Dismissed

Listin Stephen v. the Deputy Commissioner of Income Tax, Kottayam

Kerala HC8 Mar 2019ITA/196/2014

Case brief

AI extract

What is this about?

The Kerala High Court dismissed the appeal filed by an assessee against the confirmation of penalty imposed for accepting cash loans in violation of Section 269SS. The Court held that immediate repayment and lack of tax evasion did not constitute reasonable cause under Section 273B.

What did the court decide?

Penalty under Section 271D was upheld; appeal dismissed as the appellant failed to establish reasonable cause under Section 273B.

Listin Stephen Vs the Deputy Commissioner of Income Tax… — Money Laundering | Kerala HC (2019)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM

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THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI

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FRIDAY ,THE 08TH DAY OF MARCH 2019 / 17TH PHALGUNA, 1940

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ITA.No. 196 of 2014

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AGAINST THE ORDER IN ITA 204/COCH/2014 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 04-07-2014

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APPELLANT/RESPONDENT:

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LISTIN STEPHEN MUDEEKUNNEL HOUSE, UZHAVOOR P.O., KOTTAYAM - 686 634.

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BY ADVS. SRI.ANIL D. NAIR KUM.SOUMYA PRAKASH SMT.C.S.SULEKHA BEEVI SRI.JOSE JOSEPH (CHEMPLAYIL) SRI.R.SREEJITH

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RESPONDENT/APPELLANT:

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THE DEPUTY COMMISSIONER OF INCOME TAX, KOTTAYAM686001

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BY ADV. SRI.JOSE JOSEPH, SC,GOI FOR INCOME TAX

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THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 08.03.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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ITA.No. 196 of 2014

'C.R'

JUDGMENT

Abdul Rehim,J

The above appeal, filed under Section 260A of the Income Tax Act, 1961 (“the Act” for short) is instituted against an order of the Income Tax Appellate Tribunal, Cochin Bench, in ITA No.204/Coch/2014, dated 4.7.2014.

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Assessment on the income of the appellant with respect to the year 2009-10 was completed under Section 143(3) of the Act through the order of the Assessing Authority, on 25.10.2011. It is reflected in the assessment order that there were heavy credits in the bank accounts of the assessee by way of cash, during the year concerned. With respect to the source of such cash credits, the assessee explained that those were amounts received by way of loans from various persons and credited in cash to his bank accounts. According to the assessee, this was done to show that there were regular transactions in his bank account, for the purpose of producing proof before an authority from whom he was trying to get a visa. The Assessing Authority had accepted the explanation with respect to the source of the amounts, while finalising the assessment. But the Joint Commissioner of Income Tax had initiated a proceedings for

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imposition of penalty, under Section 271D of the Act, on the basis that the assessee had accepted the amounts, which were credited in the bank accounts, from various persons in cash, in violation of the provisions contained under Section 269SS of the Act. In the explanation submitted to the show cause notice, the assessee admitted that he received the loans by way of cash, in violation of the restraint contained under Section 269SS of the Act. According to the assessee, such loans received in cash were deposited in the bank accounts maintained by him with the South Indian Bank, Uzhavoor Branch and Dhanalaxmi Bank, Pala Branch. It is stated that, on the same day itself, the loan amounts were repaid to the respective creditors. Before the Joint Commissioner, the assessee raised a contention that the loan amounts were not utilised for any business purposes and that he had repaid the loans to the creditors. But such explanation was not found acceptable to exonerate him from the liability with respect to violation of the provisions contained in Section 269SS of the Act. Argument of the assessee that he had repaid the loans through account payee cheques and that the creditors have cleared those cheques through their bank accounts, was also not accepted as a reasonable ground to deny the liability with respect to the violation. While examining the question as to whether

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the assessee was successful in showing any reasonable cause for the failure as contemplated under Section 273 B, the Joint Commissioner observed that, since the persons from whom the loans were availed were having bank accounts, nothing prevented the assessee from taking or accepting the loans through account payee cheque or bank drafts. Therefore it was found that, there is no reasonable cause shown for accepting the loans otherwise through account payee cheques or drafts, in violation of Section 269SS of the Act. The Joint Commissioner also found that, it is not an isolated instance of acceptance of the loan amount in cash. The loans were accepted from seven different persons on different dates in different amounts. Therefore it was found that the assessee does not deserve the benefit of Section 273B. Accordingly, penalty proposed to the tune of Rs.24,57,000/-, was confirmed.

