TaxTMI 
TaxTMI 
2015 (3) TMI 967
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....enience. 2. The above appeals came up for hearing on 10.4.2013. Nobody appeared on behalf of the assessee. But, the assessee filed a petition for adjournment seeking time stating that Authorized Representative will be on audit tour from 3.4.2013 to 14.4.2013. As the reason for seeking adjournment is not justifiable one, the petition for adjournment of these appeals is rejected and the appeals are taken up for disposal on merits, on hearing learned DR. ITA Nos. 294 and 2004/Mds/2012 (A.Y. 2008-09 & 2009-10):- 3. The effective ground of appeal in both these appeals is that the Commissioner of Income Tax (Appeals) erred in holding that the assessee is entitled to the benefit of section 11 of the Act. The Assessing Officer while completing the assessments for the assessment years 2008-09 and 2009-10 denied exemption under section 11 to the assessee's association on the ground that the assessee is doing business by exploiting its properties by giving them on rent. The assessee advanced monies to other trusts and this is in violation of section 13(1)(d) of the Act. The Assessing Officer further treated Rs. 14,60,000/- and Rs. 1,16,18,000/- as unexplained credits while com....
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....against the assessee's claim that this income is from house property eligible for exemption under section 11 of the Act. The Departmental Representative also submits that the assessee has violated provisions of section 11(4A) of the Act as no separate books of accounts were maintained by the assessee. The Departmental Representative submits that on a plain reading of section 11(4A), it is clear that any business activity conducted by the assessee shall forfeit section 11 unless separate books of accounts are maintained. The Departmental Representative in support of his contentions relied on the following decisions:- i) CIT Vs. Goel Builders (331 ITR 344) ii) CIT Vs. Anand Rubber & Plastics (178 ITR 301) iii) CIT Vs. Halai Nemon Association, (243 ITR 439) iv) CIT Vs. Associated Building Co. Ltd., (137 ITR 339) 5. We have perused the orders of lower authorities and materials available on record. The Assessing Officer denied exemption under section 11 of the Act to the assessee on the ground that the assessee's activities in letting out various properties in a systematic way is in the nature of business and the income from such properties is to be assessed as bu....
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.... the General Secretary and the said loans were repaid to General Secretary, therefore, the same cannot be assessed as cash credits. The Department has not filed appeal on this issue. In respect of cash credits assessed at Rs. 1,16,18,000/- for the assessment year 2009-10, the Commissioner of Income Tax (Appeals) held that Rs. 16,80,000/- was again borrowed from General Secretary Mr. Ebinesan and the same was repaid to him and therefore, cannot be assessed as cash credit. However, since the assessee has received Rs. 1.00 crore from unknown persons and since the assessee could not provide details of persons from whom these amounts were received, the Commissioner of Income Tax (Appeals) held that the Assessing Officer is justified , in treating the said amount as cash credits and assessable under the head " income from other sources". No doubt, the association was established as a charitable association and carrying on charitable activities and at the same time, it appears that the assessee is also earning some income from its properties. What is to be seen here is whether the assessee is earning this income as incidental to the activities of the assessee or whether the assessee is....
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....see could not be denied exemption under Section 11 of the Act and directed the A.O. to grant such exemption. 4. Before us, learned D.R., strongly assailing the order of CIT(Appeals), submitted that it was an accepted position that M/s Sivaraja Ramalinga Trust and assessee-Trust were having some common trustees. Relying on Section 13(3) of the Act, learned D.R. submitted that any concern in which any trustee, who had substantial interest, would fall with the mischief of Section 13(1)(c) of the Act. Assessee-Trust had placed part of its funds with another Trust in which the trustees had substantial interest and therefore, the trustees had directly or indirectly derived benefit. According to him, CIT(Appeals) fell in error in allowing the assessee exemption under Section 11 of the Act. 5. Per contra, A.R. strongly supported the order of CIT(Appeals). 6. We have perused the orders and heard the rival submissions. There is no dispute that M/s Sivaraja Ramalinga Trust, to which assessee had given money, was a Trust registered under Section 12AA of the Act. The A.R. has placed a copy of order under Section 12AA of the Act granting registration to such Trust. Two things are ....
