[CASE NUMBER] IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 648 of 2007 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE [ENTITY] Sd/- and HONOURABLE MR.JUSTICE [ENTITY] Sd/- 1 Whether Reporters of Local Papers may be allowed Yes to see the judgment ? 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of No the judgment ? 4 Whether this case involves a substantial question of No law as to the interpretation of the [ACT] or any order made thereunder ? M/S [ENTITY] & CO., Appellant(s) Versus THE [ENTITY] Opponent(s) Appearance: MR [ENTITY] for MR [ENTITY], ADVOCATE for the Appellant(s) No. 1 MR [ENTITY], ADVOCATE for the Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE [ENTITY] and HONOURABLE MR.JUSTICE [ENTITY] Date : 04/08/2016 ORAL JUDGMENT
[CASE NUMBER] Page 1 of 12 Created On Wed Aug 10 00:57:23 IST 2016 [CASE NUMBER] (PER : HONOURABLE MR.JUSTICE [ENTITY])
1. By way of this appeal, the assessee has challenged the judgment and order of the Income Tax Appellate Tribunal, Rajkot 'SMC' Bench, Rajkot (For short, "the Tribunal") in [CASE NUMBER] dated 07.11.2006, whereby the appeal filed by the assessee was dismissed.
2. At the time of admitting this Appeal, following question of law was framed:-
"(A) Whether on the facts and in the circumstances of the case the Tribunal was right in law in confirming the levy of penalty of Rs.1,05,000/- under [SECTION] of the [ACT]?"
3. Mr.[ENTITY], learned counsel for the appellant submitted that the issue involved in this appeal is squarely covered by the decision of this Court in the case of [PRECEDENT] and another decision in the case of Commissioner of Income-tax v. [ENTITY]. Reported in [PRECEDENT] (Gujarat). He submitted that considering the observations made in aforesaid decisions, present appeal may also be disposed of accordingly.
4. Mr.[ENTITY], learned counsel for the respondent supported the order of the Tribunal and submitted that the Tribunal has not committed any error while passing the impugned order.
5. We have heard both the learned counsel and perused the record. In the case of Maa Khodiyar Construction (Supra), [CASE NUMBER] Page 2 of 12 Created On Wed Aug 10 00:57:23 IST 2016 [CASE NUMBER] this Court has observed as under:-
"It is contended by the Revenue that though the genuineness of the transactions had not been doubted and assuming that these agriculturists were residing in the remote areas that would not permit the respondent to make any breach of provision of [SECTION] of the Act. Any transaction above a sum of Rs. 20,000/= in cash would invite the rigor of levying of penalty. It is also argued that a huge amount of Rs. 42.75 lakhs had been taken in cash, and therefore, both the authorities committed error in deleting the penalty. Reliance is placed on the decisions of Delhi High Court in case of [PRECEDENT] and of Kerala High Court in case of [PRECEDENT].
7. Delhi High Court in case of [PRECEDENT] [Supra] has answered the question in favour of the Revenue and against the assessee in a case where assessee company had entertained a bona fide belief that the loans accepted by it from its Directors and shareholders were not covered by the provisions of [SECTION] of the Act. Such belief also, according to the Court, was not borne out from the record. When asked to furnish the details, the assessee did not take the plea that the said receipts were loans, but, maintained that because they were the receipts from directors and shareholders, they were not covered under [SECTION]. In other words, the specific plea was taken by the company that the amounts in question represented the share application money and that these were not loans or deposits at all. When clear stand of the assessee was that the said amounts were not loans or deposits, the Delhi High Court observed that the assessee company could not have entertained a bona fide belief that the loans accepted by it from directors and shareholders were not covered by the provisions of [SECTION] of the Act.
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8. In case of [PRECEDENT] [Supra], the Kerala High Court held that the burden is on the assessee to prove that there was reasonable cause for receiving cash from various persons. It was a case where the assessee had accepted loans exceeding the limit specified under the Act from certain creditors. When asked to explain the reasonable cause, the assessee had failed to explain the same and instead had stated that substantial amount was received from the creditors. Nothing was emerging as to why such amount was received by way of cash except that the assessee had to put up an industrial unit. In such factual matrix, the High Court was not convinced about the genuineness of the transactions and hence, held against the assessee and in favour of the Revenue.
