQUE CONST RUCTIONS REPORTED IN 52 TTJ 96 (BOM)(AT) A CONTRARY VIEW HAS BEEN TAKEN. 6. SECTION 273B WHICH SPEAKS A REASONABLE CAUSE AND NO PENALTY SHALL BE IMPOSABLE ON THE PERSON OR THE ASS ESSEE AS THE CASE MAY BE FOR ANY FAILURE REFERRED TO IN THE SAID PROVISION IF HE PROVES THAT THERE WAS REASONABLE CA USE FOR THE SAID FAILURE. REASONABLE CAUSE AS APPLIED TO HUMAN ITA NO. 389/COCH/2008 SREE SAKTHI PAPER MILLS LTD. 5 ACTION IS THAT WHICH WOULD CONSTRAIN A PERSON OF AV ERAGE INTELLIGENCE AND ORDINARY PRUDENCE. THE EXPRESSION REASONABLE IS NOT SUSCEPTIBLE OF A CLEAR AND PREC ISE DEFINITION; FOR AN ATTEMPT TO GIVE A SPECIFIC MEANI NG TO THE WORD REASONABLE IS TRYING TO COUNT WHAT IS NOT NU MBER AND MEASURE WHAT IS NOT SPACE. IT CAN BE DESCRIBED AS RATIONAL ACCORDING TO THE DICTATES OF REASON AND IS NOT EXCE SSIVE OR IMMODERATE. THE WORD REASONABLE HAS IN LAW THE PRIMA FACIE MEANING OF REASONABLE WITH REGARD TO THOSE CIRCUMSTANCES OF WHICH THE ACTOR, CALLED ON TO ACT REASONABLY, KNOWS OR OUGHT TO KNOW. REASONABLE CA USE CAN BE REASONABLY SAID TO BE A CAUSE WHICH PREVENTS A M AN OF ORDINARY PRUDENCE AND AVERAGE INTELLIGENCE, ACTING UNDER NORMAL CIRCUMSTANCES, WITHOUT NEGLIGENCE OR INACTIO N OR WANT OF BONA FIDES. [ AZADI BACHAO ANDOLAN V. UNIO N OF INDIA (2001) 252 ITR 471 (DELHI)]. 6.1 THE FACTS RELEVANT ARE THAT THE CONCERNED TRANS ACTIONS ARE WITH GROUP CONCERNS. THE TRANSACTIONS RELATE T O RUNNING ACCOUNT EFFECT IN THE COURSE OF REGULAR BUSINESS AN D OF PURELY COMMERCIAL NATURE, AS EVIDENCED BY THE ACCOU NT COPIES. THEY WERE ASSESSEES CLIENTS OR CUSTOMERS ENGAGED AS TRANSPORTING CONTRACTORS, BUYERS OR SELLERS. FO R THOSE PAYMENTS NO INTEREST WAS PAID AND DOCUMENT WAS ISSU ED. ITA NO. 389/COCH/2008 SREE SAKTHI PAPER MILLS LTD. 6 AS CONTENDED BY THE LD. COUNSEL, ALL GROUP CONCERNS INCLUDING THE ASSESSEE HAD URGENT CASH NEEDS. THE URGENT FINA NCIAL NEED WAS OCCASIONALLY MET BY INTER-GROUP TRANSACTIO N BY ISSUING CHEQUES WHICH GOT DISCOUNTED FROM BANKS. TO AVOID DISHONORING OF SUCH CHEQUES, CASH HAD TO BE REMITTE D BY THE GROUP INCLUDING THE ASSESSEE. IT IS UNDER THIS CO MPELLING CIRCUMSTANCE, THE REPAYMENTS WERE MADE IN CASH WHIC H WERE UNAVOIDABLE AND TO RESTORE THE REPUTATION OF THE CO NCERNS THIS WAS MADE IN CASH. THE TIME LAG BETWEEN THE TRANSACTIONS WERE VERY SHORT, IN SOME CASES AS EVID ENCED ON THE SAME DAY AND IN OTHER CASES THERE WAS DURATION BUT NOT BEYOND 21 DAYS, FURTHER, THE PARTNERS/SHAREHOLDER S OF THE FIVE CONCERNS ARE ALSO SHAREHOLDERS OF THE ASSESSEE COMPANY AND ARE CLOSE RELATIVES OF THE DIRECTORS OF THE ASS ESSEE COMPANY. IT IS ALSO NOT DISPUTED THAT ALL THE ENT ITIES ARE ASSESSES AND THE TRANSACTIONS HAVE BEEN ACCOUNTED A ND DISCLOSED BY ALL AND THERE IS NO INTENTION EITHER T O EVADE TAX