ALIPURDUAR TEA CO. LTD.,KOLKATA vs. A.C.I.T.,RANGE-4, KOLKATA

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ITA 1593/KOL/2019Status: DisposedITAT Kolkata26 November 2020AY 2012-133 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee had sufficient cause for taking loans in cash due to financial stringency and the necessity of timely payments to workers. The transactions were genuine, and the violation was technical.

What were the facts?

The assessee company took loans in cash exceeding the prescribed limit from group companies to pay wages and statutory dues due to financial crisis and workers' unrest. The Assessing Officer levied penalty for violating Section 269SS.

What were the issues?

Whether penalty under Section 271D is leviable for violation of Section 269SS when there is a sufficient cause due to financial exigency.

Which sections of the Income-tax Act were involved?

Section 269SS,Section 271D

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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA

Before: Sri J. Sudhakar Reddy & Sri Aby T. Varkey

order

: November 26th, 2020 ORDER

Per J. Sudhakar Reddy, AM:

1.

This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals)-2, Kolkata [hereinafter ld. ‘CIT(A)’ for short] dated 07.05.2019 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’ for short) for Assessment Year 2012-13.

2.

After hearing rival contentions we find that the AO has levied penalty on the assessee for taking loans in cash exceeding the limit described u/s 269SS of the Act. The loans taken by the assessee are from (a) IIC Container Line Ltd. of ₹4,55,000/-, (b) Rahima Lands & Tea Co. Pvt. Ltd. of ₹1,23,000/-, totalling to ₹5,78,000/-. 3. The assessee’s case is that, it was a sick company and was suffering from financial crisis due to workers’ unrest and such problems and that the assessee had to borrow money from group companies and others to pay wages and statutory dues to the workers on time as it had no money. 3.1. The explanation of the assessee is at pages 1 & 2 of the order passed u/s 271D of the Act.

Assessment Year: 2012-13 Alipurduar Tea Co. Ltd. 3.2. The AO rejected this contention on the grounds that, existence of financial crisis and adherence to the prescribed mode of borrowing funds and taking loans are not in conflict with each other. He also comments that there are plenty of instances, wherein even when a company has financial difficulties, loans & financial accommodations are provided, even by the group companies, through prescribed modes. He held that by merely citing financial crisis, the adherence to the provisions of law cannot be countenanced so as to make the provisions redundant and ineffective. He levied penalty of 100% u/s 271D of the Act for violation of Section 269SS of the Act.

4.

On appeal, the ld. CIT(A) confirmed the penalty.

5.

In our view, the assessee was prevented from sufficient cause from taking loans in cash beyond the limit prescribed u/s 269SS of the Act. Having financial stringency, the necessity of paying the labour, wages and statutory dues compelled the assessee to take one or two of several loans in cash. The explanation given by the assessee demonstrates that it had a reasonable cause for taking loan in cash in excess of ₹20,000/-. The transactions admittedly are genuine. Hence the violation if any, is only technical and venial. Penalty cannot be levied to the assessee.

5.1. The Madras High Court in the case of CIT vs. Idhayam Publications Ltd. (2006) 285 ITR 221 (Mad.) held as follows:

“Penalty under s. 271D—Contravention or breach of s. 269SS—Penalty for failure to comply with the provisions of s. 269SS prohibition acceptance of loans or deposits in cash—A director in the assessee company and depositing and withdrawing money in his account with the company—The transaction between the appellant and the director-cum-shareholder is not a loan or deposit and it is only a current account in nature and no interest is being charged for the above transaction—Hence, there is no violation of s. 269SS and levy of penalty is not called for” 5.2. The Madras High Court in the case of CIT vs. Deccan Designs (India) (P) Ltd. (2012) 347 ITR 580 (Mad) held as follows:

“Penalty under s. 271D/271E—Leviability—Amount of Rs. 52.8 lakhs & 44.6 lakhs received in cash from sister concern—There being no contrary material, finding of the fact recorded by CIT(A) that amounts in cash were received by assessee from its sister concern with a view to save its existence and mainly for the purpose of disbursement of salary to the employees as upheld by the Tribunal could not be disturbed, hence order deleting under s. 271D/271E interfere with—Mere fact that at any given point of time, the assessee had cash balance of Rs. 50,000 that cannot be a ground to hold that on the sole ground, the transactions would become either not genuine or the circumstances, which necessitated the transactions were unreasonable or that there was no exigency warranting such transactions”

Assessment Year: 2012-13 Alipurduar Tea Co. Ltd. 6. Applying the propositions of law laid down in those cases, facts of the above cases to the facts of this case, we hold that the penalty in question is to be deleted. Hence, we delete the same and allow the appeal of the assessee.

7.

In the result, the appeal of the assessee is allowed. Kolkata, the 26th November, 2020. Sd/- Sd/- [Aby T. Varkey] [J. Sudhakar Reddy] Judicial Member Accountant Member Dated: 26.11.2020 Bidhan (P.S.) Copy of the order forwarded to:

1. 1. Alipurduar Tea Co. Ltd., 2, Church Lane, Kolkata-700 001.

2. Addl. CIT, Range-4, Kolkata.

3. CIT(A)-2, Kolkata. (sent through mail) 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. (sent through mail)

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