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.... not arise when the assessee is earning income from letting out of property and when such income is exempt under section 11 of the Act, as income from house property. Since we have already directed the Assessing Officer to examine the nature of activity and its income i.e. whether the income is derived as incidental to the objects of the assessee or as a separate business, this can be examined by the Assessing Officer in the light of our above observations. 10. In the result, the appeals of the Department in ITA Nos. 294 & 2004/Mds/2012 are allowed for statistical purposes. ITA No.1888/Mds/2012 (A.Y. 2009-10 - Assessee's appeal):- 11. The only issue in the appeal of the assessee is that the Commissioner of Income Tax (Appeals) erred in enhancing the income of the assessee by directing the Assessing Officer to treat the cash credits of Rs. 1.00 crore as income from other sources. While completing the assessment, the Assessing Officer held that the assessee has obtained loans to the extent of Rs. 1,16,18,000/- and since the assessee could not explain the credit, the same were treated as unexplained cash credits. The Assessing Officer observed that out o....
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....uced by way of cash loans for which no details as available was treated as unexplained cash credits u/s.68 of the Act and brought to tax under the head "income from other sources" as under:- "The cash credits of Rs. 1,16,18,000/- from unexplained and unidentified sources received in cash during the year has not been proved for the credit worthiness and genuineness of transaction. Hence, this sum is taken to be the income of the society u/s.68 of the Act and is assessed under the head "income from other sources". However, the Assessing Officer, perhaps due to oversight, failed to include the same while computing the taxable income of the assessee for the year. In fact, the Assessing Officer himself realized that this is a mistake apparent from records and issued a notice u/s.154 of the Act, to the assessee proposing rectify the same. This proposed action of the Assessing Officer is apparently pending as on date. Since the above amounts of Rs. 1,16,18,000/-, introduced by way of cash loans for which no details as available, were already treated by the Assessing Officer as an unexplained cash credits u/s.68 of the Act and liable for tax under the head "incom....
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....irected to assess the said Rs. 1,00,00,000/- under the head income from other sources, while computing the total taxable of the assessee for the financial year 2008-09. It is also important to mention here that the regular income derived from the property held by the trust is eligible for exemption u/s. ll of the Act. Whereas, the above amount of Rs. l,00,00,000/- which is not derived from the property held by the trust, but from the unknown/unexplained and unaccounted sources and hence not eligible for exemption u/s.l1 of the Act. In other words, the regular income of the assessee is eligible for exemption u/s.11 of the Act and the deemed income of Rs. 1,00,00,000/- brought to tax u/s.68 of the Act and under the head "other sources" is not eligible for exemption. Hence the said income of Rs. 1,00,00,000/-, from unexplained cash credits u/s.68 of the Act, alone is to be brought to tax at maximum marginal rate. As a result, the taxable income of the assessee society is increased by Rs. 1,00,00,000/- and assessment enhanced." 14. As could be seen from the order of the Commissioner of Income Tax (Appeals) that the assessee has introduced Rs. 1.00 cr....
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....tal Representative supported the order of the Assessing Officer in levying penalty under section 271D / 271E of the Act. 21. We have perused the orders of lower authorities. The Assessing Officer while completing the assessment assessed the cash loans as unexplained credit under section 68 of the Act. The Assessing Officer also invoked the provisions of section 269SS / 269T and levied penalty under section 271D / 271E for receiving the cash loans in excess of loans prescribed and also for repaying the said loans. The assessee made elaborate submissions before the Commissioner of Income Tax (Appeals) explaining the circumstances under which these loans were taken and it was also contended that when once the Assessing Officer has treated the cash loans as unexplained credits under section 68, the provisions of section 269SS / 269T cannot be invoked. The submissions of the assessee are as under:- "1. The Appellant is an Association incorporated in the year 1980, vide Certificate of Incorporation dated 26.08.1890 and registered under section 12A of the Income-tax Act, 1961, with its main objects, the details of which in brief are:- i) To promote and provide f....
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....s for discharging the liability of M/ s. India Cements Limited. Date Cheque No. Amount (Rs.) 28-03-2008 272361 50,00,000 28-03-2008 272362 49,25,473 The Joint Director of Income-tax (Exemptions), by his above dated order, has levied a penalty of Rs. 1,00,00,000/-, Under Section 271D, for the alleged contravention of Section 269SS of the Income-tax Act, 1961, ignoring the information furnished and explanation offered in this regard. 4.It is submitted that the temporary advances were obtained by Late. Shri G.Ebinesan, the then General Secretary of the Association and the details of the persons from whom these advances were mobilized were known to him only and since he passed away on 16-09-2009, the Appellant is not aware of the persons from whom these advances were mobilized during the course of the penalty proceedings. It is also not known to the Appellant and its present management that whether these advances were mobilized from third parties or arranged from his own sources. 5. It is submitted that in the instant case, the Appellant has issued two cheques, dated 28-03-2008 to M/ s. India Cements Limited, anticipating o....