9. [SECTION] of the Act at this stage requires consideration alongwith [SECTION] and [SECTION] of the Act. Any loan or deposit, if accepted by any person otherwise than by an account payee cheque or account payee bank draft from any person exceeding rupees twenty thousand rupees or more. [SECTION] of the Act prohibits the same after the 30th June 1984. [SECTION] makes such person who received the amount in contravention of provision of [SECTION] liable for penalty, a sum equal to the amount of loan or deposit so accepted. [SECTION] of the Act of course carves out the way in certain cases and provides that no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions which includes [SECTION] if he proves that there was reasonable cause for the said failure.
10. What is therefore necessary to prove is the reasonable cause by the assessee on its having failed to abide by the conditions incorporated in the said provision of [SECTION].
11. Reverting to the facts of the instant case, a sum of Rs. 42.75 lakhs has been taken by way of loan by the respondent from ten different persons. Admittedly, this was by way of loan in cash exceeding rupees twenty thousands and the same therefore contravenes the provision of [SECTION] of the Act.
12. For not inviting the rigour of penalty u/[SECTION] of the Act as consequence, on the part of the assessee, the [CASE NUMBER] Page 4 of 12 Created On Wed Aug 10 00:57:23 IST 2016 [CASE NUMBER] reasonable cause needs to be shown. What is pleaded by the respondent was that all these persons were agriculturists and that the genuineness of the transactions at no point of time had been doubted by the Revenue. They stayed in remote areas. Both the authorities, therefore, were of the opinion that reasonable cause had been sufficiently made out and when the very transactions were never doubted by the Revenue authorities, the breach is to be treated as a mere technical or venial breach.
13. We notice that the requirement of [SECTION] is for the assessee to prove that there was a reasonable cause for its having failed to abide by the provisions of [SECTION]. As emerges from the record, not only the substantiating evidence like 7/12 Extracts were produced, but, also additionally, transactions were reflected in the accounts of assessee and the advancement of loan to the assessee had been reflected in the books of account of those persons from whom the loan had been received. The identity of those persons has also been well established. The assessee also had given satisfactory reason for taking such loan. His bona fide belief that such transactions would not attract provision of [SECTION] on the ground that they were agriculturists and lived in remote villages also was one of the grounds which has weighed with both the authorities.
14. In view of forgoing discussion, we are of the opinion that no error has been committed by both the authorities below in deleting the penalty. It is true that the respondent has income from other business and these transactions were not between agriculturists having only agriculture income, not liable to tax which have been exempted from such rigor of law and yet, the cause advanced is when found to be sufficiently reasonable, no interference would be desirable.
15. Reliance placed on the decision in case of [PRECEDENT] [Supra] also requires a specific reproduction at this stage where the Apex Court has held that, An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or act in conscious [CASE NUMBER] Page 5 of 12 Created On Wed Aug 10 00:57:23 IST 2016 [CASE NUMBER] disregard to its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.
16. We find that both the authorities have rightly construed the provisions and applied the law to the facts and the surrounding circumstances aptly. Tax Appeal, resultantly, deserves no further consideration and hence, the same is dismissed."
5.1 In the case of [ENTITY]., this Court has observed as under:-
"4. Learned counsel for the respondent-assessee has supported the order of the Tribunal and submitted that the Tribunal after appreciating the material available on record has allowed the appeal of the assessee and deleted the penalty imposed on the assessee, therefore, there is no germane reason to interfere with the impugned order of the Tribunal.
