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Finance plays a significant role in every business. In many circumstances, the own finances of an individual are not sufficient to fulfill the requirements of his or her business, so he has to take loans or deposits. There are some restrictions imposed by the Income-tax Department under section 269SS.
The assessee argued that there were lack of banking facilities in the area etc. But the court rejected the argument stating that this point cannot be accepted as reasonable cause for accepting deposits in cash exceeding the set prescribed limit that too when the assessee was doing a large scale finance dealing with the public.
Before discussing the case, let us first take a brief on the related sections, which will be discussed below, i.e., Section 269SS, 271D, 273B of the Income Tax Act, 1961.
Table of Contents
According to Section 269SS of the Income Tax Act, 1961 any deposit, loan
or any specific amount should not be accepted or taken from any
person/individual other than an account payee cheque or by an electronic
clearing system through a bank account, if-
S. 271D of the Income Tax Act, 1961,
sets the penalty which is to be imposed on a taxpayer for accepting or taking
any loans, deposits, or any other specified amounts in breach of Section 269SS.
As per Section 269SS of the Income Tax Act, 1961 all loans or deposits of over
Rs.20, 000 must be taken through banking channels.
The provisions of Section 271D lays down the penalty as enumerated below:
assessee shall not be levied any penalty if he proves that there was a reasonable
cause for the breach of Section 269SS of the Income Tax Act, 1961.
Abdul Rehim and Mrs.Anu Sivaraman, JJ. IT Appeal No.228 of 2019, October 30,
Here the judgment was made as per Section 269SS of
the Income Tax Act, 1961, read with section 271D and section 273B.
The assessee, a society defaulted in the mode of accepting payment/deposits in the assessment year 2005-2006. The assessing officer found that the assessee society conducted finance business by violating the provisions laid down in section 269SS of the Income Tax Act, 1961. They accepted deposits/payments in cash from various clients exceeding a sum of Rs. 20,000 and hence imposed a penalty as per Section 271D.
The question that arises here is whether the claim
of being unaware about the provisions of laws or an argument made regarding
lack of banking facility in the area can be accepted here as reasonable cause
for accepting deposits in cash, when the assessee was doing large scale finance
business dealing with the public. Whether it should be proved that there
existed any reasonable and acceptable cause for not accepting the loans through
crossed cheques or demand drafts is a mere proof regarding the genuineness of
transaction or intention in accepting cash or that there was no attempt to
induct black money into the business. It cannot be considered as a reasonable
cause or an extraordinary situation provided in section 273B to avoid penal
action under section 271D.
Whether when knowingly an assessee was a company
doing finance business of money lending and receiving deposits, the contention
of the assessee that both parties to transactions were having agricultural
income and, therefore, transactions would fall within the purview of 2nd
proviso to section 269SS could be accepted.
Read, Also: Process of Filing of Appeal Before NCLT.
Whether there being nothing to indicate that assessee had got any registration as a banking company, or that assessee was a ‘non-banking financing company,’ contention of the assessee that it would fall within the exempted category of banking company contained under 1st proviso to section 269SS could not be accepted
Whether, on facts, the assessee would not be protected by provisions of section 273B and penalty was rightly levied upon assessee under section 271D.
The cases referred to while making
Judgments are as follows:
for the Case:
Advocates for Appellant
Advocates for the Respondent
The assessee society had filed this appeal challenging an order of the Income-tax Appellate Tribunal of the Cochin Bench in ITA No. 475/Coch/2018, dated 8-5-2019, where its appeal was dismissed by the appellant challenging an order of the first appellate authority, which is the commissioner of the Income Tax(Appeals), dated 9th July, 2018. The respondent in this appeal is Revenue.
