Penalty Upheld for Cash Transactions Violating Income Tax Act

Get the full picture - access the original judgement of the court order here

Case Name:

Grihalakshmi Vision vs. Additional Commissioner of Income Tax (High Court of Kerala)

ITA. No. 83 of 2014 

Date: 7th August 2015

Key Takeaways

- The court reinforced the necessity of using account payee cheques or drafts for transactions exceeding Rs.20,000.

- Penalties under Sections 271D (of Income Tax Act, 1961) and 271E (of Income Tax Act, 1961) were upheld due to non-compliance with Sections 269SS and 269T.

- The judgment clarifies that penalties are valid unless a reasonable cause for non-compliance is proven under Section 273B (of Income Tax Act, 1961).

Issue

Did Grihalakshmi Vision violate Sections 269SS and 269T of the Income Tax Act by accepting and repaying loans in cash, and were the penalties imposed under Sections 271D (of Income Tax Act, 1961) and 271E (of Income Tax Act, 1961) justified?

Facts

- For the assessment year 2005-2006, Grihalakshmi Vision filed returns declaring a loss.

- The assessment order found violations of Sections 269SS and 269T due to cash transactions exceeding Rs.20,000.

- Penalties were imposed under Sections 271D (of Income Tax Act, 1961) and 271E (of Income Tax Act, 1961), which were upheld by the Commissioner of Income Tax (Appeals) and the Tribunal.

Arguments

- Assessee's Argument: The penalties were imposed beyond the limitation period, and the transactions were bona fide between the firm and its partners/sister concerns.

- Revenue's Argument: The penalties were within the limitation period, and the transactions violated the prescribed methods under the Income Tax Act.

Key Legal Precedents

- D.M. Manasvi v. Commissioner of Income Tax, Gujarat II [1972] 86 ITR 557: Discussed the initiation of penalty proceedings.

- Commissioner of Income Tax v. Jitendra Singh Rathore [2013] 352 ITR 327 (Raj): Addressed the timing of penalty imposition.

- Sections 269SS, 269T, 271D, 271E, and 273B of the Income Tax Act were central to the case.

Judgement

The court upheld the penalties, stating that the Joint Commissioner was the competent authority to initiate penalty proceedings, and the penalties were imposed within the prescribed time. The court found no reasonable cause for the cash transactions, rejecting the assessee's arguments.

FAQs

Q1: Why were penalties imposed on Grihalakshmi Vision?

A1: Penalties were imposed for accepting and repaying loans in cash, violating Sections 269SS and 269T of the Income Tax Act.

Q2: What sections of the Income Tax Act were violated?

A2: Sections 269SS and 269T, which mandate using account payee cheques or drafts for transactions over Rs.20,000.

Q3: Was the penalty imposition within the legal time frame?

A3: Yes, the court found that the penalties were imposed within the time frame prescribed by Section 275(1)(c) (of Income Tax Act, 1961).

Q4: Could Grihalakshmi Vision avoid penalties by proving a reasonable cause?

A4: Yes, under Section 273B (of Income Tax Act, 1961), penalties can be avoided if a reasonable cause is proven, but the court found no such cause in this case.

1. These appeals are filed by the assessee impugning the orders passed by the Tribunal in ITA Nos.103/11 and 104/11 whereby the orders passed under Sections 271D (of Income Tax Act, 1961) and 271E (of Income Tax Act, 1961) (hereinafter referred to as 'Act') confirmed by the Commissioner of Income Tax (Appeals) were upheld.

