COMMISSIONER OF I.T., BATHINDA vs. INDERJIT SHARMA

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ITA/42/2012HC Punjab & HaryanaPHHC01099406201210 May 2012Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE GURMEET SINGH SANDHAWALIA7 pages
AI SummaryDismissed

What did the High Court hold?

The High Court found no merit in the Revenue's appeal. It reproduced Sections 269SS and 271D of the Act. The Court noted that the second proviso to Section 269SS exempts transactions where both the lender and borrower have agricultural income and neither has income chargeable to tax under the Act. The Court observed that the Tribunal had recorded that the assessee became a partner on 26.08.2004, but the loans were taken prior to this date. Crucially, the Tribunal found that both the lender and borrower were agriculturists and did not have any income chargeable to tax, a finding which the Revenue's representative could not rebut. The High Court held that this finding was not erroneous or perverse, and therefore, no substantial question of law arose. The appeal was dismissed.

What were the facts?

The Revenue filed an appeal against the Income Tax Appellate Tribunal's order for assessment year 2005-06. The assessee, Shri Inderjit Sharma, a partner in M/s Ree Filling Station, introduced capital of Rs.12,54,160/- by taking cash loans from friends and relatives, violating Section 269SS of the Income Tax Act, 1961. Consequently, a penalty of Rs.10.27 lacs was levied under Section 271D. The Commissioner of Income Tax (Appeals) upheld the penalty. However, the Tribunal deleted the entire penalty, holding that the lenders and borrower were agriculturists with no income chargeable to tax, thus falling under the second proviso to Section 269SS. The Revenue contended that the Tribunal erred in applying this proviso.

What were the issues?

1. Whether on the facts and circumstances, the learned Income Tax Appellate Tribunal was justified in deleting the penalty of Rs.10.27 lacs imposed under Section 271D for contravention of Section 269SS, without appreciating the intent of the second proviso to Section 269SS, which is meant for agriculturists in rural circumstances, and whether the facts supported such an application in favour of the assessee? 2. Whether the Income Tax Appellate Tribunal failed to interpret and apply the second proviso to Section 269SS by not appreciating that the lenders and borrowers were not merely agriculturists whose incomes were solely from farming, and that the circumstances were not typical of rural agriculturists (e.g., lack of banking, bonafide ignorance)? Assessee's arguments: Not recorded in the judgment. Revenue's arguments: The assessee accepted loans exceeding Rs.20,000/- in cash, violating Section 269SS. The Tribunal erred in cancelling the penalty by incorrectly holding that the case was covered under the second proviso to Section 269SS.

Which sections of the Income-tax Act were involved?

Section 269SS,Section 271D,Section 260A

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 42 of 2012 (O&M) Date of Decision: 10.5.2012 Commissioner of Income Tax, Bathinda ....Appellant. Versus Shri Inderjit Sharma ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MR. JUSTICE G.S. SANDHAWALIA. PRESENT: Mr. Gaurav Singh Hooda, Advocate for the appellant. AJAY KUMAR MITTAL, J.

1.

Delay in refiling the appeal condoned.

2.

The revenue has claimed the following substantial questions of law in this appeal filed under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 13.6.2011 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as “the Tribunal”) in ITA No. 385(ASR)/2010 for the assessment year 2005-06:-

1.

Whether on the facts and circumstances of the case the learned Income Tax Appellate Tribunal is justified in deleting the penalty of Rs.10.27 lacs imposed by the Joint Commissioner of Income Tax under Section -2- 271D for contravention of the provisions of Section 269SS of the I.T. Act, 1961, without appreciating the basic intent of the leniency provided in the 2nd proviso to Section 269SS, which is meant only for such persons as are agriculturist, who are obliged to avail loans in agricultural and rural circumstances, and the facts of the case clearly do not suggest, far less prove, the existence of such factors in favour of the assessee?

2.

Whether on the facts and the circumstances of the case, the Income Tax Appellate Tribunal has failed to interpret and apply the provisions of 2nd proviso to Section 269SS of the Income Tax Act, 1961 by not appreciating the fact that the lender and borrowers are not mere agriculturists whose incomes and savings are all out of agricultural activity i.e. farming and that the circumstances were not such as are available to most of the rural agriculturists, such as no banking, bonafide ignorance of the provisions of law etc.?

