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Facts
A search at the assessee's residence found Rs. 1.2 Crores in cash. The assessee confirmed it belonged to the Coffee Day Group and was given to him by Shri. Deekshith, allegedly for hawala transactions or to pay laborers. The AO initiated penalty proceedings under Section 271DA for alleged violation of Section 269ST.
Held
The Tribunal held that the physical custody of cash constitutes 'receiving' under Section 269ST, regardless of agency or safe-keeping claims. The assessee failed to provide adequate evidence for a reasonable cause to waive the penalty, thus upholding the penalty imposed under Section 271DA.
Key Issues
Whether mere physical custody of cash constitutes 'receipt' under Section 269ST, and if a reasonable cause existed for non-compliance to waive the penalty under Section 271DA.
Sections Cited
269ST, 271DA, 143(3), 153, 153D, 187, 273B, 132(4), 131, 181, 193, 3(b)
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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. KESHAV DUBEY
Per Laxmi Prasad Sahu, Accountant Member :
This appeal is filed by the assessee against the Order passed by the learned CIT(A) - 11, vide DIN and Order No.ITBA/APL/M/250/2024- 25/1067130031(1) dated 30.07.2024, on the following grounds of appeal:
1. The order of the Learned Commissioner of Income Tax (Appeals)- 11, Bengaluru. in so far as the same is against the appellant, is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case.
2. The Learned CIT(A) erred in not considering that the Penalty Order passed by the Additional Commissioner of Income Tax was in contradiction to the Assessment order approved by the same Additional Commissioner of Income Tax.
Page 2 of 14 3. The Learned CIT(A) erred in holding that the amount given for safe custody is an amount received by the Appellant coming within the scope of Section 269ST of the Income Tax Act.
4. The Learned CIT(A) erred in not considering that, even if the Appellant is held to have received the amount as envisaged U/s 269ST, penalty U/s 271DA was not imposable as there were good and sufficient reasons for the receipt of the amount 5. For the grounds stated above and for the grounds which may be permitted to be adduced at the time of hearing of the appeal it is prayed that the penalty levied in the Penalty order be deleted and justice rendered.
Briefly stated, the facts of the case are that a search was conducted in the case of D. K. Shivakumar in the premises at Flat No.305, Prestige Acropolis Delphi II, Hosur Road, Bangalore – 560 029, belonging to Shri. Rajnish, hereinafter called the assessee, was also searched on 02.08.2017 and cash amounting to Rs.1.2 Crores was found and seized from the residential premises. Statement of assessee was recorded on oath wherein he confirmed that cash belongs to Coffee Day Group and he also stated that this cash was given to him by Shri. Deekshith of Coffee Day Group. Shri. K. M. Deekshith was also confronted in this regard and he confirmed on oath that he had delivered Rs.1.2 Crores at the residence of Shri. Rajnish and assessee has received the cash. He also confirmed that he has done these under the instruction of late V. G. Siddhartha, Managing Director of the Coffee Day Group. He also confirmed that the amount was paid for doing hawala transactions.
Late V. G. Siddhartha was also confronted in this regard. He claimed that the cash was given out of amount withdrawn from bank but failed to furnish any evidence in this regard. He also claimed that this was plantation money to be distributed to labourers. The AO made reference vide letter dated 16.09.2020 to Addl. CIT for initiating penalty proceedings under section 271DA of the Act for alleged violation of section 269ST of the Act.
Page 3 of 14 Assessment was completed under section 153 r.w.s.143(3) r.w.s. 153D of the Act on 31.12.2019 in which the cash of Rs.1.2 Crores was assessed protectively in the hands of the assessee. Notices were issued in this regard from time to time and assessee was asked why penalty should not be levied for violation of section 296ST of the Act. The Addl. CIT passed the penalty Order on 28.03.2022 and penalty was imposed under section 271DA of the Act.
