COMMISSIONER OF INCOME TAX TRICHY Vs. BALAJI TRADERS

JUDGEMENT

(1.) AT the instance of the Revenue, the appeal is directed against the order of the Income-tax Appellate Tribunal dated 12.6.2002 in ITA.No.1347/Mds/1995, raising the following substantial questions of law: 1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that no penalty is leviable under section 271-D when there has been repeated violations of section 269 SS on the ground that the creditors are genuine persons and there was no revenue loss to the Exchequer? 2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that no penalty is leviable under section 271-D, on the ground that taking a loan in cash for depositing into the assessee's bank to make necessary arrangements for honouring cheques is a reasonable cause for violating the provisions of section 269 SS of the Income-tax Act?

(2.) THE respondent assessee filed its return for the assessment year 1993-94 showing a total income of Rs.11,710/- which was initially taken up for assessment under section1 143(1)(a) of the Income-tax Act, 1961 (in short 'the Act'). When the assessment was taken up for scrutiny, it was found that the assessee had availed cash borrowings exceeding Rs.20,000/- for about 36 times in the course of the year attracting section 269-SS of the Act which contemplates that all borrowings exceeding Rs.20,000/- should only be in the form of cheque or demand draft. 2.2. Accordingly, notice under section 271-D of the Act was issued to the assessee for imposing penalty. In response to the notice, the assessee filed a detailed explanation dated 22.5.1994 stating that the cash borrowings were for urgent necessity to pay to master weavers most of whom were living in rural and sub-urban areas where banking facility was very much less and that most of the loans had been utilised for making payments to bank accounts to honour its cheque commitment to financial corporations who were also income-tax assessees and interest income was admitted by them in their accounts. It is contended that all the transactions were made out of business exigency and therefore, they are bona fide and reasonable. However, the assessing officer refused to accept the above explanation and levied penalty to the tune of Rs.12,30,000/-, by order dated 19.7.1994. 2.3. Aggrieved by the order of assessing officer imposing penalty, the assessee filed appeal before the Commissioner of Income-tax (Appeals), who, by order dated 8.2.1995, even though observed that the assessee could have obtained loans by cheques or demand drafts in its favour and deposited the same in current account, rendered a finding that loans were taken mostly to make payments to master weavers living in village and suburban areas where banking facility was very much less and that loans were taken to meet the immediate business need and hence, there existed reasonable cause. However, the Commissioner of Income-tax (Appeals) directed the assessing officer to levy penalty on certain transactions to the tune of Rs.4,30,000/-. 2.4. On further appeal by the assessee, the Appellate Tribunal, by the impugned order dated 12.6.2002, in clear terms, rendered a finding that obtaining loans and making repayments into bank account are not denied by the Revenue and the genuineness of the transactions are not doubted either by the assessing officer or by the Commissioner of Income-tax (Appeals). THE Appellate Tribunal also found that the identity of the debtors is not disputed and all the credits were from established parties and the loans were genuine as agreed by the Commissioner of Income-tax (Appeals). In the said order, the Appellate Tribunal held as under: "... the assessee while carrying out their business issued cheques to various parties and the same to be honoured on the relevant dates. If the commitment is not honoured the assessee is bound to lose its credibility in the market. THErefore, the assessee had to make necessary arrangements for honouring the cheques issued by them. In this context of the business exigency, the assessee was forced to take cash loans for the purpose of depositing them into the bank account of the assessee for honouring the commitment, namely, issuance of cheque for a particular date. This cannot be said to be unreasonable. THE purpose of section 269SS is to prevent tax evasion. This has been brought to the notice of the Commissioners by Circular No.551 dated 23.1.1990 reported in 183 Statute 67. In the present case, the assessee had consciously made the TDS. THE creditors are genuine persons and the transactions were never doubted by the authorities below. THEre was no revenue loss to the State exchequer. Considering all these factual position, we are unable to accept the conclusion drawn by the authorities below. For all these reasons and discussions and considering the facts and materials, we cancel the levy of penalty sustained by the CIT (Appeals). It is ordered accordingly."

(3.) IN the instant case, the Commissioner of INcome-tax (Appeals) and the Appellate Tribunal found that (i) there was business exigency forcing the assessee to take cash loans for the purpose of honouring the commitment, viz., issuance of cheque on a particular date (ii) the creditors were genuine persons and the transactions were never doubted by the authorities below and (iii) there was no revenue loss to the State exchequer, and satisfied that the assessee has shown reasonable cause for the above transactions.