TaxTMI 
TaxTMI 
2022 (4) TMI 1525
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....y other person for the applicability of Sec. 269SS of the Income Tax Act, 1961. 3. On the fact and circumstances of the case, the Additional Commissioner of Income Tax erred in levying the penalty u/s 271D(2) of the Income Tax Act, 1961 wherein the transaction between the trustee and the trust has not been doubted during the course of scrutiny assessment and found to be genuine. 4. On the fact and circumstances of the case, the Additional Commissioner of Income Tax erred in levying the penalty u/s 271D(2) of the Income Tax Act, 1961 as the Appellant Trust was under the genuine belief that Sec. 269SS of the Income Tax Act, 1961 is not applicable between the trust and the trustee wherein the trustee is maintaining a running account with the trust which is the reasonable cause u/s 273B of the Income Tax Act, 1961. 5. On the fact and circumstances of the case, under the provision of the law, and under the judicial precedence, the Commissioner of Income Tax (Appeals) erred in upholding the penalty levied u/s 271D(2) of the Income Tax Act, 1961 as the loan is received from the trustee to the trust, who is controlling the financial affairs of his own and the trust, as such the tr....
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....ITR 281; CIT v Indore Plastics Pvt Ltd 262 ITR 163; to support its contentions. 5. However these arguments of the appellant did not find favor with the AO. He noted that the appellant had failed to show any urgency or any reasonable cause for accepting cash deposits in the bank account by the Managing trustee. He noted that the cash deposits of Rs 15,64,50,000/- were made on 8 different dates and on four such occasions the amounts (total Rs 10,72,78,300/-) were transferred to the bank account of the Managing trustee on the very same day. So this modus operandi was followed to avoid direct deposit of cash in the bank account of the Managing trustee and the appellant was acting as a conduit for the same. The bank accounts of the appellant as well as the Managing trustee were in the same bank. The AO also placed reliance on the decision in the case of Auto Piston Mfg. Co. Ltd. V CIT [2013) 38 taxmann.com 61 (Punjab & Haryana) to support his reasoning for imposition of penalty. In addition, he also relied upon the following decisions: * Mahak Singh v ITO 127 ITD 1 * Hindalco Employees Co-operative Credit Society Ltd v Addl. CIT, 49 taxmann.com 309 * Vasan Healthcare (P) Ltd v Ad....
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.... on the order of the Tribunal in the case of Citizen Co-operative Society Ltd. v. Addl. CIT, 41 DTR 305. Thus, the final argument of the ld. AR is that in the present case, assessee was a charitable trust and had received the amount of Rs.15,64,50,000 in cash from one of its trustees, viz., Sh. K Muniraju. The default, if any, was of a technical or venial nature for which the assessee was not liable to penalty u/s. 271D of the Act. 11. On the other hand, the ld. DR submitted that there is no merit in the arguments of the ld. AR that penalty u/s. 271D cannot be levied in the facts of the case in view of the fact that the receipts are genuine. There is no such prohibition under law that no penalty is leviable if the transaction is genuine. The only requirement is the receipt of the amount exceeding Rs.20,000 in cash and once that requirement is satisfied, penalty u/s. 271D is leviable. Further, he relied on the judgment in the case of Auto Piston Mfg. Co. Ltd. v. CIT [2013] 38 taxmann.com 61 (P&H) and CIT v. Sunil Sugar Co., 85 taxmann.com 254 (All). 12. The ld. DR further submitted that in the present case during the year under consideration there were 8 number of cash deposits, e....
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.... and Karta of the said HUF. So that was why the ITAT had held that near relatives were not covered by the provisions of Section 269SS of the Act. In the present case, it is not so as the Managing trustee is an independent businessman in the field of real estate and the transactions also show his intention of routing money through Trust to unlawfully benefit his own business. The appellant has willingly helped him in doing so. So the transactions are done with the intention of avoiding the detection of the infraction of the law. Similarly in the case of Sri Sanmathi Ambanna v JCIT (supra), the transaction was with father-in-law and that is why the ITAT followed the ratio of the decision in the case of Smt Deepika v Addl. CIT (Supra). So this decision also does not help the appellant. The decisions in the case of Dillu Cine Enterprises Pvt Ltd (Supra) and Mohammadyusuf R Dargad v Addl CIT ITA No. 288 & 289/Bang/2019 Dt. 03.01.2020 are also rendered on different facts and thus not applicable. In the case of Idhayam Publications (Supra) the transaction itself was not found to be in the nature of loan or deposit. In the present case it is not disputed by the appellant that the amount re....
