Case Law Details
N.S.S. Karayogam Vs CIT (Kerala High Court)
In the given case, the appellant is a society which is a company registered under Section 8 of the Companies Act, 2013. While finalising the assessment of income tax of the appellant with respect to the year 2005-2006, the Assessing Officer found that, during the previous year, the assessee had conducted finance business by violating the provisions contained in Section 269SS of the Income Tax Act by accepting deposits in cash from various clients, exceeding the sum of Rs.20,000/-. On the recommendation of the Assessing Authority, penalty proceedings under Section 271D of the Act was initiated.
Assessee could not establish any ‘reasonable cause’ with respect of acceptance of the deposits in cash, exceeding the permissible limit, imposition of the penalty was re-affirmed.
It was concurrently found that the assessee was not successful in discharging the burden by establishing that there existed ‘reasonable cause’ for not receiving the deposits by way of account payee cheque or demand drafts. Hence they have failed in proving before the officer with respect to existence of any ‘reasonable cause’ as contemplated under Section 273B, with respect to which interpretation was contained in K.V. George’s case (supra). Before the Tribunal it was contended that, the management of the assessee was not aware of the penal provision and that there was no intention of evading tax or for introduction of black money in the business in accepting the deposits in cash. But the Tribunal, by relying on the decision of this Court in Listin Stephen v. Deputy Commissioner of Income Tax [2019 (2) KLT 221] (authored by one among us, C.K.Abdul Rehim, J.), held that the assessee in the case at hand was unable to prove that there existed compelling circumstances for accepting deposits in cash and therefore there exists no ‘reasonable cause’ as mandated under Section 273B of the Act.
High Court held that the ‘reasonable cause’ contemplated under Section 273B should be a reasonable cause as to why or what was the reason which compelled the assessee to accept the loans or deposit in cash. In other words, it should be proved that there existed reasonable and acceptable cause for not accepting the loans or deposits through crossed cheques or demand drafts. It was found that the mere proof regarding genuineness of the transaction or the intention in accepting the amounts in cash or that there was no attempt to induct black money into the business etc. cannot be considered as a reasonable cause or as compelling circumstances provided under Section 273B to avoid the penal action contemplated under Section 271D, with respect to violation of the provisions contained under Section 269SS.
Analysed on the basis of the principle remaining settled as above, contention raised all along by the assessee is that it was due to ignorance of the provisions or due to lack of banking facilities in the area etc; cannot be accepted.
Lastly, learned Senior Counsel for the appellant has raised a contention that the assessee will fall within the exempted category of banking company contained under the 1st proviso to Section 269SS. There is nothing to indicate that the assessee has got any registration as a banking company, as defined under the Banking Regulation Act or not even to the effect that the appellant is a ‘non-banking financing company’ having authorisation from the Reserve Bank of India. Therefore the said contention also cannot be accepted.
Subject to the above observations, HC do not find that any substantial question of law existing warranting interference with respect to the impugned order passed by the Tribunal. Consequently, the Income Tax Appeal fails and the same is hereby dismissed.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. The assessee had filed the above appeal challenging an order of the Income Tax Appellate Tribunal, Cochin Bench in ITA No.475/Coch/2018, dated 8.5.2019, dismissing the appeal filed by the appellant challenging an order of the first appellate authority, the Commissioner of Income Tax (Appeals), dated 9.7.2018. Revenue is the respondent in the appeal.
