D.B Income-tax Appeal No. 80 of 2002

Decided on July 26, 2007

The Judgment of the Court was delivered by

P.B Majmudar, J.:— By filing this appeal, the Commissioner of Income-tax, Bikaner, has challenged the order dated March 27, 2002, passed by the Income-tax Appellate Tribunal, Jodhpur Bench, Jodhpur in I.T.A No. 2145.Jp/1996, which pertains to the assessment year 1993-94, by which, the Tribunal has dismissed the appeal filed by the Revenue and confirmed the order passed by the Commissioner of Income-tax (Appeals)-I, Jodhpur.

2. The respondent-assessee is a contractor and for the purpose of his business, he had taken certain loans from its sister concern. The particulars of loan taken by the respondent-assessee on various dates find place in the order of the Assessing Officer and the same are as under:

Date of loan/deposit Amount Rs. 27-09-1992 2,00,000 15-10-1992 2,00,000 5-11-1992 5,300 21-11-1992 1,00,000 5,05,300

3. It is submitted by learned counsel for the appellant that the aforesaid transactions are in violation of section 269SS of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), as the payment was made by cash and not by way of cheque or through bank draft. A show-cause notice was issued under section 274 read with section 271D of the Act to the respondent-assessee. In response to the aforesaid notice, the assessee appeared before the Assessing Officer and submitted his reply. The case of the respondent-assessee is that the payment was required to be made to the labourers at the site and for that reason, the amount was accepted in cash. It is submitted that there was no mens rea or mala fide intention in accepting the amount by cash and not by cheque or bank draft. The Assessing Officer, however, was not satisfied with the said explanation and by his order dated August 29, 1996, came to the conclusion that it was not genuine transaction and there is no reasonable cause for accepting the deposits in cash aggregating to Rs. 5,05,300. He accordingly, levied penalty of Rs. 5,05,300 on the respondent-assessee under section 271D of the Act. The said order is produced as annexure 1 in compilation. Being aggrieved by the decision of the Assessing Officer, the respondent-assessee preferred an appeal before the Commissioner of Income-tax (Appeals)-I, Jodhpur, being Appeal No. 77/1996-97. The appellate authority found that the appellant before it (respondent herein) is a contractor doing business in a remote area of Nokha Tehsil and he was required to make spot payments to the labourers, etc. and for that the appellant (respondent herein) needed cash. The appellate authority also found that the respondent-assessee borrowed the money from its sister concern at the work site and, therefore, it is only a technical breach of law and for a mere technical breach, no penalty is exigible. He accordingly, set aside the order of penalty. The Revenue was not satisfied with the aforesaid decision and preferred an appeal being I.T.A No. 2145.Jp/1996 before the Income-tax Appellate Tribunal, Jodhpur Bench, Jodhpur. The Tribunal having agreed with the finding of the Commissioner of Income-tax (Appeals)-I, Jodhpur, ultimately, dismissed the appeal filed by the Revenue, against which, the Revenue has filed this appeal under section 260A of the Income-tax Act, 1961. This court, while admitting the appeal, formulated the following substantial question of law:

“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is legally correct in confirming the order of the Commissioner of Income-tax (Appeals) holding that the transaction with sister concern is only a technical breach of law for which no penalty is exigible and thereby deleting the penalty of Rs. 5,05,300 imposed for violation of the provisions of section 269SS even though the deposits/loans were not accepted through account payee cheque/bank draft but received in cash without any business expediency and/or absolute need and in violation of mandatory provisions ?”

4. Learned counsel Mr. K.K Bissa submitted that even though it is true that the respondent-assessee had taken loan from its sister concern, but the acceptance of the said amount is in violation of section 269SS of the Act. If any amount more than Rs. 20,000 is accepted, the same has to be accepted by cheque or bank draft and not by cash. Learned counsel further submitted that, therefore, it is a clear case of violation of the said provisions and, therefore, the first authority was justified in imposing the penalty.

