AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
Judges
Are you a practicing lawyer?
Enhance your digital presence and reach by creating a Casemine profile.
Upload pleading to use the new AI search
Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
Judges
Smart Summary

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).

To access the original judgment, please Sign In or Subscribe.

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

    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.

    Use AI to get other relevant cases.

    Comments

    Commissioner Of Income Tax And Ors. v. Canara Housing Development Company
    (Aug 18, 2015)