Nandhi Dhall Mills v. Commissioner of Income-tax
[Citation -2015-LL-0216-1]

Citation 2015-LL-0216-1
Appellant Name Nandhi Dhall Mills
Respondent Name Commissioner of Income-tax
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 16/02/2015
Judgment View Judgment
Keyword Tags initiation of penalty proceedings • substantial question of law • account payee cheque • barred by limitation • business of trading • show-cause notice • loans in cash • demand draft • cash balance • bank draft
Bot Summary: Whether, on the facts and in the circumstances of the case, the Tribunal was not right in rejecting the assessee's contention that Form 3CD wherein the details regarding the loan transactions required to be disclosed being the foundation of penalty proceedings, the penalty levied on March 28, 2000, was barred by limitation with reference to the order passed under section 143(1)(a) on March 25, 1999 2. Whether the Tribunal was justified in not adverting to the reason adduced that the assessee had to resort cash borrowals to settle the pending bills on that date itself in order to book further consignment of dhall to take the benefit of competitive prices available on that date It is submitted by the learned counsel appearing for the assessee that the assessee is not pressing the first substantial question of law admitted by this court. During the scrutiny of the report of the auditor filed along with the return for the assessment year 1998-99, it was found that the assessee had accepted loan of Rs. 6,60,000 in cash, from one A. Kumar, husband of one of the partners, Smt. K. Jayanthi, and the son of the partner, Smt. Kamakshiammal, in contravention of the provisions under section 269SS of the Income-tax Act. After considering the explanation offered by the assessee but not satisfied with the explanation, penalty proceedings was initiated under section 271D of the Income-tax Act. As regards exigencies of the situation in which the cash transfers were taken, it is noted that all the loans were accepted in cash to make cash deposits in the assessee's bank account so that demand drafts could be prepared in the names of the creditors. The Assessing Officer has observed that all the creditors were regular suppliers to the assessee from whom the assessee made frequent credit purchases and there was no urgency to make the demand drafts on the dates on which the same were made. The assessee must prove beyond the shadow of doubt that there existed a reasonable cause for not complying with the conditions contained in section 269SS. Circumstances under which the cash was accepted must be explained.


JUDGMENT judgment of court was delivered by R. Sudhakar J.-This tax case (appeal), filed by assessee as against order of Income-tax Appellate Tribunal, was admitted by this court on following substantial questions of law: "1. Whether, on facts and in circumstances of case, Tribunal was not right in rejecting assessee's contention that Form 3CD wherein details regarding loan transactions required to be disclosed (forming part of assessment records) being foundation of penalty proceedings, penalty levied on March 28, 2000, was barred by limitation with reference to order passed under section 143(1)(a) on March 25, 1999? 2. Whether, on facts and in circumstances of case, Tribunal was justified in confirming penalty especially when assessee's turnover was 4.97 crores and amount borrowed on five occasions in year involved only sum of Rs. 6.60 lakhs, this having constituted mere 1.3 per cent. of total transactions, violation was only venial in nature not warranting levy of penalty in accordance with Supreme Court decision in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC)? 3. Whether Tribunal was justified in not adverting to reason adduced that assessee had to resort cash borrowals to settle pending bills on that date itself in order to book further consignment of dhall to take benefit of competitive prices available on that date?" It is submitted by learned counsel appearing for assessee that assessee is not pressing first substantial question of law admitted by this court. He has also made endorsement to that effect. Hence, it is not necessary to go into first substantial question of law. Accordingly, we are deciding this appeal on second and third substantial questions of law alone. brief facts of case are as follows: assessee is engaged in business of trading dhall. During scrutiny of report of auditor filed along with return for assessment year 1998-99, it was found that assessee had accepted loan of Rs. 6,60,000 in cash, from one A. Kumar, husband of one of partners, Smt. K. Jayanthi, and son of partner, Smt. Kamakshiammal, in contravention of provisions under section 269SS of Income-tax Act. Hence, show-cause notice was issued to assessee calling for explanation for acceptance of loan in cash. In response to said show cause notice, assessee