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The assessee challenged the order of the Joint Commissioner in appeal before the Commissioner of Income Tax (Appeals). The Commissioner (Appeals) had allowed the appeal and the order imposing the penalty was set aside, on the finding that the source for receipt of the loans was properly explained and it is proved that the amounts were later returned. It was found that the Assessing Officer, after being convinced of the above said fact, has not

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noted any violation of Section 269SS. Therefore it was found that there seemed to be no attempt of evasion of tax or for induction of black money to the business. Relying on a decision of this Court in Commissioner of Income Tax v. P K Shamsuddin (ITA No.237/2010) (not seen reported) it was held that, furnishing the source of lenders, which is accepted by the department itself, is a reasonable cause which can be considered against imposing penalty, because when the source is provided the violation becomes technical. Finding that the above said decision would squarely apply, it was held that the assessee was successful in showing reasonable cause coming within the purview of Section 273 B of the Act.

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In the appeal filed by the Department (Revenue) before the Income Tax Appellate Tribunal, Cochin Bench, the findings of the Commissioner (Appeals) were reversed. Relying on a decision of the Honourable Supreme Court and other decisions rendered by this Court, the Appellate Tribunal observed that, the fact that the amounts were returned to the lenders immediately cannot be taken as a reason to exonerate the assessee from the liability of penalty. It was found that, the assessee had failed to establish any reasonable cause for accepting the loans for more than Rs.20,000/- from various persons in cash, otherwise than through crossed cheques or demand drafts, in

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violation of Section 269SS. Finding that there exists no legal and acceptable reasons to exonerate the assessee from the liability of penalty under Section 271D of the Act, the appeal filed by the Revenue was allowed. The assessee is challenging the order of the Appellate Tribunal in this appeal.

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Based on the pleadings, this Court formulated the substantial question of law, as to whether the appellant was successful in proving that there was reasonable cause for any failure to comply with the provisions of Section 269SS of the Act.

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Heard Sri. Anil D Nair, learned counsel for the appellant and Sri. Jose Joseph, learned Standing Counsel for Government of India (Taxes).

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Section 269SS prohibits any person from accepting from any other person any loan or deposit otherwise by an account payee cheque or an account payee bank draft, if such loan or deposit is Rs.20,000/- or more. In the case at hand, it is not in dispute that the assessee had accepted loans in cash from seven distinct persons on different dates spreading over between 9.4.2008 and 6.2.2009, different amounts ranging from Rs.1,50,000 to Rs.4,00,000/- and credited those amounts into his bank accounts. It is also not in dispute that the contravention in this regard will attract imposition of

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penalty under Section 271D, to the tune of a sum equal to the amount of such receipt. The assessee can be exonerated from the liability only if he could prove that there was reasonable cause for the failure in not accepting the loan amounts either in crossed cheques or demand drafts. So the crucial question to be considered is as to whether the appellant was successful in establishing any reasonable cause, with respect to the above said failure or violation, as contemplated under Section 273B.

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The factum of repayment of the loans on the date of their receipt itself through crossed cheques drawn in the name of the lenders, and the non-utilization of the money by the assessee for any of his business purposes, were established before the authorities concerned. The purpose for acceptance of the loans and crediting of the amounts in the bank account of the assessee is also not seen disputed. Fact that there was no attempt of evasion of payment of tax or induction of black money into the business, cannot also be disputed. But, whether those undisputed facts alone can be taken as reasonable cause for exonerating the appellant from the liability of penalty, for the violation committed under Section 269SS, is the question to be decided.

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Case law referred by both sides assumes importance. In Commissioner of Income Tax v. P K Shamsuddin (ITA No.237/2010) (unreported) a Division Bench of this Court observed that, furnishing source of the lenders, which is accepted by the department itself, is a reasonable cause against the levy of penalty, because when the source is provided the violation becomes technical. It was found that the conclusions arrived by the tribunal in exonerating the appellant therein have to be upheld, because there is no tax evasion involved or black money introduced into the business. On the facts of the said case, evidence was to the effect that the creditors had borrowed bank loans and the money was given in cash to the assessee after drawing from the loan accounts of the lenders. This Court found that, acceptance of the above said reason by the Tribunal as a reasonable cause under Section 273B need to be confirmed, because there arose no substantial question of law warranting interference of this Court.

