SRI. K.V. GEORGE V. THE COMMISSIONER OF INCOME TAX

ITA/279/2013

AI Insights

The case revolves around an appeal by Sri. K.V. George against a penalty imposed for accepting cash loans exceeding Rs. 20,000 without adhering to the statutory requirement of receiving such amounts through account payee cheques or drafts, as mandated by Section 269SS of the Income Tax Act. The Income Tax Appellate Tribunal had earlier reversed the decision of the Commissioner of Income Tax (Appeals), which had found the penalty unjustified. The High Court of Kerala examined whether the Tribunal was correct in reinstating the penalty, considering precedents and the specific circumstances of the case, including the assessee's failure to provide a reasonable cause for not adhering to the statutory requirements.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 700156 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 18-12-2013
• Assessment Year: misc
• Other Referred Cases: CIT v. P.K. Shamsudheen, K.R.M.V.Ponnuswamy Nadar Sons v. Union of India, Asst. Director of Inspection (Investigation) v. Kumari A.B. Shanthi, CIT v. Saini Medical Stores, CIT v. Lakshmi Trust Co, CIT v. Kundrathur Finance & Chit Co.
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH
• Assessee Lawyers: T M SREEDHARAN; V P NARAYANAN; BOBY SEKHAR; DIVYA RAVINDRAN
• Keywords: Account payee bank draft; Account payee cheque; Cash transaction; Income Tax; Loan; Penalty
• Section: 143(3); 143(2); 271D; 269SS

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE ACTING CHIEF JUSTICE MRS.MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE WEDNESDAY, THE 18TH DAY OF DECEMBER 2013/27TH AGRAHAYANA, 1935 ITA.No. 279 of 2013 --------------------------- [AGAINST THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH DATED 26-07-2013 IN I.T.A. NO.22/COCH/2012-AY-2007-08] ............. APPELLANT/RESPONDENT/ASSESSEE: --------------------------------------------------------- SRI. K.V. GEORGE, KANNIKKATTU NITHIN VIHAR, AROOR P.O., ALAPPUZHA - 11. BY SRI.T.M.SREEDHARAN, SENIOR ADVOCATE, ADVS.SRI.V.P.NARAYANAN, SMT.BOBY M.SEKHAR, SMT.DIVYA RAVINDRAN. RESPONDENT/APPELLANT/REVENUE: ------------------------------------------------------- THE COMMISSIONER OF INCOME TAX, PUBLIC LIBRARY BUILDING, SHASTRI ROAD, KOTTAYAM - 686 001. BY ADV. SRI.JOSE JOSEPH, S.C. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07-11-2013, THE COURT ON 18-12-2013 DELIVERED THE FOLLOWING: Prv. I.T.A. NO.279/2013: APPENDIX PETITIONER'S ANNEXURES: ANNEXURE-A: COPY OF THE ASSESSMENT ORDER DTD. 23/12/2009 ISSUED BY THE INCOME TAX OFFICER, WARD-1, ALAPPUZHA. ANNEXURE-B: COPY OF THE NOTICE NO.ADDL.COM/4/2010-11 DTD. 23/06/2010 ISSUED BY THE JOINT COMMISSIONER OF INCOME TAX, ALAPPUZHA. ANNEXURE-C: COPY OF THE REPLY DTD. 29/06/2010 GIVEN BY THE APPELLANT TO THE JOINT COMMISSIONER OF INCOME TAX, ALAPPUZHA. ANNEXURE-D: COPY OF THE ORDER DTD. 29/06/2010 ISSUED BY THE JOINT COMMISSIONER OF INCOME TAX, ALAPPUZHA. ANNEXURE-E: COPY OF THE ORDER DTD. 09/11/2011 IN I.T.A. NO.4/ALP/CIT/ (A)-IV/2010-11 ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-IV, KOCHI. ANNEXURE-F: COPY OF THE MEMORANDUM OF APPEAL FILED BY THE DEPARTMENT BEFORE THE I.T.A.T, COCHIN BENCH. ANNEXURE-G: COPY OF THE ORDER DTD. 26/07/2013 IN I.T.A. NO.22/COCH/2012 ISSUED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN. ANNEXURE-H: COPY OF THE NOTE SUBMITTED BY THE PETITIONER BEFORE THE I.T.A.T, COCHIN BENCH IN I.T.A. NO.4/ALP/CIT(A)-IV/10-11 & COPY OF THE LETTER GIVEN BY THE APPELLANT TO THE I.T.O, ALAPPUZHA, COPY OF LEDGER ACCOUNT, COPY OF RETURN, STATEMENT OF ACCOUNT OF S.B.T. ETC., ANNEXURE-I: COPY OF THE CERTIFICATE DTD. 25/10/2013 ISSUED BY THE STATE BANK OF TRAVANCORE, CHERTHALA BRANCH TO THE QUALITY FOOD PRODUCT INDUSTRIES, CHERTHALA. ANNEXURE-J: COPY OF THE CERTIFICATE DTD. 25/10/2013 ISSUED BY STATE BANK OF TRAVANCORE, CHERTHALA BRANCH TO THE QUALITY FOOD PRODUCT INDUSTRIES, CHERTHALA. RESPONDENTS' ANNEXURES: NIL. //TRUE COPY// P.A. TO JUDGE. Prv. MANJULA CHELLUR, C.J. & A.M.SHAFFIQUE, J. ---------------------------------------------------- I.T.A. No. 279 of 2013 --------------------------------------------------- Dated this the 18th December, 2013 J U D G M E N T Shaffique, J. The appeal is filed by the assessee against the order of the Income Tax Appellate Tribunal, Cochin Bench in ITA No. 22/Coch/2012 with reference to the assessment year 2007- 2008. 