2018 (3) TMI 1317 - HC - Income Tax

Tribunal Error in Deleting Penalty under Income Tax Act; Burden of Proof Not Met

The Commissioner of Income Tax, Trichur Versus M/s Al- Ameen Educational Trust, Shornur -2

The High Court held that the Tribunal erred in deleting the penalty under Section 271D of the Income Tax Act. The Tribunal's decision was criticized for ... Penalty u/s 271D - acceptance of loans and deposits other than by way of Cheque or Draft, in violation of Section 269SS - reasonable clause - Held that:- Tribunal erred egregiously in deleting the penalty levied under Section 271D, on the facts disclosed and cause shown, which approach and conclusions are perverse. The assessee failed to discharge its burden in proving that there was a reasonable cause in accepting the deposits from staff members other than by way of cheque or draft. The Tribunal failed to appreciate the import of Section 271D in the correct perspective. We answer the questions of law arising from the order of the majority, against the assessee and in favour of the Revenue. Issues Involved:1. Legality of the Tribunal's interference with the penalty levied under Section 271D of the Income Tax Act.2. Whether the Tribunal's approach and conclusion were in accordance with the law.3. Correct interpretation of Section 271D by the Tribunal.4. Compliance of the Tribunal's order with Section 271D of the Income Tax Act.5. Whether the assessee discharged the burden of proof.Detailed Analysis:1. Legality of the Tribunal's Interference with the Penalty Levied under Section 271D:The Revenue appealed against the Tribunal's decision, which involved split verdicts from its members regarding the penalty imposed under Section 271D for accepting loans and deposits in violation of Section 269SS of the Income Tax Act. The Administrative Member (AM) upheld the penalty orders but remanded the issue of a Rs. 49,00,000 loan for further verification. The Judicial Member (JM) disagreed, finding the assessee's explanation satisfactory under Section 273B, leading to a third member's concurrence with the JM. The High Court found the Tribunal erred in deleting the penalty, emphasizing that ignorance of law cannot be a reasonable cause for mitigation under Section 273B.2. Tribunal's Approach and Conclusion:The Tribunal's majority decision to delete the penalty was based on the assessee's claim of ignorance of law and urgent need for funds. The High Court criticized this approach, stating that the Tribunal failed to appreciate the statutory intent behind Section 269SS, which aims to curb black money and ensure traceable transactions. The High Court emphasized that the Tribunal's conclusion was perverse and not supported by the facts or a reasonable cause.3. Interpretation of Section 271D by the Tribunal:The High Court highlighted that Section 271D imposes a penalty for accepting loans or deposits in cash exceeding the prescribed limit, regardless of the transaction's genuineness or the absence of tax evasion. The Tribunal's interpretation, which allowed for mitigation based on the assessee's explanation of urgent need and ignorance of law, was found to be flawed. The High Court reiterated that the statutory provisions do not distinguish between refundable and non-refundable loans or deposits.4. Compliance of the Tribunal's Order with Section 271D:The High Court found the Tribunal's order to be against the provisions of Section 271D. The Tribunal's decision to delete the penalty based on the assessee's explanation was deemed incorrect. The High Court emphasized that the statutory intent is to prevent unaccounted money from being laundered through false claims of loans and advances. The Tribunal's failure to uphold the penalty was seen as a misinterpretation of the law.5. Discharge of Burden of Proof by the Assessee:The High Court held that the assessee failed to discharge its burden of proof to show a reasonable cause for accepting cash deposits. The explanation provided by the assessee, including the claim of urgent need for funds and ignorance of law, was found insufficient. The High Court emphasized that the burden under Section 273B lies entirely with the assessee, and the provided explanation did not constitute a reasonable cause.Conclusion:The High Court concluded that the Tribunal erred in deleting the penalty under Section 271D and failed to appreciate the statutory intent correctly. The Tribunal's approach and conclusions were deemed perverse, and the assessee did not discharge its burden of proof. The High Court affirmed the order of the Administrative Member and remanded the issue of the Rs. 49,00,000 loan for further inquiry by the Additional Commissioner.