Assanar & Sons, Kottayam v. JTCIT, Kottayam

ITA 193/COCH/2014 | 2010-2011
Pronouncement Date: 14-11-2014

Appeal Details

RSA Number 19321914 RSA 2014
Assessee PAN AADFA6784E
Bench Cochin
Appeal Number ITA 193/COCH/2014
Duration Of Justice 6 month(s) 12 day(s)
Appellant Assanar & Sons, Kottayam
Respondent JTCIT, Kottayam
Appeal Type Income Tax Appeal
Pronouncement Date 14-11-2014
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 14-11-2014
Date Of Final Hearing 10-09-2014
Next Hearing Date 10-09-2014
Assessment Year 2010-2011
Appeal Filed On 02-05-2014
Judgment Text
N IN THE INCOME TAX APPELLA TE TRIBUNAL COCHIN BENCH COCHIN BEFORE S/SHRI N.R.S.GANESAN JM AND CHANDRA POOJ ARI AM I.T.A. NOS.191-193/COCH/2014 ASSESSMENT YEARS : 2008-09-2010-11 M/S. ASSANAR & SONS RUBBER DEALERS KP V/542 KANJIRAPALLY KOTTAYAM-686 507 .[PAN: AADFA 6784E] VS. JOINT COMMISSIONER OF INCOME-TAX CIRCLE-1 KOTTAYAM RANGE KOTTAYAM. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI THOMAS CHERIAN CA REVENUE BY SMT. LATHA V. KUMAR JR. DR DATE OF HEARING 10/09/2014 DATE OF PRONOUNCEMENT 14/11/2014 O R D E R PER CHANDRA POOJARI ACCOUNTANT MEMBER: THESE APPEALS FILED BY THE SAME ASSESSEE ARE DIREC TED AGAINST THE DIFFERENT ORDERS PASSED BY THE CIT(A)-IV KOCHI FOR THE ASSESSMENT YEARS 2008-09-2010-11. 2. SINCE ALL THE APPEALS ARE RELATED TO THE SAME AS SESSEE THEY WERE CLUBBED TOGETHER HEARD TOGETHER AND ARE BEING DISP OSED BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. I.T.A. NOS.191-193/COCH/2014 2 I.T.A. NOS. 192&193/COCH/2014 3. THE COMMON ISSUE IN THESE APPEALS IS THAT THE C IT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE U/S. 40(A)(IA) OF THE I.T. ACT WITHOUT CONSIDERING THE AMENDMENT TO SEC. 40(A)(IA) OF THE ACT. 4. AFTER HEARING BOTH THE PARTIES WE ARE OF THE OP INION THAT THIS ISSUE WAS CONSIDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF PRUDENTIAL LOGISTICS AND TRANSPORTS VS. ITO IN I.T.A. NO. 01 O F 2014 DATED 13 TH JAN. 2014 WHEREIN THE HIGH COURT IN PARAS 5 & 6 HAS OBSE RVED AS UNDER: 5. READING OF SECTION 40(A)(IA) ALONG WITH 2 ND PROVISO AND SEC. 201(1) ALONG WITH PROVISO IT WOULD MEAN THAT THE MANDATE OR REQUIREMENT ON THE PART OF THE PAYER TO DEDUCT TAX AT SOURCE IS NO T SO STRICT IF THEY ARE ABLE TO SHOW THAT THE PAYEE OR THE RECIPIENT OF THE AMOUNT HAS PAID TAX IN ACCORDANCE WITH THE PROVISIONS OF SECTION 201(1) AND THE PROVISO. 6. THIS WAS NOT THE CLAIM MADE BY THE ASSESSEE BEF ORE THE ASSESSING OFFICER. THE CLAIM WAS ON A DIFFERENT STAND INITI ALLY REFLECTING THE AMOUNTS AS LOAN IN THE ACCOUNT BOOKS THOUGH SHOWN A S FREIGHT CHARGES IN THE RETURNS AND LATER EXPLAINED THAT IT WAS NOT THE LOAN AMOUNT BUT FREIGHT CHARGES. IT WAS NEVER THE CASE OF THE ASSE SSEE THAT THERE WAS NO MANDATE SUBSEQUENT TO AMENDMENT TO DEDUCT TAX A S TDS IN THE LIGHT OF ABOVE PROVISIONS. THE ASSESSMENT YEAR IN QUESTION IS 2007-08 AND THE AMENDMENT GIVING BREATHING SPACE TO PAYER O F AMOUNTS IS WITH EFFECT FROM 1.4.2013. THEREFORE THE SAID BENEFIT IS NOT APPLICABLE TO THE ASSESSEE. EVEN OTHERWISE ON FACTUAL SITUATION THE VERY FACT THAT THESE AMOUNTS WERE CLAIMED AS LONG INITIALLY TILL THE SE CURITY CAME UP FOR CONSIDERATION BEFORE ASSESSING AUTHORITY WOULD ONLY INDICATE THE REAL INTENTION OF THE ASSESSEE FIRM I.E. NOT TO DISCLOS E THIS AMOUNT AS FREIGHT CHARGES BUT SOMETHING ELSE AS REPAYMENT OF LOAN. I.T.A. NOS.191-193/COCH/2014 3 5. IN VIEW OF THE ABOVE JUDGMENT OF THE JURISD ICTIONAL HIGH COURT WE ARE INCLINED TO DECIDE THE ISSUE AGAINST THE ASSESS EE AND IN FAVOUR OF THE DEPARTMENT. ACCORDINGLY THIS GROUND IN I.T.A. NOS . 