2. We heard the counsel for the appellant and the Standing Counsel for the Revenue.

3. Briefly stated, the facts of the case are that for the assessment year 2005-2006, the assessee had filed returns declaring loss. The returns were accepted and finally, on 6.11.2007, assessment order was passed. In the assessment order, it was found that by accepting deposits and making repayments in violation of the provisions contained in Section 269SS (of Income Tax Act, 1961) and 269T (of Income Tax Act, 1961), penalty provisions of Section 271D (of Income Tax Act, 1961) and 271E (of Income Tax Act, 1961) are initiated. Accordingly, the matter was referred to the Joint Commissioner of Income Tax and who issued notice dated 28.3.2008. To the notice, replies were given and finally order under Section 271D (of Income Tax Act, 1961) and 271E (of Income Tax Act, 1961) were passed on 29.7.2008. In the order passed under Section 271D (of Income Tax Act, 1961), penalty of Rs.10,83,000/- which is equal to the cash loans taken by the assessee in contravention of 261SS of the Income Tax Act was levied. Similarly, in the order passed under Section 271E (of Income Tax Act, 1961), penalty of Rs.2,97,000/- which is equal to the amount of cash loans repaid by the assessee in contravention of 269T of the Act was levied. These orders were confirmed by the Commissioner of Income Tax (Appeals). Further appeals filed before the Tribunal as ITA Nos.103 and 104 of 2011 were also dismissed by the common order. It is in this background, these appeals are filed by the assessee.

4. The questions of law framed are mainly whether the Tribunal was correct in holding that the orders imposing penalty under Section 271D (of Income Tax Act, 1961) and E were passed within the period of limitation prescribed under Section 275(1)(c) (of Income Tax Act, 1961) and whether the Tribunal was correct in confirming the findings without examining the circumstances providing reasonable cause as contemplated under Section 273B (of Income Tax Act, 1961). Another question of law which is framed is whether the authorities below erred in not considering the issue whether the cash receipts, being bonafide transactions between the assessee and its sister concerns/partners, can be considered as loans or deposits attracting the provisions of Sections 269SS and 269T of the Act.

5. These contentions were reiterated before us by the learned counsel for the assessee and were contradicted by the learned Senior Counsel appearing for the Revenue.

6. Section 269SS (of Income Tax Act, 1961), occurring in Chapter XXB, provide for mode of taking or accepting certain loans and deposits. Insofar as it is relevant, the Section provides that no person shall, after 30th day of June 1984, take or accept from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the aggregate amount of such loan or deposit is Rs.20,000/- or more. Section 269T (of Income Tax Act, 1961), also occurring in Chapter XXB of the Act, provides for the mode of repayment of certain loans or deposits. As per this provision, no firm or other person shall repay any loan or deposit made with it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the deposit if the amount of loan or deposit together with the interest, if any,payable thereon is Rs.20,000/- or more.

7. Section 271D (of Income Tax Act, 1961) and 271E (of Income Tax Act, 1961) provides for penalty for failure to comply with the provisions of Section 269SS (of Income Tax Act, 1961) and 269T (of Income Tax Act, 1961). As per these provisions, contravention of provisions of Section 269SS (of Income Tax Act, 1961) and 269T (of Income Tax Act, 1961) renders the person concerned liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted and a sum equal to the amount of the loan or deposit so repaid. Sub section (2) of both these provisions provide that any penalty imposable under sub section (1) shall be imposed by the Joint Commissioner. By virtue of these provisions, though contravention of Section 269SS (of Income Tax Act, 1961) and T automatically invites penalty under Section 271D (of Income Tax Act, 1961) and E, Section 273B (of Income Tax Act, 1961) provides that notwithstanding anything contained in the above provisions, no penalty shall be imposable on the person or the assessee as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure. This Section also provides that no penalty shall be levied under Section 271D (of Income Tax Act, 1961) or 271E (of Income Tax Act, 1961) after the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later. (vide Section 275(1)(c) (of Income Tax Act, 1961)).

