Judgment · High Court · 2007

In the High Court of Judicature at MadrasDated: 06.08.2007CoramThe Honourable Mr.Justice D.MURUGESANandThe Honourable Mr.Justice P.P.S. JANARTHANA RAJAT.C. (A) Nos.552 to 555, 557, 560, 569 and 784 to 786 of 2007T.C.(A) No.552 of 2007M/s. Kasi Consultant Corporation91-92, Jawaharlal Nehru SalaiChennai 600 083. Appellant vThe Deputy Commissioner of Income Tax Circle IIChennai 600 034 Respondent T.C.(A) No.553 of2007M/s. Kasi Investment & Consultant Corporation91-92, Jawaharlal Nehru SalaiChennai 600 083. Petitioner vThe Deputy Commissioner of Income Tax Circle IIChennai 600 034 RespondentT.C.(A) No.554 of 2007M/s. Kasi Consolidated & Finance Corporation91-92, Jawaharlal Nehru SalaiChennai 600 083. Petitioner vThe Deputy Commissioner of Income Tax Circle IIChennai 600 034 Respondent https://hcservices.ecourts.gov.in/hcservices/ T.C.(A) No.555 of 2007M/s. Kasi Consultant & Investment Corporation91-92, Jawaharlal Nehru SalaiChennai 600 083.

Petitioner vThe Deputy Commissioner of Income Tax Circle IIChennai 600 034 RespondentT.C.(A) No.557 of 2007M/s. Kasi Finance and Investment Corporation 91-92, Jawaharlal Nehru SalaiChennai 600 083 Petitioner vThe Deputy Commissioner of Income Tax Circle II (Inv)Chennai 600 034 Respondent T.C.(A) No.560 of 2007M/s. Kasi Credit Consultant Corporation91-92, Jawaharlal Nehru SalaiChennai 600 083 Petitioner vThe Deputy Commissioner of Income Tax Circle II (Inv)Chennai 600 034 RespondentT.C.(A) No.569 of 2007M/s. Kasi Finance and Business Corporation91-92, Jawaharlal Nehru SalaiChennai 600 083 Petitioner vThe Deputy Commissioner of Income Tax Circle II (Inv)Chennai 600 034 Respondent https://hcservices.ecourts.gov.in/hcservices/ T.C.(A) No.784 of 2007M/s. Kasi Credit Corporation91-92, Jawaharlal Nehru SalaiChennai 600 083Petitioner vThe Deputy Commissioner of Income Tax Circle II (Inv)Chennai 600 034 RespondentT.C.(A) No.785 of 2007M/s.

Kasi Investment & Finance Corporation 91-92, Jawaharlal Nehru SalaiChennai 600 083 Petitioner vThe Deputy Commissioner of Income Tax Circle II (Inv)Chennai 600 034 RespondentT.C.(A) No.786 of 2007M/s. Kasi Consultant & Credit Corporation91-92, Jawaharlal Nehru SalaiChennai 600 083 Petitioner vThe Deputy Commissioner of Income Tax Circle II (Inv)Chennai 600 034 RespondentTax Case appeals filed under Section 260-A of the Income Tax Act 1961as against order dated 20.01.2006 in ITA No.99/MDS/2001, 100/MDS/2001,101/MDS/2001,102,94,93,95,96,97,98/MDS/2001.On the file of the Income Tax Appellate Tribunal Chennai'A'Bench asagainst the order dt.04.09.2000 in I.T.Appeal No.150x151/2000/JCIT/R-111,152,153,154-99/2000,146,147 to 149,163 to 165,161,162,157 & 158,159 &160,155 & 156/99-2000/5C IT/RIII.On the file of the Commissioner of Income Tax (Appeals) -VI Chennai asagainst the order dt.30.6.99 in G.I.No.10306-K,10307-K,10304-K,10305-K,10314-K,10311-K,10313-K,10309-K,10310-K,10308-K. https://hcservices.ecourts.gov.in/hcservices/ On the file of the Joint Commissioner of Income Tax Range III, Chennai-34.challenging the action of the Income Tax Appellate Tribunal in confirmingthe order of imposing penalty under Section 271D of the Act.

For appellant :Mr.J.Balachander For respondent :Mr.T.Ravikumar Jr.S.C. J U D G M E N T (Judgment of Court delivered by D.MURUGESAN.,J.) All these appeals are admitted on the following substantialquestions of law: " i) Whether the Tribunal is correct in confirming theorder imposing penalty under Section 271D o the Act onthe facts and in the circumstances of the case? ii) Whether the Tribunal is correct in concludingthat there was reasonable cause for acceptingdeposits in cash exceeding Rs.20,000/- with referenceto the provisions of Section 273B of the Act? iii) Whether the Tribunal is correct in notconsidering the scope and the purpose of theprovisions of Section 271D of the Act, especially withreference to Sections 269SS and 273B of the Act? and iv) Whether the Tribunal is correct in rejecting theground relating to the violation of the principles ofnatural justice on the facts and in the circumstancesof the case?"

