KARUPPUSAMY JAYAPRAKASH,COIMBATORE V. INCOME TAX OFFICER, COIMBATORE

ITA 229/CHNY/2025

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The case involves Karuppusamy Jayaprakash, the appellant, who was penalized for engaging in cash transactions with chit fund companies, which were deemed non-compliant with section 269SS of the Income Tax Act. The Income Tax Officer imposed a penalty of Rs. 75 lakhs, which was upheld by the CIT(A) and subsequently by the Income Tax Appellate Tribunal. The tribunal found that the transactions, including Rs. 50 lakhs in cash loans and Rs. 25 lakhs in chit transactions, fell within the scope of section 269SS, which requires such transactions to be conducted through bank accounts to prevent tax evasion.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 714309 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Assessment Year: 2019-2020
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R. ANITHA
• Assessee Lawyers: N. SUBRAMANIAN; ITP
• Keywords: Search and seizure; Loose papers
• Section: 132; 131

Judgement Text

"आयकर अपीलीय अधिकरण, ’सी’ न्यायपीठ, चेन्नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI माननीय श्री मनु क ुमार धिरर ,न्याधयक सदस्य एवं माननीय श्री अमिताभ शुक्ला, लेखा सदस्य क े सिक्ष BEFORE HON’BLE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND HON’BLE SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.229/Chny/2025 Assessment Years: 2019-20 Karuppusamy Jayaprakash, No.5/275, Thiruvalluvar Nagar, Tadagam S.O, Chinnathadagam, Coimbatore, Tamil Nadu-641 108. [PAN: AEEPJ4887N] The Income Tax Officer, Non-Corporate Ward-4(4), Chennai. (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/ Assessee by : Shri N.Subramanian, ITP. प्रत्यर्थी की ओर से /Revenue by : Ms.R.Anitha, Addl.CIT सुनवाई की तारीख/Date of Hearing : 16.06.2025 घोषणा की तारीख /Date of Pronouncement : 06.08.2025 आदेश / O R D E R PER AMITABH SHUKLA, A.M : This appeal is filed by the assessee against the order bearing DIN & Order No.ITBA / NFAC / S / 250 / 2024-25 / 1069505007(1) dated 07.10.2024 of the Learned Commissioner of Income Tax [herein after “CIT(A), National Faceless Appeal Centre(NFAC), Delhi for the assessment year 2019-20. The reference to the word “Act” in this order hereinafter shall mean the Income Tax Act, 1961 as amended from time to time. Printed from counselvise.com ITA No.229 /Chny/2025 Page - 2 - of 8 2.0 It has been noted that there is a delay of 27 days in the case, in filing of this appeal before the tribunal. In its affidavit the assesse has pleaded that the assessee had fallen ill and was hospitalized. In support of its contentions, relevant bills of one VG hospital have been filed. All these activities contributed to the delay which was neither willful nor wanton. The assesse submitted that there will not be case of any non- compliance now. We have considered the justification put forth by the assesse and we are satisfied with their adequacy. We are also conscious of the fact that no litigant gains by intentionally delaying its own matters. The Ld. DR did not pose any serious objections to the delay. Accordingly, we hereby condone the delay and proceed to adjudicate this appeal. 3.0 The only issue raised in the present appeal by the assessee through its grounds is regarding the imposition of penalty u/s 271D and its confirmation by the Ld.CIT(A). Brief facts of the case are that the assessee has been indulging in transaction with chit fund companies. As per facts on record, a search and seizure action u/s 132 of the Act was conducted upon one Shri K.Kalyansundram owner of S.M.T Chits and Finance Corporation and Managing Director of M/s. S.M.T Chits Funds Kovai. During the course of search incriminating documents were found indicating receipt of cash loans of Rs.75 lakhs by the assessee. It was admitted by Shri K.Kalyansundram through his sworn statements Printed from counselvise.com ITA No.229 /Chny/2025 Page - 3 - of 8 that Rs.50 lakhs was cash loan and Rs.25 lakhs was “Chit arears”. In his sworn statement before lower authorities recorded u/s. 131 on 18.01.2021, the assessee had admitted knowing and subscribing to chits of Shri Kalyanasundram. Before the Ld.AO the assessee had admitted that the names on seized loose papers belong to him and brick chamber of his father. Regular transaction in chit activities was admitted by the assessee. During the course of assessment proceedings