SLP on penalty for borrowing above Rs. 20000 dismissed by Supreme Court in the case of Vasan Healthcare Pvt. Ltd. & Anr. Vs. Additional Commissioner Of Income Tax where unaccounted money of the financer routed by the director through accounts of Assessee.
Supreme Court in Vasan Healthcare (P.) Ltd.  125 taxmann.com 266 (SC) on 22-01-2021 dismissed the SLP filed by the assesse and after hearing both the sides refused to interfere the decision of Madras High Court in Vasan Healthcare (P.) Ltd.  103 taxmann.com 26 (Madras) levying penalty for loan or deposit above Rs. 20000/- where in director of the assesse had borrowed money from the individual financer and put the same into company bank account to defray the routine expenses.
Facts of the case
1. The transactions between one Financier and one of the Directors of the assessee were already under scrutiny in as much as there was no direct nexus between financer and the assesse company, and the amounts borrowed from financer by the Director was introduced through director’s running account with the company for the purpose of meeting/running expenses of the assessee. [Para 4]
2. The amounts were deposited on the same day in the current account of the company and from the said amount, the salaries of the employees were paid; rents which were payable for the buildings leased out by the assessee were paid; and the other EMI commitments were honoured [Para 8.3]
3. The money was withdrawn in cash from bank account of the company to repay back to the director who repaid it to the financer [Para 45]
4. Proceedings u/s 269SS was undertaken both against director as well as company and assesse pleaded against multiplicity of proceedings for the same transaction.
5. Peak of amount was 22.2 crores as against total cash transaction of Rs. 143.25 crores.
6. First Appellate authority and Tribunal had upheld the penalty of entire cash transaction.
Observations of the Madras High Court
8. Multiple proceeedings/Double Taxation
The subtle but marked difference, which we should notice is that the present appeals arise out of a penalty proceedings and they are not quantum appeals wherein, tax has been imposed on the assessees. Thus, the theory of double taxation cannot be imparted in a penalty proceedings. The result is one or more persons will be liable for penalty under Section 271D of the Act, if he or they violate the provisions of Section 269SS of the Act. Thus, the contention that there is multiplicity of proceedings is a complete misnomer.[Para 25]
9. Our observation is further strengthened, if we examine the language employed in Section 269SS, the erstwhile Section 276DD and Section 271D (with effect from 01.04.1989). One common and conspicuous feature in all these provisions is that it uses the expression “no person”, but Sections do not refer to an assessee, but refers to “a person”. This aspect has to be borne in mind while considering the correctness of the penalty proceedings. Hence, this aspect also goes to show that the assessee cannot raise a plea of multiplicity of proceedings [Para 26]
10. Idhayam Publications (Madras High Court) 285 ITR 221 can not save the case of the assesse where assesse borrowed cash from the running account of the director and repaid because of following reasons:
i. 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 assessee-company 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. [para 28]
ii. This admitted case of the assessee clearly reveals total lack of bona fides. Any amount of pleadings or statement of accounts can be of no assistance to the case of the assessee. The assessees, being Private Limited Companies, were clearly aware of the fact that no borrowal can be done by them from individuals. Thus, the Director of the company became the conduit. The Director received huge cash loan from individual financer. The loans so obtained were deposited by him in cash in the bank account of the company. Thus, the Director acted as a shield to the transaction to give it a colour, as if it is the money given by the Director to the company. Furthermore, the same Director withdrew money from the running account of the company to pay back to the Financier, These facts will clearly show that the decision in the case of Idhayam Publications Ltd. (supra) can have no application to the case of the assessees. [Para 30]
10. After going through the cash flow statement, the Tribunal expressed that the same is questionable. Further, the assessment seems to have been made on the basis of reworked notional balance sheet and statement of accounts prepared from the seized records. [Para 32]
11. The Hon’ble Supreme Court in A.B. Shanthi (2002) 255 ITR 258 while upholding the validity of Sections 269SS and 271D, held that if there was a genuine and bona fide transaction and if for any reason, the taxpayer could not get 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. Therefore, the taxpayer has to show that he could not get a loan or deposit by account payee cheque/demand draft and the reason given by the taxpayer should be genuine and bona fide. [Para 33]
12. To be entitled to the benefit under Section 273B, the onus is on the person claiming such benefit to show that he could not get a loan by account payee cheque or demand draft and the cause shown by him should be genuine andbona fide. Thus, merely because the Director took cash loans from the Financier, and deposited it in the current account of the assessee-company 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 [Para 34]
13. The assesses pleading 273B in the cases cited in his favour by the pleading counsel and individuals and not companies [Para 34,43]
14. Decision of Perumall (2015) 370 ITR 313 (Mad.) is also not applicable because in that case assessee 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. [Para 35]
15. Precedence cannot always be the Rule and we need to examine the factual position [Para 36]. Hence there can be no straight jacket formula to examine the bona fides and genuinity of the plea raised by a person, who states that he was for certainbona fide reasons unable to get a loan or deposit by account payee cheque/demand draft.[Para 36]
16. 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. [Para 43]
17. In the decision in Sougoumarin, the Division Bench noted that if loan in cash is taken once or twice, in exceptional exigencies, may be a ground for interference, but when the fact remains that a lender not even licensed was illegally giving loans only in cash and accepting repayment in cash cannot be a ground for condonation of regular transaction with such unauthorised lender. Therefore, we find the findings and observations in M. Sougoumarin (supra) to aid the case of the Revenue. [Para 46]
18. Further Finding of the Tribunal are that why cash was withdrawn to make repayment to the director remains unexplained [Para 45]
19. Further, the Tribunal pointed out that perusal of the assessment order of the Financier, gives a picture that moneys were the unaccounted cash of financer., and this cash was laundered through the accounts of the two assessees herein. Thus, the Tribunal concluded that the assessees have been used as custodian of the unaccounted cash of financer by depositing it in the bank accounts of the assessee by their Director [Para 45]
Observations of the High Court that “double taxation concept is not applicable to penalty proceedings” and that “Precedence can not always be rule” are important. Further High Court has remarked that reasonable cause can be pleaded only for solitary transaction under exceptional circumstances and not for large number of transactions. Further assesse need to prove that why he could not accept the money through account payee cheque.