ASSANAR & SONS,KOTTAYAM vs. JTCIT, KOTTAYAM

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

The assessee in this case originally came in appeal before this Tribunal against order of CIT(A)-4, Cochin for the assessment year 2008-09 with regard to levy of penalty u/s 271E of the Income-tax Act,1961 ['the Act' for short] at Rs.1,69,20,000/-. The Tribunal disposed of this appeal in ITA Nos.191-193/Coch/2014 dated 14.11.2014 by recording as follows:-

“7. The brief facts of the case are that the assessee-firm is a partnership firm. The firm was dealing in raw rubber sheets and scrap rubber and small and medium farmers who supply rubber are the clients of the firm. These farmers were having regular accounts with the firm. During the assessment proceedings it was found that here was violation of provision of section 269T

ITA No.191/Coch/2014 Assanar & Sons, Kottayam

Page 2 of 13 of the Act in respect of deposit of Rs.1,69,20,000/- in three different bank accounts of the assessee firm and repayment of the same in cash, which attracted penalty u/s. 271E of the Act. The Assessing officer found that the Managing Partner of the firm Shri Mohamed Faizal has been very close to one Shri K.A. Thomas whose son was settled in USA who sent monies to his father for settling family disputes through his account. Shri K.A. Thomas entrusted Mohammed Faizal with the entire amount received from the bank account of his US based son to the assessee’s bank account by way of account payee cheque, i.e., in the name of M/s. Assanar & Sons. The Assessing officer further found that though the amount was not intended to be loan, rather for the sake of identity, it was shown as “K.A. Thomas Loan” in the books of the assessee. After the settlement of family disputes of Shri K.A Thomas with the intervention of Shri Mohammed Faizal, the managing partner of the assessee firm, the said amount was returned back by way of bearer cheques.

ITA No.191/Coch/2014 Assanar & Sons, Kottayam Page 3 of 13 11. The Ld. AR submitted that Shri K.A. Thomas had arranged Rs. 1,69,20,000/- from his US based son for settlement of family disputes. However, for the sake of convenience, Shri Thomas entrusted the above amount with Shri Mohammed Faizal, the managing partner of the assessee firm by account payee cheque. When the family settlement was over, the amount was taken by Shri K.A. Thomas which was made through cheques in the name of K.A. Thomas. The Ld. AR submitted that the amount was neither a loan nor a deposit. According to the Ld. AR, it was only an entry for the sake of convenience kept under safe custody for a short period and the said amount was not used for the purpose of business. Further, it was submitted that Shri K.A. Thomas had not made any claim on the firm regarding non receipt of the amount entrusted with it nor claimed any interest on the amount.

ITA No.191/Coch/2014 Assanar & Sons, Kottayam Page 4 of 13 15) CIT vs. Ratna Agencies (2006) 284 ITR 609 (Mad.). 16) Farrukhabad Investment (I) Ltd. vs JCIT (2003) 85 ITD 230 (Del.). 17) ITO vs. VS. Hostel, 2012 (11) TMI 463 (Guj.) 18) CIT vs. Mahabal Shetty, 2011 (9) TMI 189 (Bom.).

Details of Return of money by closure of deposits

ITA No.191/Coch/2014 Assanar & Sons, Kottayam

Page 5 of 13 Rs.18,00,000 closed on 12-11-2007 and gave to K.A. Thomas between 12-11-2007 and 22-03-2008 in installments.

Thus, the Ld. DR submitted that it is clear from the schedule of payment that though the amount has been paid to the assessee firm on 3rd and 4th may, 2007, the same has been returned back during the period from 27-072007 to 22-03-2008 in various installments. According to the Ld. DR, the assessee firm was only the custodian of the money received in good faith from Shri K.A. Thomas in order to resolve certain family disputes, but it is very clear from the facts that in this whole transaction, there were only two persons one Shri Mohammed Faizal, the managing partner and the other Shri K.A. Thomas who has deposited the money with the firm. According to the Ld. DR there was no family dispute or settlement either through the repayment of the money or under the statement on oath given by Shri Mohammed Faizal who denies having known the family members of Shri K.A. Thomas.

ITA No.191/Coch/2014 Assanar & Sons, Kottayam

Page 6 of 13 money was received by the assessee from Shri K.A. Thomas and repayment to him. But this is attributable to the various exigencies of business. The Ld. Counsel took the plea before us that it was kept only for safe custody and he made fixed deposit of the money received from Shri K.A. Thomas and on encashment of the fixed deposit, it was repaid back to Shri K.A. Thomas.