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....T, yet in that case penalty was not leviable for reason that transaction was bona fide and was not to evade taxes - High Court upheld order passed by Tribunal - Whether, on facts, SLP filed against decision of High Court was to be granted - Held, yes [Para 2]. (ii) Pankaj Investments v. Addl. CIT, 88 taxmann.com 4-0 (Mumbai Trib.) wherein it was held that, where assessee-firm had received cash loan from a company which was maintaining bank account with same bank where assessee was maintaining bank account and such loan was utilized by assessee for advancing money to sister concerns, in absence of any reasonable cause shown by assessee, penalty under section 271D was rightly levied on assessee. (iii) Hindalco Employees Co-operative Credit Society Ltd. v. Addl. CIT (2014) 49 taxmann.com 309 (Cochin Trib.) - wherein - Assessee co-operative society received fixed deposits in cash in contravention of section 269SS - Assessing officer, levied penalty which was confirmed by Commissioner (Appeals) - Whether loan or deposit involved in cash was in excess of amount specified in section 269SS - Held, yes - Whether burden was on assessee to prove that there was reasonable cause for recei....
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..... It manages medical college and hostel in addition to school and college. The assessment was completed u/s. 143(3) of the Act dated 7.12.2018 for AY 2016-17. During the course of assessment proceedings, it was noticed that the Chartered Accountant in sI.(h) of Form l0B has reported as under:- "An amount of Rs. 74, 48, 75,096/- shown under current liabilities is the amount invested by trustees and their entity for construction & establishment of Hospital, Medical college etc., including a sum of Rs. 15,64,50,000/- deposited by cash during the year. We are unable to examine the personal accounts of the trustees, whether the amount invested by them to the trust or their own funds or borrowed funds." 18. According to the Addl. CIT, the above qualification in Form 3CD makes it clear that Rs. 15,64,50,000/- deposited by the trustees in the books of the assessee herein as cash deposits exceeding Rs.20,000/- invoke provisions of Sec.269SS and penalty provisions u/s 271 D of the I.T. Act 1961. Accordingly, the Addl.CIT invoked the provisions of section 271D and levied penalty at Rs.15,64,50,000 for accepting loan in cash in violation of provisions of section 269SS as per section 271D o....
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....bunal cancelled the penalty after observing as under:- "We have carefully gone through the facts of the case, arguments advanced and written submissions and case laws relied upon. At the outset, we may mention that it has been argued by both the parties that true character/nature of transactions should be determined without being influenced by manner of entries passed in the books of account or, the method of accounting or disclosure made in balance sheet. We agree with this contention put forth by both the parties, and, therefore, we would like to first determine the nature of transactions in the present case in respect of which the penalties under s. 27ID have been levied. Admittedly, Mr. R.P. Goyal, the chairman-cum-managing director, was the promoter-director of the appellant-company, who supervised entire project of the company and who remained actively engaged in looking after the construction and other activities of the company. It is equally undisputed that it was he who managed and arranged resources for the construction activity during the period when company was awaiting disbursement from financial institutions. Mr. R.P. Goyal provided financial assistance to the co....
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.... are disbursed to the company. In other words, it is a case where agent utilized his own money in order to fulfil his obligations towards the principal upon which he became entitled to get back the money. This is thus a unilateral transaction on the part of Mr. Goyal to involve and utilize his own money by withdrawing it from his own sources. An unilateral act cannot result in a contract for which existence of two parties is a sine qua non. Whether loan or deposit they both are contracts only, originated from bilateral act. We are impressed by the reference of s. 69 of the Indian Contract Act, 1872, which helps on understanding the true character of these transactions. Sec. 69 of said Act falling within Chapter V thereof reads as follows : 'Chapter V of certain relations resembling those created by contract Sec. 69 : A person who is interested in the payment of money which he is bound by law to pay, and who, therefore, pays it, is entitled to be reimbursed by the other.' The transactions under consideration are evidently of the nature referred to in s. 69 of the Indian Contract Act, 1872. The company was bound to pay for the construction expenditure. The directo....