Aggrieved from the above Order, assessee filed appeal before the learned CIT(A). The learned CIT(A), after considering the submissions of the assessee, dismissed appeal of the assessee observing as under:
“6.0 During the appellate proceedings, the submissions made before the Addl.CIT werereiterated. The appellant's contention that merely taking physical custody of cash does not constitute "receiving" as per Section 269ST of the Act is not consistent with the legal andlegislative intent behind the provision. The term "receive" should be interpreted in the broadercontext of the legislative purpose and the plain language of the statute. Section 269ST wasintroduced by the Finance Act, 2017, with a clear objective to curb black money anddiscourage cash transactions, as highlighted in the CBDT Press Release dated 05/04/2017. The legislative intent, as explained in the press release, is to promote a digital economy and reduce the use of cash, which facilitates tax evasion and money laundering. The comprehensive goal is to ensure transparency and traceability of financial transactions.
The provision of Section 269ST explicitly refers to the "receipt" of cash in relation totransactions, without restricting the interpretation to the concept of "consideration" under the Indian Contract Act, 1872. The term "receive" should be understood in its ordinary meaning, which includes taking physical custody of cash, as seen in the case of the appellant. The section aims to cover all forms of cash receipts to prevent circumvention of the law through technicalities. 6.2 The appellant's argument that mere custody of cash does not fall within the purview ofSection 269ST is not in line with the legislative intent. Such an interpretation would create a loophole,allowing individuals to avoid compliance by claiming they only took custody of thecash and did not "receive" it in a transactional sense. This would Page 4 of 14 defeat the purpose of the provision, which is to limit large cash transactions, thereby curbing black money. 6.3 In addition, the Notes on Clauses and Memorandum Explaining the Provisions of theFinance Bill, 2017, further clarify that the intent of Section 269ST is to regulate the receipt of cash to ensure that all substantial cash transactions are recorded and reported. The provision does not distinguish between different contexts or purposes of receiving cash, as long as the amount exceeds the specified limit. This comprehensive approach is essential for effective implementation of the law. 6.4 In conclusion, the appellant's narrow interpretation of "receive" is not supported by the ,legislative intent or the plain language of Section 269ST. The broader objective of curbing black money and promoting digital transactions requires that any form of cash receipt, including physical custody, falls within the scope of this provision. 6.5 The appellant's submission that the cash, admitted to be belonging to the Late Mr. V G Siddhartha, was merely held at the appellant's residence for safe-keeping is unsubstantiated and speculative. The mere assertion of ownership does not automatically prove the nature or purpose of the custody of the cash. There are several reasons for taking such a view, as discussed below: 6.5.1 There is no documented evidence or formal agreement presented that explicitly indicates the arrangement of safe-keeping between the appellant and Late Mr. V G Siddhartha. Without such proof, the claim remains an unverified assertion. 6.5.2 The context in which the cash was found raises questions about the true nature of its custody. If the cash was legitimately held for safe- keeping, it would be reasonable to expect some form of communication or record from Late Mr. V G Siddhartha acknowledging the arrangement. The absence of such documentation can lead to alternative interpretations, such as the possibility of the cash being used for undisclosed or unauthorized purposes. 6.5.3 The appellant holding a substantial amount of cash without proper documentation or disclosure is suspicious. It is crucial to adhere to financial and legal norms, which require transparency and accountability in the handling of large sums of money. The appellant's residence holding the cash without appropriate records indicate attempt to obfuscate the real nature of the transaction.