17.1 Before us, the Ld. Counsel explained that Shri K.A. Thomas was the teacher of the assessee’s partner Shri Faizal Mohammed, who had some properties which were jointly owned by his family members. According to the Ld. Counsel, there were certain issues regarding division and settlement of the properties among the parties and Shri Faizal Mohammed, the Manager of the firm being close to the family and having business relations happened to be the Mediator in the issues, for settlement of their family financial matters. The Ld. Counsel submitted that after the first round of negotiations, Shri Thomas arranged Rs.1,69,20,000/- from his son who was working in USA for distribution among members and Shri Thomas had the apprehension that the money which he received from his son, if kept in his bank account, was likely to have threat of some Court attachment, during the course of negotiations from his family members. As a matter of abundant caution, Shri Thomas entrusted the money with M/s. Assanar & Sons by account payee cheque, in view of his confidence in the firm and the personal relationship with Shri Faizal Mohammed. Thereafter, when the family settlement was over, the amount was taken back by Shri Thomas himself which was made through cheques in the name of K.A. Thomas who later migrated to USA.

17.2 It is also undisputed fact that Shri K.A.Thomas has not made any claim on the firm regarding non receipt of the amount entrusted with it, nor claimed any interest on the huge amount, as other people will normally do and further, the firm has not utilized the amount for any of its purposes. It is also on record that the firm had no need of funds as evident from records and it has not availed any loan or accepted any deposit for the last eight years.

17.3 The amount of Rs.1,69,20,000/- was entrusted with the firm in 3 installments of Rs.79.20 lakhs, Rs.54 lakhs and Rs.36 lakhs each, when the firm had no need of any funds and on the date of receipt of the first instalment of Rs.79.20 lakhs, it had a cash and bank balance of Rs.75.04 lakhs. This amount of Rs.79,20,000/- was received on 03/05/2007 by cheque, which was deposited into the bank and cleared on 4/5/2007 and the amount was deposited with Indian Overseas Bank as fixed deposits on 4/5/2007 itself. This deposit was closed on 26/07/2007 and cheques issued in his favour was cleared from the bank by Shri K.A. Thomas on 27/7/2007. All other amounts were also deposited similarly on the very day of receipt and subsequently withdrawn and handed over to Shri K.A. Thomas and thus, no part of the funds was brought to the main stream of the assessee’s business.

ITA No.191/Coch/2014 Assanar & Sons, Kottayam

Page 7 of 13 17.4 It is to be noted that a businessman usually takes loan or accept deposit for meeting working capital requirements, repayment of debts or increase in fixed assets and no person will take a loan or accept deposit without any purpose. Thus, the entire money entrusted for safe custody was deposited into a Bank, and returned to Shri Thomas, through cheques and no part of the money was used by the assessee for any business or other purposes which itself shows that the amount was not a loan or deposit.

17.5 In our opinion, the above explanation offered by the assessee is bona fide and reasonable, the penalty is not exigible u/s. 271E in the case of amount received by the assessee not as a loan or as a deposit.

ITA No.191/Coch/2014 Assanar & Sons, Kottayam

Page 8 of 13 a technical or venial breach of the provisions of the Act. It was held in the case of CIT vs. Madhav Enterprises Ltd. (356 ITR 588) (Guj.) that when it is neither deposit nor loan, provisions of sec. 269T shall have no application. Further, as seen from the chart furnished by the assessee, the assessee has earned meagre income from 2004-05 to 2008-09 ranging from Rs. 1.45 lakhs to Rs.11.88 lakhs and it cannot be said that knowingly the assessee would expose itself to such huge penalty. If at all there is fault on the part of the assessee, the same is only of technical nature. No penalty is leviable for such technical default. The assessee has dealt with these transactions in good faith and out of casualness, in these circumstances, it cannot be considered for levy of penalty under section 271E of the Act. Further, the provisions of section 271E confer discretion on the competent authority to levy or not to levy penalty. In our view, such discretion needs to be exercised with wisdom and in a fair and just manner. The Supreme Court in the case of Kum. A.B. Shanthi (122 Taxman 574) held as under:

“It is important to note that another provision, namely section 273B was also incorporated which provides that notwithstanding anything contained in the provisions of section 271D, no penalty shall be impossible on the person or the assessee, as the case may be, for any failure referred to in the said provision, if he proves that there was reasonable cause for failure to take a loan otherwise than by account payee cheque or account payee demand draft, then the penalty may not be levied. Therefore, undue hardship is very much mitigated by the inclusion of section 273B. If there is a genuine and bona fide transaction and if for any reason the taxpayer cannot get a loan or deposit, by account payee cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty has got discretionary power.”