192&193/COCH/2014 IS DISMISSED. I.T.A. NO. 191/COCH/2014 6. IN THIS APPEAL THE GRIEVANCE OF THE ASSESSEE IS WITH REGARD TO LEVY OF PENALTY U/S. 271E OF THE I.T. ACT. 7. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E-FIRM IS A PARTNERSHIP FIRM. THE FIRM WAS DEALING IN RAW RUBBER SHEETS AN D SCRAP RUBBER AND SMALL AND MEDIUM FARMERS WHO SUPPLY RUBBER ARE THE CLIENT S OF THE FIRM. THESE FARMERS WERE HAVING REGULAR ACCOUNTS WITH THE FIRM. DURING THE ASSESSMENT PROCEEDINGS IT WAS FOUND THAT HERE WAS V IOLATION OF PROVISION OF SECTION 269T OF THE ACT IN RESPECT OF DEPOSIT OF RS .1 69 20 000/- IN THREE DIFFERENT BANK ACCOUNTS OF THE ASSESSEE FIRM AND RE PAYMENT OF THE SAME IN CASH WHICH ATTRACTED PENALTY U/S. 271E OF THE ACT. THE ASSESSING OFFICER FOUND THAT THE MANAGING PARTNER OF THE FIRM SHRI MO HAMED FAIZAL HAS BEEN VERY CLOSE TO ONE SHRI K.A. THOMAS WHOSE SON WAS SE TTLED IN USA WHO SENT MONIES TO HIS FATHER FOR SETTLING FAMILY DISPUTES T HROUGH HIS ACCOUNT. SHRI K.A. THOMAS ENTRUSTED MOHAMMED FAIZAL WITH THE ENTI RE AMOUNT RECEIVED I.T.A. NOS.191-193/COCH/2014 4 FROM THE BANK ACCOUNT OF HIS US BASED SON TO THE AS SESSEES BANK ACCOUNT BY WAY OF ACCOUNT PAYEE CHEQUE I.E. IN THE NAME O F M/S. ASSANAR & SONS. THE ASSESSING OFFICER FURTHER FOUND THAT THOUGH THE AMOUNT WAS NOT INTENDED TO BE LOAN RATHER FOR THE SAKE OF IDENTIT Y IT WAS SHOWN AS K.A. THOMAS LOAN IN THE BOOKS OF THE ASSESSEE. AFTER T HE SETTLEMENT OF FAMILY DISPUTES OF SHRI K.A THOMAS WITH THE INTERVENTION O F SHRI MOHAMMED FAIZAL THE MANAGING PARTNER OF THE ASSESSEE FIRM THE SAID AMOUNT WAS RETURNED BACK BY WAY OF BEARER CHEQUES. 8. AFTER EXAMINING THE ASSESSMENT RECORDS AND THE T RANSACTIONS THROUGH BANK THE ASSESSING OFFICER BY ISSUING SUM MONS U/S. 131 OF THE ACT FOUND THAT SOME OF THE CHEQUES WERE DRAWN IN T HE NAME OF K.A. THOMAS WITH HIS SIGNATURE ON THE BACK SIDE OF THE CHEQUES ATTESTED BY THE MANAGING PARTNER OF THE FIRM. IT WAS ALSO FOUND TH AT FEW OTHER CHEQUES WERE IN THE NAME OF SHRI K.A. THOMAS BUT THE PAYEE WAS ONE SHRI PRADEEP KUMAR AND ONE SHRI SAINUDEEN AND NONE OF THESE CHEQ UES WERE ACCOUNT PAYEE CHEQUES. IT WAS ALSO OBSERVED BY THE ASSESS ING OFFICER THAT SINCE THE AMOUNT RECEIVED FROM SHRI K.A. THOMAS WAS SHOWN AS LOAN IN THE BOOKS OF ACCOUNT AND THE SAID AMOUNT WAS ALSO CONFIRMED B Y SHRI K.A. THOMAS AS LOAN GIVEN TO THE ASSESSEE FIRM DURING THE ASSESSME NT PROCEEDINGS THE REPAYMENTS BY WAY OF CASH CHEQUES WAS CLEARLY A VIO LATION OF SECTION 269T OF THE ACT. SHRI MOHAMMED FAIZAL COULD ONLY SUBMI T BEFORE THE ASSESSING I.T.A. NOS.191-193/COCH/2014 5 OFFICER THAT SHRI K.A. THOMAS WAS HIS TEACHER MANY YEARS AGO AND HE WAS NOT AWARE OF HIS CHILDREN OR ANY OTHER DETAILS PERT AINING TO HIM. HOWEVER ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE PE RSISTED WITH ITS CLAIM THAT THE SAID AMOUNT WAS NOT A LOAN BUT MERELY MONEY GIV EN ON TRUST MEANT FOR RESOLVING OF CERTAIN FAMILY DISPUTES OF SHRI THOMAS . 