8. Insofar as these cases are concerned, the assessment order was passed on 6.11.2007 and the assessment order concluded by stating thus: “Since the assessee has violated the provisions of section 269SS (of Income Tax Act, 1961) and 269T (of Income Tax Act, 1961) by accepting and repaying loans exceeding Rs.20,000/- aggregating and otherwise at any point of time, as given above, penalty provisions of Section 271D (of Income Tax Act, 1961) and 271E (of Income Tax Act, 1961) are attracted. Accordingly initiated penalty proceedings under Section 271D (of Income Tax Act, 1961) and 271E (of Income Tax Act, 1961).” It was relying on the last sentence in the assessment order that “Accordingly initiated penalty proceedings under Section 271D (of Income Tax Act, 1961) and 271E (of Income Tax Act, 1961)”, the counsel for the assessee is contending that the Assessing Officer having initiated the proceedings vide his order dated 6.4.2007, the order passed by the Joint Commissioner on 29.7.2008 levying penalty is beyond the time permitted in Section 275(1)(c) (of Income Tax Act, 1961). It was to substantiate this contention that the learned counsel placed reliance of the Supreme Court judgment in D.M.Manasvi v. Commissioner of Income Tax, Gujarat II [1972] 86 ITR 557 and Commissioner of Income Tax v. Jitendra Singh Rathore [2013] 352 ITR 327 (Raj).

9. As we have already seen, although Section 271D (of Income Tax Act, 1961) and E of the Income Tax Act provides for levy of penalty for contravention of Sections 269SS and 269T. As per sub section (2) to both these sections any penalty imposable under sub section (1) of these provisions shall be imposed by the Joint Commissioner. It was, therefore, that the matter was referred to the Joint Commissioner who passed orders on 29.7.2008 levying penalty.

10. Question to be considered is whether proceedings for levy of penalty, are initiated with the passing of the order of assessment by the Assessing Officer or whether such proceedings have commenced with the issuance of the notice issued by the Joint Commissioner. From statutory provision, it is clear that the competent authority to levy penalty being the Joint Commissioner. Therefore, only the Joint Commissioner can initiate proceedings for levy of penalty. Such initiation of proceedings could not have been done by the Assessing Officer. The statement in the assessment order that the proceedings under Section 271D (of Income Tax Act, 1961) and E are initiated is inconsequential. On the other hand, if the assessment order is taken as the initiation of penalty proceedings, such initiation is by an authority who is incompetent and the proceedings thereafter would be proceedings without jurisdiction. If that be so, the initiation of the penalty proceedings is only with the issuance of the notice issued by the Joint Commissioner to the assessee to which he has filed his reply.

11. The only case of the assessee is that if the period of limitation prescribed in Section 271(1)(c) (of Income Tax Act, 1961) is reckoned from the date of the assessment order dated 6.11.2007, the penalty order passed by the Joint Commissioner on 29.7.2008 is beyond the time permitted in the above section. As we have already held, the initiation of the penalty proceedings is not by the Assessing Officer but by the Joint Commissioner and if that be so, the order levying penalty passed by the Joint Commissioner is within the time prescribed in Section 275(1)(c) (of Income Tax Act, 1961).

12. Insofar as the judgment of the Apex Court in D.M.Manasvi v. Commissioner of Income Tax, Gujarat II [1972] 86 ITR 557 is concerned, that was a case where penalty was levied under Section 271(1)(c) (of Income Tax Act, 1961) and as is evident from the provision itself, the proceedings under that Section are to be initiated on the basis of the satisfaction of the officers mentioned therein including the Assessing Officer. Unlike the provisions of Section 271(1)(c) (of Income Tax Act, 1961), under the provisions of Section 271D (of Income Tax Act, 1961) and E, the exclusive authority is conferred on the Joint Commissioner. Therefore, the principles laid down in the judgment of the Apex Court cannot be called in aid to impugn the concurrent findings of the lower authorities. Therefore, the first contention raised by the learned counsel for the assessee deserves to be rejected and we do so.

