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Reimbursement of Expenses not covered by Section 269SS or 269T

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HIGH COURT OF GUJARAT

Income-tax Officer, Ward 5(2), Baroda

Versus

VS Hostel

Tax Appeal Nos. 1463 & 1466 of 2011

September 18, 2012

ORDER

Harsha Devani, J.

Both these appeals under section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) have been filed by the revenue against the common order dated 10.6.11 passed by the Income Tax Appellate Tribunal (hereinafter referred to as “the Tribunal”). Before the Tribunal two separate orders passed by the Commissioner (Appeals) cancelling penalties under section 271D and 271E of the Act were subject matter of challenge. Since common facts are involved in both these appeals and the parties are also common, the same were taken up for hearing together and are disposed of by this common judgment.

2. The appellant has challenged the impugned order by proposing the following questions:

Tax Appeal No.1463 of 2011

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of the CIT(A), who deleted the entire penalty of Rs.24,52,740/- levied under Section 271D of the Income Tax Act, 1961 without considering the fact that there was no reasonable cause for the assessee to indulge into cash transactions in violation of Section 269SS of the Act ?”

Tax Appeal No.1466 of 2011

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of CIT(A) who deleted the entire penalty of Rs.30,92,911/- levied under Section 271E of the Income Tax Act, 1961 without considering the fact that there was no reasonable cause for the assessee to indulge into cash transactions in violation of Section 269T of the Act?”

3. The assessment year is 2004-2005. In the year under consideration, the Additional Commissioner of Income-tax noticed that the assessee had accepted and repaid the following amounts of loans/deposits otherwise than by cross-cheques/drafts in contravention of the provisions of section 269SS and 269T of the Act:

Sr. No. Name of the depositor Amount of loan or deposit taken or accepted Amount of loan or deposits repaid
1 Ambe Vidyalaya (Primary English Section) 1,10,565/- 1,80,475/-
2 Ambe Vidyalaya (Primary Gujarati Section) 1,75,770/- 2,81,350/-
3 Jai Ambe Vidyalaya (Secondary Section) 4,62,230/- 8,96,565/-
4 Jai Ambe Vidyalaya (Higher Secondary Section) 2,25,000/- 5,63,235/-
5 Ambe Day School 7,58,000/- 5,28,286/-
6 Amba Vidyalaya (K.G. Section) 21,175/- 1,43,000/-
7 Om Education Trust 7,00,000/- 5,00,000/-

4. A show cause notice came to be issued to the assessee under sections 271D and 271E of the Act proposing to impose penalty for contravention of the provisions of section 269SS and 269T. In response to such notice, the assessee replied that Shri Suryakant R. Shah (S.R. Shah) was the spouse of a partner of the assessee firm and trustee of B.G. Education Trust which was running a school in the name of Ambe Vidyalaya. The collection centre for the fees of the hostel and the school was at a single place. Sometimes, the fees collected by the hostel were handed over to Shri S.R. Shah as the working hours of the bank might have been over. Since Shri S.R. Shah held the cash on behalf of the hostel for its safe custody, according to the assessee, the same did not imply that the hostel had given any loan to Shri S.R. Shah. Similarly, if some amount was received from Shri S.R. Shah, the same did not mean that hostel had accepted any loan from Shri S.R. Shah in cash. It was the case of the assessee that if some expenditure was incurred by the hostel or the school students and the amount was reimbursed to the hostel by the Managing Trustee of the school, that is, Shri S.R. Shah the same did not become a deposit or loan given or taken by way of cash. Placing reliance upon various decisions, the assessee pleaded that there was no contravention of the provisions of section 269SS and 269T of the Act and therefore, they were not liable to pay penalty under section 271D and 271E of the Act. The Additional Commissioner of Income Tax was of the view that the transactions were reported in the statutory Audit Report and the assessee did not establish with reference to each of the transaction that Shri S.R Shah acted as a custodian only, holding the money for a brief period, and that the same were deposited in the hostel’s bank account at the earliest opportunity. He, accordingly, did not accept the submissions of the assessee and imposed penalty of Rs. 24,52,740/- and Rs. 30,92,911/- under sections 271D and 271E of the Act, respectively.

