2022 (8) TMI 1579 - AT - Income Tax

Medical institution's cash receipts over Rs. 2 lakh for emergencies don't warrant section 271DA penalty without intent to evade tax

ACIT, CC-2 (1), Mumbai Versus M/s Lilavati Kirtilal Mehta Medical Trust

ITAT Mumbai held that penalty under section 271DA was not justified where a medical institution received cash payments exceeding Rs. 2 lakh from patients ... Penalty levied u/s 271DA - assessee failed to provide any reasonable cause for contravention of section 269ST - CIT(A) deleted addition - Receipt in cash for 'Good & Sufficient Reasons - HELD THAT:- In the present case in hand, the assessee accepted such payments of Rs. 2,00,000/- or more in cash only to cater to the medical needs and/or emergencies of several patients with different disabilities and/or disorders and not for the purpose of circulating bank money being the sole objective of introduction of the aforesaid section. The assessee submits that section 269ST of the Act clearly states that no person shall receive an amount of two lakh rupees or more. Assessee submits that on perusal of the cash received from the patients during the year, it is evident that in most of the cases the assessee has received upto two lakh rupees and the balance amount has been received through other modes such as cheque/ NEFT/ credit card/Debit card etc. Thus, it is evident that there was no intent of violating the provisions of section 269ST. As observed above the intention of the legislature was to curve the quantum of domestic black money and evasion of tax. Nowhere in the order of Addl. CIT imposing penalty u/s 271DA r/w section 274 of the Act, he made any allegation about the intentions of the assessee that he wants to circulate black money in the guise of cash, which is sine qua non to apply this section. Secondly, in this case assessee has not received cash directly rather patients and their families directly deposited the amount in assessee’s bank account which amounts to around Rs. 8 Cr. In the given set of facts it could not be said that the assessee had entered into a transaction to avoid the payment of tax or to defraud the Revenue. As the transactions were bonafide and the default was of technical nature and party involved did not acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest. Decided against revenue. Denial of exemption u/s.11 - withdrawal of registration u/s 12AA - HELD THAT:- Since the order of withdrawal stands set-aside and registration originally granted stands restored vide ITAT [2019 (6) TMI 781 - ITAT MUMBAI] the reason for denial of exemption under section 11 by the AO ceases to exist. Appeal of Revenue is liable to be rejected. Issues presented and considered:1. Whether the Principal Commissioner of Income Tax (Appeals) erred in deleting the penalty of Rs. 13,21,06,882/- levied under section 271DA of the Income Tax Act, 1961 for contravention of section 269ST, without appreciating that exceptions to section 269ST were inapplicable and the assessee failed to provide reasonable cause for the contravention.2. Whether the Principal Commissioner of Income Tax (Appeals) erred in deleting the addition of Rs. 38,51,83,495/- on the basis of the ITAT order restoring registration under section 12A, without considering that an appeal was pending before the Bombay High Court against the ITAT order.3. Whether the Principal Commissioner of Income Tax (Appeals) erred in deleting the addition of Rs. 78,79,641/- on account of disallowance of legal expenses incurred to settle disputes among trustees, on the ground that such expenses were not for the benefit of the trust.Issue-wise detailed analysis:Issue 1: Penalty under section 271DA for contravention of section 269STThe legal framework involves section 269ST, introduced by the Finance Act, 2017, prohibiting receipt of cash amounts of Rs. 2,00,000 or more otherwise than by specified banking modes, to curb black money and promote a less cash economy. Section 271DA imposes a penalty equal to the amount of such receipt if contravention occurs, subject to the proviso that penalty is not leviable if the person proves good and sufficient reasons for contravention.The Court examined the legislative intent behind section 269ST, emphasizing its objective to reduce circulation of unaccounted cash and black money. The assessee, a healthcare trust, accepted cash payments from patients exceeding Rs. 2,00,000 in some cases, allegedly violating section 269ST.The assessee contended that all cash amounts were promptly deposited into bank accounts, and acceptance of cash was due to medical emergencies, with no mala fide intention to evade tax or circulate black money. The Court considered the proviso to section 271DA and relied on judicial precedents interpreting 'good and sufficient cause,' notably the Supreme Court decision in Arjun Singh v. Mohindra Kumar, which held that 'good cause' and 'sufficient cause' are substantially similar and require adequate and proper reasons beyond negligence or want of bona fides.The Court also referred to authoritative definitions of 'good cause' and 'sufficient cause,' highlighting that sufficient cause implies absence of negligence and presence of legal and adequate reasons beyond the party's control.Further, the Court examined circulars issued by the CBDT clarifying the practical application of section 269ST, particularly the circular dated 3 July 2017, which acknowledged difficulties faced by non-banking financial companies and housing finance companies, thereby granting relief in aggregation of instalments for loan repayments. This demonstrated the legislative intent to avoid undue hardship and focus on curbing black money rather than penalizing bona fide transactions.The Court noted that the assessee accepted cash payments primarily due to medical emergencies and that amounts exceeding Rs. 1,99,999 were