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....h persons in support of their explanation". 9. Keeping the above circular in view, the Hyderabad Bench of the Tribunal in the case of Industrial Enterprises v. Dy. CIT (2000) 68 TTJ (Hyd) 373: (2000) 73 ITD 252 (Hyd) in para 17.2 of its order held as under:- 'Provision of Section 269SS, were brought in the statute book to counter the evasion of tax in certain cases, as clearly stated in the heading of Chapter XX-B of the IT Act, 1961 which reads requirements as to mode of acceptance, payment or repayment in certain cases to counteract. "Evasion of Tax'. Legislative intention in bringing Section 269SS in the IT Act was to avoid certain circumstances of tax evasion whereby huge transactions are made outside the books of account by way of cash. As far as the case on hand before us is concerned, there is no case against the assessee firm that these transactions had anything to do with evasion of tax or concealment of income. As rightly pointed out by the Commissioner of Income Tax (Appeals)A)himself, it may be a case of negligence. But a negligent person does not have any intention or mens rea to purposely violate any provision of law, so as to be visited with....
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....961. (CIT vs. Idhyam Publications Ltd. (2006) 285 ITR 221 (Mad). It is pertinent to mention here that the Assessing Officer in the order levying penalty has categorically stated at para 3.1, 4 and 5 of the penalty order that the identity of the lenders / depositors and their sources were not explained / furnished. 15. The Mumbai "B Bench of the Tribunal in the case of Karnataka Ginning & Processing Factory v. .n. CIT (2001) 72 TTJ (Mumbai) 307: (2001) 77ITD 478 (Mumbai), at p. 487, held as follows:- "Quite apart from the question of existence of reasonable cause, we are not sure whether the amounts received by the assessee from VE can be termed as "loans" or "deposits". The words are not defined in the Expln. (iii) below Section 269SS except saying that "loans" or "deposits" means loan or deposit of money. The terms "loan" and "deposit" are not mutually exclusive there are a number of common features between the two. It was held by the Madras High Court in Abdul Hamid Sahib u. Rahmat Bi AIR 1965 Mad 427, that a loan is repayable the moment it is incurred while it is not so with the deposit In a deposi....
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....wan Enterprises vs. CIT (2000) 246 ITR 571 (Del) (b) ACIT vs. M.L. Vijay (2000) 16 DTC 542 (Jb Tribunal) (c) ITO vs. Sunil M. Kashliwal (2003) 80TT J (Pune Tribunal) (d) Bajaranq Textiles vs. Addl.CIT (2009) 122 TTJ 190 (Jodh Tribunal) (e) DCIT vs. G. S. Entertainment 109 TT J 54 (Mumb Tribunal) (f) CIT vs Standard Brands Ltd. 285 ITR 295 (Del). 18. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the Joint Director of Income-tax (Exemptions), Chennai-600 034, may be set aside and pass such orders as the Hon'ble Commissioner of Income- tax (Appeals) - XII, Chennai, may deem fit on proper appreciation of the facts and circumstances of the case and render justice." 22. After considering the submissions of the assessee, the Commissioner of Income Tax (Appeals) deleted the penalty observing as under:- "Thus, from the above it is clear that the Assessing Officer came to clear conclusion that the amount of Rs. 1,00,00,000/- claimed by way of loan, whose names are not known (or at least neither incorporated in the books, nor furnished before the department) was a....
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....69SS of the Act, before levying penalty u/s.271D of the Act. Hence, the penalty levied by the Assessing Officer u/s.271D r.w.s. 269SS of the Act, is deleted. The assessee succeeds in its appeal. In the result, the appeals of the assessee is allowed." 23. On going through the submissions of the assessee and the order of the Commissioner of Income Tax (Appeals), we find there is no good reason to interfere with the order of the Commissioner of Income Tax (Appeals) in deleting the penalty levied under section 271D / 271E especially when the Assessing Officer has treated the cash loans as unexplained credits and at the same time, invoking the provisions of section 269SS / 269T of the Act. This view is also supported by the Hon'ble Delhi High Court in the case of CIT Vs. Standard Brands Ltd., (285 ITR 295), wherein the Hon'ble High Court has held that "when the cash deposits were treated as undisclosed income of the assessee, the Assessing Officer could not resort to proceedings under section 269SS read with section 271D of the Act." 24. The Hon'ble Delhi High Court in the case of Diwan Enterprises Vs. CIT., ( 246 ITR 571) has held as under:- &n....