2. The appellant had filed their return of income for the assessment year 2007-2008 on 10.3.2008 declaring total income of Rs. 2,59,830/-. The return was scrutinized after issuing notice under S. 143(2) of the Income Tax Act and the assessment was completed under S. 143(3) by order dated 23.12.2009. 3. By a notice dated 23.6.2010 the Joint Commissioner of Income Tax called upon the appellant to furnish extract of the ledger account of six creditors in whose names amount was due and payable. It was indicated that the appellant had accepted loan exceeding the limits specified under S.269SS I.T.A. No. 279 of 2013 2 from six creditors during the financial year 2006-2007 for the relevant assessment year 2007-2008. Appellant submitted his explanation. However, penalty was imposed under S. 271D equal to the loan amount taken amounting to Rs.29,47,500/-. The appellant preferred an appeal before the Commissioner of Income Tax (Appeals). It is found that the levy of penalty under S.271D was not justified. The revenue preferred a further appeal before the Income Tax Appellate Tribunal. The Tribunal reversed the order of the Commissioner of Income Tax (Appeal) and restored the order of penalty. 4. The main contention urged by the appellant is that the Tribunal should have followed the decision of this Court in CIT v. P.K.Shamsuddin (ITA No. 237/2010) wherein it was held that when the factual position of the source of fund is accepted by the Department is a reasonable cause against levy of penalty since the violation becomes technical. It is further contended that the following question of law arises for consideration in the above appeal: “(i) Whether on the facts and in the circumstances of the case and having regard to the principle of law laid down by this I.T.A. No. 279 of 2013 3 Hon'ble Court in the case of CIT v. P.K. Shamsudheen in I.T.A. No. 239 of 2011, the Appellate Tribunal justified in law and facts in reversing the order of the Commissioner of Income Tax (Appeals), Cochin, in I.T.A. No. 4/Alp./CIT(A)-IV/2010-11 and restoring the penalty levied under S.269SS by the Joint Commissioner of Income Tax? (ii) Did not the Appellate Tribunal err in not following the binding precedence in the decision in Shri. P.K.Shamsudheen's case as well as the decisions of other Hon'ble High Courts of Punjab and Haryana, Rajasthan and Madras, reported in 276 ITR 79 (P & H) (CIT v. Saini Medical Stores, (260 ITR 590 (Raj) & 303 ITR 99 (Mad.) (CIT v. Lakshmi Trust Co) and 283 ITR 329 (Mad.) (CIT v. Kundrathur Finance & Chit Co.) respectively and dismissing the appeal? (iii) Is not the order of the Appellate Tribunal Annexure -G arbitrary and illegal and liable to be set aside?”. 5. The Tribunal after referring to S. 269SS and S.271D of the Income Tax Act found that after 30th of June, 1984 there is a mandate that no person shall accept or take loan or deposit from any person other than an account payee cheque or I.T.A. No. 279 of 2013 4 account payee bank draft, if such loan or deposit exceeds Rs. 20,000/-. The constitutional validity of the said provision was upheld by the Madras High Court. It was further indicated in K.R.M.V.Ponnuswamy Nadar Sons v. Union of India (1992) 196 ITR 431 (Mad)) that the assessee will have to show that there was a reasonable cause for failure to receive or accept loan or deposit by way of account payee cheque or account payee bank draft. In Asst. Director of Inspection (Investigation) v. Kumari A.B. Shanthi (2002) 