LISTIN STEPHEN vs. THE DEPUTY COMMISSIONER OF INCOME TAX, KOTTAYAM

Facts

The assessee, Listin Stephen, received cash loans totaling Rs. 24,57,000/- during the assessment year 2009-10, which were credited to his bank accounts. The assessee explained these were to create a facade of regular bank transactions for visa purposes and were repaid on the same day. The Assessing Authority accepted the source of funds. However, the Joint Commissioner initiated penalty proceedings under Section 271D for violating Section 269SS, which prohibits accepting loans of Rs. 20,000/- or more in cash. The assessee admitted the violation but claimed reasonable cause. The Joint Commissioner confirmed the penalty of Rs. 24,57,000/-. The Commissioner (Appeals) set aside the penalty, finding reasonable cause as the source was explained and amounts repaid. The Income Tax Appellate Tribunal (ITAT) reversed this, holding that repayment and explanation of source do not constitute reasonable cause for violating Section 269SS.

Held

The High Court held that the appellant (assessee) had failed to prove reasonable cause for the violation of Section 269SS of the Income Tax Act, 1961. The Court reasoned that the principle emerging from various precedents is that the reasonable cause contemplated under Section 273B must explain why the assessee was compelled to accept loans or deposits in cash, i.e., a reasonable cause for not accepting them through account payee cheques or demand drafts. The Court found that the mere proof of repayment of loans through cheques or the absence of an attempt to induct black money into business does not, by itself, constitute a reasonable cause or a compelling circumstance to violate Section 269SS. The Court distinguished the case of Commissioner of Income Tax v. P K Shamsuddin on factual aspects, noting that in that case, the source of funds of creditors was not from banks, and induction of black money could not be ruled out. The Court concluded that the appellant had not succeeded in bringing their case within the ambit of Section 273B to warrant exoneration from penalty under Section 271D. The substantial question of law was answered against the assessee.

Key Issues

1. Whether the appellant (assessee) had reasonable cause for failing to comply with the provisions of Section 269SS of the Income Tax Act, 1961, as contemplated under Section 273B. Assessee's Contention: The assessee argued that the loans were received in cash to create a semblance of regular bank transactions for visa purposes and were immediately repaid through account payee cheques. They contended that since the source of funds was explained and the amounts were not utilized for business or black money induction, this constituted a reasonable cause for the violation. The assessee relied on the decision in Commissioner of Income Tax v. P K Shamsuddin (ITA No.237/2010) where furnishing the source of lenders was considered a reasonable cause, making the violation technical. Revenue's Contention: The revenue contended that the mere fact that the amounts were repaid immediately or that the source was explained does not exonerate the assessee from the penalty. They argued that the assessee failed to establish any reasonable cause for accepting loans exceeding Rs. 20,000/- in cash, otherwise than through crossed cheques or demand drafts, as required by Section 269SS. The revenue relied on Supreme Court and High Court decisions to support their stand.