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....become irrelevant to the context since the provisions of s. 269SS are not attracted in the facts of the present case." 23. In the case of Mohan Kaikare vs. Dy. CIT (52 ITD 236) the facts were that on 10th Jan., 1989, the assessee had obtained a sum of Rs. 40,000 and on 11th Jan., 1989, another sum of Rs. 30,000 both amounts in cash; from his father to purchase a matador from Bajaj Auto Ltd. Poona. In the assessment proceedings, the transaction was accepted as genuine, but penalty proceedings under s. 271D of the Act were initiated. 24. In the penalty proceedings, the assessee had pleaded another line that the amount was received in cash on account of exigencies because the last date for concessional purchase of matador in Gwalior fair was 14th Jan., 1989 and the assessee was availing that benefit. The assessee had filed an affidavit of his father stating that the amount was given by him to his son for purchase of matador and was directly deposited in the bank account instead of handing over it to the son. The AO did not accept assessee's explanation and imposed penalty under s. 27ID of the Act. 25. Based on above facts and circumstances, the Tribunal deleted the penalty. 2....
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....ant M. Mehta (1980) 19 CTR (Guj) 130 : (1981) 132 ITR 159 : (1981) 5 Taxman 11 (Guj), Vir Sales Corpn. vs. Asstt. CIT (1994) 121 CTR (Trib)(Ahd) 46 : (1994) 50 TTJ (Ahd) 130 and Mohamad Ali vs. Karji Koudho Rayaguru AIR 1945 Pat 286. The Departmental Representative invited our attention to the provisions of ss. 188 and 189, of the IT Act to submit that a specific mention has been made in the Act where the firm and the partners are treated as separate entities. As far as s. 269SS is concerned, the firm and partners are separate entities for the purposes of income-tax and for the purposes of application of the provisions of the IT Act. He invited our attention to the decisions CIT vs. A.W. Figgies & Co. & Ors. (1953) 24 TTP 405 (SC), 200 ITR 505 (sic), Chief Controlling Revenue Authority vs. Manohar Lai Dudeja (1991) 189 ITR 186 (All)(FB), Narayandas Kedamath vs. CIT (1952) 22 ITR 18 (Bom) and CIT vs. R.Rangaswamy Naidu (1997) 140 CTR (Mad) 38 (1997) 224 ITR 113 (Mad). The assessee's counsel in reply submitted that s. 188A has been specifically brought into existence to clarify what has already been taken for granted in general law. He invited our attention to s. 48 of the Par....
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....ment on the case of A.W. Figgies & Co. (supra) is also of no help to it. At p. 409, the Hon'ble Supreme Court have held that the partners of the firm are distinct assessable entities, while the firm as such is a separate and distinct unit for purpose of assessment. It has been held that the provisions of the IT Act go to show that the technical view of the nature of a partnership, under English Law or Indian Law, cannot be taken in applying the law of income-tax. Therefore only for the purpose of making an assessment that the IT Act has made distinction between the firm and the partners. In general law, they continue to be one and the same. Therefore, the decision of the Hon'ble Supreme Court also does not help the Department. Reliance of the Department on the decision of the Madras High Court in the case of R. Rangaswamy Naidu (supra) is also not helpful. The Hon'ble Madras High Court have held that under the IT law, the position is different from general law and the firm and the partners are distinct assessable entities. The law has for some specific purposes relaxed its general rigid notions and extended a limited personality to a firm, Therefore, the Hon'ble Mad....