255 ITR 258 (S.C.) it is held that if there was a genuine and bona fide transaction and the taxpayer could not get a loan or deposit by account payee cheque or account payee demand draft for some bona fide reason, the authority vested with the power to impose penalty has a discretionary power not to levy penalty. The Tribunal also found that the failure in the case is not receiving the loan, but the receipt or acceptance of amounts exceeding Rs. 20,000/- by way of account payee cheques or demand drafts. If the assessee is capable of explaining to the satisfaction of the concerned authority that there was a reasonable cause or failure to receive the loan or deposit by way of account payee cheque I.T.A. No. 279 of 2013 5 or demand draft, then the penalty shall not be levied. Therefore reasonable cause for receiving the loan or deposit in cash has to be proved by the assessee. 6. It is not in dispute that for exercising jurisdiction under S.269SS read with S. 271D, there should be receipt of loan or deposit by the assessee by way of cash. It is an admitted fact that the assessee had received substantial amounts from his creditors by way of cash. What is the reasonable cause for receiving such a huge amount by way of cash or what is the reason for not receiving the loan or deposit by way of account payee cheque or demand draft is a matter to be explained by the assessee. The reasonable cause in the present case is not forthcoming is the finding of the Tribunal. It is contended by learned counsel appearing for the appellant that since the appellant had to put up an industrial unit and he was not in a position to get loan from the bank he had to collect cash from various agriculturists, who are residing in the State of Tamil Nadu and since it is found that the transactions were genuine and bona fide, there was no reason to impose penalty on the petitioner. As rightly observed by the Tribunal setting up an I.T.A. No. 279 of 2013 6 industry/business is a long process and it is for the assessee to demonstrate with sufficient material that he required cash urgently to meet his requirements. It was open for him to prove that he had applied for loan and he was awaiting for loan. No such materials are available. In the absence of any proof to show that the transaction was a genuine transaction and that there was a reasonable cause for receiving the amount in cash, it may not be possible for this Court to come to a conclusion that the assessee is not liable for payment of penalty. 7. Having regard to the settled position of law, the burden is on the assessee to prove that there was reasonable cause for receiving cash from various persons. In the absence of any such proof we are of the view that the Tribunal was justified in rejecting the contentions of the appellant. Now coming to P.K.Shamsuddin's case, the contention taken was ignorance of law. That apart, it was found that the assessee took cash from relatives and friends who had taken loan from Banks for helping the assessee and such persons could not have issued cheques. It is in that circumstances, when the source of funds were found to be accepted by the Department, the I.T.A. No. 279 of 2013 7 Division Bench opined that there is no tax evasion or black money introduced in the business. That is not the situation here. The source of funds of the creditors was not from the Bank and introduction of black money cannot be ruled out. There is a clear finding by the assessing officer that no proof was furnished regarding earnings of agricultural income by the creditors. Hence P.K.Shamsuddin's case does not apply to the facts of this case. For that reason itself we do not think that there is any perversity in the findings of the Tribunal and since no question of law arises for consideration, the appeal is liable to be dismissed and we dismiss the appeal. Sd/- MANJULA CHELLUR, CHIEF JUSTICE Sd/- A.M.SHAFFIQUE, JUDGE rka I.T.A. No. 279 of 2013 8 "