9. THE ASSESSING OFFICER FURTHER OBSERVED THAT THOUGH THE ASSESSEE CLAIMED THAT THE AMOUNT WAS FOR SETTLING FAMILY DIS PUTES BUT HE WAS NOT AWARE OF THE PERSONS TO WHOM THE AMOUNT WAS FINALLY DISBURSED. CONTRARY TO THIS THE ASSESSING OFFICER FOUND THAT THE ENTIR E AMOUNT WAS REPAID BACK TO SHRI K.A. THOMAS AND HENCE THE CLAIM OF THE ASS ESSEE THAT THE AMOUNT WAS GIVEN TO THE PERSON INVOLVED IN FAMILY SETTLEME NT WAS UNPROVED. IN VIEW OF THESE CIRCUMSTANCES THE ASSESSING OFFICER FOUND THAT THE VIOLATION OF PROVISIONS OF SEC. 269T WAS CLEARLY ESTABLISHED WHICH ATTRACTS PENALTY U/S. 271E OF THE ACT. 10. ON APPEAL THE CIT(A) CONFIRMED THE PENALTY L EVIED BY THE ASSESSING OFFICER. AGAINST THIS THE ASSESSEE IS I N APPEAL BEFORE US. 11. THE LD. AR SUBMITTED THAT SHRI K.A. THOMAS HA D ARRANGED RS. 1 69 20 000/- FROM HIS US BASED SON FOR SETTLEMENT OF FAMILY DISPUTES. HOWEVER FOR THE SAKE OF CONVENIENCE SHRI THOMAS E NTRUSTED THE ABOVE I.T.A. NOS.191-193/COCH/2014 6 AMOUNT WITH SHRI MOHAMMED FAIZAL THE MANAGING PART NER OF THE ASSESSEE FIRM BY ACCOUNT PAYEE CHEQUE. WHEN THE FAMILY SET TLEMENT WAS OVER THE AMOUNT WAS TAKEN BY SHRI K.A. THOMAS WHICH WAS MAD E THROUGH CHEQUES IN THE NAME OF K.A. THOMAS. THE LD. AR SUBMITTED THAT THE AMOUNT WAS NEITHER A LOAN NOR A DEPOSIT. ACCORDING TO THE LD. AR IT WAS ONLY AN ENTRY FOR THE SAKE OF CONVENIENCE KEPT UNDER SAFE CUSTODY FOR A SHORT PERIOD AND THE SAID AMOUNT WAS NOT USED FOR THE PURPOSE OF BUS INESS. FURTHER IT WAS SUBMITTED THAT SHRI K.A. THOMAS HAD NOT MADE ANY CL AIM ON THE FIRM REGARDING NON RECEIPT OF THE AMOUNT ENTRUSTED WITH IT NOR CLAIMED ANY INTEREST ON THE AMOUNT. 12. ACCORDING TO THE LD. AR THE AMOUNT OF RS.1 69 20 000/- WAS ENTRUSTED TO THE FIRM IN THREE INSTALMENTS OF RS. 7 9.20 LAKHS RS.54 LAKHS AND RS.36 LAKHS EACH. THE MOVEMENT OF FUNDS SHOWS THAT RS. 79.20 LAKHS WAS RECEIVED ON 03/05/2007 BY CHEQUE AND DEPOSITED WITH INDIAN OVERSEAS BANK AS FIXED DEPOSIT AND CLEARED ON 04/05/2007. THE LD. AR CONTENDED THAT THE DEPOSIT WAS CLOSED ON 26/07/2007 AND CHEQU ES ISSUED IN HIS FAVOUR WAS CLEARED FROM THE BANK BY SHRI K.A. THOMAS ON 27 /07/2007. ACCORDING TO THE LD. AR ALL OTHER AMOUNTS WERE ALSO DEPOSITE D SIMILARLY ON THE VERY DAY OF RECEIPT AND SUBSEQUENTLY WITHDRAWAN AND HAND ED OVER TO SHRI K.A. THOMAS. THUS NO PART OF THESE AMOUNTS WERE USED FO R THE PURPOSE OF ASSESSEES BUSINESS. THUS ACCORDING TO THE LD. A R THE ASSESSEE FIRM HAD I.T.A. NOS.191-193/COCH/2014 7 NO INTENTION TO CONCEAL ANY PARTICULARS OF THESE TR ANSACTIONS SO AS TO ATTRACT SEC. 269T OF THE ACT. 13. THE LD. AR RELIED ON THE FOLLOWING CASE LAW IN SUPPORT OF HIS CONTENTIONS: 1) EBERS PHARMACEUTICALS LTD. VS. JCIT (2004) (88 TTJ (MUMBAI) 194. 2) HINDUSTAN STEEL LTD. VS. STATE OF ORISSA (1 972) (83 ITR 26) (SC). 