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.... a partner to firm is not a transfer from one person to the another and hence, there is no violation of provisions of s. 269SS. In view of the above, we cancel the penalty imposed and allow the assessee's appeal." 28. In the case of Dillu Cine Enterprises (P) Ltd. vs. Addl. CIT, 87 TTJ 1098 (Hyd), the assessee was a domestic company in which public are not substantially interested. The assessee derived income from two cinema theatres and a shopping complex. The assessee-company was managed by three directors, one of whom since expired. All the three directors had personal accounts in the form of current account in the books of the assessee-company. Mr. P.K. Swamy, one of the directors was actively looking after the affairs of the assessee-company. Whenever the assessee-company was in requirement of funds, Mr. P.K. Swamy, brought in the funds from his personal account and was also withdrawing this money as and when he required the same. So, money was both taken by him and given back to him. During the previous year relevant to the assessment year in question, the director Mr. P.K. Swamy had given a total amount of Rs. 12,63,500, to the company, other than by way of account pay....
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....r the evasion of tax in certain cases, as clearly stated in the heading of Chapter XX-B of the IT Act, 1961 which reads "requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax". Legislative intention in bringing s. 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 by the CIT(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 stringent punishment of heavy penalty. We find force in the argument of the learned counsel for the assessee that the object of the provisions being unearthing of unaccounted money 49 not applicable to any transaction which is done in an open manner, which is genuine and in which no unaccounted money is involved. Mere technical breach of the provisions, while the transactions are held to be ....
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....of "individual" or "director" in case of "company" or "partner" in case of "firm": The term "any other person" in the context of introduction of this section as appears to us means persons who are not very intimately or very closely connected to the assessee as in the present case, as in a search and seizure operation under s. 132, all these persons are invariably searched together. The legislature was intending to curb tax evasion in a "search situation" and referred to confirmatory letters produced in such situations to counter "cash found". The term "various persons" and "such persons" is to be understood only in relation to "search situation" as the section itself was introduced to meet such situations only. The learned counsel argued that it is unthinkable that the Department would search a husband and the wife will not be covered in the search proceeding. The same is the case of every director' of a private limited company or a company in which public are 'not substantially interested or partner and firm. These categories would definitely be covered by simultaneous search operations. The unaccounted cash found is definitely not thought of as sought to be explained off....
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....transfer the funds from one concern to another concern or to repay the funds could be said to have been largely influenced by the same individual. In other words, the decision to give and the decision to take rested with either the same group of people or with the same individual. In such circumstances of the case, we hold that the transaction inter se between the sister-concerns and the assessee cannot partake the nature of either "deposit" or "loan" though interest might have been paid on the same. Excepting for the transfer of funds being witnessed in the books of account of the concerned firms, no material is on record to show issue of receipt or pronote in evidence of accepting deposits or loans as understood in common parlance. It only represents diversion of funds from one concern to another depending upon the exigencies of the business." 32. The Mumbai Bench of the Tribunal in the case of Karnataka Ginning & Pressing Factory vs. Jt. CIT (2001) 72 TTJ (Mumbai) 307 : (2001) 77 ITD 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....
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.... do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on considerations of all relevant circumstances- Hindustan Steel Ltd. vs. State of Orissa (supra). 7. We can safely infer that the default, in any, can be said to be "technical" and "venial" one. The "bona fides" of the assessee can also be said to be there when we examine the facts of the case. The assessee had a "bona fide" belief that no offence was committed. The levy of penalty is not automatic since the Hon'ble Supreme Court of India in the case of Moti Lai Padampat Sugar Mills Co. Ltd. vs. State of U.P. (1979) 118ITR 326 (SC) has observed that there is no presumption that every person knows the law. In the light of the above, we hold that both on law and on facts, the penalty levied by the Addl. CIT under s. 27ID and confirmed by the learned CIT(A) is not maintainable. Accordingly, we delete the penalty levied." 33. In Paras Brass Extrusion Ltd. vs. Dy. CIT (3 SOT 554), the brief facts were that the assessee had taken various amounts in cash - each exceeding Rs. 20,000 from seven persons - a totalling to....