6.5.4 The burden of proof lies with the appellant to demonstrate that the cash was indeed held for safe-keeping. Merely stating that the cash belongs to Late Mr. V G Siddhartha does not suffice. Detailed evidence such as written instructions, communication records, or witnesses to the arrangement would be necessary to substantiate the claim. 6.5.5 It is conceivable that the cash could have been at the appellant's residence for reasons other than safe-keeping, such as personal use, business transactions, or other financial dealings. Without concrete evidence supporting the safe-keeping claim, the submissions of the appellant are without merit. 6.5.6 In conclusion, the appellant's assertion that the cash was held for safe-keeping on behalf of Late Mr. V G Siddhartha lacks sufficient evidence and does not preclude other interpretations. The circumstances surrounding the discovery of the cash and the absence of clear documentation or communication regarding the safe-keeping arrangement necessitate a thorough investigation to determine the true nature and purpose of the cash being at the appellant's residence. 6.6 The appellant's argument, which hinges on the interpretation of the Indian Contract Act, 1872, particularly Section 187, and the agency relationship it purportedly establishes, is fundamentally flawed and overlooks key aspects of the legal and factual matrix of the case. 6.6.1 The appellant assumes that the act of holding cash automatically constitutes an agency relationship under Section 187 of the Indian Contract Act. This interpretation is overly simplistic. An agency relationship requires explicit or implied consent, clear communication, and evidence of the principal's intention to create such a relationship. In this case, there is nosubstantial evidence presented to prove that Late Mr. V G Siddhartha explicitly or implicitly appointed the appellant as his agent for safe-keeping the cash. 6.6.2 The claim that the appellant acted as an agent lacks corroborative documentation. For an agency relationship to be recognized, there must be clear records or communications indicating such an arrangement. The appellant has failed to produce any written agreement, correspondence, or other forms of evidence that unequivocally establish the existence of an agency relationship between him and Late Mr. V G Siddhartha.
Page 6 of 14 6.6.3 The appellant's reliance on the distinction between principal-to- principal and principal-to-agent transactions to avoid the provisions of Section 269ST of the Income Tax Act is misplaced. Section 269ST aims to curb black money and ensure transparency in high-value cash transactions. The legislative intent behind this provision is to prevent large sums of cash from being transacted without proper accounting, regardless of the nature of the relationship between the parties involved. Therefore, the cash transaction, whether viewed as principal-to- principal or principal-to-agent, falls under the ambit of Section 269ST, given its high value. 6.6.4 The fact that the cash does not appear in the appellant's books of account, as highlighted in the Statement of Affairs, does not necessarily exonerate him. On the contrary, it raises questions about the legitimacy and transparency of the transaction. Proper accounting and reporting are essential to establish the legal and rightful possession of such a significant amount of cash. The absence of this cash in the books could indicate attempts to evade legal scrutiny or misrepresent financial transactions. 6.6.5 The appellant's argument that he had no domain over the cash to spend according to his will is unconvincing. Mere possession of cash confers a degree of control and responsibility. The appellant's physical custody of the cash, especially without clear and documented instructions, suggests a level of autonomy and responsibility over its handling by the appellant, and which is contrary to the purported lack of freedom. 6.6.6 In conclusion, the appellant's assertion that the cash was held purely in an agency capacity on behalf of Late Mr. V G Siddhartha is not substantiated by clear evidence or legal documentation. The lack of proper records, the significant amount of cash involved, and the overarching intent of Section 269ST to ensure transparency in cash transactions collectively undermine the appellant's argument. Therefore, the appellant's possession of the cash should be scrutinized under the provisions of the Income Tax Act, irrespective of the claimed agency relationship. 6.7 The appellant's illustration involving a company's withdrawal and transport of cash by its employees is not analogous to the current case and overlooks critical distinctions. In the example stated by the appellant, the company's employees act within the scope of their employment, with documented authority and clear, traceable transactions through formal banking channels. This is fundamentally Page 7 of 14 different from an individual holding a significant amount of cash at their residence without clear documentation or authorization. 