3) CIT VS. MADHAV ENTERPRISES PVT. LTD. 2014 (2 ) TMI 564 (GUJ.) 4) CIT VS. RUGMINI RAM RAGHAV SPINNERS (P) LTD . (2008) (304 ITR 417) (MAD.) 5) CIT VS. SAINI MEDICAL STORE (P&H) (2005) 27 7 ITR 420 )P&H). 6) CIT VS. EETACHI AGENCIES (2001) 248 ITR 525 (BOM.). 7) CIT VS. NATVARLAL PURSHOTTAMDAS PAREKH (200 8) 303 ITR 5 (GUJ.). 8) CITIZEN CO-OPERATIVE SOCIETY LTD. VS. ADDL. CIT (2010) 41 DTR (HYD.) (TRIB.) 305. 9) MUSLIM URBAN CO-OPERATIVE CREDIT SOCIETY LT D. VS. JCIT (2005) 96 ITD 83 (PUNE). 10) SALAGAON SANMITRA SAHAKARI PATHPEDHI LTD. V S. ADDL. CIT (2012) 51 SOT 53 (MUM.) (TRIB.). 11) ACIT VS. VINMAN FINANCE & LEASING LTD. (200 9) 120 TTJ (VISAKHA) (TM) 462. 12) ACIT VS. ALFA HYDROMEC (P) LTD. (2006) 99 TTJ (JD.) 405. 13) CIT VS. SHRI WAHEGURU SINGH 2008 (12) TMI 33 (P&H). 14) CIT VS. SUNIL KUMAR GOEL (2009) 315 ITR 16 3 (P&H). 15) CIT VS. RATNA AGENCIES (2006) 284 ITR 609 (MAD.). 16) FARRUKHABAD INVESTMENT (I) LTD. VS JCIT (2 003) 85 ITD 230 (DEL.). 17) ITO VS. VS. HOSTEL 2012 (11) TMI 463 (GUJ .) 18) CIT VS. MAHABAL SHETTY 2011 (9) TMI 189 ( BOM.). 14. THE LD. DR DREW OUR ATTENTION TO THE FOLLOWING DETAILS OF REPAYMENTS: 1. 03-05-2007 AMOUNT RECEIVED RS.792000 0 TRANSFERRED TO IOB SH ORT TERM DEPOSIT ON 04-05-2007. I.T.A. NOS.191-193/COCH/2014 8 2. 04-05-2007 AMOUNT RECEIVED RS.3600000 TRANSFERRED TO MEE NACHIL E. URBAN CO. BANK 4 FI XED DEPOSITS OF RS.9 LAKHS EACH. 3. 04-05-2007 AMOUNT RECEIVED RS.5400000 SOUTH INDIAN BANK - QUICK TERM DEPOSIT ACCOUNT. DETAILS OF RETURN OF MONEY BY CLOSURE OF DEPOSITS 1. ON 03-05-2007 IOB SHORT TERM DEPOSIT OF RS.79 20 000/- CLOSED ON 26-07-2007 AND PAID TO K.A. THOMAS ON 27-7-2007 2. ON 04-05-2007 MEU CO. BANK RS.36 00 000/- RS.90000 CLOSED ON 21-07-2007 PAID TO K.A. THOM AS ON 27-07-2007. RS.90000 CLOSED ON 26-07-2007 PAID TO K.A. THOM AS ON 27-07-2007. RS.90000 CLOSED ON 21-12-2007 AND TRANSFERRED T O CURRENT ACCOUNT AND PAID TO K.A. THOMAS BETWEEN 21-12-2007 AND 22-0 3-2008. RS.90000 CLOSED ON 26-12-2007 AND TRANSFERRED T O CURRENT ACCOUNT AND PAID TO K.A. THOMAS BETWEEN 26-12-2007 AND 22-0 3-2008. 3. ON 04-05-2007 SOUTH INDIAN BANK RS.54 00 000/ -. RS.18 00 000 CLOSED ON 26-07-2007 AND GAVE TO K.A. THOMAS ON 20-09-2007. RS.18 00 000 CLOSED ON 17-08-2007 AND GAVE TO K.A. THOMAS BETWEEN 17-08-2007 AND 10-11-2007 IN INSTALLMENTS. RS.18 00 000 CLOSED ON 12-11-2007 AND GAVE TO K.A. THOMAS BETWEEN 12-11-2007 AND 22-03-2008 IN INSTALLMENTS. THUS THE LD. DR SUBMITTED THAT IT IS CLEAR FROM TH E SCHEDULE OF PAYMENT THAT THOUGH THE AMOUNT HAS BEEN PAID TO THE ASSESSE E FIRM ON 3 RD AND 4 TH MAY 2007 THE SAME HAS BEEN RETURNED BACK DURING T HE PERIOD FROM 27-07- 2007 TO 22-03-2008 IN VARIOUS INSTALLMENTS. ACCORD ING TO THE LD. DR THE ASSESSEE FIRM WAS ONLY THE CUSTODIAN OF THE MONEY R ECEIVED IN GOOD FAITH I.T.A. NOS.191-193/COCH/2014 9 FROM SHRI K.A. THOMAS IN ORDER TO RESOLVE CERTAIN F AMILY DISPUTES BUT IT IS VERY CLEAR FROM THE FACTS THAT IN THIS WHOLE TRANSA CTION THERE WERE ONLY TWO PERSONS ONE SHRI MOHAMMED FAIZAL THE MANAGING PART NER AND THE OTHER SHRI K.A. THOMAS WHO HAS DEPOSITED THE MONEY WITH T HE FIRM. ACCORDING TO THE LD. DR THERE WAS NO FAMILY DISPUTE OR SETTLEMEN T EITHER THROUGH THE REPAYMENT OF THE MONEY OR UNDER THE STATEMENT ON OA TH GIVEN BY SHRI MOHAMMED FAIZAL WHO DENIES HAVING KNOWN THE FAMILY MEMBERS OF SHRI K.A. THOMAS. 