N.S.S. Karayogam vs Commissioner of Income Tax

Dr. Manjula Chellur, C.J.—Heard the learned counsel for the appellant as well as the standing counsel for the Revenue. The matter is disposed of on the merits.

The substantial questions of law which arise for our consideration are:

(i) Whether, on the facts and in the circumstances of the case and having regard to the principle of law laid down by this hon''ble court in the case of C.I.T. v. P.K. Shamsudheen in I.T.A. No. 239 of 2011, is the Appellate Tribunal justified in law arid facts in confirming the order of the Commissioner of income tax (Appeals), Cochin, in I.T.A. No. 4/Alp/CIT(A)-IV/2010-11 and confirming the levy of penalty u/s 271D?

(ii) Did not the Appellate Tribunal err in not following the binding precedence in the decision in P.K. Shamsudheen''s case as well as the decisions of the other hon''ble High Courts of the Punjab and Haryana, the Rajasthan and the Madras, reported in Commissioner of Income Tax Vs. Saini Medical Store, , Commissioner of Income Tax Vs. Manoj Lalwani, , Commissioner of Income Tax Vs. Lakshmi Trust Co., and Commissioner of Income Tax Vs. Kundrathur Finance and Chit Co., , respectively, and dismissing the appeal?

(iii) In the facts and circumstances of the case and having regard to the fact that no part of the deposits were found to be not genuine and were accepted in the assessment, did not the Appellate Tribunal err in law in sustaining the order imposing penalty u/s 271D?

(iv) Is not the order of the Appellate Tribunal, annexure F, arbitrary and illegal and liable to be set aside?

The undisputed facts that lead to filing of the present appeal are as under:

The appellant-assessee is having several branches of Karayogam. The branch in question is N.S.S. Karayogam No. 1365, said to have been established for the overall welfare of its members of Kakazham/Neerkunnam area. Apparently, it indulges in financial business independently. The appellant-assessee was accepting deposits from and financing loans to both members and non-members. Several issues came up for consideration for the above assessment year. But we are concerned only with one controversy, whether assessee has explained with sufficient reason for receiving cash deposit exceeding Rs. 20,000 in violation of the provisions of section 269SS of the income tax Act. The Assessing Officer, after seeking explanation from the assessee, proceeded with the assessment and imposed penalty. This came to be challenged before the first appellate authority and the appeal came to be partly allowed remanding back the matter to the Assessing Officer with specific direction not to consider receipts which were below Rs. 20,000.

Aggrieved by the same, the appellant-assessee approached the Appellate Tribunal. The Appellate Tribunal, after referring to its earlier order pertaining to K.V. George''s case (I.T.A. No. 22 of 2012, dated July 27, 2013) proceeded to opine that the appellant never raised a contention that there is no banking facility in the locality and further, most of the depositors being pensioners, who were receiving pension through banking channel, therefore, such defence was untenable. Confirming the decision of the Commissioner of income tax (Appeals), the appeal came to be dismissed. Aggrieved by the same, the assessee is before us contending that the Appellate Tribunal did not consider the principles of law laid down by various High Courts supporting the contentions of the assessee before the Appellate Tribunal.

Learned counsel for appellant contends before us that there could be more than one reason why receipt of money was in cash. It could be ignorance, could be non-availability of banking facility in the locality, etc. It is not a situation where the assessee never had an opportunity to explain. It is not ignorance of the customers but it is the ignorance of the assessee who received the money in cash. As pointed out by the first appellate authority, there was a difference of one crore forty lakhs, i.e., variance between the balance-sheet and account books produced. This gave rise to a survey by the Department. However, with other issues, we are not concerned. Learned standing counsel arguing for the Revenue submits, the only defence raised by the assessee at the earliest point of time was ignorance and further contends that the ignorance of law cannot be an excuse. So far as the first appellate authority for verification of the factual situation whether the entire cash receipts, which was a subject matter of penalty were Rs. 20,000 and above or below Rs. 20,000, remanded back the matter to the Assessing Officer to verify the factual situation while proceeding with the matter afresh. In other words, there is a clear direction that all receipts below Rs. 20,000 need not be taken into consideration and only those receipts which are Rs. 20,000 and above should be taken into consideration. However, going through the orders of the Assessing Officer, the appellate authority and the Appellate Tribunal, we do not find any consistency in the explanation of the appellant-assessee. What was the reasonable cause for receiving such amounts in cash in violation of the provisions of section 269SS. Apparently, several transactions are beyond and above Rs. 20,000. One of the defences was they were adopting the cash system of accounting right from the beginning, which was never objected to. Therefore, they were receiving amounts remitted in cash, especially as the person who was in charge of the branch was a person with matriculation qualification and was not well versed with the income tax Act. Unfortunately, an assessee which is dealing in finance activity cannot take such a stand as the assessee is expected to know the person who maintains the day-to-day administration of the society, including the receipt of amounts. So far as the present controversy is concerned, as indicated by learned standing counsel for the Revenue, the case which was relied upon by the Tribunal, i.e., K.V. George''s case, came up for consideration before this court in I.T.A. No. 279 of 2013--since reported as K.V. George v. C.I.T. [2014] 2 ITR-OL 445 (Ker), wherein the scope of sections 269SS and 271D was discussed with reference to various judgments of other High Courts and also the Supreme Court. While referring to the scope of section 269SS read with section 271D, it was clearly held that the only consideration would be what was the reasonable cause for receiving such a huge amount by way of cash or what was the reason for not receiving the loan or deposit by way of account payee cheque or demand draft a matter to be explained by the assessee. In other words, the burden is on the assessee to establish what was the reasonable cause for not receiving the loan or deposit by way of account payee cheque or a demand draft. It is not a single transaction but several transactions which have to be explained by the appellant-assessee. Though there is nonspecific consistent stand as stated above on behalf of the appellant-assessee, since the matter is remitted back to the Assessing Officer for fresh consideration, so far as the factual situation whether all transactions were Rs. 20,000 and above, we are of the opinion, no prejudice would be caused to the Revenue if an opportunity is given to the appellant-assessee to explain such transactions which are Rs. 20,000 and above. After giving an opportunity to the appellant-assessee, the Assessing Officer shall proceed with the matter and decide the controversial issue either accepting or rejecting the explanation depending upon the nature of the explanation.

Accordingly, the appeal is disposed of.