2. The appellant is a society constituted in the year 1951, which is a company registered under Section 25 of the Companies Act, 1956, corresponding to Section 8 of the Companies Act, 2013. While finalising the assessment of income tax of the appellant with respect to the year 2005-2006, the Assessing Officer found that, during the previous year relevant to the assessment year concerned, the assessee had conducted finance business by violating the provisions contained in Section 269SS of the Income Tax Act by accepting deposits in cash from various clients, exceeding the sum of Rs.20,000/-. On the recommendation of the Assessing Authority, penalty proceedings under Section 271D of the Act was initiated by the Additional Commissioner of Income Tax, Alappuzha Range. To a notice proposing imposition of penalty, the appellant replied that it is a charitable organisation rendering social services to the weaker section of the society, having no income chargeable to tax under provisions of the Act. It is stated that the appellant was under a bona fide belief that the provisions of the Income Tax would not apply to them, being a charitable organisation. It was contended that, under the 2nd proviso to Section 269SS, there exists an exemption because the depositor as well as the acceptor have got agricultural income. It was also contended that the violation if any was only due to the ignorance, which need to be condoned. At the time of hearing afforded to the appellant, the contentions were reiterated. The original authority found that the transactions in question will not fall within the category provided under the 2nd proviso to Section 269SS. It was held that there occurred a clear contravention of Section 269SS on the part of the assessee, without any reasonable cause and that they are liable to be imposed with penalty under Section 271D. The contention based on the ignorance, put forth was not accepted, by holding that the assessee was doing large scale finance business dealing with public, extending to crores of rupees. Therefore the ignorance of the provisions of law cannot be put forth as an excuse. It is further found that the contention put forth to the effect that the appellant had no motive to violate the law, will not in any manner help the assessee to escape from the penal provisions. Therefore penalty to the tune of Rs.4,74,46,248/- was imposed under Section 271D.
3. The appellant was unsuccessful in the first appeal filed before the CIT (Appeals). They were equally unsuccessful before the Appellate Tribunal in the first round of second appeal, which was disposed of through Annexure F order dated 31st July 2013. In an Income Tax Appeal filed challenging the said order before this court, in ITA No.19/2014, the matter was remanded for fresh consideration by the Assessing Officer. Before this court it was contended based on the decision reported in V. George v. Commissioner of Income Tax [2014 (42) Taxman.com 261 (Kerala)] that the authorities have failed to consider the aspect of ‘reasonable cause’ contemplated under Section 273B, on the factual scenario that there existed no banking facility in the locality and most of the depositors are pensioners and agriculturists. It was contended that there could be more than one reason why the receipt of money was accepted in cash, like ignorance of the provision, non-availability of banking facility in locality etc. Further, contention was raised to the effect that, there was failure to examine as to whether the entire cash receipts, which were the subject matter of penalty, were above Rs.20,000/- or below. This court found that, going through the orders of the Assessing Officer and the first appellate authority and Appellate Tribunal, there exists inconsistency in the explanations of the assessee with respect to what was the ‘reasonable cause’ for receiving the amounts in cash in violation of Section 269SS. This Court found that, while referring to the scope of Section 269SS in K.V.George’s case (supra) it was clearly held that, the only consideration would be as to what was the ‘reasonable cause’ for receiving such huge amount by way of cash or what was the reason for not receiving the loan or deposit by way of account payee check or demand draft . It was found that the burden is on the asessee to establish such ‘reasonable cause’ in a convincing manner. However, the matter was remitted back by this court to the Assessing Officer for fresh consideration, mainly on the basis that it has to be re-checked as to whether all the transactions are with respect to amounts above Rs.20,000/-. Incidentally it was observed that even though there is no specific consistent stand with respect to the reasonable cause, since the matter is remitted back, no prejudice would be caused to the revenue if an opportunity is given to the assessee to explain such transactions. Therefore the officer was directed to accept the explanation if any offered by the assessee.