For the disposal of the appeals, the facts relating to Tax Case(Appeal) No.552 of 2007 is referred.

The appellant-firm is one of the firms floated by oneMathivathanan and his wife Smt. Annakalanjiyam from the year 1994 onwards. They and certain other relatives and friends are partners in all thefirms. The firm had accepted deposits from the public for the purpose ofbusiness in real estate and property development carried on by relatedconcerns viz., Kasi Housing and Development, Kasi Builders andMr.Mathivathanan. The total deposits accepted by the firm from 1995-96 to1997-98, amounted to 6.54 crores. Pursuant to the returns filed , theassessment order under Section 143 (3) r/w Sections 158BC of the IncomeTax Act (hereinafter referred to as 'the Act'),for the block period was https://hcservices.ecourts.gov.in/hcservices/ passed on 29th December, 1998. It was noticed that there was acontravention of the provisions of Section 269T of the Act by the firm inaccepting the deposits from the public and therefore, penalty proceedingswere initiated under Section 271D of the Act. 4. Before the Assessment Officer, the appellant firms had conducted 1) The acceptance and payments of few deposits in cash above Rs.20000/- was done purely due to business exigencies.2) The acceptance of few deposits in cash was due to ignorance oflaw and the partners were not aware of the implications of Sec.269SS ofthe I.T.Act.3) The deposits were accepted from people of various walks of lifeandsome of them even do not have a bank account. Of DD/Cheque was insistedupon, then they would have chosen would choose to approach some otherfinance company. 4) The customers come after the close of banking hours. 5) The entire deposits were received form outside source and nodeposits were made by the partners. 6) The quantum of non-compliance is not very substantial comparingwith the total deposits accepted.7) The acceptance of deposits is for business purpose of the groupconcerns, which require heavy cash for paying advances/consideration forland purchases. 8) The deposits have been treated as genuine in the assessment. This is argued that as provisions of Sec. 269SS were brought into thestatute only to curb the creation of bogus credits and , penalty may notbe levied. "

All the contentions of the appellant/assessee were negatived bythe Assessing Officer and ultimately penalty was levied under Section271D of the Act on the deposit taken in cash during different assessmentyears, namely, Rs.1,30,000/- for the assessment year 1996-97 andRs.1,70,000/- for the assessment year 1997-98.

Similar contentions were raised in respect of other Tax Case(Appeals) and all the contentions were rejected and similar orderslevying penalty was issued by the Assessing Officer and hence, we did notelaborate for the purpose of individual cases.

The order of the Assessing Officer was questioned before the Commissioner of Income Tax (Appeals) VI, Chennai on the same groundsraised before the Assessing Officer. By Order dated 04.09.2000, the Commissioner of Income Tax Appeals, while allowing the appeal, held thatthe penalty under Section 271D was not leviable after coming to theconclusion that for accepting the deposits, the firm has explainedreasonable cause as to the business exigencies. https://hcservices.ecourts.gov.in/hcservices/

On further appeals to the Income Tax Appellate Tribunal at theinstance of the Revenue, the Appellate Tribunal has negatived theassessee's contention and accordingly, allowed all the appeals. Hencethe present Tax Appeals at the instance of the assessees.

We have heard learned counsel for the appellants and as well asthe learned Standing Counsel appearing for the Income Tax Department.

Learned counsel for the appellants has once again reiterated allthe contentions raised before the Assessing Officer and further submittedthat in view of the findings of the Income Tax Appellate Tribunal forrejecting the claim on the ground that there is no material placed by theassessee to sustain the claim that the depositors have no bank account in Chennai, to accept the deposit in cash, and the shortage of cash in thebusiness which led the assessees to accept the deposits in cash, whichwas not demonstrated and the assessees have not shown that there wascash deficiency to meet their day- today requirement in business. Hence, learned counsel for the appellants submitted that the assessee/appellantsmay be permitted to adduce certain materials before the Assessing Officerand for the said purpose, the matter could be remitted to the AssessingOfficer.

Section 269SS of the Act contemplates that no person shall, after 30th day of June, 1984 take or accept from any other person anyloan or deposit, otherwise than by an Account Payee Cheque or AccountPayee Bank Draft if, the amount of such loan or deposit or the aggregateamount of such loan and deposit. In case any deposit is acceptedcontrary to the above provisions in terms of Section271D, such personshall be liable to pay by way of penalty a sum equal to the amount of theloan or deposit so taken or accepted. There cannot be any dispute as tothe proposition made for violation of the provisions under Section 269SSof the Act, and a penalty could be levied under Section 271D of the Act. 12. However, there is one exemption to the above provisions under Section 273 of the Act and no penalty shall be imposable on the person orassessee, as the case may be, for any failure referred to in the saidprovisions, if he proves that there was reasonable cause for the saidfailure.

