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TMI Blog2019 (2) TMI 1000X X X X Extracts X X X X X X X X Extracts X X X X ..... e and it will not amount to reasonable cause for the purpose of exercise or discretion by the Assessing Officer under Section 273B of the Act. Alternate plea raised by Mr.A.S.Sriraman stating that the penalty should be restricted to the peak of the cash deposits, we find that such a plea did not find favour with the Tribunal and in the light of the reasons assigned by us in the preceding paragraphs, we reject such a plea raised by the assessee. The Tribunal while considering the correctness of levy of penalty under Section 271E of the Act found that it has been admitted that cash has been deposited into the bank account of the assessee, the funds having been routed through the bank accounts, why the same was withdrawn in cash for repayment to the Director and subsequently, to Mr.J.D. This transaction remained unexplained. Further, the Tribunal pointed out that perusal of the assessment order of the Financier, Mr.J.D., gives a picture that moneys were the unaccounted cash of Mr.J.D., and this cash was laundered through the accounts of the two assessee's herein. Thus, the Tribunal concluded that the assessees have been used as custodian of the unaccounted cash of Mr.J.D. by dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove appeals have been filed raising the following common substantial questions of law:- (i) Whether the provisions of section 271D of the Act would be applicable to a running account maintained between the promoter/director and the Appellant company in the context of the transactions covered in section 269SS of the Act? (ii) Whether the provisions of section 271E of the Act would be applicable to a running account maintained between the promoter/director and the Appellant company in the context of the transactions covered in section 269T of the Act? (iii) Whether the Appellate Tribunal was correct in imposing penalties u/s 271D and 271E of the Act pertaining to the transactions between the promoter/director and the Appellant company despite such transactions were accepted as genuine in view of taxing of such sum in the hands of the financier and further in imposing penalties u/s 271D and 271E of the Act in the hands of the promoter/director? (iv) Whether the provisions of sections 271D and 271E of the Act envisage levy of such penalties at different stages in a chain of transaction(s) routing the same money leading to the unreasonableness in interpretation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143.25/- Crores. It was further stated that these are accumulations of amounts received from Mr.J.D., and introduced by him into the company. It was further stated that the total sum of money credited to the bank account of the assessee-company is ₹ 113.65 Crores, and the balance had been deducted for arrears in repayment of earlier borrowings and interest dues by the Director, which worked out to ₹ 29.60 Crores. 6.Further, the assessee submitted that what is relevant alone should be considered as borrowings from Mr.J.D., and only the peak credit and the summation should be taken. Apart from the above, certain other factual details were mentioned and in sum and substance, the assessee contended that it is only a running account maintained by the assessee with the Director to manage the funds needed to run the business and it is not a borrowing account or a loan account of the assessee-company. After considering the objections and after hearing the Director in person, the Assessing Officer confirmed the proposal in the show cause notice and imposed penalty under Section 271D of the Act, by order dated 30.01.2018. This order was put to challenge before the Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings leased out by the assessee were paid; and the other EMI commitments were honoured, and this will clearly show the bona fides of the assessee and the assessee having shown reasonable cause for effecting such borrowals, especially for payment of salary and other commitments, ought to have vacated the penalty imposed on the assessee. 8.4.As an additional submission, it was contended that the Tribunal failed to scrutinise as to how the borrowed funds were utilized by the company especially when the assessee was able to establish that the funds were utilized for business exigencies and this will show the genuineness of the transaction and the assessee having shown reasonable cause, penalty should not have been imposed on the assessee. 8.5.Alternatively, it was contended that the total transaction in cash between the assessee and the Director was to meet the expenditure of ₹ 143.25 Crores, but the peak of the cash deposits was only ₹ 22.2 Crores, being the maximum amount outstanding at any point of time for the three years. Therefore, it is submitted that if the assessee's case relating to reasonable cause is found to be not acceptable, then the penalty shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a reasonable cause in terms of Section 273B and therefore, penalty was deleted. 8.13.Reliance was also placed on the decision of the Division Bench of this Court in CIT vs. M.Yesodha, (2013) 351 ITR 0265 wherein, the transaction in cash between the daughter-in-law and the father-in-law, on facts, was found to be a reasonable transaction and genuine one owing to the urgent necessity of money to be paid to the vendor of an immovable property. 8.14.The learned counsel distinguished the decision of the Division Bench of this Court in P.Muthukaruppan vs. Joint Commissioner of Income-tax, [2015] 375 ITR 243 (Madras) stating that the assessee therein was unable to prove that there was reasonable cause for availing the cash loan and therefore, the penalty was confirmed. 8.15.Similarly, the learned counsel sought to distinguish the decision of the Division Bench of this Court in Nandhi Dhall Mills vs. CIT, [2015] 373 ITR 510 (Madras) stating that in the said case, the assessee miserably failed to prove any reasonable cause against levy of penalty under Section 271D of the Act whereas, the assessee herein has been able to show sufficient and reasonable cause, which was not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Director in contravention of the provisions of Section 269SS of the Act. Likewise, the assessee failed to substantiate that cash loans received were deposited into the bank account and the funds were routed through the bank account, and they failed to justify as to why the same were withdrawn in cash for repayment of loan to the Director, who had subsequently, repaid in cash to Mr.J.D. 12.The learned counsel placed reliance on the decision of the Hon'ble Division Bench of this Court in the case of M.Sougoumarin vs. Assistant Commissioner of Income-tax, [2018] 95 taxmann.com 240 (Madras). 