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....s. 25,00,000/- received from Smt. Meenakshi as genuine loan. This amount was not treated as unexplained credit while completing the assessment. The Assessing Officer passed order under section 271D levying penalty of Rs. 25,00,000/- for violation of provisions of section 269SS in accepting cash loan from Smt. Meenakshi rejecting the explanation of the assessee that the cash loan was obtained due to compelling circumstances i.e. to reduce the bank overdraft facility. It was the submission of the assessee that it had issued cheque for Rs. 1,30,96,295/- to Mr. Vishwakarma of M/s. P.M.Construction towards full and final payment of civil, electrical, plumbing and escalation for construction of Vepery Youth Centre. It was the submission of the assessee that since overdraft facility has to be reduced, it had obtained cash loans from Smt. S.Meenakshi. However, the Assessing Officer rejected the submissions of the assessee and levied penalty stating that the assessee did not prove any compelling circumstances in obtaining cash loans. He also stated that assessee has not produced evidence that the contractor had in fact pressed for payment. The Assessing Officer also observ....
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.... the co-ordinate Bench of the Tribunal in the case of ITO Vs. P.Visalam Traders, Madurai in ITA No.1172/Mds/2010 dated 4.2.2011 and submitted that in this case the Tribunal has deleted the penalty on identical facts of the assessee where the assessee obtained cash loans and deposited in the bank account when the overdraft facility of the assessee was running at maximum. The Tribunal while coming to the conclusion that no penalty is leviable under section 271D also relied on the jurisdictional High Court decision in the case of Kundrathur Finance and Chit company Vs. CIT (283 ITR 329). It was also submitted that if the transaction is genuine and bonafide, penalty could not be imposed particularly where there is no evasion of tax. For this proposition, the assessee relied on the following decisions:- i) CIT Vs. Lakshmi Trust Company (303 ITR 99) ii) CIT Vs. Balaji Traders (303 ITR 312) iii) CIT Vs. Kundrathur Finance & Chit Company ( 283 ITR 329) It was also the submission of the assessee that there is a reasonable cause in obtaining the cash loan in order to meet the pressing demands of the contractors and bankers. The Commissioner of Income Tax (Appeals),....
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....ping the assessee if the assessee is unable to repay the loans in time or meet the financial commitments. In these circumstances, we are of the view that the finding of the learned CIT(A) on this issue is on a right footing and does not call for any inference. This view of our gets support from the decision of the Hon'ble jurisdictional High Court in the case of Kundrathur Finance and Chit Co. reported in 283 ITR 329. In the circumstances, the finding of the learned CIT(A) on this issue stands confirmed and the appeal as filed by the Revenue stands dismissed". The Hon'ble High Court of Madras, in the case of CIT v. Balaji Traders (303 ITR 312) (Mad.), held that in the case of business exigency forcing assessee to take cash loans for purpose of honouring its cheque commitments, where the creditors were genuine persons and transactions were satisfactorily explained by assessee, there was no revenue loss to State exchequer. Hence in such situations penalty u/s.271D r.w.s. 269SS cannot be imposed. In the present case also the assessee was running its bank overdraft facility at its peak levels. Further, there were pressing demands from the contractors for payme....
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....y with section 26988 - Assessment year 2006-07. * Assessee was engaged in business of providing security guards - He took a cash loan exceeding Rs. 20,000 to make payment of salary to his employees - Assessing Officer imposed a penalty under section 271D on assessee holding that cash loan taken by him was in contravention of provisions of section 26988. On appeal, Commissioner (Appeals) deleted penalty imposed by Assessing Officer accepting assessee's explanation that he took said cash loan due to shortage of fund and to meet emergency needs under bona fide belief that those transactions would not attract any penal provision . ** Held: 8ince there was business exigency forcing assessee to' take cash loans for purpose of disbursing salary /wages to his employees, Commissioner (Appeals) had rightly deleted penalty imposed. e) C.itizen Co-operative Society Ltd. v. Addl.CIT [2010] (8 TAXMANN.COM 27)(Hvd) If the assessee-society, whose income is exempt u/s 80P, acted on genuine belief that penal provisions had no application to deposits received by it and. it applied only to other kind of assesses, then there existed reasonable cause in accepting the deposit....