Commissioner of Income-tax vs Rashi Injection Moulders

R. Sudhakar, J.—The above tax case (appeals) are filed by the Revenue as against the order of the Income-tax Appellate Tribunal in the appeal filed by the Revenue as well as the cross-objection filed by the assessee, raising the following substantial questions of law: "1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in upholding the order of Commissioner of Income-tax (Appeals) who had deleted the penalty of Rs. 35,33,242 levied under section 271D?

Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in deleting the penalty especially when the cash loans amounting to Rs. 35 lakhs was received by the assessee from the creditors where the banking facilities are available and no reasonable cause for taking the loans in cash or any exceptional circumstances had been stated by the assessee?

Whether the genuineness of a loan is not a reasonable cause postulated under section 271D and, therefore, the levy of penalty under section 271D is proper especially in the places where the creditors resided there is banking facility available?"

The assessment year in this case is 2007-08. The respondent-assessee is engaged in the manufacture of plastic components. The assessee filed returns for the relevant assessment year on April 1, 2008, showing certain amounts as loans. The said return was selected for scrutiny. Besides the loan availed of from banks, it was found that there were sundry loans for a sum of Rs. 70,54,153 as on March 31, 2007. The documents submitted by the assessee were verified, more particularly the ledger, which reflected cash loan accepted by the assessee for an amount not less than Rs. 18,000. The general ledger pages 247 to 255 showed loans "by cash". In the course of this proceeding, the Department wanted to verify the genuineness of those transactions and on December 1, 2009, the authorised representative of the appellant submitted 24 individuals with address at Kanyakumari District and have claimed that they were agriculturists and they had income out of agriculture and they have lent the amount to the assessee without interest. Consequent to this, the Department completed the assessment under section 143(3) of the Income-tax Act. However, with regard to the sundry loan, taking note of the balance as on March 31, 2007, the Assessing Officer initiated penalty proceedings under section 271D of the Income-tax Act for violation of section 269SS of the Income-tax Act and the authority imposed penalty of Rs. 35,33,242. As against which, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals).

The Commissioner of Income-tax (Appeals) accepted the contention of the assessee that the penalty proceedings was not sustained on the ground of limitation and also on the merits and allowed the appeal filed by the assessee holding as follows:

"Over and above, the legal position, as mentioned above, the authorised representative of the appellant submitted confirmation letters from all the loan creditors and also ledger abstract from the books of account for sundry loans received during the year under consideration. The appellant has borrowed loans to the extent of Rs. 35,30,978 as on March 31, 2006, relating to the previous assessment year and during the year has taken cash loans to the tune of Rs. 35,35,242. All the loan amount as per the ledger extract under the head sundry loans account pages 47 to 255 were below Rs. 20,000 accepted in cash from the agriculturists and have been accepted during the course of assessment proceedings. On verifying the confirmation letters all the loan creditors have mentioned specifically in their confirmation letters that the above amount are given as hand loan basis returnable on short notice without interest since they do not have bank account, they paid the amount in cash to the appellant. Once having accepted the genuinity of the loan creditors and also all the loans received are below Rs. 20,000 in cash there is no case for the Assessing Officer to invoke the provisions under section 269SS as can be seen from the notice issued by the Additional Commissioner of Income-tax, vide her letter dated June 7, 2010, in which the appellant was asked to furnish details of persons who have lend money in excess of Rs. 20,000 contravening the provisions of section 269SS of the Income-tax Act. Since all the loans received in cash are below Rs. 20,000 and accepted all the loans for their genuinity during the assessment proceedings, therefore, there is no case for the either the Assessing Officer or the Additional Commissioner for levying penalty under section 271D and, hence, the penalty levied by the Additional Commissioner under section 271D imposing a penalty of Rs. 35,33,242 is, therefore, deleted."

As against which, the Department has filed an appeal before the Income-tax Appellate Tribunal, which, partly allowed the appeal (wrongly stated as appeal dismissed). In so far as the limitation is concerned, the Tribunal held as follows:

"12. Taking cue from the hon''ble Special Bench decision, we also have no hesitation to hold that, in the present case as well, the Assistant Commissioner of Income-tax/Assessing Officer had no jurisdiction to issue notice of penalty under section 271D read with section 274 of the Act. Further, the competent authority issued notice on June 9, 2010, followed by penalty order dated December 31, 2010, which is valid in the eyes of law since it was passed within six months from the end of the month in which the penalty action was initiated. Hence, on limitation aspect only, we are of the view that the Commissioner of Income-tax (Appeals) has wrongly held the penalty imposed under section 271D of the Act as barred by limitation by computing it from the date of notice dated December 3, 2009 (supra)."