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In K.V. George v. Commissioner of Income Tax [(2014) 42 Taxman.com 261 (Kerala)] a Division Bench of this Court had distinguished P.K Shamsuddin's case (supra) on the factual aspects by finding that, the source of the fund of the creditors in the said case was not from the bank and induction of black money

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cannot be ruled out. On the facts of that case, it was observed that no materials were available in proof to show that the transaction was genuine and there existed a reasonable cause for receiving the amount in cash. Referring to a decision of the Honourable Supreme Court in Assistant Director of Inspection (Investigation) V.Kumari A.B Santhi [(2002) 255 ITR 258] it was observed that, if there was a genuine and bonafide transaction and the tax payer could not get a loan or deposit by account payee cheque or account payee demand draft for some bonafide reasons, the authority vested with the power to impose penalty was at discretion not to levy penalty. If the assessee is capable of explaining before the concerned authority that there was a reasonable cause for the violation and for not receiving the loan by way of account payee cheque or demand draft, then the penalty shall not be levied.

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This Court had occasion to deal with the issue again in the case of NSS Karayogam v. Commissioner of Income Tax [(2014) 364 ITR 81 (Kerala)]. Referring to the decision in K.V George's case (supra) it was reiterated that, the only consideration would be whether there existed any reasonable cause for receiving the amount by way of cash or whether there was a reason for not receiving the loan by way of account payee cheque or demand draft. It is held that

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burden is on the assessee to establish what was the reasonable cause.

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In a still later decision of this Court in Grihalakshmi

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vision v. Additional Commissioner of Income tax [(2015) 379 ITR 100 (Kerala)], while confirming the orders passed imposing penalty by upholding the findings that the assessee had failed to prove any reasonable cause as contemplated under Section 273B, it was observed that, to take the benefit of Section 273B the assessee must prove why the cash loan was accepted and whether there was any reasonable cause for the failure to accept it in cheque or draft. The contention raised on the facts of the said case that the amount in

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cash was taken from partners of the firm to meet urgent business expenditure, was not accepted as a reasonable cause by observing that, there occurred failure to repay the amounts through account payee cheques or account payee bank draft.

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An elaborate consideration of the issue is reflected in the latest decision of this Court in the Commissioner of Income Tax,

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Trichur v. Al-Ameen Educational Trust [(2018)254 Taxman 402

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(Ker)], where the assessee had offered the following explanations;

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i). No evasion of tax, hence no penalty can be

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levied.

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ii). Deposits taken from staffs were refundable. iii). Rs.5,00,000/- was a loan taken from one Zeenath,

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since cash was required urgently.

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iv).No penalty proceedings issued by Assessing Officer.

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The assessee in that case had explained the details of loans and deposits taken from its staff members and also indicated that some of those loans were repaid by cheques. This Court observed that, the contention of refundable advance even if accepted, would not offer any mitigation to the assessee in so far as the penalty imposed under Section 271D, since the law does not distinguish refundable or not refundable loans or deposits. As far as the urgent requirement of funds, it was found that the ground raised was of general or vague nature, without any substantiating materials produced. Contention that the Assessing Officer had not initiated any proceedings was rejected on the finding that it was clearly recorded in the assessment order about the assessee having accepted loans and advances in violation of Section 269SS. After scanning various rulings, most of which are cited herein above, this Court found that there is no reasonable cause shown, even if the claim of deposits from staff is accepted as genuine, for the assessee to have not directed it to have been made by way of cheque or draft.

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The principle emerging from the precedents cited above is that, the reasonable cause contemplated under Section 273B should be a reasonable cause as to why or what was the reason which

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compelled the assessee to accept the loans or deposits in cash. In other words, it should be proved that there existed reasonable and acceptable cause for not accepting the loans or deposits through crossed cheques or demand drafts. When analysed based on the dictum as mentioned above, none of the facts contended or proved by the appellant will constitute a valid explanation or reasonable cause coming within the purview of Section 273B. The mere proof that the loans were repaid through cheques drawn in the name of the lenders or that there was no attempt to induct black money into the business, itself cannot be considered as a reasonable cause or as a compelling circumstance under which the mandate of Section 269SS can be violated. It cannot be termed as a reasonable cause contemplated under Section 273B to condone the violation. Hence, we are of the opinion that, the appellant has not succeeded in bringing the case within the ambit of Section 273B, warranting exoneration from imposition of penalty under Section 271D.

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