4. After remand of the matter, the original authority had considered the issue afresh. Having found that the assessee could not establish any ‘reasonable cause’ with respect of acceptance of the deposits in cash, exceeding the permissible limit, imposition of the penalty was re-affirmed. However, after verification of each transactions of deposit, the amount of penalty was re-worked to Rs.4,74,15,591/-. The appellant challenged the fresh order in appeal before the first appellate authority and subsequently before the Tribunal. It was concurrently found that the assessee was not successful in discharging the burden by establishing that there existed ‘reasonable cause’ for not receiving the deposits by way of account payee cheque or demand drafts. Hence they have failed in proving before the officer with respect to existence of any ‘reasonable cause’ as contemplated under Section 273B, with respect to which interpretation was contained in K.V. George’s case (supra). Before the Tribunal it was contended that, the management of the assessee was not aware of the penal provision and that there was no intention of evading tax or for introduction of black money in the business in accepting the deposits in cash. But the Tribunal, by relying on the decision of this Court in Listin Stephen v. Deputy Commissioner of Income Tax [2019 (2) KLT 221] (authored by one among us, C.K.Abdul Rehim, J.), held that the assessee in the case at hand was unable to prove that there existed compelling circumstances for accepting deposits in cash and therefore there exists no ‘reasonable cause’ as mandated under Section 273B of the Act. Accordingly the second appeal was also dismissed.
5. Heard Sri.T.M.Sreedharan, learned Senior Counsel appearing for the appellant as well as Sri.P.K.Raveendranatha Menon, Senior Standing Counsel for Government of India (Taxes) appearing for the Revenue.
6. We take note of the fact that, in Listin Stephen‘s case (supra), after referring to a catena of decisions like the Commissioner of Income Tax v. P.K.Shamsudin [2011(1) KLT online 1211], K.V.George v. Commissioner of Income Tax (supra), Assistant Director of Inspection (Investigation) v. Kumari A.B.Santhi [2002 (2) KLT Online 1007 (SC)], NSS Karayogam v. Commissioner of Income Tax [2014(2) KLT Online 1208] and Grihalakshmi Vision v. Additional Commissioner of Income Tax [2015 (4) KLT SN 88] and Commissioner of Income Tax, Thrissur v.Al Ameen Educational Trust [2018 (1) KLT Online 3133] held that the ‘reasonable cause’ contemplated under Section 273B should be a reasonable cause as to why or what was the reason which compelled the assessee to accept the loans or deposit in cash. In other words, it should be proved that there existed reasonable and acceptable cause for not accepting the loans or deposits through crossed cheques or demand drafts. It was found that the mere proof regarding genuineness of the transaction or the intention in accepting the amounts in cash or that there was no attempt to induct black money into the business etc. cannot be considered as a reasonable cause or as compelling circumstances provided under Section 273B to avoid the penal action contemplated under Section 271D, with respect to violation of the provisions contained under Section 269SS.
7. Analysed on the basis of the principle remaining settled as above, contention raised all along by the assessee is that it was due to ignorance of the provisions or due to lack of banking facilities in the area etc; cannot be accepted. Further contention that both the parties to the transaction were having agricultural income and therefore the transaction will fall within the purview of the 2nd proviso to Section 269SS, cannot also be accepted, because the admitted case itself is that the appellant is a company doing finance business of money lending and receiving deposits.
8 Lastly, learned Senior Counsel for the appellant has raised a contention that the assessee will fall within the exempted category of banking company contained under the 1st proviso to Section 269SS. There is nothing to indicate that the assessee has got any registration as a banking company, as defined under the Banking Regulation Act or not even to the effect that the appellant is a ‘non-banking financing company’ having authorisation from the Reserve Bank of India. Therefore the said contention also cannot be accepted.
9. It is evident from the Annexure attached to the revised order of the original authority, dated 27.6.2014 that, all the transactions pertaining to the year concerned is listed and the total amount was computed as Rs.4,74,15,591/-. The learned Senior Counsel for the appellant pointed out that the transaction listed under the Annexure includes various amounts which are below the limit of Rs.20,000/-. If there is any error occurred in the computation of the quantum of penalty, it will be left open to the appellant to seek rectification in that respect before the original authority, who had imposed the penalty.
10. Subject to the above observations, we do not find that any substantial question of law existing warranting interference with respect to the impugned order passed by the Tribunal. Consequently, the Income Tax Appeal fails and the same is hereby dismissed in limine.
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