13. The second contention raised by the assessee is regarding the existence of reasonable cause. As we have already stated, Section 273B (of Income Tax Act, 1961) provides that notwithstanding anything contained in the provisions of Section 271D (of Income Tax Act, 1961) and E, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred in the provisions, if he proves that there was reasonable cause for the failure. Insofar as this case is concerned, reading of the reply given by the assessee shows that the amount in cash was taken from the partners of the firm to meet certain urgent business expenditure. It is also stated that the amount in cash was taken from M/S Grihalakshmi Music and M/S Kerala Transport Company for meeting various business expenditure at the location where serial was being shot. The explanation offered was considered by the Assessing Officer and he examined the question whether this was a reasonable cause as provided under Section 273B (of Income Tax Act, 1961). Answering this question, the Assessing Officer has stated thus:

“The said replies do not give 'reasonable cause' of failure to repay 'otherwise' than by the account payee cheque or, account payee bank draft. The assessee does not state any 'objective satisfaction' regarding cash repayment of Rs.2,97,000/-. The assessee also does not say anything about availability of banking facility and maintenance of bank accounts by both parties (the person who has paid loan/deposit and the person who has received such loan/deposit) or, Nothing has been stated about banking transaction facilities/knowledge of both the assessee firm and its partners/sister concerns. But why the partners/sister concerns of the firm were paid cash loans whereas banking facilities are available for both the firm and the partners/sister concerns. I found no reasonable circumstances compelling the assessee firm to repay cash loans to its partners/sister concerns without proving the receipts and payments both were made beyond normal banking hours or beyond the availability of banking facilities. The said provision of section 269T (of Income Tax Act, 1961) is procedural regarding why the assessee must not repay any loan exceeding Rs.20,000/- (aggregate) 'otherwise' than by an account payee cheque or an account payee bank draft. It not only prohibits cash loan repayment but also prohibits any amount received 'otherwise' than by account payee cheque or an account payee bank draft. The assessee must prove to take the benefit of section 273B (of Income Tax Act, 1961) why the cash loan or 'otherwise' has been repaid and whether there has been any 'reasonable cause' for the said failure. The said section 269T (of Income Tax Act, 1961) does not say anything about how the loan or deposit amount is being utilized, or sourced or by whom paid or received or flexibility of cash/'otherwise' loan/deposit (other than account payee cheque or account payee bank draft). It is only referring why the cash loan or 'otherwise' must not be repaid other than by an account payee cheque or account payee bank draft. So, I am not inclined to give the benefit of provision of Section 273B (of Income Tax Act, 1961), since the assessee firm has not proved any 'reasonable cause' for the said failure. ”

14. It is this finding which has been confirmed by the Commissioner of Income Tax (Appeals) and by the Tribunal, having appreciated the reasoning of the lower authorities we do not find any perversity in the findings. Apart from that, this concurrent findings of the lower authorities are finding of facts which does not give rise to any question of law to be considered by this Court in an appeal under Section 260A (of Income Tax Act, 1961).

15. The third contention that was raised by the assessee was that if money is taken from partners or sister concerns, it could not be treated as loans or deposits. In support of this contention, counsel for the assessee relied on judgments in Commissioner of Income Tax v. T.Perumal (Indul.) [2015] 370 ITR 313 (Mad) and Commissioner of Income Tax v. Muthoot Financiers and another [2015] 371 ITR 408 (Delhi). Reading of these judgments show that these cases were decided on the basis of the documents that were available before the Court. On the other hand, insofar as these cases are concerned, though it is the admitted case that amounts were received from partners and other sister concerns of the assessee and were repaid, there is no material whatsoever to infer that these receipts were anything other than loans or deposits. There is no law that every receipt from a partner or a sister concern cannot, in all circumstances, be treated as a loan or deposit. On the other hand, the nature of the receipt would depend upon the agreement between the parties and the evidence that is produced. As we have already stated, there is no material whatsoever to accept the case of the assessee that these are loan or deposit. In such circumstances, the findings of the Assessing Officer confirmed by the Appellate Commissioner and the Tribunal that it was a loan or deposit that was received by the assessee also has to be upheld and we do so. In the result, the questions of law framed by the assessee are answered against it and in favour of the Revenue. Appeals are accordingly rejected.

ANTONY DOMINIC

JUDGE

SHAJI P. CHALY

JUDGE