Pramati Educational & Cultural Trust V. The Additional Commissioner of Income tax, Range 1

ITA/149/2009

AI Insights

The case involves M/s Pramati Educational & Cultural Trust, which appealed against the penalty imposed for accepting cash loans exceeding Rs. 20,000, in contravention of Section 269SS of the Income Tax Act. The penalty was initially levied by the assessing authority and was partially upheld by the Commissioner of Income Tax (Appeals), but later contested at the tribunal level. The tribunal upheld the penalty, leading to the current appeal. The primary contention was whether the assessee had a reasonable cause for not mobilizing funds through cheques or demand drafts, given the urgency of the financial transaction related to the revival of a land allotment.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 794099 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 28-11-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: S PARTHASARATHI
• Keywords: Cash loans; Cash transaction; Educational institution; Penalty; Urgency
• Section: 143(3); 271D; 269SS; 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 28TH DAY OF NOVEMBER 2014 PRESENT THE HON'BLE MR. JUSTICE N. KUMAR AND THE HON’BLE MR. JUSTICE B. MANOHAR ITA NO.149 OF 2009 BETWEEN; M/s Pramati Educational & Cultural Trust CA Site No.2 Udayaravi Road Kuvempunagar, Mysore-23 Represented by its Treasurer Sri.s.Paniraj, aged about 52 years son of Sri.T.N.Subbarao ...APPELLANT (By Sri.S.Parthasarathi, Advocate) AND: The Additional Commissioner of Income tax, Range 1 Vidyaranya Complex Silpashree, Mysore – 570 008 ...RESPONDENT (By Sri.K.V.Aravind, Advocate) -0-0-0-0-0- This appeal is filed under Section 260-A of Income Tax Act 1961, arising out of order dated 01.12.2008 passed in 2 ITA No.316/BNG/2008, for the Assessment Year 2004- 2005,praying that this court may be pleased to 1) formulate the substantial questions of law stated therein and 1) allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.316/BNG/2008, dated 01.12.2008 in the interest of justice. This appeal coming on for Hearing this day, N.KUMAR, J. delivered the following:- JUDGMENT The assessee has preferred this appeal challenging the order passed by the authorities below imposing a penalty under Section 271D of the Income tax Act for raising cash loans. 2. The assessee is an educational institution. While concluding the assessment for the assessment year 2004-05 under Section 143(3) of the Income tax Act (for short herein after referred to as ‘Act’), the assessing authority noticed cash loans received by the assessee is more than Rs.20,000/-. Therefore, they directed initiation of penal proceedings under Section 271D of the Act in respect of cash loans to the extent of 11,06,000/- in contravention of the provisions of Section 269 SS of the Act. The assessee in reply to the proposed action filed written submissions, 3 admitting the acceptance of the cash loans in cash as it had a commitment to make the payment of cash within 72 hours. The assessing authority was not convinced with the assessee’s explanation and accordingly, levied the penalty of Rs.11.06 Lakhs. Aggrieved by the said order, the assessee has preferred an appeal to the Commissioner of Income Tax (Appeals). 3. The first appellate authority after considering the facts of the case was of the specific view that the cash loan of Rs.2.8 lakhs received from one Sri.B.H.Deshpande on 22.07.2003 is reasonably explained on account of urgency on the ground that the assessee trust had entered into an agreement with Babusar Narayan Trust on 21.07.2003 to make a payment to KHB for revival of allotment of site and such payment was made to KHB on 23.07.2003 on behalf of Babusar Narayan Trust. He was of the opinion that the amount to an extent of 2.08 Lakhs was reasonably explained and cancelled the penalty to that extent. However, he confirmed the penalty in respect of 8.08 lakshs. On the ground that the assessee trust had ample time to raise 4 money by way of cheques/DDs as it can be seen that the sale deed was registered and registration charges were paid only on 01.09.2003. Aggrieved by the said order the assessee preferred an appeal to the Tribunal. The appeal came to be dismissed by the tribunal sustaining the levy of penalty. 