15. THE LD. DR SUBMITTED THAT THE CASE LAW CITED BY THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. AC CORDING TO THE LD. DR THE PROVISIONS OF SEC. 269T ARE APPLICABLE TO CERTAIN L OANS AS WELL AS DEPOSITS AND THE LOANS OR DEPOSIT HAVE BEEN DEFINED VIDE EXPL ANATION (III) OF SEC. 269T WHEREIN IT SAYS THAT LOAN OR DEPOSIT MEANS AN Y LOAN OR DEPOSIT OF MONEY WHICH IS ACCEPTABLE AFTER NOTICE OR REPAYABLE AFTER A PERIOD AND IN THE CASE OF A PERSON OTHER THAN A COMPANY INCLUDES LOAN OR DEPOSIT OF ANY NATURE. THE LD. DR SUBMITTED THAT IF THE MONIES GIVEN BY SHRI K.A. THOMAS ARE DEPOSITS THE PROVISIONS OF SEC. 269T GI VES A WIDE SCOPE OF THE TERM ANY DEPOSIT. THE LD. DR RELIED ON THE DECIS ION OF THE ALLAHABAD HIGH COURT IN THE CASE OF CHAUBEY OVERSEAS CORPORATION V S. CIT (2008) 303 ITR 9 WHEREIN IT HAS BEEN HELD THAT THE WORD ANY DEPOS IT GIVEN IN SEC. 269T HAVE BEEN USED TO CORER ALL SORTS OF DEPOSITS AND I NCLUDE TRADE DEPOSIT ALSO. I.T.A. NOS.191-193/COCH/2014 10 ACCORDING TO THE LD. DR THOUGH THE PAYMENT WAS REC EIVED BY THE ASSESSEE FROM SHRI K.A. THOMAS BY WAY OF CHEQUES THE REPAYM ENTS HAVE BEEN MADE BY WAY OF BEARER CHEQUES. THE LD. DR SUBMITTED THA T IN THE INSTANT CASE TWO BASIC REQUIREMENTS WHICH MAKE SEC. 269T APPLICA BLE STANDS FULFILLED AND HENCE THE SAME IS APPLICABLE. 16. THE LD. DR SUBMITTED THAT THE ARGUMENT THAT THE ASSESSEE DID NOT RECEIVE LOAN OR DEPOSIT THE ASSESSEE HAD NO UNACCO UNTED INCOME AND THERE WAS NO EVASION OF TAX ETC. HAVE GOT NO RELEVANCE . HENCE ACCORDING TO THE LD. DR THE ASSESSING OFFICER WAS RIGHT IN HOLDING THAT THERE WAS VIOLATION OF SEC 269T AND HENCE PENALTY U/S. 271E OF THE ACT WAS LEVIABLE. 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. IN THIS CASE IT IS NOT DISPUTED THAT THE MONEY WAS RECEIVE D BY THE ASSESSEE WERE NOT UTILIZED IN ITS BUSINESS. NO DOUBT THERE WAS SOME TIME GAP BETWEEN THE DATE ON WHICH MONEY WAS RECEIVED BY THE ASSESSE E FROM SHRI K.A. THOMAS AND REPAYMENT TO HIM. BUT THIS IS ATTRIBUTA BLE TO THE VARIOUS EXIGENCIES OF BUSINESS. THE LD. COUNSEL TOOK THE P LEA BEFORE US THAT IT WAS KEPT ONLY FOR SAFE CUSTODY AND HE MADE FIXED DEPOSI T OF THE MONEY RECEIVED FROM SHRI K.A. THOMAS AND ON ENCASHMENT OF THE FIXE D DEPOSIT IT WAS REPAID BACK TO SHRI K.A. THOMAS. I.T.A. NOS.191-193/COCH/2014 11 17.1 BEFORE US THE LD. COUNSEL EXPLAINED THAT SHRI K.A. THOMAS WAS THE TEACHER OF THE ASSESSEES PARTNER SHRI FAIZAL MOHAM MED WHO HAD SOME PROPERTIES WHICH WERE JOINTLY OWNED BY HIS FAMILY M EMBERS. ACCORDING TO THE LD. COUNSEL THERE WERE CERTAIN ISSUES REGARDING DI VISION AND SETTLEMENT OF THE PROPERTIES AMONG THE PARTIES AND SHRI FAIZAL MOHAMM ED THE MANAGER OF THE FIRM BEING CLOSE TO THE FAMILY AND HAVING BUSINESS RELATIONS HAPPENED TO BE THE MEDIATOR IN THE ISSUES FOR SETTLEMENT OF THEIR FAM ILY FINANCIAL MATTERS. THE LD. COUNSEL SUBMITTED THAT AFTER THE FIRST ROUND OF NEG OTIATIONS SHRI THOMAS ARRANGED RS.1 69 20 000/- FROM HIS SON WHO WAS WORK ING IN USA