COMMISSIONER OF INCOME TAX-II vs. KINARIWALA SPINNERS LTD

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TAXAP/425/2011HC GujaratGJHC24025237201113 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 view taken by the Income-tax Appellate Tribunal. The Tribunal had found that the assessee company's operations were closed since 2005, its property was under the possession of Kalupur Commercial Co-operative Bank from April 20, 2005, and its banking activities were suspended. Consequently, the company was compelled to accept loans in cash from its Directors to meet salary and wage payments and also refunded these loans in cash. The Tribunal had concluded that there was a reasonable cause, as contemplated under Section 273B of the Income Tax Act, 1961, for accepting or repaying the loans in cash, as the company was prevented from using banking channels. The High Court found no substantial question of law arising from the ITAT's decision. Therefore, the penalties levied under Sections 271D and 271E were upheld as cancelled by the ITAT.

What were the facts?

The assessee is Kinariwala Spinners Ltd. The appeals are filed by the Commissioner of Income Tax-II against the order of the Income-tax Appellate Tribunal (ITAT). The assessment years are not explicitly stated. The ITAT had cancelled penalties of Rs. 10,16,000/- and Rs. 7,72,000/- levied under Sections 271D and 271E respectively. The ITAT found that the company's operations had been closed since 2005, its property was taken possession of by Kalupur Commercial Co-operative Bank from April 20, 2005, and its banking activities were suspended. In these circumstances, the company accepted and refunded loans in cash from its Directors to make payments of salaries and wages. The ITAT held that there was a reasonable cause for accepting or repaying loans in cash.

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, concerning Section 271D and Section 273B). 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, concerning Section 271E and Section 273B). Assessee's Contentions: The assessee argued that there was a reasonable cause for accepting and repaying loans in cash due to the company's operations being closed since 2005, its property being under bank possession, and its banking activities being suspended. This prevented the company from accepting or repaying loans through account payee cheques or bank drafts. The ITAT's finding of reasonable cause under Section 273B was relied upon. Revenue's Contentions: The revenue contended that the Appellate Tribunal was not right in law and on facts in cancelling the penalties. The revenue's specific arguments or reliance on any authorities are not recorded in the judgment.

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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