5. On the other hand, learned counsel Mr. Anjay Kothari submitted that whether the transaction was genuine or not is a question of fact and, therefore, the same cannot be challenged in this appeal, as the appeal is maintainable on the substantial question of law. It is further submitted by Mr. Anjay Kothari that there is neither question of law much less substantial question of law, which is attracted in this appeal. It is also pointed out that the respondent-assessee had accepted the loans from its sister concern and both of them are maintaining the regular books of account.

6. We have heard learned counsel for the parties. We have also gone through the orders of the Income-tax Appellate Tribunal, Jodhpur Bench, Jodhpur, the Commissioner of Income-tax (Appeals)-I, Jodhpur, as well as the order of the Deputy Commissioner of Income-tax, Bikaner. It is true that as per the provisions of section 269SS of the Act, no person shall, after the 30th day of June, 1984, take or accept from any other person, any loan or deposit otherwise than by an account payee cheque or account payee draft, if such loan or deposit is of Rs. 20,000 or more. Accordingly, the payment, in the instant case, should have been made either by way of cheque or by way of bank draft. However, so far as the question about imposition of penalty is concerned, section 271D of the Act deals with the same. Section 273B provides that if the assessee proves that there was reasonable cause for any failure, no penalty shall be imposable on the person or the assessee as provided under section 271D of the Act. Section 273B of the Act provides as under:

“Notwithstanding anything contained in the provision 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 the said failure.”

7. The question requires consideration is that whether the transaction in question can be said to be a genuine transaction or not. In this behalf, the first appellate authority after appreciating the evidence on record has observed in paragraph 3 of its judgment as under:

“After careful consideration of the matter, I find that the appellant is a contractor doing business in a remote area of Nokha Tehsil. The appellant had to make spot payments to the labour, etc. and for that the appellant needed cash. Therefore, the appellant borrowed the money from sister concern at the work site. Therefore, it is only a technical breach of law and for a mere technical breach, no penalty is exigible. Therefore, the penalty levied by the Deputy Commissioner of Income-tax, Bikaner, is cancelled because the source of the deposits has not been disbelieved by the Assessing Officer. Therefore, the penalty is cancelled.”

8. The Tribunal in the appeal filed by the Revenue has also considered this aspect and in paragraph 6 of its judgment has observed as under:

“We have considered the rival submissions. The learned authorised representative contended that the transactions between two sister concerns are not covered by the provisions of section 269SS. For the purpose he has relied upon four judgments. In the case of Muthoot M. George Chits (India) Ltd. v. Commissioner Of Income-Tax., [1993] 46 ITD 10 (Cochin) it was held as under (headnote):

‘In the instant case, there was transfer of funds from and the sister concerns. There was no evidence to show that money was loaned or kept deposited for a fixed period or repayable on demand. Further, the sister concerns and the assessee were owned by the same family group of people with a common managing partner with centralised accounts under the same roof. Transfer of funds had taken place in a whimsical manner. Therefore, it was rather difficult to say that the transactions were in the nature of deposits or loans with certain conditions attached to them, either as regards the period of such deposits or loans or with regard to their repayments. From the copies of the accounts furnished all that could be gathered was that funds had been transferred from and to the sister concerns as and when required and since the managing partner was common to all the sister concerns, the decision to transfer the funds from one concern to another concern or to repay the funds could be said to have been largely influenced by the same individual. In other words, the decision to give and the decision to take rested with either the same group of people or with the same individual. In such circumstances of the case, the transactions inter se between the sister concerns and the assessee could not partake of the nature of either “deposit” or “loan” though interest might have been paid on the same.’

Therefore, we find that the funds had been borrowed from the sister concern not at Nokha where the assessee had bank account but in Sriganganagar District for engagement of fresh labourers. Therefore, we agree with the contention of the learned authorised representative on this ground. The assessee had undertaken various sites at remote area at a time where no banking facilities are available and money was urgently required and there were no banks at the sites. This is considered to be a reasonable cause.”