On the merits of the case, the Tribunal accepted the findings of the Commissioner of Income-tax (Appeals) to hold that the loan transactions were verified and found to be bona fide transactions. In so far as it relates to the loan extended by the agriculturists, who did not have bank accounts, 24 individuals were verified by the Assessing Officer and the documents submitted by them were accepted by the Assessing Officer as genuine and, consequently, the sundry loan account has been found to be in order and on that premise, the Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) holding that there is no case to doubt or lack credibility in the assessee''s version that these sundry loans were taken from agriculturists and the purpose for which the loan was availed of would fall within the parameters of the provision of section 273B of the Income-tax Act that there was reasonable cause for the assessee to avail of the loan. The order of the Tribunal is extracted as below for better clarification:

"13. Coming to the merits of the case, it emerges that the penalty was imposed on the assessee for alleged violation of section 269SS of the Act providing the assessee to prove bona fides and genuineness of all loans in question. The Commissioner of Income-tax (Appeals) has found that all loans received by assessee in cash are below Rs. 20,000. The assessee has also produced its ledger account coupled with the creditors'' confirmation letters who stated in unequivocal terms that they had lent the money to the assessee without interest in cash in view of absence of banking facility in the concerned locality. In our considered opinion, the assessee has successfully discharged onus in leading above cogent evidence. It is not the case of the Revenue that the amount received by the assessee per creditor in any case exceeds Rs. 20,000 which could doubt the credibility of the assessee''s version. Admittedly, in assessment proceedings, neither there is any addition made by the Assessing Officer, nor is there any iota of any act on the assessee''s part concealment. Accordingly, we do not find any reason to interfere with the Commissioner of Income-tax (Appeals) findings qua merits of the case."

Learned standing counsel appearing for the Revenue submits that there is no reasonable cause for having taken cash loan in routine manner and no exceptional circumstances were shown for taking the cash loan. Since the assessee did not have any agricultural income, the assessee had not satisfied the requirements of section 269SS of the Income-tax Act. Hence, he submits the order of the Tribunal may be set aside. In support of his contention, he relied on the decision reported in P. Baskar Vs. Commissioner of Income Tax, .

We heard learned standing counsel appearing for the Revenue and perused the materials placed before this court.

We find in this case that the authorities below have on facts clearly accepted, after proper verification, that the sundry loans have been extended by the agriculturists within the limits prescribed under section 269SS of the Income-tax Act and the bona fides of the transactions is not doubted. The genuineness of the sundry creditors have also been verified. The assessee has also given reasonable explanation for availing of such loan, which has been accepted by the authorities below. Therefore, on the facts, there appears to be no dispute in the present case. Therefore, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal are justified in holding that there was no case for invocation of section 271D of the Income-tax Act on the alleged violation of section 269SS because as the assessee in this case has satisfied the test of reasonable cause as required under section 273B of the Income-tax Act.

The above view was fortified by the decision of the apex court reported in Assistant Director of Inspection Investigation Vs. Kum. A.B. Shanthi, , wherein it was held (page 266): "it is important to note that another provision, namely, section 273B 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". This decision was followed by this court in the decision reported in CIT v. Balaji Traders [2008] 303 ITR 312 (Mad).

The decision relied on by the learned standing counsel appearing for the Revenue reported in P. Baskar Vs. Commissioner of Income Tax, does not apply to the facts of the present case, as in that case, the Tribunal as well as the authorities below found that there was no reasonable cause shown by the assessee for taking cash loan.

The facts in that case are different from the case on hand and it stands distinguished on that account. Here, the assessee has shown reasonable cause for availing of loan from the agriculturists, which was accepted by the authorities below. The genuineness of the creditors have been verified and the transactions were never doubted by the authorities below. Hence, we find no reason to interfere with the order of the Tribunal as the reasonable cause is a finding of fact. Accordingly, we find no question of law much less any substantial question of law arises for consideration in the above appeals. Therefore, both the tax case (appeals) stand dismissed. No costs.