FOR DISTRIBUTION AMONG MEMBERS AND SHRI THOMAS HAD THE APPREHENSION THAT THE MONEY WHICH HE RECEIVED FROM HIS SON IF KEPT IN HIS BANK ACCOU NT WAS LIKELY TO HAVE THREAT OF SOME COURT ATTACHMENT DURING THE COURSE OF NEGOTIA TIONS FROM HIS FAMILY MEMBERS. AS A MATTER OF ABUNDANT CAUTION SHRI TH OMAS ENTRUSTED THE MONEY WITH M/S. ASSANAR & SONS BY ACCOUNT PAYEE CHEQUE I N VIEW OF HIS CONFIDENCE IN THE FIRM AND THE PERSONAL RELATIONSHIP WITH SHRI FA IZAL MOHAMMED. THEREAFTER WHEN THE FAMILY SETTLEMENT WAS OVER THE AMOUNT WAS TAKEN BACK BY SHRI THOMAS HIMSELF WHICH WAS MADE THROUGH CHEQUES IN TH E NAME OF K.A. THOMAS WHO LATER MIGRATED TO USA. I.T.A. NOS.191-193/COCH/2014 12 17.2 IT IS ALSO UNDISPUTED FACT THAT SHRI K.A.THOMA S HAS NOT MADE ANY CLAIM ON THE FIRM REGARDING NON RECEIPT OF THE AMOUNT ENTRUS TED WITH IT NOR CLAIMED ANY INTEREST ON THE HUGE AMOUNT AS OTHER PEOPLE WILL N ORMALLY DO AND FURTHER THE FIRM HAS NOT UTILIZED THE AMOUNT FOR ANY OF ITS PURPOSES. IT IS ALSO ON RECORD THAT THE FIRM HAD NO NEED OF FUNDS AS EVIDENT FROM RECORDS AND IT HAS NOT AVAILED ANY LOAN OR ACCEPTED ANY DEPOSIT FOR THE LAST EIGHT YEARS. 17.3 THE AMOUNT OF RS.1 69 20 000/- WAS ENTRUSTED WITH THE FIRM IN 3 INSTALLMENTS OF RS.79.20 LAKHS RS.54 LAKHS AND RS. 36 LAKHS EACH WHEN THE FIRM HAD NO NEED OF ANY FUNDS AND ON THE DATE OF RECEIPT OF THE FIRST INSTALMENT OF RS.79.20 LAKHS IT HAD A CASH AND BANK BALANCE OF R S.75.04 LAKHS. THIS AMOUNT OF RS.79 20 000/- WAS RECEIVED ON 03/05/2007 BY CHE QUE WHICH WAS DEPOSITED INTO THE BANK AND CLEARED ON 4/5/2007 AND THE AMOUN T WAS DEPOSITED WITH INDIAN OVERSEAS BANK AS FIXED DEPOSITS ON 4/5/2007 ITSELF. THIS DEPOSIT WAS CLOSED ON 26/07/2007 AND CHEQUES ISSUED IN HIS FAVO UR WAS CLEARED FROM THE BANK BY SHRI K.A. THOMAS ON 27/7/2007. ALL OTHER AMOUNTS WERE ALSO DEPOSITED SIMILARLY ON THE VERY DAY OF RECEIPT AND SUBSEQUENT LY WITHDRAWN AND HANDED OVER TO SHRI K.A. THOMAS AND THUS NO PART OF THE F UNDS WAS BROUGHT TO THE MAIN STREAM OF THE ASSESSEES BUSINESS. 17.4 IT IS TO BE NOTED THAT A BUSINESSMAN USUALLY T AKES LOAN OR ACCEPT DEPOSIT FOR MEETING WORKING CAPITAL REQUIREMENTS REPAYMENT OF DEBTS OR INCREASE IN I.T.A. NOS.191-193/COCH/2014 13 FIXED ASSETS AND NO PERSON WILL TAKE A LOAN OR ACCE PT DEPOSIT WITHOUT ANY PURPOSE. THUS THE ENTIRE MONEY ENTRUSTED FOR SAFE CUSTODY WAS DEPOSITED INTO A BANK AND RETURNED TO SHRI THOMAS THROUGH CHEQUE S AND NO PART OF THE MONEY WAS USED BY THE ASSESSEE FOR ANY BUSINESS OR OTHER PURPOSES WHICH ITSELF SHOWS THAT THE AMOUNT WAS NOT A LOAN OR DEPOSIT. 17.5 IN OUR OPINION THE ABOVE EXPLANATION OFFERED BY THE ASSESSEE IS BONA FIDE AND REASONABLE THE PENALTY IS NOT EXIGIBLE U/S. 27 1E IN THE CASE OF AMOUNT RECEIVED BY THE ASSESSEE NOT AS A LOAN OR AS A DEPO SIT. 18. IT IS TO BE NOTED THAT THE PROVISIONS OF SEC. 2 69T WAS INTRODUCED WITH THE PURPOSE TO DEBAR A PERSON FROM REPAYMENT OF LOA N/DEPOSIT OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE DRAFT PROVIDED THE AMOUNT EXCEEDED RS. 20 000/-. WHILE INTERPRETING THE PROV ISIONS OF SEC. 269T WE HAVE TO BEAR IN MIND THE OBJECT FOR WHICH IT WAS IN TRODUCED. IF THE