4.1. Learned advocate for the respondent has relied upon the decision of the Bombay High Court in the case of [PRECEDENT]. more particularly paragraph No.4, which reads as under:-
"4. It is now well settled that circulars issued by CDBT are statutory in character and are binding on the Departmental authorities. The authorities including AO and other consequently would be bound by that circular. In the instant case, CDBT for the purpose of attracting [SECTION] has set out that the loan or deposit should be in excess of [CASE NUMBER] Page 6 of 12 Created On Wed Aug 10 00:57:23 IST 2016 [CASE NUMBER] Rs.20,000. It is true that what CDBT has stated may be contrary to the express language of [SECTION] SS which uses the expression Twenty thousand rupees or more. The law and the CBDT circular can be spelled out from the following judgments of the Supreme Court. In [PRECEDENT], a Constitution Bench of the supreme Court observed it is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under [SECTION] of the Act. [PRECEDENT] (supra) was followed in [PRECEDENT]. In [PRECEDENT], the law was restated and it was held that circular of CBDT are legally binding on the Revenue and this binding character attaches to the circulars even if they be found not in accordance with the correction interpretation of the section and they depart or deviate from such construction, when they are issued in exercise of the statutory powers under [SECTION]. It was however clarified that the Board cannot pre-empt a judicial interpretation of the scope and ambit of the provision and further could not impose a burden on the taxpayer higher than what the Act itself, on a true interpretation, envisages. It was observed that the Board has the statutory power under [SECTION] to tone down the rigour of the law for the benefit of the assessee by issuing circulars to ensure a proper administration of the fiscal statute. In [PRECEDENT], the Court further observed that the taxing authority cannot be heard to advance an argument that it is contrary to that interpretation.
5. We have heard learned advocates appearing for both the parties and perused the material on record. While deciding the appeal of the assesee, the Tribunal in Nos. 6.2 to 6.6, has observed as under:-
"Before we examined the question regarding the existence or absence of reasonable cause for the [CASE NUMBER] Page 7 of 12 Created On Wed Aug 10 00:57:23 IST 2016 [CASE NUMBER] purpose of [SECTION], it would be appropriate to see the legislative intention or the object for which the provisions of [SECTION] were inserted by the [ACT]. The Board in its Circular No.387, dt. 6th July, 1984 elaborately explained the scope and intention of inserting the provisions of [SECTION] in the following words in para 32.1 and 32.2:-
32.1 Unaccounted cash found in the curse of search carried out by the IT Department is often explained by taxpayers as representing loans taken from or deposits made by various persons.
Unaccounted income is also brought into the books of account in the form of such loans and deposits, and taxpayers are also able to get confirmatory letters from such persons in support of their explanation.
32.2 With a view to counter this device which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the [ACT], has inserted a new [SECTION] in the [ACT] debarring persons from taking or accepting, after 30th June, 1984 from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of such loan or deposit of the aggregate amount of such loan and deposits is Rs.10,000 or more. This prohibition will also apply in cases where on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not) and the amount or the aggregate amount remaining unpaid is Rs.10,000 or more, the prohibition will also apply in cases where the amount of such loan of deposit, together with the aggregate amount remaining unpaid on the date on which such loan or deposit proposed to be taken is Rs.10,000 or more (raised to Rs.20,000 from 1st April, 1989) It is clear from the above circular by the Board that [SECTION] was introduced with a view to counter various devices adopted by the tax evaders for explaining their unaccounted cash found during the course of search or for introducing their unaccounted income in the form of loans and [CASE NUMBER] Page 8 of 12 Created On Wed Aug 10 00:57:23 IST 2016 [CASE NUMBER] deposits thereby countering major economic evil of proliferation of black money etc. it would be worthwhile to point out that a harmonious construction of the relevant provisions of [SECTION] and [SECTION] would reveal that the use of the expression shall be liable to pay in [SECTION] and the provisions of [SECTION] providing that no penalty would be leviable if the person concerned proves that there was reasonable cause for the said failure, that these provisions give discretion to the authorities to impose the penalty or not to impose the penalty and such discretion has to be exercise in a just and fair manner having regard to the facts and material existing on records.