13.It is further submitted that in identical circumstances, in a penalty proceedings arising under Section 271E of the Act, this Court in the case of P.Baskar vs. CIT, 21 Taxmann.com 78 (Madras), upheld the levy of penalty. Further, it is submitted that the conduct of the assessee should be taken into consideration by this Court, as the assessee has been habitual in accepting huge cash loans and it is not a solitary instance, but has been recurring for several assessment years and there is absolutely no bond fide or genuinity in the transaction and one can reasonably conclude that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan or deposit to be taken or accepted. 20.In Assistant Director of Inspection vs. Kum. A.B. Shanthi, [2002] 255 ITR 258 (SC), one of the questions, which arose for consideration before the Hon'ble Supreme Court, was the constitutional validity of Section 269SS. The Hon'ble Supreme Court held that the object of introducing Section 269SS is to ensure that a tax payer is not allowed to give false explanation for his unaccounted money or if he has given false entries in his accounts, he shall not escape by giving false explanation for the same. It was further held that the main object of Section 269SS was to curb the menace of unaccounted money upon being unearthed giving explanation of borrowal and so-called lender also manipulates his records later to suit a plea of the taxpayer. In the said decision, the Hon'ble Supreme Court noticed Section 273B of the Act, 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of penalty, a sum equal to the amount of loan or deposit so taken or accepted. The answer as to whether there are any multiplicity of penalty proceedings in the cases on hand lies in interpretation of the words a person . We need not labour much to find the answer, as Section 2(31) defines person in the following manner:- Section 2(31):- Person includes - (i) an individual, (ii) a Hindu undivided family (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses. [Explanation.- For the purposes of this clause, an association of personal or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains;] 25.The subtle but marked difference, which we should notice is that the present appeals arise out of a penalty proceedings and they are not quant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra) was also identical, where monies were deposited in the current account and though the balance sheet shows the amounts deposited by the Director in cash in the current account as unsecured loan from the Director, the Division Bench held that it is not a loan or an advance. 28.The facts in Idhayam Publications Ltd. (supra) are that one Mr.S.V.S. was the Director of the assessee-company. There was a running current account in the books of accounts of the assesseecompany in the name of Mr.S.V.S. Mr.S.V.S., used to pay money in the current account and used to withdraw money also from the current account. For the Revenue to sustain the levy of penalty under Section 271D, they had to establish that the amount was received by the assessee as a loan or deposit within the meaning of Section 269SS. The Division Bench referring to the Companies (Acceptance of Deposit) Rules, 1975 and in particular, Rule 2(b)(ix), held that any amount received from a Director or a shareholder of a Private Limited Company will not be a deposit. 29.We are required to see as to whether, on facts, the decision in Idhayam Publications Ltd. (supra) will assist the case of the assessee. After going th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise than by account payee cheque 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 was a genuine and bona fide transaction and if for any the taxpayer could not get a loan or deposit by account payee cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty has got discretionary power. 32.According to the learned counsel, the account of the Director and the company were genuine and the loans received were utilized to pay the salaries, rents and EMI commitments. The amounts so received by the Director were deposited in the companies bank account on the very same day and the CIT(A) as well as the Tribunal failed to properly appreciate the cash flow details produced by the assessee. In the preceding paragraph, we have commented upon as to how the Director has acted as a shield/conduit to the transaction to give it a colour, as if it is the monies of the Director, which were deposited in the companies bank account. Furthermore, we had pointed out as to how the assessees themselves accepted before the Tribunal that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on the very same day, can never be a ground to be taken as a mitigating factor to escape from the rigour of levy of penalty under Section 271D of the Act. Thus, the assessee has been under a thorough misconception. There is a bald statement made that Mr.J.D. will give loans only in cash, however much it may be. To be noted that the loans received by the Director and later by the company is more than ₹ 90 Crores. The assessees are Private Limited Companies, not individual assessees, as was examined in several of the decisions cited by Mr.A.S.Sriraman. 35.In fact, one of the decisions, which was heavily relied on in the case of T.Perumal (Indl.) (supra), he was a labour supervisor and because of his sincere and dedicated work, he was awarded a labour contract. Since he had no resources to finance the construction, he resorted to avail loans from friends at the time of emergency, particularly, on Saturdays, when labour had to be paid their wages. Therefore, the decision in T.Perumal (Indl.) (supra) can be of no assistance to the case of the assessee. Apart from that, whether a person would be entitled to reprieve under Section 273B of the Act is a decision to be take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) and the Tribunal and did not disturb the factual finding wherever it was held to be reasonable and genuine. These decisions can render no assistance to the case of the assessee, as the first appellate authority and the Tribunal both held against the assessee and found no genuinity or bona fide in the claim of the assessee. 42.Thus, in our view, deposit of the cash by the Director received from Mr.J.D. into the bank account of the assessee on the same day and those amounts, being utilized for making several payments including salaries, apart from that the Director withdrawing money from the assessee's bank account and remitting to the Financier by cash can never be taken to be a bona fide transaction. 43.What is most disturbing is that it is not a solitary instance, as the same type of transactions have been carried on by the assessee and the Director from the assessment year 2012-13. Most of the cases, which were relied on by the assessee are of either individual or rare transactions of the assessee. Therefore, we are of the clear view that there is absolutely no genuinity or bonafideness in the transaction done by the assessee and it will not amount to reasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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