ASSESSEE IS ABLE TO LEAD EVIDENCE TO SHOW NOT ONLY WAS THERE REASONABLE CAUSE FOR REPAYMENT OF MONEY IN CASH BUT THE AMOUN TS DID NOT REPRESENT UNACCOUNTED MONIES EITHER OF THE ASSESSEE OR OF THE PERSONS FROM WHOM THEY WERE TAKEN. NORMALLY THAT SHOULD BE SUFFICIE NT TO HOLD THAT THE PENALTY WAS NOT JUSTIFIED. FURTHER THE ASSESSI NG OFFICER WAS SATISFIED WITH THE ASSESSEES EXPLANATION REGARDING THE NATUR E AND SOURCE OF THE AMOUNT. THE ASSESSEE IS JUST A CUSTODIAN OF THE MO NEY WHICH WAS NOT AT ALL I.T.A. NOS.191-193/COCH/2014 14 BEING USED IN THE BUSINESS AND THERE WAS NO INTERES T ON BORROWINGS FROM SHRI K.A. THOMAS. IN SUCH SITUATION REPAYMENT OF THAT AMOUNT OTHERWISE THAN BY CROSSED CHEQUE OR DEMAND DRAFT CANNOT BE CO NSIDERED FOR LEVY OF PENALTY U/S. 271E OF THE I.T. ACT. IN OUR OPINION THE PENALTY PROVISIONS CANNOT BE APPLIED TO THE ASSESSEES CASE IN WHICH N O UNACCOUNTED MONEY IS INVOLVED. MERELY BECAUSE THE ASSESSEE HAD RECEIVED THESE AMOUNTS IT CANNOT BE STATED THAT THE ASSESSEE HAD CONTRAVENED THE PROVISIONS OF SEC. 269T OF THE I.T. ACT. 18.1 QUITE APART FROM THE ABOVE WE ARE NOT SURE WH ETHER THE AMOUNT RECEIVED BY THE ASSESSEE FROM SHRI K.A. THOMAS CAN BE TERMED AS LOAN OR DEPOSIT SO AS TO ATTRACT THE PROVISIONS OF SECTIO N 269T. THE AMOUNT TAKEN BY THE ASSESSEE FROM SHRI K.A. THOMAS WAS FOR CUSTO DY. THERE IS NO EVIDENCE TO SHOW THAT THERE WAS ANY STIPULATION AS TO THE PERIOD OF CUSTODY. IT IS THEREFORE A MATTER OF GRAVE DOUBT AS TO WHE THER THE RECEIPT OF MONEY FROM SHRI K.A. THOMAS CAN BE CHARACTERISED AS LOAN OR DEPOSIT. IN OUR VIEW IT WAS RECIVED ONLY FOR TEMPORARY CUSTODY. S UCH TEMPORARY CUSTODY FALL OUTSIDE THE PURVIEW OF SECTION 269T OF THE I.T . ACT. THE FACTS IN THE PRESENT CASE SHOW THAT THE MONIES ARE NOT USED FOR THE PURPOSE OF BUSINESS AND IT LIED IDLE WITH THE ASSESSEE IN THE FORM OF F IXED DEPOSITS AND THEREAFTER THE SAME WAS RETURNED TO SHRI K.A. THOMAS. FURTHER ON THE DATE OF FIRST INSTALMENT OF RS.79.20 LAKHS THE ASSESSEE HAD CASH BALANCE AND BANK I.T.A. NOS.191-193/COCH/2014 15 BALANCE OF RS. 75.04 LAKHS AND NO PART OF THE BORRO WED FUND WAS USED FOR THE PURPOSE OF BUSINESS. THIS WAS ONLY A TECHNICAL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT. IT WAS HELD IN THE CASE OF CIT VS. MADHAV ENTERPRISES LTD. (356 ITR 588) (GUJ.) THAT WHEN IT IS NEITHER D EPOSIT NOR LOAN PROVISIONS OF SEC. 269T SHALL HAVE NO APPLICATION. FURTHER AS SEEN FROM THE CHART FURNISHED BY THE ASSESSEE THE ASSESSEE HAS EARNED MEAGRE INCOME FROM 2004-05 TO 2008-09 RANGING FROM RS. 1.45 LAKHS TO R S.11.88 LAKHS AND IT CANNOT BE SAID THAT KNOWINGLY THE ASSESSEE WOULD EX POSE ITSELF TO SUCH HUGE PENALTY. IF AT ALL THERE IS FAULT ON THE PART OF THE ASSESSEE THE SAME IS ONLY OF TECHNICAL NATURE. NO PENALTY IS LEVIABLE FO R SUCH TECHNICAL DEFAULT. THE ASSESSEE HAS DEALT WITH THESE TRANSACTIONS IN G OOD FAITH AND OUT OF CASUALNESS IN THESE CIRCUMSTANCES IT CANNOT BE CO NSIDERED FOR LEVY OF PENALTY UNDER SECTION 271E OF THE ACT. FURTHER THE PROVISIONS OF SECTION 271E CONFER DISCRETION ON THE COMPETENT AUTHORITY TO LEVY OR NOT TO LEVY PENALTY. IN OUR VIEW SUCH DISCRETION