9. Accordingly, both the fact-finding authorities found that the transaction in question is a genuine transaction and the explanation given by the respondent-assessee has been accepted by the Commissioner of Income-tax (Appeals)-I, Jodhpur, as well as by the Income-tax Appellate Tribunal, Jodhpur Bench, Jodhpur. Though learned counsel Mr. K.K Bissa submitted that the finding of fact given by the authorities below is not correct finding of fact as other view is possible. We are afraid, we cannot go into this aspect whether the finding of fact arrived at by the authorities below is proper or not. It is required to be noted that the powers of this court are limited as to correct substantial error of law, if any. Whether a particular transaction is genuine or otherwise is a question of fact and if it has been found by the appellate authority that the assessee had shown reasonable cause for accepting the money in cash, in our view the finding of fact given by the appellate authority, which is affirmed by the Tribunal is not required to be interfered with by this court as it cannot be said that any substantial question of law arises for determination of this court and whether the assessee has made out a case for accepting the amount in cash, finding on such aspect can be said to be finding of fact based on material on record. Whether a particular finding of fact is correct or not, is not a question which could be examined by this court in this appeal. Considering the aforesaid aspects of the matter, in our view, the finding given by the appellate authority as well as the Tribunal that the transaction in question is a genuine transaction, cannot be disturbed by this court in the present appeal. It is also required to be noted that section 269SS has to be read along with section 273B of the Act and at the time of awarding penalty, the authority is required to consider whether there was a reasonable cause for the said failure as envisaged under section 269SS of the Act. While examining the constitutional validity of section 269SS, the hon'ble Supreme Court in the case of Asstt. Director Of Inspection Investigation v. A.B Shanthi, [2002] 255 ITR 258 has observed as under (page 266 of 255 ITR):

“It is important to note that another provision, namely, section 273B was also incorporated 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 that there was reasonable cause for failure to take a loan 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 in the Act. If there was a genuine and bona fide transaction and if for any reason 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.”

10. Considering the aforesaid aspect of the matter and considering the fact that the appellate authority as well as the Tribunal has ultimately found that the respondent-assessee has given reasonable explanation for receiving such payment in cash and there was no mens rea on the part of the assessee. This aspect has also been examined by the Gauhati High Court in the case of Commissioner Of Income-Tax v. Bhagwati Prasad Bajoria (Huf)), [2003] 263 ITR 487. While relying upon the decision of the hon'ble Supreme Court, the Gauhati High Court has observed in paragraph 7 of its judgment as under (page 490 of 263 ITR):

“Keeping in view the object of introducing section 269SS the Legislature has given discretion to the assessing authority under section 273B of the Income-tax Act to levy the penalty as provided under section 271D of the Act or not. Under section 273B, if the court finds that there was a reasonable and sufficient cause for not imposing the penalty on the assessee in the given facts and circumstances of the case the penalty shall not be levied.

The facts which emerged in the case are that as the result of advancement of the loan by Umadutta Jhunjunwalla on three different dates the assessee has executed the promissory notes in favour of Umadutta Jhunjunwalla. The transaction of loan has found place in the books of account of the assessee as well as the lender of the loan. None of the authorities have reached the conclusion that the transaction of the loan was not genuine and it was a sham transaction to cover up the unaccounted money. It appears to us that the assessee felt need of money and thus he approached the money-lender for advancement of the money, the transaction is reflected in the promissory notes executed by the assessee in favour of the lender. When there is an immediate need of money the person cannot get such money from the nationalised bank to satisfy the immediate requirement. To satisfy the immediate requirement of money the person normally approaches the money-lender or his friend or relative who could lend money to him to satisfy his immediate requirement. In those circumstances it cannot be said that the assessee has entered into a transaction to avoid the payment of tax or to defraud the Revenue. The element of mens rea is not borne out from the nature and the manner in which the transaction was carried out. In these circumstances we do not find any justification or reasonable cause to remand the matter for adjudication afresh by the Commissioner of Income-tax for consideration of reasonableness within the meaning of section 273B of the Act. In the facts and circumstances of the case we hold that the Tribunal was justified and correct in law in upholding the judgment of the Commissioner of Income-tax in deleting the penalty of Rs. 4,50,000 imposed on the assessee under section 271D of the Income-tax Act, though for the different reasons.”

11. Considering the aforesaid aspect of the matter, in our view, it cannot be said that any substantial question of law arises for determination of the court in the present appeal. We, therefore, do not find any substantial question of law in the present appeal and the same stands dismissed with no order as to costs.