OR TO AVOID TAX BY DUBIOUS METHOD. IN THE DECISION RELIED ON BY THE LD. COUNSEL PARTICULARLY THE DECISION OF THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF MUTHOOT M. GEO RGE BANKERS 46 ITD 10 (COCH)(AT) THERE WERE SIMILAR TRANSACTIONS BETWEEN SISTER CONCERNS AND ASSESSEE, THE TRIBUNAL HELD THAT IT CANNOT PARTAKE THE CHARACTER OF LOAN OR ITA NO. 389/COCH/2008 SREE SAKTHI PAPER MILLS LTD. 7 DEPOSIT, IN THE ABSENCE OF ANY PRO-NOTE OR OTHER D OCUMENT. IT WAS OUT OF BUSINESS CONTINGENCY AND OUT OF COMPE LLING CIRCUMSTANCES TO MEET THE URGENT CASH NEEDS PARTICU LARLY TO AVOID DIS-HONOURING OF CHEQUES, CASH HAVE TO BE REM ITTED BY THE GROUP CONCERNS INCLUDING THE ASSESSEE. THE AC COUNT COPIES OF THE PARTIES AS ENVISAGED IN ASSESSEES PA PER BOOK PAGES 3 TO 18 CLEARLY GO TO SHOW THAT THIS KIND OF TRANSACTION WAS NECESSITATED DUE TO FINANCIAL URGENT NEEDS BETW EEN THE GROUP CONCERNS. UNDER THE ABOVE CIRCUMSTANCES, A REASONABLE CAUSE AS ENVISAGED U/S.273B WHICH IS APP LICABLE FOR THIS VIOLATION ALSO IS DIRECTLY APPLICABLE AND THE REASONABLE CAUSE WAS GIVEN BY THE ASSESSEE NOT BEFO RE US ALONE BUT EVEN BEFORE THE PENALTY PROCEEDINGS WILL GO TO SHOW THE BONAFIDE OF THE ASSESSEE IN MAKING THIS PA YMENT. THE REASONABLE CAUSE AS SHOWN BY THE ASSESSEE IS FO UND ACCEPTABLE TO US AND THE DECISION OF THE COCHIN BEN CH IN THE CASE OF MUTHOOT M. GEORGE BANKERS IS DIRECTLY ON TH E ISSUE AND IS SQUARELY APPLICABLE TO THIS CASE, ON THE FAC TS AVAILABLE. 6.2 SECTION 271E WHICH IS VIOLATION FOR 269T IS APP LICABLE ONLY TO DEPOSITS OR LOANS. IN THE DECISION OF TH E COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF MUTHOOT M GEOR GE BANKERS REPORTED IN 46 ITD 10, IT HAS BEEN HELD THA T THE ITA NO. 389/COCH/2008 SREE SAKTHI PAPER MILLS LTD. 8 TRANSACTIONS OF MONEY BETWEEN TWO SISTER CONCERNS W HERE OWNERS/CONTROLLERS ARE SAME, CANNOT BE REGARDED AS LOANS/DEPOSITS AND AS SUCH THE PROVISIONS OF SECTIO N 269T WOULD NOT APPLY. RESPECTFULLY FOLLOWING THE DECIS ION OF THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF MUTHOOT M GEORGE BANKERS, CITED SUPRA, WE HOLD THAT PENALTY U /S.271E IS NOT EXIGIBLE UNDER THE GIVEN SET OF FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. ACCORDINGLY, T HE SAME IS DELETED. 7. AS WE HAVE DELETED THE LEVY OF PENALTY, THE ADDI TIONAL GROUND RAISED BY THE ASSESSEE BECOMES ONLY ACADEMIC AND AS SUCH IT REQUIRES NO ADJUDICATION. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. SD/- SD/- (SANJAY ARORA) (N.VIJAYKUMARAN) ACCOUNTANT MEMBER JUDICIAL M EMBER ERNAKULAM, DATED THE 18 TH JUNE,2010. PM. COPY FORWARDED TO: 1. SREE SAKTHI PAPER MILLS LTD., 39/2724A, SREE KAILAS , PALIYAM ROAD, ERNAKULAM. 2. THE ACIT., CIRCLE-1, RANGE-2, ERNAKULUM. 3. CIT(A)-II, KOCHI. 4. CIT, KOCHI. 5. D.R.