6.7.1 Unlike the company's structured and traceable process, there is no evidence to support the claim that the appellant was acting as an agent for Late Mr. V G Siddhartha. The absence of documented authority or a formal agreement weakens the argument that the cash was being held in a legitimate principal-agent capacity. 6.8 The appellant's argument seeking to avoid penalty under Section 269ST of the Income Tax Act, by invoking the principle of reasonable cause under Section 273B, is unconvincing for several reasons as discussed below. 6.9 While the appellant claims that the cash was withdrawn from the bank account of one of the group entities of Late Mr. V G Siddhartha, there is no substantial documentary evidence provided to support this assertion. The absence of clear documentation linking the withdrawal to the cash found at the appellant's residence weakens the claim of reasonable cause. 6.9.1 The legislative intent behind Section 269ST is to prevent large, unaccounted cash transactions and ensure transparency in financial dealings. Allowing the appellant'sinterpretation would undermine this intent by creating a loophole for large sums of cash to be held and transferred without proper accountability, defeating the purpose of the provision. 6.9.2 The appellant argues that the cash was held in a principal-agent relationship for safekeeping. However, there is no formal agreement or evidence demonstrating that such an agency relationship existed. The absence of documented authority or a formal agreement to act as an agent for safekeeping renders this claim speculative and unsupported. 6.9.3 The law requires that significant cash transactions be conducted transparently and within the legal framework. The appellant's claim that the cash was for safekeeping, without complying with these requirements, does not constitute a reasonable cause. The cash being "accounted for" does not exempt the appellant from adhering to the legal provisions of Section 269ST. 6.9.4 Section 273B provides for waiver of penalty if the taxpayer can prove that there was a reasonable cause for the failure. In this case, the lack of clear evidence of an agency relationship, the absence of proper Page 8 of 14 documentation, and the significant amount of cash involved do not collectively demonstrate reasonable cause and on the contrary, they highlight non-compliance with legal norms aimed at ensuring financial transparency. 6.9.5 Judicial precedents emphasize strict adherence to the provisions aimed at preventing unaccounted transactions. Allowing the appellant's interpretation would set a precedent that could be misused to circumvent the very provisions designed to curb financial malpractices. 6.10 In conclusion, the appellant's argument lacks the necessary documentary support and fails to align with the legislative intent and legal requirements of Section 269ST. Therefore, the claim of reasonable cause under Section 273B is not justified, and the imposition of the penalty is warranted to uphold the integrity of the financial regulatory framework. 7.0 In light of the foregoing discussion, the order of the Additional Commissioner ofIncome Tax (Addl. CIT) imposing the penalty under Section 271DA is upheld. Consequently,there is no basis for interfering with the order. Grounds of appeal numbers 2 to 15, raised by the appellant, are dismissed.”
Aggrieved from the above Order, assessee filed appeal before the Tribunal.
6. The Learned AR reiterated the submissions made before the lower authorities and submitted that in the appellate proceedings against the Assessment Order, the learned CIT(A) has deleted the protective addition, since, in the case of V. G. Siddhartha the substantive addition has been confirmed by the learned CIT(A). The money was given by his childhood friend Mr. M.V. Dikshith for distributing to labourers and the said money was withdrawn from bank and in the meantime V. G. Siddhartha was out of country. He also referred to section 269ST of the Act. The owner of cash is V. G. Siddhartha. In the statement recorded, Deekshith has accepted on oath that the amount was given by him. So complete trail of money is proved. It is not an unaccounted income which was paid to the assessee. Mr. V. G.
Page 9 of 14 Siddhartha admitted in the return of income filed by him. The AO who is also the AO of the assessee has given a finding in the Assessment Order that amount belonged to V. G. Sidhartha. The learned CIT(A) upheld in the appellate Order passed that amount of Rs.1.2 Crores belonged to V. G. Sidhartha. In the appeal of V. G. Siddharthabefore the E.D. they have categorical finding has been given that there was no hawala transaction involving the amount of Rs.1.2 Crores. The money was given to assessee only for the purpose of safe custody. It is admitted fact that the presence of cash of Rs.1.2 Crores at the residence of the assessee does not amount to receipt of the amount by the assessee in violation of provisions of section 269ST of the Act both in law and facts. Therefore, penalty under section 271DA of the Act is not attracted as there was no violation of provisions of section 269ST of the Act. He requested that the penalty should not be imposed.