The assessing authority recommended that the penalty provision to be made as per section 271D of the Income Tax Act. This was initiated by the Additional Commissioner of Income Tax, Alappuzzha Range. To a notice proposing the imposition of penalty, the appellant replied that it is a charitable organization rendering social services to the weaker section of the society, having no income chargeable to tax under provisions of the Act. It is stated that the appellant was under a bona fide belief that the provisions of the Income-tax would not apply to them, being a charitable organisation. It was contended that, under the 2nd proviso to Section 269SS, there exists an exemption because the depositor, as well as the acceptor, has got agricultural income. It was also contended that the violation, if any, was only due to the ignorance, which need to be condoned. At the time of hearing afforded to the appellant, the contentions were reiterated. The original authority found that the transactions in question will not fall within the category provided under the 2nd proviso to Section 269SS of the Income Tax Act. It was held that there occurred a clear contravention of Section 269SS on the part of the assessee, without any reasonable cause and that they are liable to be imposed with penalty under section 271D. The contention based on the ignorance, put forth, was not accepted, by holding that the assessee was doing large scale finance business dealing with the public, extending to crores of rupees. Therefore the ignorance of the provisions of law cannot be put forth as an excuse. It is further found that the contention put forth to the effect that the appellant had no motive to violate the law will not, in any manner, help the assessee to escape from the penal provisions. Therefore penalty to the tune of Rs. 4,74,46,248/- was imposed under section 271D.
The appellant was unsuccessful in
the first appeal filed before the CIT (Appeals). They were also unsuccessful
before the Appellate Tribunal in the first round of the second appeal. In an
Income-tax Appeal filed for challenging the said order before this court, in
ITA No. 19/2014, the matter was demanded for fresh consideration by the
Assessing Officer. It was considered before based on the decision reported in K.V.
George v. CIT  that the authorities have failed to
consider the aspect of ‘reasonable cause’ contemplated under section 273B, on
the factual matter that there existed no banking facility in the locality and
most of the depositors are pensioners
It was also argued that there could be more
than one reason as to what was the need to accept the money in cash , also
ignoring the provision or stating non-availability of banking facility in the
locality, area etc. Further, the debate was raised to the effect that there was
failure to ensure if the entire cash receipts were the subject matter of
penalty, were above Rs. 20,000/- or below. This court found that going through
the orders of the Assessing Officer and the first appellate authority and
Appellate Tribunal. There exists inconsistency in the explanations of the
assessee with respect to what was the ‘reasonable cause’ for receiving the
amounts in cash in violation of section 269SS. This Court found that, while
referring to the scope of section 269SS of the Income Tax Act, 1961 in K.V.George’s case
(supra) it was clearly held that, the only consideration would be as to
what was the ‘reasonable cause’ for receiving such a big amount of money by way
of cash or what was the reason for not receiving the loan or deposit by way of
account payee check or demand draft. It was found that the burden is on the
assessee to establish such ‘reasonable cause’ in a convincing manner. However,
the matter was remitted back by this court to the Assessing Officer for fresh
consideration, mainly on the basis that it has to be re-checked as to whether
all the transactions are with respect to amounts above Rs. 20,000/-.
Incidentally, it was observed that even though there is no specific, consistent
stand with respect to the reasonable cause, since the matter is remitted back,
no prejudice would be caused to the revenue if an opportunity is given to the
assessee to explain such transactions. Therefore the officer was directed to
accept the explanation if any offered by the assessee.
by Sri.T.M.Sreedharan, learned Senior Counsel appearing for the appellant and Sri.P.K.Raveendranatha
Menon, Senior Standing Counsel for Government of India (Taxes) appearing for
Subject to the above observations, we do not find that any substantial question of law existing warranting interference with respect to the impugned order passed by the Tribunal. Consequently, the Income-tax appeal fails, and the same was dismissed as limine. The court did not accept any further evidence for making judgment in this case.
the mentioned case, the loans taken by the appellant did not fall in the
agricultural income category. The
assessee is not earning only agricultural income, so the exemption criteria did
not work here. The assessee also was not working as a banking company as per
the Banking Regulation Act nor as NBFC. So it had to pay the penalty as per
provisions laid down in Section 271D of the income tax Act.
Also, Read: Read About the Procedure for Appeal Under The Income Tax Act.
Deepti is a Law graduate with an avid interest in reading and very proficient in summarizing legal cases. She has enough experience in handling legal affairs of the company. In the initial days of her career, she has worked as a legal researcher and has 3+ years of experience.
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