minimal and often due to interpretation errors. The Court relied on the Rajasthan High Court decision in CIT v. Ajanta Dyeing & Printing Mills, which held that penalty under analogous provisions should be levied only on amounts exceeding permissible limits.Regarding mens rea, the Court emphasized that penalty provisions require a conscious or deliberate contravention with mala fide intent. It relied on multiple precedents, including the Bombay High Court and Supreme Court decisions, establishing that penalty will not be imposed where there is bona fide belief or technical breach without dishonest intent.The Court found no evidence that the assessee acted with intent to evade tax or circulate black money. The cash receipts were deposited into bank accounts and related to genuine medical exigencies. The default was technical and not contumacious or dishonest.Accordingly, the Court upheld the deletion of penalty under section 271DA, concluding that the assessee had demonstrated good and sufficient cause for contravention of section 269ST.Issue 2: Deletion of addition of Rs. 38,51,83,495/- following restoration of registration under section 12AThe assessee trust was registered under section 12A since 1979 and engaged in charitable activities. The registration was cancelled by the CIT (Central) on grounds of fund diversion and increased compensation to a connected entity. Consequently, exemption under section 11 was denied, and income was treated as business income.The ITAT restored the registration under section 12A in an earlier order dated 12.06.2019. The Revenue contended that an appeal was pending before the Bombay High Court against this ITAT order, and thus the addition should not have been deleted.The Court noted that the denial of exemption under section 11 was solely based on the cancellation of registration, which was set aside by the ITAT. Since the registration stood restored, the reason for denying exemption ceased to exist.The Court observed that the ITAT's order in the assessee's own case for various assessment years consistently upheld the registration and exemption, and no higher court had set aside these orders. Therefore, the Court held that the Principal Commissioner of Income Tax (Appeals) rightly deleted the addition, following binding precedents and the principle of consistency.The Court declined to entertain the Revenue's contention regarding the subjudice status before the High Court, emphasizing that unless the High Court sets aside the ITAT order, the latter's decision remains binding.Issue 3: Disallowance of legal expenses of Rs. 78,79,641/-The Revenue disallowed legal expenses incurred by the assessee trust, contending that such expenses were to settle disputes among trustees and not for the benefit of the trust.The Court examined the nature of these expenses and the context of the disputes. It noted that the expenses were incurred in the course of protecting the trust's interests and resolving internal matters, which ultimately benefitted the trust's functioning.The Court relied on the principle that expenses incurred bona fide for the trust's benefit are allowable, even if they relate to trustee disputes, provided they do not constitute personal expenses.Given the facts and the absence of any adverse finding that the expenses were personal or unrelated to trust activities, the Court upheld the deletion of the addition relating to legal expenses.Significant holdings:'If, on the other hand, there is any difference between the two it can only be that the requirement of a 'good cause' is complied with on a lesser degree of proof than that of 'sufficient cause'. ... The expression 'sufficient cause' implies no negligence nor inaction nor want of bonafides on the part of the party.' (Supreme Court in Arjun Singh v. Mohindra Kumar & Ors.)'An order imposing penalty for failure to carry out a statutory obligation is the result of quasi criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation.' (Supreme Court in Hindustan Steel Ltd v. State of Orissa)'Transaction of loan had found place in the books of account of the assessee as well as lender of the loan. None of the authorities had reached to the conclusion that the transaction of the loan was not genuine ... The element of mens rea was not borne out from the nature and the manner in which the transaction was carried out.' (Gauhati High Court in CIT v. Bhagwati Prasad Bajoria (HUF))Core principles established:- Penalty under section 271DA requires proof of contravention of section 269ST without good and sufficient cause.- Good and sufficient cause entails absence of negligence, bona fide belief, and presence of adequate reasons beyond the party's control.- Mere technical or venial breaches without mala fide intention, especially in bona fide circumstances such as medical emergencies, do not warrant penalty.- Restoration of registration under section 12A by ITAT is binding unless set aside by a higher court; denial of exemption based on cancelled registration cannot be sustained post-restoration.- Legal expenses incurred bona fide for trust's benefit, even if related to trustee disputes, are allowable deductions.Final determinations:1. The penalty of Rs. 13,21,06,882/- under section 271DA was rightly deleted as the assessee proved good and sufficient cause for contravention of section 269ST, with no mala fide intent or deliberate defiance of law.2. The addition of Rs. 38,51,83,495/- was correctly deleted following restoration of registration under section 12A by ITAT, and the Revenue's appeal on this ground was dismissed.3. The disallowance of legal expenses of Rs. 78,79,641/- was rightly deleted as the expenses were incurred bona fide for the benefit of the trust.Accordingly, all appeals filed by the Revenue were dismissed, sustaining the orders of the Principal Commissioner of Income Tax (Appeals).