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.... activities is not at all approved by the Reserve Bank of India or the assessee is having no requisite licence from the authorities, the concerned authorities could have stopped the same or taken action against the assessee. Once the assessee is permitted to carry on the banking activities, then the assessee is bound by the relevant provisions of the Banking Regulations Act. The bank, for all its banking activities is strictly governed by the Banking Regulation Act 1949. 'Banking' is described as accepting, for the purpose of lending or investment of money, due from the public repayable on demand or otherwise and withdrawal by cheque, draft order or otherwise. The deposits held by the assessee are its stock in trade. The deposits and loans are just like buying and selling of goods/products. The amounts in account maintained by the assessee bank were not in the control of the assessee. In the sense that the bank may be required to pay at any point of time. In case of banks, like present assessee, the customer identity required to be taken with proper introduction, photographs and address etc. This is so because, any person from general public can come and open a deposit account with....
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....be able to achieve. Therefore, it cannot be said that assessee did commit any infringement or it is incorrect to say that there was any deliberate attempt on the part of the assessee to accommodate tax dodgers. The deposits accepted and repaid by the assessee were part of its Banking activities and the depositors were its Members. The deposits received by the assessee, which was carrying on the banking business, were not in the nature of taking of any loan or deposits for the purpose of funding its project as a source of investment, that rather, it was in the business of accepting deposits that in view of the nature of such business, the scrutiny of the deposits could not be the same as in the case of assessee making entries of deposits on account of loan etc. The authority vested with the power to impose penalty as a discretionary power not to levy the penalty. It is all very well to paint justice blind, but she does better without a bandage round the eyes. She should be blind indeed to favour or prejudice, but clear to see which way lies the truth and the less dust there is about the better. We made attempt to examine the truth. We found that there is no addition on account of th....
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.... Where a number of persons coming together and contribute a common fund for financing of some venture or object and will in this respect have no dealing or relation with any outside body, then any transactions with those persons cannot be regarded in any sense as loan. There must be complete identity between the contributors and the participators. If these requirements are fulfilled it is immaterial what particular form the association takes. Trading between people associating together in this way does not give rise levy of penalty. Where the trade or activity is mutual, the fact that, as regards certain activities, certain members only of the association take advantage of facilities which it offers does not affect the mutuality of the enterprise. The contributor of the fund are entitled to participate in the surplus, thereby creating an identity between the participators and contributors and acceptance of deposits and repayment of the same is incidental to the attainment of the main object of the assessee society. The concept of mutuality is primarily based on the principle that one cannot make profit from himself . Thus, when the facilities are provided to only to members of the ....
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....ty is clearly not covered by the expression 'any other person' occurring in section 269SS. The transaction in question cannot be considered as 'loan' or 'deposit' so as to attract section 269SS or section 269T of the Act. The transactions can also be attributed various exigencies of business carried on by the assessee and thus constitutes a 'reasonable cause' as contemplated by section 273B. The expression 'reasonable cause' has to be considered pragmatically and as it is transactions are openly done, to meet the exigencies of business, it can be said to constitute 'reasonable cause'. The bona fide business of transaction cannot be considered for levying the penalty under section 271D or 271E. More so, the assessee has been carrying on the banking business and it is having bona fide belief that provision of section 269SS/269T is not applicable to the assessee case and same is coupled with genuineness of the transaction constitute a reasonable cause and in such case the default on the part of the assessee is merely of a technical or venial nature and no penalty be levied. 18. To sum up, a harmonious construction of the relevant provisions of sections 271D, 271E and 273B clearly r....
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.... provisions have no application to deposits when it is between the trustee and assessee, then penalty could not be levied. In the present case, in our opinion, there exists reasonable cause in accepting loan in cash. Therefore, the assessee is exonerated from levy of penalty. 37. Further, the term "any other person" in the context of section 269SS appears to mean persons who are not very closely and independently connected with the assessee. In the present case, the assessee accepted loan from its managing trustee, who is looking after the day to day affairs of the present assessee. This being so, the transaction between the assessee and managing trustee cannot be termed as loan so as to apply the provisions of section 269SS of the Act. The transaction between the assessee and managing trustee is in the course of discharge of duty of the managing trustee in the day to day affairs of the assessee trust and when the assessee needed some funds to meet the day to day operation of the construction of the college building, it was facilitated by the managing trustee and assessee is having running account with the managing trustee and the transaction between these two parties cannot be te....