had filed reply. After considering explanation offered by assessee but not satisfied with explanation, penalty proceedings was initiated under section 271D of Income-tax Act. For better appreciation of facts, it is necessary to extract herein relevant portion of order passed under section 271D of Income-tax Act: "(1) It is stated in written explanation that lender, Sri A. Kumar, is husband of partner, Smt. K. Jayanthi, and son of partner, Smt. Kamakshiammal. loans were taken from him in cash and amounts so received were deposited into current account of assessee in Central Bank of India so as to have adequate cash balance in account to prepare demand drafts in names of creditors from whom raw materials were purchased. It has been argued that turnover of firm for year ended March 31, 1998, has been more than Rs. 4.97 crores and taking into account above factor in business volume of this magnitude due to business exigencies and for meeting commitments of assessee-firm above borrowals have been made in cash which amounts to reasonable cause within meaning of section 273B of Income-tax Act. It is contended that since receipts were made in cash in order to meet business exigencies and bona fides of these transactions are clearly established, penalty under section 271D should not be levied. As is clear from explanation, all loans were accepted in cash to make cash deposits in assessee's bank account so that demand drafts could be prepared in names of creditors. It is seen that all creditors are regular suppliers of assessee from whom assessee makes frequent credit purchases, and there was no urgency to make demand drafts on dates on which same were made. Had loans been accepted in crossed cheques or demand drafts and deposited in assessee's bank account, there would have been delay of day or two in preparing demand drafts for creditors. This delay of couple of days would not have affected business of assessee in any manner. Bona fides or genuineness of transaction has nothing to do with provisions of section 269SS. Only because it was convenient for assessee to accept loans in cash, it could not be held that it had reasonable cause for its failure to comply with provisions of section 269SS. It is for assessee to manage its business affairs in such manner that provisions of law as laid down under section 269SS are not violated... (4) As per provisions of section 273B, penalty under section 271D will not be imposed if assessee proves existence of reasonable cause for its failure to comply with provisions of section 269SS. In this case, assessee has miserably failed to prove any such reasonable cause for which it had contravened provisions of section 269SS. Keeping in view above discussions and since assessee has failed to show any reasonable cause for its failure to comply with provisions of section 269SS, I proceed to levy penalty of Rs. 6,60,000 (rupees six lakhs and sixty thousands only), being equal to total amount of loans accepted in cash, under section 271D of Incometax Act, 1961." Being aggrieved by initiation of penalty proceedings, assessee preferred appeal before Commissioner of Income-tax (Appeals), who set aside penalty holding as follows: "On facts and in circumstances of case, it is held that section 271D is not leviable as demand draft were found to be genuine, confirmation letters have been filed and identity of creditors have been placed on record. Concurring with decisions of honourable Tribunal and applying to facts of our case, I deem it necessary to delete penalty or Rs. 6,60,000 imposed under section 271D of Income-tax Act. As against said order of Commissioner of Income-tax (Appeals) dropping penalty proceedings, Revenue preferred appeal before Income-tax Appellate Tribunal. Tribunal, after considering submissions made on both sides, reversed findings of Commissioner of Income-tax (Appeals), thereby confirmed penalty proceedings in following manner: "9. We have heard rival contentions and perused relevant records. We find that prime consideration for learned Commissioner of Income-tax (Appeals) to delete penalty is that creditors were regular suppliers for assessee and identity of transactions is established. As regards exigencies of situation in which cash transfers were taken, it is noted that all loans were accepted in cash to make cash deposits in assessee's bank account so that demand drafts could be prepared in names of creditors. Assessing Officer has observed that all creditors were regular suppliers to assessee from whom assessee made frequent credit purchases and there was no urgency to make demand drafts on dates on which same were made. Assessing Officer had further noted that had loans been accepted in crossed cheques or demand drafts and deposited in assessee's bank account, there would be delay of day or two in preparing demand draft for creditors. This delay of couple of days would not have affected