assessee’s compliance was lukewarm. The Ld.AO concluded that the chit fund transactions with Shri Kalyanasundram fell within the purview of section 269SS and attracted corresponding penal liabilities u/s 271D. The Revenue consequently imposed penalty of Rs. 75 lakhs u/s 271D vide order dated 28.08.2023 passed by the Faceless Assessment Unit. It has been clearly recorded in the aforesaid penalty order that the assessee has not responded fully and truly with the show cause notices issued by the lower authorities. It has been indicated in para 12 that the show cause notices were issued to the assessee electronically. Subseqeuntly, the show cause notices were also issued through postal authorities by the verification unit of the Income Tax Department. As per para 14 of the penalty order the assessee had acknowledged that it was in receipt of notice dated 21.02.2023. It is the case of the revenue that but for the solitary acceptance, the assessee did not respond to any notices. The Ld.First Appellate Authority passed his order after carefully considering Printed from counselvise.com ITA No.229 /Chny/2025 Page - 4 - of 8 varied facts of the case and analyzing the submissions available before him. 4.0 The Ld.Counsel for the assessee has argued that the Ld.CIT(A) misdirected himself and had passed an order which is not based upon correct understanding the facts of the case. The assessee has stated that it has indulged only in the chit fund transactions and that the same are different than the nature of transactions mentioned in section 269SS of the Act. Before the Ld.First Appellate Authority, the assessee had also argued that the order was passed by an authority without jurisdiction and hence the same is void ab initio. 5.0 Per contra, the Ld. DR relied upon the order of lower authorities. It was argued that Shri Kalyanasundram in his statement had admitted that out of total Rs.75 lakhs, an amount of Rs. 50 lakhs was cash loans. It was further argued that the balance Rs.25 lakhs of Chit transaction was also in the purview of section 269SS as Chit transactions would also be hit by the statutory provisions contained therein. It was urged that there was no infirmity in the order of the Ld.CIT(A) and same deserves to be sustained. 6.0 We have heard rival submissions in the light of material available on records. It is an undisputed fact of the case that the transactions of Rs.75 lakhs upon which penalty u/s 271D is resting were unearthed on account of search and seizure action upon Shri Kalyansundram. The Printed from counselvise.com ITA No.229 /Chny/2025 Page - 5 - of 8 assessee has unequivocally admitted through sworn statements before the Lower Authorities that he is acquainted and known to Kalyansundram. It is also an admitted fact of the case that Rs. 75 lakhs of cash transactions comprising Rs.50 lakhs of cash loans received by the assessee from Shri Kalyansundram, and Rs. 25 lakhs by way of cash chit transactions have been evidently entered between the assessee and Shri Kalyansundram. It is the case of the assessee that Chit fund transactions do not fall in the ambit of section 269SS and corresponding 271D of the Act. At this stage we would like to briefly examine the statutory provisions of section 269SS of the Act, reproduced herein below:- “……Section - 269SS, Income-tax Act, 1961 - FA, 2025 46 [CHAPTER XX-B REQUIREMENT AS TO MODE OF 47 [ACCEPTANCE, PAYMENT OR] REPAYMENT IN CERTAIN CASES TO COUNTERACT EVASION OF TAX 48 [Mode of taking or accepting certain loans, deposits and specified sum. 49 269SS. No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account 50[or through such other electronic mode as may be prescribed 51], if,- (a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or (b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), 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: Provided that the provisions of this section shall not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by,- (a) the Government; (b) any banking company, post office savings bank or co-operative bank; Printed from counselvise.com ITA No.229 /Chny/2025 Page - 6 - of 8 (c) any corporation established by a Central, State or Provincial Act; (d) any Government company 52 as defined in clause (45)of section 2 of the Companies Act, 2013 (18 of 2013); (e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify 53 in this behalf in the Official Gazette: Provided further that the provisions of this section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act: 54 [Provided also that the provisions of this section shall have effect, as if for the words “twenty thousand rupees”, the words “two lakh rupees” had been substituted in the case of any deposit or loan where,-- (a) such deposit is accepted by a primary agricultural credit society or a primary co- operative agricultural and rural development bank from its member; or (b) such loan is taken from a primary agricultural credit society or a primary co- operative agricultural and rural development bank by its member.] Explanation.