18.2 Thus, in our opinion, there was a reasonable cause as provided under section 273B of the Act as the assessee has received the amount as custodian in view of family arrangements. It can be safely held that the bona fide belief constitute all reasonable cause, as provided under section 273B. In these circumstances and also keeping in view of the decision of the Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. vs. State of U.P. (1979) (118 ITR 326), it was held that there was a reasonable cause within the meaning of section 273B and, therefore, no penalty is leviable under section 271E of the Act. The facts and circumstances of the present case clearly indicate that there was a reasonable cause and, therefore, no penalty is leviable. It is well settled law that “reasonable cause” could be reasonably said to be a cause which prevents a man of average intelligence and ordinary prudence acting under normal circumstances without negligence or inaction or want of bona fides”. In the present case, it is noticed that the amount was kept in the form of bank deposit and not used for business purposes and later repayments were made to Shri K.A. Thomas and it is obvious that the assessee entertained a bona fide belief that no contravention of any provisions of Income-tax Act was being made while making the transaction and it cannot be considered as violation of contravention of sec. 269T of the Act. Accordingly, we delete the penalty and the appeal of the assessee is allowed.

ITA No.191/Coch/2014 Assanar & Sons, Kottayam Page 9 of 13

“10. We have perused the record and we take note of the contentions advanced by the counsel appearing for the parties. To appreciate the substantial questions of law formulated by the Revenue, we would have gone by the details set out in the order of the Tribunal; In the case on hand, the Joint Commissioner and the Commissioner of Income Tax (Appeals) have referred to a few reasons as cogent reasons warranting levy of penalty on the assessee. The Tribunal, in our considered view, has recorded a finding in favour of the assessee which is not impugnable. In normal course, the findings recorded by the Tribunal would have been examined by this Court to the extent permissible in law and answered the questions. The additional documents now brought on record, it is possible, may invite fresh examination of bona fide belief or reasonable cause relied on by the assessee. We refrain from undertaking the responsibility of examining the case of assessee that the assessee had reasonable cause for not following the requirement of law. But we are of the view that the matter, if remitted to the Tribunal, ,the parties would have reasonable opportunity and thereupon the claim/explanation of the assessee considered by the Tribunal.

ITA No.191/Coch/2014 Assanar & Sons, Kottayam

Page 10 of 13 2.2 Hence, this case came up for hearing before this Tribunal once again. 3. We have heard the rival submissions and perused the materials available on record. We have carefully gone through the impugned letters filed by the department before High Court which reads as follows:-

ITA No.191/Coch/2014 Assanar & Sons, Kottayam

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ITA No.191/Coch/2014 Assanar & Sons, Kottayam

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3.1 The above confirmation letter given by K.A. Thomas is fortifying the case of the assessee that assessee has given an amount of Rs.1,69,20,000/- to the assessee firm through Mr. T.A. Mohammed Faizal, Thenanakkal House, Kanjirappally by way of account payee cheques/drafts. This amount has been received by K.A. Thomas from his son Justin Thomas, who has been working in US from August, 1997 onwards. He has remitted the said amount to his NRI account No.348 with Federal Bank Uzhavoor and transferred to K.A. Thomas account No.1495 in his name and account No.1494 in his wife’s account i.e. Alfonsa Thomas. The said amount has been given on 2.5.2007 by way of cheque for Rs.79.2 lakhs and 10 bank drafts of Rs.9 lakhs each issued by Federal Bank charging to those bank accounts of K.A. Thomas and his wife. Thus, the above evidence brought on record by department before the High Court supports the case of the assessee that the said impugned amount has been kept in the form of bank deposit and not used for business purpose and later repayments were made to K.A. Thomas and the assessee is having bonafide belief that there was no contravention of any provisions of Income Tax Act and it cannot be said that there was

ITA No.191/Coch/2014 Assanar & Sons, Kottayam Page 13 of 13 violation of provisions of section 269T of the Act so as to levy penalty u/s 271E of the Act. In our opinion, the additional evidence filed by revenue before High Court surely supports the case of the assessee rather than the case of the department to hold that the if at all there is a fault on the part of the assessee, the same is only technical in nature and having no intention to avoid tax and for such technical breach, no penalty could be levied on assessee. More so, the said transaction cannot be considered as a lone transaction as there was no stipulation towards repayment or interest. Accordingly, we delete the penalty levied by AO u/s 271E of the Act.

Sd/- Sd/- (N.V. Vasudevan) (Chandra Poojari) Vice President Accountant Member

Bangalore, Dated 25th Oct, 2022. VG/SPS

Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order

Asst. Registrar, ITAT, Bangalore.