NEEDS TO BE EXERCISED WITH WISDOM AND IN A FAIR AND JUST MANNER. THE SUPREME COURT I N THE CASE OF KUM. A.B. SHANTHI (122 TAXMAN 574) HELD AS UNDER: IT IS IMPORTANT TO NOTE THAT ANOTHER PROVISION NA MELY SECTION 273B WAS ALSO INCORPORATED WHICH PROVIDES THAT NOTWITHSTANDI NG ANYTHING CONTAINED IN THE PROVISIONS OF SECTION 271D NO PENALTY SHALL BE IMPOSSIBLE 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 REA SONABLE CAUSE FOR FAILURE TO TAKE A LOAN OTHERWISE THAN BY ACCOUNT PAYEE CHEQ UE OR ACCOUNT PAYEE DEMAND DRAFT THEN THE PENALTY MAY NOT BE LEVIED. THEREFORE UNDUE HARDSHIP IS VERY MUCH MITIGATED BY THE INCLUSION OF SECTION 273B. IF THERE I.T.A. NOS.191-193/COCH/2014 16 IS A GENUINE AND BONA FIDE TRANSACTION AND IF FOR A NY REASON THE TAXPAYER CANNOT GET A LOAN OR DEPOSIT BY ACCOUNT PAYEE CHEQ UE OR DEMAND DRAFT FOR SOME BONA FIDE REASONS THE AUTHORITY VESTED WI TH THE POWER TO IMPOSE PENALTY HAS GOT DISCRETIONARY POWER. 18.2 THUS IN OUR OPINION THERE WAS A REASONABLE CAUSE AS PROVIDED UNDER SECTION 273B OF THE ACT AS THE ASSESSEE HAS RECEIVE D THE AMOUNT AS CUSTODIAN IN VIEW OF FAMILY ARRANGEMENTS. IT CAN BE SAFELY HELD THAT THE BONA FIDE BELIEF CONSTITUTE ALL REASONABLE CAUSE AS PROVIDED UNDER SECTION 273B. IN THESE CIRCUMSTANCES AND ALSO KEEPING IN VIEW OF THE DECIS ION OF THE SUPREME COURT IN THE CASE OF MOTILAL PADAMPAT SUGAR MILLS CO. LTD. V S. STATE OF U.P. (1979) (118 ITR 326) IT WAS HELD THAT THERE WAS A REASONABLE C AUSE WITHIN THE MEANING OF SECTION 273B AND THEREFORE NO PENALTY IS LEVIABLE UNDER SECTION 271E OF THE ACT. THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE CLE ARLY INDICATE THAT THERE WAS A REASONABLE CAUSE AND THEREFORE NO PENALTY IS LEVI ABLE. IT IS WELL SETTLED LAW THAT REASONABLE CAUSE COULD BE REASONABLY SAID TO BE A CAUSE WHICH PREVENTS A MAN OF AVERAGE INTELLIGENCE AND ORDINARY PRUDENCE ACTIN G UNDER NORMAL CIRCUMSTANCES WITHOUT NEGLIGENCE OR INACTION OR WANT OF BONA FIDE S. IN THE PRESENT CASE IT IS NOTICED THAT THE AMOUNT WAS KEPT IN THE FORM OF BAN K DEPOSIT AND NOT USED FOR BUSINESS PURPOSES AND LATER REPAYMENTS WERE MADE TO SHRI K.A. THOMAS AND IT IS OBVIOUS THAT THE ASSESSEE ENTERTAINED A BONA FIDE B ELIEF THAT NO CONTRAVENTION OF ANY PROVISIONS OF INCOME-TAX ACT WAS BEING MADE WHI LE MAKING THE TRANSACTION AND IT CANNOT BE CONSIDERED AS VIOLATION OF CONTRAV ENTION OF SEC. 269T OF THE ACT. ACCORDINGLY WE DELETE THE PENALTY AND THE APPEAL O F THE ASSESSEE IS ALLOWED. I.T.A. NOS.191-193/COCH/2014 17 19. IN THE RESULT THE APPEALS FILED BY THE ASSESSE E IN I.T.A. NOS. 191&192/COCH/2014 ARE DISMISSED AND THE APPEAL IN I .T.A. NO. 193/COCH/2014 IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 14-11-2014 SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 14TH NOVEMBER 2014 GJ COPY TO: 1. M/S. ASSANAR & SONS RUBBER DEALERS KP V/542 K ANJIRAPALLY KOTTAYAM-686 507 2. THE JOINT COMMISSIONER OF INCOME-TAX CIRCLE-1 KOTTAYAM RANGE KOTTAYAM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-IV KOCH I. 4. THE COMMISSIONER OF INCOME-TAX KOTTAYAM 5. D.R. I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T. COCH IN