3.

Briefly stated, the facts necessary for disposal of the present appeal are that while making the assessment in the case of M/s Ree Filling Station, Kotkapura for the assessment year 2005-06, the Assessing Officer came to know that one of the partners, Inderjit -3- Sharma, i.e. the assessee had introduced capital of Rs.12,54,160/- by taking loans in cash from his friends and relatives violating the provisions of Section 269SS of the Act. Accordingly, penalty proceedings in terms of Section 271D of the Act were initiated and penalty of Rs.10.27 lacs was levied on 21.8.2009. It was held that the lenders were neither agriculturists nor it was a case that the assessee was a mere agriculturist. Against the imposition of penalty under Section 271D of the Act, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”]. The CIT(A) vide order dated 14.6.2010 upheld the action of the Assessing Officer and dismissed the appeal. On further appeal by the assessee, the Tribunal vide order dated 13.6.2011 allowed the appeal and deleted the entire amount of penalty amounting to Rs.10.27 lacs. Hence, the present appeal by the revenue.

4.

Learned counsel for the revenue submitted that the assessee-respondent had accepted loans exceeding Rs.20,000/- in violation of the provisions of Section 269SS of the Act as the same was received in cash whereas it had to be by account payee cheque or bank draft. According to the learned counsel, the assessee was, thus, liable for violation of the aforesaid provision for penalty under Section 271D of the Act. It was urged that the Tribunal had erred in cancelling the penalty by holding that the case of the assessee was covered under 2nd proviso to Section 269SS of the Act.

5.

We have given our thoughtful consideration to the submission of the learned counsel for the revenue and do not find any merit in the appeal.

-4-

6.

It would be advantageous to reproduce Section 269SS and Section 271D of the Act which read thus:- Section 269SS “269SS. No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if,- (a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or (b) 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), the amount or the aggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), twenty thousand rupees or more: Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,- (a) Government; (b) any banking company, post office savings bank or cooperative bank;

-5- (c) any corporation established by a Central, State or Provincial Act; (d) any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956)' (e) such other institution, association or body or class of institutions, associations or bodies which the Central government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette: Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act. Explanation.- For the purposes of this section,- (i) “banking company” means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of that Act; (ii) “co-operative bank” shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949); (iii) “loan or deposit” means loan or deposit of -6- money.” Section 271D “271D. (1) If a person takes or accepts any loan or deposit in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted. (2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.”

7.

A perusal to second proviso to Section 269SS of the Act shows that where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable under the Act, then the provisions of Section 269SS of the Act are not applicable. As a corollary it would follow that where Section 269SS of the Act is not applicable, the penalty under Section 271D of the Act could not be levied.

8.

The Tribunal in the present case recorded that the assessee had become partner in the firm on 26.8.2004 whereas the loans which were taken by him were prior to the date of becoming partner in the firm. It was also recorded that the lender and the borrower were agriculturists and did not have any income chargeable to tax. The finding recorded by the Tribunal reads thus:- “We have carefully perused the relevant facts of the case, rival submissions and the relevant provisions of section 269SS of the Act, including the case laws -7- cited by the Ld. Counsel for the assessee. It is evident that the assessee became partner in the firm on 26.08.2004. The loans which were considered by the lower authorities, in the light of provisions of section 269SS read with section 271D of the Act, were prior to the date of becoming a partner of the assessee-firm. Both the lender and borrower, as contended by the Ld. Counsel for the assessee, are agriculturists and did not have any income chargeable to tax. This factum could not be rebutted by the Ld. DR. Therefore, the contention of Ld. Counsel for the assessee is supported by the second proviso to section 269SS of the Act, and by the aforesaid case laws relied upon by him.”

9.

The said finding was not shown to be erroneous or perverse in any manner which may warrant interference by this Court. Accordingly, no substantial question of law arises in this appeal for consideration of this Court. Thus, there is no merit in this appeal and the same is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE May 10, 2012 (G.S. SANDHAWALIA) gbs JUDGE

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