TaxTMI 
TaxTMI 
2019 (2) TMI 1000
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....2, 2201 & 2197/CHNY/2018, for the assessment years 2015-16, 2014-15, 2014-15, 2012-13, 2015-16, 2012-13, 2014-15, 2015-16, 2013-14, 2014-15, 2013-14 and 2015-16, respectively. Since identical substantial questions of law were raised by the assessees in these appeals, we heard the appeals together and dispose of the same by this common order. 2.The above appeals have been filed raising the following common substantial questions of law:- "(i) Whether the provisions of section 271D of the Act would be applicable to a running account maintained between the promoter/director and the Appellant company in the context of the transactions covered in section 269SS of the Act? (ii) Whether the provisions of section 271E of the Act would be applicable to a running account maintained between the promoter/director and the Appellant company in the context of the transactions covered in section 269T of the Act? (iii) Whether the Appellate Tribunal was correct in imposing penalties u/s 271D and 271E of the Act pertaining to the transactions between the promoter/director and the Appellant company despite such transactions were accepted as genuine in view of taxing of su....
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....irector was introduced through his running account with the company for the purpose of meeting/running expenses of the assessee. 5.The assessee further stated that the proposal for imposing penalty in the hands of the assessee relating to the transactions between the Director and the assessee during the Financial Years 2011- 12 to 2014-15 was a total sum of Rs. 143.25/- Crores. It was further stated that these are accumulations of amounts received from Mr.J.D., and introduced by him into the company. It was further stated that the total sum of money credited to the bank account of the assessee-company is Rs. 113.65 Crores, and the balance had been deducted for arrears in repayment of earlier borrowings and interest dues by the Director, which worked out to Rs. 29.60 Crores. 6.Further, the assessee submitted that what is relevant alone should be considered as borrowings from Mr.J.D., and only the "peak credit" and the summation should be taken. Apart from the above, certain other factual details were mentioned and in sum and substance, the assessee contended that it is only a running account maintained by the assessee with the Director to manage the funds needed to run the bus....
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....rned counsel that, in fact, alternate submission is that the Tribunal failed to see the nature of transaction, which was done by the Director with the company with the borrowed funds from Mr.J.D. The amounts were deposited on the same day in the current account of the company and from the said amount, the salaries of the employees were paid; rents which were payable for the buildings leased out by the assessee were paid; and the other EMI commitments were honoured, and this will clearly show the bona fides of the assessee and the assessee having shown reasonable cause for effecting such borrowals, especially for payment of salary and other commitments, ought to have vacated the penalty imposed on the assessee. 8.4.As an additional submission, it was contended that the Tribunal failed to scrutinise as to how the borrowed funds were utilized by the company especially when the assessee was able to establish that the funds were utilized for business exigencies and this will show the genuineness of the transaction and the assessee having shown reasonable cause, penalty should not have been imposed on the assessee. 8.5.Alternatively, it was contended that the total tran....
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....ring its cheque commitments, the creditors were genuine persons and the transactions were held to have been satisfactorily explained by the assessee. 8.12.Reliance was placed on the decision of the Division Bench of this Court in CIT vs. T.Perumal (Indl.), [2015] 53 taxmann.com 17 (Madras), which also dealt with loans taken by an individual assessee to tide over emergency situation, which was held to be a reasonable cause in terms of Section 273B and therefore, penalty was deleted. 8.13.Reliance was also placed on the decision of the Division Bench of this Court in CIT vs. M.Yesodha, (2013) 351 ITR 0265 wherein, the transaction in cash between the daughter-in-law and the father-in-law, on facts, was found to be a reasonable transaction and genuine one owing to the urgent necessity of money to be paid to the vendor of an immovable property. 8.14.The learned counsel distinguished the decision of the Division Bench of this Court in P.Muthukaruppan vs. Joint Commissioner of Income-tax, [2015] 375 ITR 243 (Madras) stating that the assessee therein was unable to prove that there was reasonable cause for availing the cash loan and therefore, the penalty was conf....
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.... 2(31) of the Act to include an individual, a company and other categories and both the company as well as the Director are independently liable to pay penalty for having violated Section 269SS of the Act. In this regard, the learned counsel referred to the decision in the case of P. Muthukaruppan (supra). Further, it is submitted that the assessee was not able to substantiate his claim for receiving amounts in cash from his Director in contravention of the provisions of Section 269SS of the Act. Likewise, the assessee failed to substantiate that cash loans received were deposited into the bank account and the funds were routed through the bank account, and they failed to justify as to why the same were withdrawn in cash for repayment of loan to the Director, who had subsequently, repaid in cash to Mr.J.D. 12.The learned counsel placed reliance on the decision of the Hon'ble Division Bench of this Court in the case of M.Sougoumarin vs. Assistant Commissioner of Income-tax, [2018] 95 taxmann.com 240 (Madras). 13.It is further submitted that in identical circumstances, in a penalty proceedings arising under Section 271E of the Act, this Court in the case of P.Baskar vs. ....
