2015 (7) TMI 1084 - HC - Income Tax

Court Upholds Decision on Penalty Deletion, Orders Fresh Disposal for Violation of Natural Justice

Commissioner of Income-Tax Versus M. Ramakrishnan and Vice Versa

The High Court upheld the decision to delete the penalty under section 271E due to the compulsion faced by the assessee in the loan transaction. The Court ... Penalty u/s 271E - Tribunal upheld the penalty under section 271D and set aside the penalty under section 271E - Held that:- . In so far as the order setting aside the penalty under section 271E, is concerned, we do agree with the findings rendered by the Tribunal by accepting the contention of the assessee, that he was constrained to repay the loan account as per the whims and fancies of A. Kannan and the repayment of loan amount by way of cash is out of compelling reasons.Having regard to the statement of the financier, A. Kannan. The Tribunal, after having duly appreciated the difficulty faced by the borrower in the hands of the financier and their compulsion to accept the terms imposed by the money lender, accepted the explanation and such findings need not be interfered by us and the same disentitles the Revenue to get any order in their appeals One consistent stand taken by the assessee before the authorities below that the assessee was deprived of valuable opportunity to defend his case for want of copy of the statement given by the financier Kannan and the copy of the materials seized from him and without giving him an opportunity to cross-examine Kannan is acceptable. The Commissioner of Income-tax (Appeals) as well the Appellate Tribunal though allowed the party to raise additional ground regarding the urgency for receiving the amount in cash and also to produce additional documents, have not duly applied their mind to ascertain the genuineness and relevancy of the same in deciding the issue in hand. The authorities below have also omitted to consider that there is serious violation of the principles of natural justice in not allowing the assessee to have the copy of the statement of the financier Kannan and the documents seized from him and to cross-examine him. Such failure on the part of the authorities below, in our considered view, has deprived the assessee of his valuable opportunity to satisfactorily prove the reasonable cause for receiving the amount in cash and to defend his case properly and effectively. As such, we feel that it is a fit case, to give the assessee such an opportunity and for such purpose, set aside the impugned order and to remand the same for fresh disposal, after giving the copies of the relevant documents to the assessee and after giving him an opportunity to cross-examine the witness and after duly considering the additional grounds raised and additional documents produced by the assessee and the substantial questions of law are accordingly decided in favour of the assessee. Issues:Penalty under section 271D for accepting a loan in cash and under section 269T for repayment in cash - Violation of principles of natural justice - Different explanations provided by the assessee - Upholding of penalty by Commissioner of Income-tax (Appeals) - Tribunal's decision to confirm the penalty under section 271D but delete the penalty under section 271E - Appeal before High Court challenging the penalties and the violation of natural justice.Analysis:The judgment involves the issue of the assessee facing penalties under section 271D for accepting a loan in cash and under section 269T for repaying in cash. The Commissioner of Income-tax (Appeals) upheld the penalty, stating that the lender's insistence on cash repayment did not constitute a reasonable cause to avoid the penalty. The Tribunal confirmed the penalty under section 271D but deleted the penalty under section 271E, considering the compulsion faced by the assessee in repaying the loan in cash. The High Court addressed the substantial questions of law raised in the appeals.The High Court found that the Tribunal's decision to set aside the penalty under section 271E was justified based on the compulsion faced by the assessee in the loan transaction. The Court agreed with the Tribunal's findings regarding the difficulties faced by the borrower and upheld the decision in favor of the assessee, dismissing the Revenue's appeals related to this issue.Regarding the penalty under section 271D, the High Court considered the violation of principles of natural justice as a crucial factor. The Court noted that the assessee was deprived of the opportunity to defend the case properly due to not being provided with relevant documents and the chance to cross-examine the lender. The Court emphasized the importance of considering the explanations and documents offered by the assessee, which were not duly evaluated by the authorities below. Citing a previous case, the Court highlighted the right of parties to produce additional documents and grounds before the appellate authority. The failure to allow the assessee to access essential documents and cross-examine witnesses was deemed a serious violation of natural justice, leading the Court to set aside the impugned order and remand the case for fresh disposal, granting the assessee the opportunity to present a satisfactory defense.In conclusion, the High Court dismissed the appeals related to the penalty under section 271E, upheld the decision to delete the penalty, and allowed the appeal regarding the penalty under section 271D, remanding the case for a fresh disposal to ensure the principles of natural justice are upheld.