On the other hand, learned DR strongly relied on the Order of the lower authorities and strongly supported para Nos.6 to 6.5 of the Order of the learned CIT(A) and further stated that on the date of statements recorded on 02.08.2017 & 08.08.2017, assessee has not stated that the subjected cash was given to his son for safe custody. Nowhere it is stated on the date of statement recorded on 08.08.2017 that the subjected cash was sent to his son for safe custody. Even after the assessment proceedings, it is not coming from the assessee’s side mere reflection or adding something new is an afterthought which cannot be considered. The additional CIT has rightly relied on the judgment of the Hon’ble Kerala High Court in the case of CIT Vs. Abdul Razak (2012) 20 taxmann.com 48 (Kerala) as relied by AO. The assessee raised technical issue regarding “received” and this technical issue has been dealt by the ld. CIT(A) in paras 6 to 6.4 of his Order. The learned DR further submitted that there is no documentary evidence or formal agreement presented with explicit undertakings the agent of shape keeping between the assessee and late V. G. Sidharth without any cogent proof. The claim remains Page 10 of 14 unverified assertion. Even in section 271 of the Act there is no immunity granted for reasonable cause and the assessee was unable to prove with any formal agreement to act as an agent for shape keeping and he requested that the penalty should be confirmed.
Considering the rival submissions and Orders and persuing the entire materials available on records and the orders of the authorities below, we noted that during the course of search of the assessee’s premises on 02.08.2017, there was cash found amounting to Rs.1.2 Crores and in the statement recorded under section 132(4) of the Act, it was stated that the money was given by Mr. Deekshith and in the Assessment Order as well as in the appellate stage it was confirmed that the money belonged to V. G. Sidharth and protective assessment was made in the hands of the assessee, later on it was deleted by the learned CIT(A). The Addl. CIT initiated penalty proceedings vide notice dated 23.03.2021. Subsequently, other notices were issued on different dates and various opportunities were granted to the assessee. We noted from the statements recorded during the search as well as post search investigation no where in the statements recorded on 02.08.2017 or 08.08.2017 assessee has stated that the subjected cash was sent to his son for safe custody. In the case of the assessee, the cash found in the residence of the assessee on the date of search and after lapse of 5 days from the date of search the assessee has replied that the money was received by him from Mr. Deekshith. There is no mention about his son’s name in these dates and it was for safe custody and amount was received for payment to labourers. Why the assessee has not stated the name of the assessee’s son on the date of search and during statement recorded on 08.08.2017. Even during the assessment proceedings before the AO, the assessee did not state that the cash was not received by him apart from stating that ownership of cash belongs to late V. G. Sidharth. The statement recorded under section 132(4) of the Act by administering oath is presumed to be carrying truth in view of the provisions Page 11 of 14 of sections 181 and 193 of the IPC which provide for imprisonment if a false statement is given. Therefore, there is a considerable improvement of statements recorded under section 132(4) of the Act during search and seizure operations. During the appellate proceedings, the AO has relied on the judgment of Hon’ble Kerala High Court in the case of CIT v. Hotel Meriya reported in [2011] 332 ITR 537 / [2010] 195 Taxman 459 (Ker.) and held that there is strong evidentiary value of statements which were recorded under section 132(4) of the Act and there is other judgment of the Hon’ble Kerala High Court in the case of Abdul Razak ([2012] 20 taxman.com48[kerla]) which are very much applicable to the present facts of the case of the assessee which are as under:
11………………………….A statement made under oath deemed and permitted to be used in evidence, by express statutory provision, has to be taken as true unless there is contra evidence to dispell such assumption. A self- serving retraction, without anything more cannot dispell the statutory presumption. The admission made by the assessee before the assessing officer corroborated by the title deeds seized in search absolves the department from discharging any burden regarding the additions made on the strength of such admission. Admission as has been often held is the best evidence on a point in issue and though not conclusive is decisive of the matter unless successfully withdrawn or proved erroneous. Any retraction of a clear admission made has to be on the ground of it being either erroneous or factually incorrect or one made under threat or coercion. In the instant case, the first appellate authority has clearly found that the plea of the assessee that the admissions were made under threat and coercion is clearly unfounded. The Tribunal also has categorically refused to consider the issue of threat and coercion……………………
