By TIOL News Service

CHENNAI, MAY 30, 2018: THE ISSUE is - Whether regular transactions with an unauthorised lender can be condoned merely because the loan and repayment transactions executed by such a lender was not in accordance with the prohibitory provisions under I-T Act. NO is the verdict.

Facts of the case:

A survey u/s 133A was conducted in the case of Mr. A.Kannan, Proprietor, wherein, books of accounts and other supporting documents were seized. The said impounded documents revealed that A. Kannan carried on business of lending without having a licence towards it. Further, the AO found that the loans and repayment had not been accounted for in the firm's regular books of accounts in which the assessee was partner. While inspecting the the books of A.Kannan, it was noticed that the assessee had repaid the loan of Rs.20,00,000/- in cash to A.Kannan on various dates. Accordingly, notice u/s 271E r/w Sec. 269T was served on the assesee. The assessee had submitted the explanation but, the same was not accepted by the AO. It was then found that the fact that the assessee had taken and repaid loans in cash was admitted. Moreover, the assessee failed to claim to have a reasonable cause contemplated u/s 273B to the satisfaction of the AO. Hence, penalty was levied to the extent of the amount equivalent to the loan amount repaid under Ss 271E and 271D in relation to the AYs 2008-2009 and 2012-2013.

On appeal, the CIT(A) deleted the penalty levied under Ss 271E & 271D. However, on further appeal, the Tribunal reversed the findings of the CIT(A) and restore that of the AO by sustaining the penalty levied under Ss 271E and 271D for both the relevant AYs.

High Court held that,

++ every AY is different and a factual finding pertaining to any one assessment does not operate as a binding precedent in respect of subsequent AYs. The orders of other Benches of coordinate strength of the Tribunal pertaining to other AYs and/or to other assessees would not operate as a precedent. In this context, it would perhaps not be out of context to note that statutory provisions which prohibit acceptance of repayment of loans in cash are binding on all Income Tax payees and breach thereof attracts the penal provisions of the IT Act, and renders an assessee taking or repaying loans exceeding Rs.20,000/- liable to penalty. Perhaps interference on the ground of breach of consistency or on the ground of perversity may have been warranted if loan in cash had been taken once or twice in exceptional exigencies. However, the fact that a lender, not even licensed, was illegally giving loans only in cash and accepting repayments in cash cannot be ground for condonation of regular transactions with such an unauthorised lender;

++ the Counsel for the assessee is correct in his submission that provisions should be initiated against the lender, A.Kannan. In these appeals, we are not concerned with A.Kannan. It is for the Department to proceed against A.Kannan. However, the mere fact that proceedings may not have yet been initiated against the said A.Kannan, does not entitle the assessee to relief. It is well settled that there cannot be any equality to a wrong and Article 14 of the Constitution of India does not permit extension of the benefit of a wrong order and/or decision to others similarly circumstanced. We are of the view that the Appellate Tribunal was correct in law in restoring the order of the AO for imposition of penalty under Ss 271D and 271E;

++ it is true that the appeals were entertained. However, on detailed examination of the contentions of the respective Counsel, we are of view that the finding arrived at by the Appellate Tribunal is a finding on facts. The Tribunal, on consideration of the facts, was of the view that there was no such reason for regular loan transactions of borrowing and repayment in cash of amounts exceeding Rs.20,000/- so as to escape penal liability under Ss 271E and 271D. There is no question of law, not to speak of any substantial question of law, involved in these appeals. Deliberate flouting of the law can never be a justification for exemption from penalty, except in the rarest of rare cases of extreme exigency.

(See 2018-TIOL-1011-HC-MAD-IT)