5. Against the above orders imposing penalty under section 271D and 271E of the Act, the assessee went in appeal before the Commissioner (Appeals) who allowed both the appeals and deleted the penalties. The Commissioner (Appeals) observed that the provisions of section 269SS and 269T postulate that if the stipulated amount of loan or deposit is accepted or repaid otherwise than by crossed cheque or account payee bank draft, there is a violation of the said provisions. In the case under consideration, in the context of levy of penalty under section 271D of the Act, the Commissioner (Appeals) concluded that the amounts accepted from the first five institutions as per the above table, were credited through journal entries on account of fees while the transactions with the remaining two institutions were through cheques. Likewise, in the context of the penalty under section 271E of the Act, the Commissioner (Appeals) found that repayments in cash were only Rs.12,03,155 while Rs.2,10,000/- were repaid by cheque and Rs.10,36,756/- through journal entries besides Rs.6,43,000/- incorrectly considered as repayments of loan/deposit.

6. Revenue questioned the validity of the orders passed by the Commissioner (Appeals) before the Tribunal but did not succeed.

7. Mr. K.M. Parikh, learned Senior Standing Counsel for the appellant assailed the impugned order passed by the Tribunal by submitting that the findings of fact recorded by the Tribunal are contrary to the material on record inasmuch as the Tribunal has failed to appreciate that in the audit report furnished in Form No.3CD, it had been specifically mentioned in point No.24(A)(b) that the amounts were taken and repaid otherwise than by account payee cheque/draft and also these amounts were in the nature of loan or deposit taken or accepted or loan or deposit repaid. It was submitted that the Assessing Officer was, therefore, justified in levying penalties under sections 271D and 271E of the Act and that the impugned order being perverse is required to be quashed and set aside.

8. Before adverting to the order of the Tribunal reference may be made to the provisions of section 269SS and 269T of the Act. Section 269SS makes provision for “Mode of taking or accepting certain loans and deposits” and lays down that no person shall take or accept from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if such amount is twenty thousand rupees or more. Section 269T provides for “Mode of repayment of certain loans or deposits” and lays down that no branch of banking company or co-operative bank and no company or co-operative society and no firm or other person shall relay any loan or deposit made to it otherwise than by an account payee cheque or account payee bank demand draft drawn in the name of the person who has made the loan or deposit if such amount is twenty thousand rupees or more. In the present case, The Tribunal upon appreciation of the evidence on record has concurred with the above findings recorded by the Commissioner (Appeals) and has found, as a matter of fact, that there was nothing on record to show that the above transactions were attached with certain conditions or stipulation as to period of repayment, rate of interest, manner of payment, etc. so as to treat the transactions as loan or deposits. The Tribunal further noted that the revenue has not placed any material suggesting that the transactions were actually in the nature of loan or deposits. Having regard to the fact that there was nothing on record to suggest that the transactions were in the nature of loans or deposits, the Tribunal was of the opinion that the provisions of sections 269SS and 269T were not attracted. On behalf of the appellant, nothing has been pointed out to indicate that the findings of fact recorded by the Tribunal are contrary to the record of the case so as to dislodge the concurrent findings of fact recorded by it.

9. Thus, both, the Tribunal as well as the Commissioner (Appeals) have recorded concurrent findings of fact to the effect that the transactions in question were not in the nature of loans or deposits. On a plain reading of the provisions of section 269SS and 269T of the Act, it is amply clear that the said provisions would be attracted when loans or deposits in excess or twenty thousand rupees are made or repaid. Thus, a basic precondition for falling within the ambit of the said provisions is the existence of a loan or deposit. In the present case, both, the Commissioner (Appeals) as well as the Tribunal have found that the transactions in question are neither in the nature of loans or deposits. Under the circumstances, the provisions of sections 269SS and 269T of the Act would not be applicable. Consequently, the question of contravention of such provisions attracting penalty under sections 271D and 271E of the Act would also not arise. Under the circumstances, no infirmity can be found in the impugned order of the Tribunal so as to give rise to a question of law, much less, a substantial question of law so as to warrant interference.

10. The appeals being devoid of merit are, accordingly, dismissed.


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