In the instant case, assessee has stated in his reply dated 11.03.2022 that the cash was sent to his house for safe guarding by his son. The assessee has changed his stand what was given during the search u/s 132(4) and later. Here it is important to consider the fact that the assessee appeared before ED and Page 12 of 14 gave statement on 28.11.2017 almost after a period of about 4 months later. The statement given under section 132(4) of the Act is binding in this regard we rely on the one other judgement of the Hon’ble Apex Court in the case of ROSHAN LAL SANCHETI VS Pr. CIT[2023] 150taxmann.com228 (SC). In this judgement the Hon’ble Apex Court has confirmed the decision of Hon’ble Rajasthan High court reported in [2023]150 taxmann.com 227 (Rajasthan) in which it has been held as under:-
In view of the law discussed above, it must be held that statement recorded under section 132(4) of the Act and later confirmed in statement recorded under section 131 of the Act, cannot be discarded simply by observing that the assessee has retracted the same because such retraction ought to have been generally made within reasonable time or by filing complaint to superior authorities or otherwise brought to notice of the higher officials by filing duly sworn affidavit or statement supported by convincing evidence. Such a statement when recorded at two stages cannot be discarded summarily in cryptic manner by observing that the assessee in a belatedly filed affidavit has retracted from his statement. Such retraction is required to be made as soon as possible or immediately after the statement of the assessee was recorded. Duration of time when such retraction is made assumes significance and in the present case retraction has been made by the assessee after almost eight months to be precise, 237 days. 10. In the instant case the assessee at the later stage changed his statement without with the credible evidence cannot be Accepted and the same can be rebutted only on the ground that the same was made under mistaken belief of law or it was obtained by coercion or duress. The predominant judiciary view is that it is not open to the assessee to change the stand it has already taken after a significant lapse of time with cogent documentary evidence but here in this case the assessee has nothing to say with documentary evidence that the cash was given for safe keeping to his son for labourers payment. The learned Counsel for the assessee has strongly relied on the judgment of ED which is placed at Paper Book Page Nos.75 to 106 will not support the case of the Page 13 of 14 assessee. In this judgment it has been held that there is no contravention to section 3(b) of FEMA. During the course of search in the residence of Shri. K. M. Deekshith on 22.09.2017 and the statement recorded under section 132(4) of the Act, Shri. K. M. Deekshith has stated that he has handed over the cash to the residence of Shri. Rajnish Gopinath and statements were confronted to Shri. Rajnish Gopinath. During the course of penalty proceedings various opportunities were given. Assessee submitted reply that late V. G. Siddharth withdrew cash from the bank account and it was sent to Mr. Deekshith as he was not in town but there is no any proof. The assessee’s son was employed with M/s. Duffco but AO observed that it is not known about his work nature, his involvement in plantation in any previous occasions the assessee’s son has done such work or has handled money relating to plantation. Even during the course of appellate proceedings, during the first stage and second stages, assessee was unable to prove that the amount had to pay to the labourers as stated by the learned Counsel that the amount was kept in safe custody for payment to labourers without any documentary evidence. Therefore, the AO has rightly observed that the assessee has violated the provisions of section 269ST of the Act and imposed the penalty under section 271DA of the Act, is correct. We uphold the finding of both the authorities below and dismiss the appeal of the assessee.
In the result, appeal filed by the assessee is dismissed.
Pronounced in the court on the date mentioned on the caption page.