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Commissioner Of Income Tax And Ors. v. Canara Housing Development Company

Karnataka High Court
Aug 18, 2015
Smart Summary (Beta)

Structured Summary of the Provided Opinion — High Court of Karnataka (Bengaluru), Dated 18 August 2015

Factual and Procedural Background

This appeal (Income Tax Appeal No. 382 of 2009) was filed by the Revenue under section 260A of the Income Tax Act, 1961 challenging an order of the Income Tax Appellate Tribunal, Bangalore (in ITA 1425/Bang/2008 dated 13.2.2009) that had set aside a penalty imposed on the respondent (M/s Canara Housing Development Company). The penalty had been imposed under section 271E of the Income Tax Act for alleged contravention of section 269T by making cash repayments.

Relevant factual summary (as stated in the opinion excerpt): - For assessment year 2005-06 the respondent assessee repaid certain advances/loans in cash to M/s Annapoorneshwari Investments (AI) amounting to Rs.14.6 crores (paid on several occasions between 28.10.2004 and 22.3.2005) and to M/s Adarsh Enterprises (AE) amounting to Rs.0.12 crores (paid in cash on 16.12.2004). - A notice dated 20.6.2008 was issued proposing penalty under section 271E for violation of section 269T (prohibition on accepting/repaying loans or deposits in cash above statutory limits). - The assessee replied (8.3.2008) that the transactions were inter‑firm/current account transactions because of a common partner (Sri A Ramakrishna) and therefore not loans/deposits within section 269T; alternatively, even if treated as loans, there was no intention to violate the Act. The assessee also explained that funds drawn were investments by partners in group concerns to meet emergency expenses. - The Assessing Officer (Additional Commissioner of Income Tax), by order dated 2.6.2008, held that the transactions were repayments of loans in cash in violation of section 269T and imposed penalty equal to Rs.14.72 crores (the amount repaid in cash). - The assessee's appeal to the Commissioner of Income Tax (Appeals) was dismissed by a reasoned order dated 10.11.2008, which concluded (inter alia) that AI and AE were not group/sister concerns, the transactions were loans as reflected in accounts, and the transactions fell within the definition of loan/deposit under Explanation (iii) to section 269T. - The Tribunal subsequently set aside the penalty (the Tribunal's reasoning is not included in the provided excerpt).

Legal Issues Presented

  1. Whether the cash repayments made by the assessee to AI and AE (Rs.14.6 crores and Rs.0.12 crores respectively) amounted to repayments of loans/deposits in contravention of section 269T of the Income Tax Act.
  2. Whether, as contended by the assessee, the transactions were inter‑firm/current account transactions (because of a common partner) and therefore not covered by the prohibition in section 269T.
  3. Whether a penalty under section 271E is exigible where the repayments are held to fall within the ambit of section 269T.

Arguments of the Parties

Appellant's (Revenue) Arguments and Findings of Revenue Authorities

  • The Assessing Officer's position: the payments in cash were repayments of loans to AI and AE and thus contravened section 269T; therefore a penalty under section 271E equal to the cash amount repaid (Rs.14.72 crores) was imposed (order dated 2.6.2008).
  • The Commissioner of Income Tax (Appeals) upheld the assessing officer's conclusion (order dated 10.11.2008), finding among other things that AI and AE were independent entities (not group/sister concerns), that the common partners were not determinative of the mode of repayment, that the transactions were loans as reflected in the assessee's accounts, and that even if treated as current account entries they are treated as loans for the purposes of the provision; concluding that the transactions fell within the definition of loan/deposit under Explanation (iii) to section 269T.

Respondent's (Assessee) Arguments

  • The assessee replied to the show-cause notice asserting that one of the partners (Sri A Ramakrishna) was common to the assessee and to AI, and that both firms carried on real estate business; hence the payments were inter‑firm/current account transactions and not loans or deposits within the meaning of section 269T.
  • The assessee further submitted that even if the transactions were held to be loans, there was no intention to contravene the statutory provisions.
  • The assessee explained that amounts drawn by a partner from the firm represented investments in a group concern or withdrawals to meet emergency expenses.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The excerpt provided does not include the High Court's reasoning or analysis resolving the appeal. The document records the factual matrix, the assessee's response to the penalty notice, the Assessing Officer's decision imposing penalty, and the Commissioner (Appeals)'s affirming reasoning (summarised below), and it records that the Tribunal set aside the penalty. However, the Tribunal's reasoning and the High Court's own analysis or application of legal principles are not contained in the supplied text.

Summary of the reasoning available from the lower authorities (as recorded in the excerpt):

  • Assessing Officer: Found that repayment in cash to AI and AE amounted to repayment of loans/deposits in contravention of section 269T and imposed penalty under section 271E equal to the cash sum repaid (Rs.14.72 crores).
  • Commissioner of Income Tax (Appeals): After examining facts and accounts, concluded (in the numbered conclusions reproduced in the excerpt) that (i) the appellant and AI/AE were independent entities and not group/sister concerns; (ii) the common partners were not determinative of the cash repayment route; (iii) the transactions were loans as reflected in the assessee's accounts; (iv) the transactions were not current account transactions between related entities; and (v) the transactions fell within the definition of loan/deposit under Explanation (iii) to section 269T — thereby supporting imposition of penalty under section 271E.
  • Tribunal: The excerpt notes that the Tribunal set aside the penalty, but the Tribunal's factual or legal reasoning for doing so is not included in the provided text.

