2012 (7) TMI 940 - HC - Income Tax

Levy of penalty under Section 271D - Held that - There is hardly any material available on record to show any justification for receipt of cash over and above ₹ 20,000/- during the course of the year. The assessee admits that they are in the line of business of construction where day in and day out cash payments are made to labourers and to suppliers. Even herein, the justification for making payment in cash must necessarily satisfy Rule 6 DD of the Income Tax Rules, as it existed then. The assessee had not shown any acceptable or unavoidable circumstances or impracticability or difficulty in receiving money otherwise than in cash. Even accepting the reasoning of the assessee that the reasonable cause that the assessee may show could be appreciated on the lines shown in Rule 6 DD, we fail to find any reasonable cause shown in the letter, which was in a very general form. Except for mere statement that the work undertaken by the assessee at outside the State was for the first time and there was necessity for meeting the requirements to labour and other suppliers demanding cash, we do not find any details placed before the Authorities concerned to accept the case of the assessee that there was a reasonable cause shown in receiving an amount of ₹ 6,51,000/- in cash from Mr. M.T. Nair. Thus the Assessing Authority rightly pointed out that the explanation was not convincing, hence, the case of the assessee was rejected. As the Commissioner of Income Tax (Appeals) as well as the Tribunal confirming such a finding, we do not think that there are grounds in the appeal which persuade us to take a different view. In the circumstances, we have no hesitation in rejecting the tax case. It is stated in the letter that the assessee received ₹ 6,51,000/- from Mr. M.T. Nair during the year and a sum of ₹ 91,389/- was repaid to him. There was an opening balance of ₹ 45,475/- due to him in his account. Thus the conduct of the assessee treating the transaction as loan transaction and so too the letter dated 24.9.1997 belies the claim of the assessee made through the affidavit of Mr. M.T. Nair that the transaction be treated as a gift, we agree with the Tribunal that the changed stand is only an after thought and does not merit any consideration including the remand.

Summary

Issues Involved:
1. Levy of penalty under Section 271D of the Income Tax Act.
2. Rejection of the explanation that the amount was received as a gift.
3. Levy of penalty concerning the opening balance of Rs. 45,475.

Issue-Wise Detailed Analysis:

1. Levy of Penalty under Section 271D:
The core issue was whether the Tribunal was correct in confirming the levy of a penalty of Rs. 7,35,475 under Section 271D of the Income Tax Act. The assessee, a construction firm, received cash from Mr. M.T. Nair, a close relative, for business exigencies. The Assessing Authority levied the penalty, asserting that the cash receipt violated Section 269SS. The Tribunal upheld this penalty, noting that the assessee's explanation of financial hardship and lack of bank facilities was unconvincing. The Tribunal emphasized that the necessity for cash payments to laborers did not justify the receipt of cash, as the law mandates receipts above Rs. 20,000 to be non-cash transactions unless justified by reasonable cause.

2. Explanation of Amount as a Gift:
The assessee claimed that the amount received from Mr. M.T. Nair was a gift, not a loan, to avoid the penalty. This plea was introduced at the Tribunal level, supported by an affidavit and letters from Mr. M.T. Nair. However, the Tribunal rejected this claim, deeming it an afterthought since it was not raised before lower authorities. The Tribunal found no evidence of a gift, such as a return of gift or statements indicating the transaction as a gift. The Tribunal concluded that the alternate plea lacked bona fides and was an attempt to evade penal liability.

3. Penalty on Opening Balance of Rs. 45,475:
The Tribunal also addressed the penalty concerning the opening balance of Rs. 45,475. The assessee contended that this amount should not attract a penalty. However, the Tribunal maintained that the explanation provided was insufficient. The Tribunal noted that the assessee's business required routine cash payments, but this did not justify the receipt of cash in violation of Section 269SS. The Tribunal affirmed the penalty, asserting that no reasonable cause was shown for receiving cash beyond the permissible limit.

Conclusion:
The High Court upheld the Tribunal's decision on all counts. It agreed that the necessity to make cash payments to laborers did not justify the receipt of cash in violation of Section 269SS. The Court found the explanation of financial hardship and lack of bank facilities unconvincing. The alternate plea of the transaction being a gift was deemed an afterthought and lacked credibility. Consequently, the Court dismissed the appeal, confirming the levy of penalty under Section 271D, including the penalty related to the opening balance of Rs. 45,475. The Court emphasized that the assessee failed to provide a satisfactory explanation or reasonable cause for the cash transactions, thereby upholding the imposition of penalties.