Though the appellants- assessees claimed that the firms hadtaken deposit from the public only for the purpose of business of realestate and property development carried on by the related concerns, andthere was reasonable cause and therefore, the penalty would not have beenimposed in view of the provisions of Section 273B of the Act, the samewas rejected by the Assessing Officer. However, the Commissioner of Income Tax (Appeals) found that penalty under Section 271 was notautomatic and on the facts and circumstances of the case, it should beanalysed to ascertain as to the business exigencies. Again the judgmentof the Commissioner of Income Tax (Appeals) was negatived by the Special https://hcservices.ecourts.gov.in/hcservices/ Tribunal.

Though the provisions of Section 269SS contemplates that noperson shall, after 30th day of June, 1984 take or accept from any otherperson any loan or deposit otherwise than by an Account Payee Cheque or Account Payee Bank Draft if, the amount of such loan or deposit or theaggregate amount of such loan and deposit. In case any deposit isaccepted contrary to the above provisions in terms of Section 271D, suchperson shall be liable to pay by way of penalty sum equal to the amountof the loan or deposit so taken or accepted. Ultimately the questionpointed is as to whether the assessees have produced materials to show thereasonable cause for accepting the deposit in cash.

The Apex Court in more than one case, repeatedly held that the High Court, while considering under Section 261, shall not embark uponto re-appreciate the evidence or go into the veracity of the evidence assuch. There are restrictions for interference of the orders of the Taxation Appellate Tribunal only when the findings are perverse andwithout support of any evidence at all. Even the Apex Court has gone tothe extent of lying down that the alleged deficiency of cash cannot bea ground for interference.

On the facts of the given case, it is not in dispute that exceptby pleadings, the assessees-firms have accepted the deposit only forbusiness exigencies, there were no materials to show the reasonable causefor such exigencies. That is precisely the reason while the AssessingOfficer did not accept the case of the assesees and consequently leviedpenalty for violation of the provisions of Section 269SS.17. Coming to the findings of the Commissioner of Income Tax Appeals, we do not find any materials to support the findings as to the reasonablecause except quoting the provisions.18. Precisely, for the said reason only the Income Tax Tribunal hadcome to the conclusion that the assessee has not produced any materialwhatsoever to sustain the plea of reasonable cause either by producing themterials to show that the depositors have no bank account, andconsequently to accept the deposits in cash. The Tribunal came to acorrect conclusion that the assessees have also not demonstrated theshortage of cash in the business, which made the assessees to accept thecash. It also observed that the assessees have not shown that there wascash deficiency to meet their day- today business. For the abovereasons, the Tribunal had interfered with the order of the Commissioner of Income Tax (Appeals) which ended without any material to support suchconclusions. https://hcservices.ecourts.gov.in/hcservices/

Learned counsel for the appellant would rely upon the decision ofthis Court reported in (2006) 280 ITR 129 (Commissioner of IncomeTax v Kasi Credit Corporation and another) and contended that thepenalty should not have been imposed on the facts of the given case. Infact from the facts of the said judgment, it is seen that it was a caserelated to an uneducated woman who has no bank accounts and the depositwas accepted in cash and this Court was of the view that the saidcircumstance may be the reasonable cause for accepting the deposit incash and has brought the claim of the assessee under Section 273D.However, that is not the case on hand.

In this case, admittedly the amount has not been accepted by thedepositors and in the absence of any materials whatsoever to show thereasonable cause, as has been shown and explained in the other case, we donot find any infirmity of the Special Tax Appellate Tribunal.

Learned counsel for the appellants however submitted that theassesseeas appellants may be permitted to adduce materials before the Assessing Officer to establish the reasonable cause. In our opinion, sucha course cannot be adopted in this case. As the appellants had miserablyfailed even before the Assessing Officer on the very first instance toadduce such documents and having failed to invoke an order from the IncomeTax appellate Tribunal, solely on the ground of lack of materials. It isnow for the assessees to seek remand for merely production of thosedocuments. Hence, for the above request, we are inclined to rejectthe same and accordingly the issues were also answered against theassessees and in favour of the Revenue.

For the foregoing reasons, we are inclined to reject all theseTax Case (Appeals) and accordingly issues are also answered against theassessees and in favour of the Revenue. kv/sgSd/-Asst. Registrar/true copy/ Sub Asst. Registrar https://hcservices.ecourts.gov.in/hcservices/ To1. The Asst. Registrar, Income Tax Appealate Tribunal, IIIrd Floor, Rajaji Bhavan, Besant Nagar, Chennai-90.2. The Commissioner of Income Tax Appeals VI, Chennai-34.3.The Deputy Commissioner of Income Tax Circle II,Chennai 600 034.4.The Joint Commissioner of Income Tax Range-III, Chennai-34.+10 ccs to Mr.N.Muralikumaran, Advocate Sr.Nos.49100,49101,49102,49095,49491,49490,49096,49097,49099,49098.+10 ccs to Mr.J.Balachander Advocate Sr.No.49500.KA(CO)DCP.23.8T.C.(A)Nos.552 to 555, 557, 560, 569,784 and 786 of 2007