4. The appeal was admitted on 15.11.2009 for considering the following substantial questions of law:- i) Whether the Tribunal was justified in upholding the levy of penalty under S.271 D of the Act when the appellant had reasonable cause in obtaining cash loans? ii) Whether from the Seriatim of dates and events furnished, can it be said that the appellant could have mobilized funds by account payee bank drafts/cheques? iii) Whether penalty under S.271 D of the Act is excisable in the case of the appellant when the genuineness of transaction is not disputed and explanation is not controverted?” 5 5. The tribunal was of the view that the assessee trust had in fact, sufficient time i.e., 40 days to mobilize the required funds by way of demand drafts/cheques , instead of resorting to receive the huge loans in cash by contravening the provisions of section 269 SS of the Act. Therefore, this appeal is filed assailing the said finding. 6. The appellate commissioner at Para NO.2 of his order has given the chart of funds relating to purchase of the CA site. The facts stated therein are not in dispute. A perusal of the said chart shows that the payment of the amount due to the KHB by the assessee, the allotment which had been cancelled was revived on 14.08.2003. Subsequently on the next day, the assessee was requested to pay the amount needed for meeting the cost of registration and stamp duty urgently. 16th was Saturday and 17th was Sunday. On 18th the assessee borrowed money in cash and deposited the money in the bank account as is clear from the pass book entry. After depositing the amount he has taken the DDs and given to the KHB. It is to be remembered when a statutory authority is executing a sale deed the purchaser 6 has to pay or deposit the stamp duty to the authority. Thereafter they prepare a draft sale deed. It has to be approved by the concerned authorities. It is only on execution of the sale deed the same is handed over to the purchaser to get it registered by paying the registration fee. From the chart, it is clear. Though the stamp duty was supplied on 18.08.2003, copy of registered sale deed was ready on 28.08.2003. On 30.08.2003, the KHB executed the sale deed. 31st was the Sunday. On 01.09.2003, the same was presented and got registered. The registration fees were paid and therefore the sale deed came to be executed. 7. Therefore, the aforesaid events clearly demonstrates the asssessee having paid entire sale consideration and got allotment revived. They wanted to see that the sale deed is executed immediately and therefore, the Saturday and Sunday intervened and by Monday, they deposited entire amount. The sale deed on record clearly demonstrates a payment of Rs.6,56,510/- towards stamp duty and a demand draft was taken and given to the KHB. They also paid a sum of Rs.77,150/- registration charges on 7 01.09.2003. Subsequently the assessee has obtained the registered sale deed from Babusar Narayan Trust. The original allottee under a registered sale deed dated 24.09.2004. In fact, these facts are not in dispute. The assessee is an educational institution. They had paid the entire amount to KHB to revive the cancelled allotment and they were in tremendous pressure to pay stamp duty and registration charges and in those circumstances they have raised cash loan, deposited the amount in the bank, obtained the demand draft and handed over the same to KHB immediately and they have also arranged for registration of sale deed in the name of the allottee. 8. In the circumstances, we are satisfied even the amount of Rs.8.08. lakhs raised by the asessee is for the purpose of stamp duty and registration and as there was urgency, they could not have obtained said amount by way of cheque or demand draft or as otherwise the investment they have made in getting lapsed allotment revived would have been in jeopardize. The authorities were not justified in ignoring these admitted facts on record and merely because 8 there is a gap of more than 15 days between the date of revival and date of registration, their understanding that the assessee would have arranged funds by way of Cheques /demand drafts is unacceptable. As on 14th allotment was revived, 15th they were informed, 16th was a Saturday, 17th was a Sunday and 18th they had to make the payment, they have made the payment. Therefore the substantial questions of law are answered in favour of the assessee and against the revenue. Hence, we pass the following order:- The appeal is allowed. The impugned order passed by the authorities levying the revival of penalty is set aside. Ordered accordingly. Sd/- JUDGE. Sd/- JUDGE. Bsv "