TMI Blog2018 (7) TMI 2243X X X X Extracts X X X X X X X X Extracts X X X X ..... ginder Singh, Judicial Member, And Shri G. Manjunatha, Accountant Member Revenue by Shri Abhijit Pathankar-DR Assessee by Shri Vijay Mehta ORDER Per Joginder Singh (Judicial Member) This bunch of the six appeals is by the Revenue against the impugned orders all dated 16/09/2016 of the Ld. First Appellate Authority, Mumbai, deleting the penalty imposed under section 271E and 271D of the Income Tax Act, 1961 (hereinafter the Act), on the ground that the genuineness of the transactions were not established by the assessee. 2. During hearing, the ld. CIT-DR, Shri Abhijit Patankar, defended the penalty imposed by the Ld. Assessing Officer by contending that the Ld. Commissioner of Income Tax (Appeal) ignored the factual matrix, while deleting the penalties, that the assessee did not establish the genuineness of the transaction. On the other hand, the ld. counsel for the assessee, Shri Vijay Mehta, defended the impugned order by claiming that the impugned issue is covered by the decision from Hon'ble Delhi High Court in the case of Commissioner of Income-tax v. Noida Toll Bridge Co. Ltd. 262 ITR 260 (Del.) and also from jurisdictional High Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee would not amount to repayment of any loan or deposit otherwise than by account payee cheque or account payee bank draft within the meaning of Section 269T to attract levy of penalty under Section 271E of the Income Tax Act, 1961 ? 2. The assessment year involved herein is AY 2003-04. 3. The respondent-assessee, a Public Limited Company, is a member of the National Stock Exchange and is also a Category I Merchant Banker, registered with the Securities and Exchange Board of India (SEBI). The assessee is engaged in the business of shares, stock broking, investment and trading in shares and securities. 4. In the assessment year in question, the assessee had filed its return of income declaring loss of ₹ 17,27,21,815/-. The assessment was completed on 5th November 2003 under Section 143(3) of the Income Tax Act, 1961 ('Act' for short) determining loss at ₹ 9,84,92,500/-. 5. Prior to 1st April 2002, the assessee had accepted a sum of ₹ 4,29,04,722/- as and by way of loan/inter-corporate deposit from the Investment Trust of India which was repayable during the assessment year 2003-2004. During the previous year relevant to the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate Limited and Ketan V Parekh and held that the payment through journal entries do not fall within the ambit of Section 269SS or 269T of the Act and consequently no penalty can be levied either under Section 271D or Section 271E of the Act. Challenging the aforesaid order, the Revenue has filed the present appeal. 8. Mr. Suresh Kumar, learned counsel appearing for the Revenue submitted that the assessee belongs to the Ketan Parekh Group, which is involved in the securities scam. He submitted that the Ketan Parekh Group was found to be indulging in large scale manipulation of prices of select scripts through fraudulent use of bank and other public funds and had flouted all the norms of risk management by making transactions through a large number of entities so as to hide the nexus between the sources of funds and their ultimate use with the sole motive of evading tax. He submitted that since the language of Section 269T of the Act is clear and unambiguous, the Tribunal ought to have held that repayment of the loan/inter-corporate deposit otherwise than by account payee cheque or demand draft was in violation of the provisions of Section 269T of the Act and, hence, the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts of the present case, no fault could be found with the repayment of loan through journal entries. 11. Mr. Pardiwala submitted that Section 269T, if plainly read, supports the contention of the Revenue that each and every loan or deposit has to be repaid only by an account payee cheque or draft. However, such literal interpretation, if accepted, would lead to absurdity because, by such interpretation not only mala fide transactions but even the genuine transactions would be affected. Relying on the judgments of the Apex Court in the case of Asstt. Director of Inspection (Investigation) v. Kum. A.B. Shanthi [2002] 255 ITR 258 / 122 Taxman 574 and CIT v. J.H. Gotla [1985] 156 ITR 323 /23 Taxman 14J (SC) counsel for the assessee submitted that if a strict and literal construction of a statute leads to an absurd result, that is, a result not intended to be sub-served by the object of the legislation ascertained from the scheme of the legislation and if another construction is possible apart from the strict and literal construction, then, that construction should be preferred to strict literal construction. 12. Referring to the provisions contained in the Code of Civil Proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or other person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such loans or deposits, is twenty thousand rupees or more : Provided that where the repayment is by a branch of a banking company or co-operative bank, such repayment may also be made by crediting the amount of such loan or deposit to the savings bank account or the current account (if any) with such branch of the person to whom such loan or deposit has to be repaid : Provided further Explanation. - For the purposes of this section, - (i) (ii) (iii) loan or deposit means any loan or deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes loan or deposit of any nature. ** ** ** Penalty for failure to comply with the provisions of Section 269T 271E.- (1) If a person repays any loan or deposit referred to in Section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so repaid. (2) Any penalty imposable unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirement of Section 269T is further fortified by Section 276E inserted along with Section 269T on 11th July 1981 which provides that if a person referred to in Section 269T of the Act repays any deposit in contravention of Section 269T then such person shall be punishable with imprisonment for a period upto two years and also liable to fine equal to the amount of deposit. Thus, the negative language used in Section 269T as also the penal consequences provided in Section 276E for non-compliance of the procedure prescribed under Section 269T leave no manner of doubt that repayment of deposit in the manner prescribed under Section 269T is mandatory. 