COMMISSIONER OF INCOME TAX-II vs. KINARIWALA SPINNERS LTD

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TAXAP/424/2011HC GujaratGJHC24025236201113 June 2012Bench: HONOURABLE MR. JUSTICE VIJAY MANOHAR SAHAI,HONOURABLE MR. JUSTICE N.V.ANJARIA3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court agreed with the Tribunal's view. The Tribunal had found that the assessee company's operations were closed since 2005, and its property was under the possession of a bank, leading to the suspension of banking activities. In these circumstances, the company was compelled to accept and refund loans in cash from its directors to pay salaries and wages to workers. The Tribunal had held that there was a reasonable cause, as contemplated under Section 273B of the Income Tax Act, for accepting or repaying loans in cash, as the company was prevented from using account payee cheques or bank drafts due to its operational closure. The High Court affirmed the Tribunal's decision to uphold the order of the CIT (Appeals) and cancel the penalties levied under Sections 271D and 271E. The Court found no substantial question of law arising from the case.

What were the facts?

The appeals were filed by the Commissioner of Income Tax-II (Revenue) against the orders of the Income-tax Appellate Tribunal (Tribunal). The assessee is Kinariwala Spinners Ltd. The assessment years are not explicitly stated. The challenge is to the Tribunal's cancellation of penalties levied under Sections 271D and 271E of the Income Tax Act, 1961. The penalties amounted to Rs. 10,16,000/- under Section 271D and Rs. 7,72,000/- under Section 271E. The Tribunal found that the assessee company's operations had been closed since 2005, with its property taken possession of by Kalupur Commercial Co-operative Bank from April 20, 2005, suspending banking activities. The company accepted and refunded loans in cash from its directors to meet salary and wage payments to workers. The Tribunal concluded there was a reasonable cause for these cash transactions.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in cancelling the penalty of Rs. 10,16,000/- levied under Section 271D of the Income Tax Act, 1961? (Question of law and fact) 2. Whether the Appellate Tribunal is right in law and on facts in cancelling the penalty of Rs. 7,72,000/- levied under Section 271E of the Income Tax Act, 1961? (Question of law and fact) Assessee's contentions: Not recorded in the judgment. Revenue's contentions: The Revenue argued that the Tribunal was not right in law and on facts in cancelling the penalties. The judgment does not explicitly detail the Revenue's arguments beyond this general assertion, nor does it name any specific authorities, circulars, or precedents relied upon by the Revenue.

Which sections of the Income-tax Act were involved?

Section 271D,Section 271E,Section 273B

AI-generated summary — verify with the full judgment below

TAXAP/424/2011 1/3 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 424 of 2011 WITH TAX APPEAL No. 425 of 2011 For Approval and Signature: HONOURABLE MR.JUSTICE V. M. SAHAI Sd/- HONOURABLE MR.JUSTICE N.V. ANJARIA Sd/- ====================================== 1. Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2. To be referred to the Reporter or not ? NO 3. Whether their Lordships wish to see the fair copy of the judgment ? NO 4. Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5. Whether it is to be circulated to the civil judge ? NO ====================================== COMMISSIONER OF INCOME TAX-II - Appellant Versus KINARIWALA SPINNERS LTD - Opponent ====================================== Appearance : MRS MAUNA M BHATT for Appellant. None for Opponent. ====================================== CORAM : HONOURABLE MR.JUSTICE V. M. SAHAI and HONOURABLE MR.JUSTICE N.V. ANJARIA

TAXAP/424/2011 2/3 JUDGMENT Date : 13/06/2012 COMMON ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE V. M. SAHAI) We have heard Mrs. Mauna M. Bhatt, learned Standing Counsel appearing for the revenue. 2. These two Tax Appeal have been filed proposing the following substantial questions of law :- Tax Appeal No.424 of 2011 “Whether the Appellate Tribunal is right in law and on facts in cancelling the penalty of Rs.10,16,000/- levied under Section 271D of the Act ?” Tax Appeal No.425 of 2011 “Whether the Appellate Tribunal is right in law and on facts in cancelling the penalty of Rs.7,72,000/- levied under Section 271E of the Act ?” 3. The Income-tax Appellate Tribunal has recorded a finding that the assessee Company's operations were closed since 2005 and Kalupur Commercial Co-operative Bank has taken possession of the Company's property from 20.4.2005 and the Banking activities of the Company were suspended. In these circumstances, the assessee Company was forced to accept loan in cash from the Directors of the Company for making payments of salaries and wages to the workers. Thus, the loans were also refunded in cash. The Tribunal has recorded a finding that there was a reasonable cause within

TAXAP/424/2011 3/3 JUDGMENT the meaning of Section 273B for accepting or repaying the loan in cash as the Company's operations were closed since 2005 and the assessee Company was prevented from accepting or repaying the loan through a/c payee cheque or Bank draft. The Tribunal has upheld the order of CIT (Appeals) and has affirmed the order cancelling the penalty of Rs.10,16,000/- and Rs.7,72,000/- levied by the Assessing Officer under Sections 271D and 271E of the Act. 4. We agree with the view taken by the Tribunal that the assessee Company was prevented by a sufficient cause in accepting or repaying the loan through account payee cheque of Bank draft. We do not find that any question of law, much less, substantial question of law arises in these two appeals. Both the tax appeals fail and are accordingly dismissed. Sd/- [V. M. SAHAI, J.] Sd/- [N. V. ANJARIA, J.] Savariya

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