6.3. It would be evident from the facts given that the assessee received the said loans/deposits from the various parties in cash in contravention of provisions of [SECTION]. We also note that these loans/ deposits have been accepted by the Revenue as genuine. The assessee during the course of penalty proceedings in written submissions filed claimed that the assessee carries on business of construction of building and in the course of such business large amount of labour charges and payments for raw material purchased from unorganized trading sectors and bricks etc. are required to be made after banking hours particularly on the festival days. If their demand for cash payment is not met they would cancel the contract work and refused to complete the work and would also prevent the other contractors from undertaking the work till their dues are settled. Raw material would also not be made available for construction on time if the payment is not made in cash on such occasions. According to the assessee the loans were raised from various parties to meet exigencies of construction work. According to the Revenue no details or evidence in support of such contention were filed by the assessee. According to the learned counsel for the assessee the assessee gave such written submissions before the Dy. CIT in response to the show cause notice given. The Dy. CIT never demanded any details or any evidence in support of such submissions made before him and as such there was no occasion nor any opportunity [CASE NUMBER] Page 9 of 12 Created On Wed Aug 10 00:57:23 IST 2016 [CASE NUMBER] was given to file such details and evidence. We also note that the penalty proceedings were initiated by issue of a show-cause notice by the predecessor Dy. CIT and the present successor, Dy. CIT gave a reminder to the assessee about the proceedings already initiated and in reply the assessee submitted the written submissions. If the Dy. CIT was not satisfied with the explanation so given and required further details or evidence in support of the submissions made in written reply, he should have given an opportunity to the assessee produce required details and evidence. The Dy. CIT, however, passed the penalty order considering the written submission made without requiring the assessee to furnish any details or evidence in support of the written submission given. We also note that the assessee during the appellate proceedings also in its letter dated 26th October, 1994, asked for permission to produce books of accounts in support of the submissions made that the loans were taken because of business requirements but in spite of such request made first appellate authority also gave no such opportunity. In this view of the matter, we take that the submissions made in this behalf before the lower authorities were duly supported by the transactions recorded in the books of accounts maintained in the normal course of business.
6.4. The assessee has placed strong reliance on the Board Circular No.572 explaining various Sections of [ACT]. Para 43 of the Circular explains, that [SECTION] among others which was inserted w.e.f. 1st April, 1989; by the [ACT] provides for the levy of penalty for failure to comply with the provisions of [SECTION] for taking or accepting any loan or deposit in excess of Rs.20,000/- otherwise than by account payee cheque or bank draft. Further an advertisement dt. 26th March, 1992, appearing in the newspaper given by the Department was to the effect that loans/deposits exceeding Rs.20,000/- should be by account payee cheques or account- payee bank drafts; otherwise the amount in excess of Rs.20,000 loans/deposits would be considered as default in contravention of [SECTION] and defaulter [CASE NUMBER] Page 10 of 12 Created On Wed Aug 10 00:57:23 IST 2016 [CASE NUMBER] shall be liable to pay by way of penalty a sum equal to amount of loan/deposit as per [SECTION] According to the learned counsel for the assessee the aforesaid Board circular as well as the advertisement given by Department for information of the taxpayer at large gave the impression that the default is committed and penalty is leviable only if the loan/deposit amount in cash involved is in excess of Rs.20,000 and not Rs.20,000. The facts in this behalf have neither been disputed nor denied by the Revenue. A plain reading of the circular as well as advertisement would no doubt makes one believe that only loan/deposit in excess of Rs.20,000 is required to be taken by account payee cheque or draft and such loan/deposit of Rs.20,000 or below that amount could otherwise be taken by cash.
6.5 Looking to the facts and circumstances we are of the opinion that the loan/deposits taken to meet urgent and immediate requirements of business and the impression gathered as taxpayers from the aforesaid circular and the advertisement did constitute a reasonable cause for accepting the said loans/deposits of Rs.20,000 from each party in cash within the meaning of [SECTION] of the Act.
6.6 The assessee has also strongly relied upon the decision of the Tribunal in the case of [PRECEDENT]). We note that though this decision was cited before the CIT(A) but he has not considered the ratio of this decision in his order. We have gone through the order of the Tribunal and find that in that case also the penalty was levied under [SECTION] It was found therein that loans/deposits raised were to meet exigencies of business. For detailed and elaborate reasons discussed therein the penalty levied was cancelled. The aforesaid decision thus do support the present case of the assessee.
6. Taking into consideration the explanation tendered by the assessee as also the reasonings adopted by the Tribunal and the principle laid down by the Bombay High Court in the case of [ENTITY]), we [CASE NUMBER] Page 11 of 12 Created On Wed Aug 10 00:57:23 IST 2016 [CASE NUMBER] are of the considered opinion that the Tribunal has rightly cancelled the penalty imposed on the assessee."
6. Therefore, applying above ratio, in our view, the Tribunal has committed an error while passing the impugned order. Accordingly, this appeal is allowed. The question posed for our consideration is answered in favour of the assessee and against the revenue.
([ENTITY], J.) Sd/-
([ENTITY], J.) *malek [CASE NUMBER] Page 12 of 12 Created On Wed Aug 10 00:57:23 IST 2016