Because the High Court's own analytical reasoning in support of any final disposition is not present in the excerpt supplied, no further account of the Court's step‑by‑step analysis can be provided without inferring or adding information not contained in the text.

Holding and Implications

This information was not available in the provided opinion.

The provided excerpt does not state the High Court's final holding in the appeal, the Court's conclusion on the applicability of section 269T/271E, nor any broader implications or precedent‑setting observations. The direct effects recorded in the excerpt are limited to the Assessing Officer's penalty, the Commissioner (Appeals)'s confirmation of that penalty, and the Tribunal's order setting aside the penalty (without the Tribunal's reasoning included).

Show all summary ...

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

Dated this the 18th day of August, 2015

Present

THE HON’BLE MR JUSTICE VINEET SARAN

&

THE HON’BLE MR JUSTICE B MANOHAR

Income Tax Appeal 382 / 2009

Between

1 Commissioner of Income Tax

55/1, Shilpashree

Vidyaranya Complex

Vishveshwaranagar

Mysore 570 008

2 Addl. Commissioner of Income Tax

Central Range 2, # 59

HMT Bhavan, 6th Floor

Bellary Road, Ganganagar

Bangalore 32 Appellants

(By Sri K V Aravind, Adv.)

And

M/s Canara Housing Development Company

10/1, Lakshminarayana Complex

Palace Road, Bangalore Respondent

(By Sri S Parthasarathi, Adv.)

®

2

Appeal is filed under S.260 A of the Income Tax Act,

1961 praying to set aside the orders passed by the Income

Tax Appellate Tribunal, Bangalore in ITA 1425/Bang/2008

on 13.2.2009 and confirm the order of the Appellate

Commissioner confirming the order passed by the Addl.

Commr. Of Income Tax, Central Range 2, Bangalore.

Appeal coming on for hearing this day, Vineet Saran

J, delivered the following:

JUDGMENT

The Revenue is in appeal against the order of the

Tribunal whereby the penalty, which was imposed under

section 271 E of the Income Tax Act (Act for short) by the

Additional Commissioner of Income Tax, and confirmed by

the Commissioner of Income Tax (Appeals), has been set

aside by the Tribunal.

The brief facts relevant for the purpose of this case

are that for the assessment year 2005-06, respondent

assessee had repaid certain advances/loans to M/s

Annapoorneshwari Investments (for short ‘AI’) and M/s

Adarsh Enterprises (for short ‘AE’) in cash which was to

the tune of Rs.14.6 crores and 0.12 crores respectively

which, according to the appellant - Revenue, was in

violation of the provisions of section 269 T of the Act.

3

Notice dated 20.6.2008 was thus issued to the respondent

assessee to explain why penalty under section 271 E of the

Act should not be imposed for such violation of the

provisions of section 269 T of the Act. The payments of

Rs.14.6 crores made in cash by the assessee to AI were

made on several occasions between 28.10.2004 to

22.3.2005, and payment of Rs.0.12 crores (12 lakhs) to AE

was made in cash by the assessee on 16.12.2004.

In response to the said notice, assessee submitted its

reply on 8.3.2008, stating that since one of the partners of

the assessee and AI firms was common, being Sri A

Ramakrishna, and both the firms were carrying on the

business in real estate, these were inter-firm transactions

which were to be treated only as current account

transactions, and could not be described as loan or

deposits within the meaning of section 269 T of the Act. It

was also stated that even if the transactions were held to

be loan transactions, there was no intention to commit any

violation of the provisions of the Act. It was further

explained in the reply, that the amounts drawn from the

4

firm by one of the partners was nothing but investments in

a group concern, by way of drawing from the firm, to meet

the expenses of emergency situation.

The Assessing Officer – Additional Commissioner of

Income Tax, by his order dated 2.6.2008, held that merely

because one partner of the assessee firm was also a

partner in the other firm – AI, the same could not be

treated as an internal transaction in the nature of current

account transaction, specially when the assessee firm had

taken an advance from AI and AE firms to the tune of over

Rs.50 crores, as was shown in the account books and

thus, it was held that payment in cash made by the

assessee firm was in violation of the provisions of section

269 T of the Act, and imposed a penalty of an equal

amount of Rs.14.72 crores which was the amount that had

been repaid by the assessee in cash. Challenging the said

order, assessee filed an appeal before the Commissioner of

Income Tax (Appeals) which has been dismissed by a

detailed, reasoned order dated 10.11.2008 with the

following conclusion:

5

“In view of the above, I conclude that

(i) the appellant in one hand and AI and AE are

not even group concerns what to speak of

sister concerns and each are

independent from the other.

(ii) The common links i.e., Sri A Ramakrishna

and Sri Satish Pai are not the determining

person channelising the course of repayment

through cash.

(iii) The transactions entered into between

appellant and AI and appellant and AE

was in the nature of loan as reflected in

the accounts of the appellant filed with

the department.

(iv) The transactions are not even in the nature of

current account since the appellant and

AI/AE are independent unrelated entities.

Transaction between them are not whimsical.

Even if for arguments sake, it is accepted as

current account not admitting the same,

current account transactions are even treated

as loan and therefore deviation of provisions

of S.269 T has to be visited by penalty u/s

27I E of IT Act. It may be mentioned that in

banking parlance ‘current account’ is

treated as loan and the account holder is

treated as a borrower which is opened only

by obtaining some collateral security of

stock/FDs. It is unlike saving bank of fixed

deposits where the bank acts as a Borrower.

(v) The transactions between the appellant and

AI/AE are covered within the definition of

loan or deposit enshrined in Expln.(iii) to

Sec.269 T.