-For the purposes of this section,- (i) 55 banking company” means a company to which the provisions of the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act; 56 [(ii) “co-operative bank”, “primary agricultural credit society” and “primary co- operative agricultural and rural development bank” shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P;] (iii) “loan or deposit” 57 means loan or deposit of money; (iv) “specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable pro-perty, whether or not the transfer takes place.]…..” 7.0 The issue as to whether Chit fund transactions indulged by the assessee partake the nature of loans falling under the ambit of section 269SS has been elaborately considered by the Ld.CIT(A) in para 5.2 to 5.4 of his order from pages 10 to 14. He has rightly concluded that Chit schemes are primarily saving and borrowing schemes and hence would fall in the ambit of section 269SS. It has been clearly discussed therein that the Chit fund transactions do not enjoy the benefit of exempt Printed from counselvise.com ITA No.229 /Chny/2025 Page - 7 - of 8 transactions and as section 269SS. Upon consideration, we are inclined to accept the reasoning of the Ld.CIT(A) qua Chit fund transactions forming part of section 269SS. We have noted that out of Rs.75 lakhs, an amount of Rs.50 Lakhs is, as per seized records and sworn statements pertains to a cash loan given by Shri Kalyansundram to the assessee. Further, the balance amount of Rs.25 lakhs would also fall under section 269SS as the same is not saved by any exception clause. The provisions of section 269SS reproduced hereinabove clearly postulates that it attempts to cover any kind of loan or deposit which is in cash in excess of Rs.20,000/-. It is an accepted business practice that Chit fund entities exists as microfinance entities operating in unorganized sector. Their basic function is to accept and given loans to their members against predetermined interests. The Chit fund companies do not fall into the exception clause (a) to (e) of first proviso to section 269SS. Neither do Chit fund entities are saved by the second proviso of section 269SS. Thus, it is clear that cash transactions with Chit Fund companies would fall in the realm of section 269SS r.w.s. 271D. We have also noted that the assessee has failed to comply with the statutory notices of the Faceless Assessment Unit qua 271D proceedings. It is trite law that law only comes to aid of vigilant litigants. As regards the argument of lack of jurisdiction, we have noted that Ld.CIT(A) has rightly concluded in 5.5 of his order that as per present Printed from counselvise.com ITA No.229 /Chny/2025 Page - 8 - of 8 scheme all the penalties are being processed by penalty units which are headed by an officer of the rank of additional / Joint Commissioner of Income Tax. We have also noted that as per the present statutory stipulations, penalty u/s 271D of the Act shall only be imposed by an officer of the rank of Joint Commissioner of Income Tax. Accordingly, we are of the considered opinion that no case of any intervention is made out in the order of the Ld.CIT(A) at this stage. Accordingly, we confirm the order of the Ld.CIT(A) and dismiss all the grounds of appeal raised by the assessee. 8.0 In the result, the appeal of the assessee is dismissed. Order pronounced on 6th , Aug-2025 at Chennai. Sd/- (मनु क ुमार धिरर) (MANU KUMAR GIRI) न्याधयक सदस्य / Judicial Member Sd/- (अधमताभ शुक्ला) (AMITABH SHUKLA) लेखा सदस्य /Accountant Member चेन्नई/Chennai, धदनांक/Dated: 6th , Aug-2025. KB/- आदेश की प्रतितिति अग्रेतिि/Copy to: 1. अिीिार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT - Chennai/Coimbatore/Madurai/Salem. 4. तिभागीय प्रतितिति/DR 5. गार्ड फाईि/GF Printed from counselvise.com "