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.... 01.04.1989, which is a penal clause, which provides for imposition of penalty for failure to comply with the provisions of Section 269SS, and Section 276DD was omitted with effect from 01.04.1989. Thus, subsequent to the introduction of Section 271D, the punishment of imprisonment was taken away and failure to comply with the provisions of Section 269SS attracted only levy of penalty of fine equal to the amount of loan or deposit to be taken or accepted. 20.In Assistant Director of Inspection vs. Kum. A.B. Shanthi, [2002] 255 ITR 258 (SC), one of the questions, which arose for consideration before the Hon'ble Supreme Court, was the constitutional validity of Section 269SS. The Hon'ble Supreme Court held that the object of introducing Section 269SS is to ensure that a tax payer is not allowed to give false explanation for his unaccounted money or if he has given false entries in his accounts, he shall not escape by giving false explanation for the same. It was further held that the main object of Section 269SS was to curb the menace of unaccounted money upon being unearthed giving explanation of borrowal and so-called lender also manipulates his records later to suit a p....
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.... the preceding paragraph, we have referred to Section 271D of the Act, which was dealt with by the Hon'ble Supreme Court in Kum. A.B. Shanthi, (supra). 24.Section 271D introduced with effect from 01.04.1989 simultaneously omitted Section 276DD. Section 271D states that if "a person" takes or accepts any loan or deposit in contravention of the provisions of Section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of loan or deposit so taken or accepted. The answer as to whether there are any multiplicity of penalty proceedings in the cases on hand lies in interpretation of the words "a person". We need not labour much to find the answer, as Section 2(31) defines "person" in the following manner:- "Section 2(31):- "Person" includes - (i) an individual, (ii) a Hindu undivided family (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses. [Explanation.- For the purposes of this clause, an ass....
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....proceedings. Hence, this aspect also goes to show that the assessee cannot raise a plea of multiplicity of proceedings. Therefore, the said contention raised by Mr.A.S.Sriraman stands rejected. 27.The next contention advanced by Mr.A.S.Sriraman was largely based on the decision in Idhayam Publications Ltd. (supra). It is the submission that Section 269SS would not stand attracted, further, the transaction in Idhayam Publications Ltd. (supra) was also identical, where monies were deposited in the current account and though the balance sheet shows the amounts deposited by the Director in cash in the current account as unsecured loan from the Director, the Division Bench held that it is not a loan or an advance. 28.The facts in Idhayam Publications Ltd. (supra) are that one Mr.S.V.S. was the Director of the assessee-company. There was a running current account in the books of accounts of the assesseecompany in the name of Mr.S.V.S. Mr.S.V.S., used to pay money in the current account and used to withdraw money also from the current account. For the Revenue to sustain the levy of penalty under Section 271D, they had to establish that the amount was received by the assessee as a lo....
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....other provision, namely, section 273B of the Act was also incorporated which provides that notwithstanding anything contained in the provisions of section 271D, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision if he proves that there was reasonable cause for such failure and if the assessee proves that there was reasonable cause for failure to take a loan otherwise than by account payee cheque or account payee demand draft, then the penalty may not be levied. Therefore, undue hardship is very much mitigated by the inclusion of section 273B. If there was a genuine and bona fide transaction and if for any the taxpayer could not get a loan or deposit by account payee cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty has got discretionary power." 32.According to the learned counsel, the account of the Director and the company were genuine and the loans received were utilized to pay the salaries, rents and EMI commitments. The amounts so received by the Director were deposited in the companies bank account on the very same day and the CIT(A) as well....
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....ount of the company on the very same day. To be entitled to the benefit under Section 273B, the onus is on the person claiming such benefit to show that he could not get a loan by account payee cheque or demand draft and the cause shown by him should be genuine and bona fide. Thus, merely because the Director took cash loans from the Financier, Mr.J.D., and deposited it in the current account of the assessee-company on the very same day, can never be a ground to be taken as a mitigating factor to escape from the rigour of levy of penalty under Section 271D of the Act. Thus, the assessee has been under a thorough misconception. There is a bald statement made that Mr.J.D. will give loans only in cash, however much it may be. To be noted that the loans received by the Director and later by the company is more than Rs. 90 Crores. The assessees are Private Limited Companies, not individual assessees, as was examined in several of the decisions cited by Mr.A.S.Sriraman. 35.In fact, one of the decisions, which was heavily relied on in the case of T.Perumal (Indl.) (supra), he was a labour supervisor and because of his sincere and dedicated work, he was awarded a labour contract. Since ....
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....) and the Appellate Tribunal that the transactions satisfy the test of business exigency. 41.In the case of M.Yesodha (supra), the transaction was between the daughter-in-law and the father-in-law in cash and the transaction was held to be genuine owing to urgent necessity of money to be paid to the vendor. Thus, all the aforesaid decisions consider the factual aspect as recorded by the CIT(A) and the Tribunal and did not disturb the factual finding wherever it was held to be reasonable and genuine. These decisions can render no assistance to the case of the assessee, as the first appellate authority and the Tribunal both held against the assessee and found no genuinity or bona fide in the claim of the assessee. 42.Thus, in our view, deposit of the cash by the Director received from Mr.J.D. into the bank account of the assessee on the same day and those amounts, being utilized for making several payments including salaries, apart from that the Director withdrawing money from the assessee's bank account and remitting to the Financier by cash can never be taken to be a bona fide transaction. 43.What is most disturbing is that it is not a solitary instance, as the same ty....