business of assessee in any manner. Considering finding of Assessing Officer, we are in concurrence with opinion that assessee has not made out any compelling situation in which he was compelled to take cash loans due to business exigencies. Instead, assessee has made case on bona fides or genuineness of cash transfers and identity of persons to claim relief from rigours of penalty provisions of section 271D. 10. In this regard, we find that plank of genuineness of transfers relied upon by learned Commissioner of Income-tax (Appeals) to grant relief cannot be sustained as it is trite law that bereft of reasonable cause, assessee cannot be exonerated from rigorous penalty. It must be demonstrated beyond iota of doubt that cash loans were accepted under compelling circumstances. 11. In this regard, legal position has been summed up in [2005] 94 ITD 281 by Third Member decision in Pune Bench of Income-tax Appellate Tribunal in case of ITO v. Sunil M. Kasliwal. In this case, it was held as under: 'The assessee may be exonerated from rigour of penalty under section 271D, provided it is established that there existed reasonable cause for not complying with prescription of section 269SS. mandate given under section 269SS is clear. Any departure from said mandate invites penalty as is envisaged under section 271D. It is clearly laid down in section that no person shall after June 30, 1984 take or accept from any other person any loan or deposit otherwise than by any account payee cheque or account payee bank draft, if amount of loan or deposit or aggregate amount of such loan or deposit is Rs. 20,000 or more. This panoply of law was brought on statute to counter tax evasion. Therefore, it is not sufficient to say that simply transaction was genuine, so section 269SS is not applicable. One cannot accept such proposition of law. There is no ambiguity in language of provision. As such, there is no need to apply purposive theory of interpretation. Subject to existence of mitigating circumstances penalty cannot be deleted. assessee must prove beyond shadow of doubt that there existed reasonable cause for not complying with conditions contained in section 269SS. Circumstances under which cash was accepted must be explained. Unfortunately, no cogent material was produced in that direction.' 12. Considering present case on anvil of aforesaid discussions, we find that there was no reasonable cause prevailing which can warrant deletion of penalty. Under circumstances, we set aside order of learned Commissioner of Income-tax (Appeals) and uphold order of Assessing Officer, sustaining penalty." Aggrieved by order of Tribunal, assessee is before this court. Heard learned counsel appearing for assessee and learned Standing Counsel appearing for Revenue and perused materials placed before this court. On perusal of orders of authorities below we find that core issue involved in this appeal is whether explanation given by assessee has reasonable cause to embark on such transaction, which would fall within provisions of section 269SS of Income-tax Act. We find that though several documents have been submitted by assessee, there is nothing to show that there was urgency for assessee to avail of loan in cash in violation of section 269SS and that Assessing Officer has given detailed reasoning as to why he finds that such transaction would not come under exception clause of section 271D of Income-tax Act. Tribunal has confirmed said finding of fact. Being pure finding of fact, we find no reason to interfere with order of Tribunal. In fact, assessee himself has relied on decisions of this court in case of CIT v. Balaji Traders reported in [2008] 303 ITR 312 (Mad) and in case of CIT v. Deccan Designs (India) P. Ltd. reported in [2012] 347 ITR 580 (Mad), wherein this court clearly held that unless there is any inconsistency in finding of fact arrived at by Tribunal or authorities concerned, court should not interfere with such finding of fact. In case of CIT v. Balaji Traders reported in [2008] 303 ITR 312 (Mad), this court held as follows (page 317): "Once said finding is arrived at by Tribunal on facts, as held by Delhi High Court in CIT v. Parma Nand [2004] 266 ITR 255 which was followed by this court in CIT v. Ratna Agencies [2006] 284 ITR 609 that finding recorded by Tribunal as to reasonable cause is essentially finding of fact and no question of law much less substantial question of law would arise, we do not have any hesitation to hold that it may not be proper for this court to interfere with such finding of fact." For foregoing reasons, we find no reason to interfere with order of Tribunal and question of law Nos. 2 and 3 are answered against assessee and in favour of Revenue. Accordingly, this tax case (appeal) stands dismissed. No costs. *** Nandhi Dhall Mills v. Commissioner of Income-tax
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