18. With effect from 1st April 1989, Section 276E dealing with the consequences on failure to comply with Section 269T has been omitted and Section 271E has been inserted which provides penalty for failure to comply with Section 269T of the Act. Section 269T has been substituted by Finance Act 2002 with effect from 1st June 2002 wherein the provision relating to repayment of deposit exceeding the prescribed limit by account payee cheque/draft has been extended to repayment of loans as well. Thus, with effect from 1st June 2002, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission from the said foreign insurers, J B Boda Company with the approval of the Reserve Bank of India retained the foreign currency to the extent of the commission and remitted the balance amount to the foreign reinsure Rs. As deduction under Section 80-O of the Act in respect of the amount retained as commission was denied by the income tax authorities as also the High Court, the Company approached the Apex Court and the Apex Court held that to insist on a formal remittance to the foreign reinsurers first and thereafter to receive the commission from the foreign reinsurer would be an empty formality and a meaningless ritual on the facts of that case. Accordingly, the Apex Court held that the Company was entitled to 80-O deduction in respect of the commission retained by the Company. In our opinion, the aforesaid decision of the Apex Court has no relevance to the facts of the present case, because, Section 80-O and Section 269T operate in completely different fields. The object of Section 80-O is to encourage Indian Companies to develop technical knowhow and make it available to foreign companies and foreign enterprises so as to augment the foreign exchange earnings, where as, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absurdity. No doubt, that in some cases genuine business constraints may necessitate repayment of loan/deposit by a mode other than the mode prescribed under Section 269T. To cater to the needs of such exigencies, the legislature has enacted Section 273B which provides that no penalty under Section 271E shall be imposed for contravention of Section 269T if reasonable cause for such contravention is shown. 23. The expression 'reasonable cause' used in Section 273B is not defined under the Act. Unlike the expression 'sufficient cause' used in Section 249(3), 253(5) and 260A(2A) of the Act, the legislature has used the expression 'reasonable cause' in Section 273B of the Act. A cause which is reasonable may not be a sufficient cause. Thus, the expression 'reasonable cause' would have wider connotation than the expression 'sufficient cause'. Therefore, the expression 'reasonable cause' in Section 273B for non-imposition of penalty under Section 271E would have to be construed liberally depending upon the facts of each case. 24. In the present case, the cause shown by the assessee for repayment of the loan/deposit otherwise than by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. Ors. vs ACIT (ITA No.475 to 481/Mum/2014, etc), order dated 27/06/2014, wherein, on identical issue, the appeals of the assessee were allowed. The aforesaid order dated 27/06/2014 of the Tribunal is reproduced hereunder:- There are 7 appeals under consideration involving seven different assessees. These are the sister concerns belonging to Lodha Group. All these appeals are filed by the assessees involving AY 2009-2010 against the common order of the CIT (A)- 38, Mumbai, dated 31.12.2013 involving penalty u/s 271D of the Act. Levy of penalty u/s 271D/E of the Income Tax Act is the issue in these appeals and the CIT (A) passed separate orders, dated same involving penalty u/s 271E. Since, the issues raised by the assessees in all the seven appeals are identical. Therefore, for the sake of convenience, they are clubbed, heard combinedly and disposed of in this consolidated order. Appeal wise and ground wise adjudication is given in the following paragraphs. To start with, we shall undertake to adjudicate the appeal in the case of Lodha Builders Pvt Ltd in the succeeding paragraphs involving two penalties u/s 271D 271E of the Act . 2. This appeal ITA No.476/M/2014 filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the circumstances of the case and in law, the Ld CIT (A) erred in not deleting the penalty levied under section 271D of the Act by applying the provisions of section 273B and also not appreciating the detailed explanations, clarification and documents submitted by the appellant in support of the impugned genuine and bona fide business transactions, the rationale and commercial exigency for effectuating such transactions and the existence of reasonable cause for making journal entries for assigning or transferring the rights / receivables and liabilities amongst the group companies.... 2.1 In another appeal ITA No.481/M/2014 involving the penalty u/s 271E, the assessee raised identical grounds. 3. During the proceedings before us, assessee filed an additional ground on 23.4.2014 identical to all the appeals and the same reads as under: On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in holding that the penalty order passed by the Addl. CIT is within the limitation date. The impugned penalty order is time barred under section 275(1)(c) of the Act and hence, the said order is liable to be quashed. 4. Briefly stated relevant facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the assessee was rejected and eventually held that the assessee violated the provisions of section 269SS and 269T of the Income tax Act. It contains the decision of the AO to make a reference to the Addl. CIT, CR-6,Mumbai vide letter dated 11.1.2012 for initiation of penalty proceedings. He intimated that the assessee accepted loans from various sister concerns through journal entries which amounts to other than account payee cheques / drafts and informed that assessee violated the provisions of section 269SS and 269T of the Act. The amount of such loans accepted from the sister concerns amounts to ₹ 495,23,61,634/-. The details of names of the loan lenders, JV through and the amount accepted through JV are tabulated as under: Lodha Builders Pvt Ltd AY 2009-2010 Name of the lender JV through Amt Accepted thro JV Abhinandan Lodha Lodha Developers ₹ 16,06,564/- Lodha Properties Development P Ltd ₹ 37,38,000/- Abhishekh Lodha Lodha Hi-Rise Builders Pvt Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vt Ltd Lodha Dwellers ₹ 2,59,47,923/- Lodha Hi rise Arihand Premises ₹ 17,20,00,000/- Ajitnath Hi Tech Builders ₹ 1,00,000/- Lodha Healthy Construction ₹ 33,30,00,000/- Parasnath Hi tech ₹ 1,75,00,000/- Kidga Vyukdcib Rs, 72,11,828/- Lodha Crown Buildmart Pvt Ltd ₹ 64,95,133/- Shri Sainath Enterprise ₹ 35,00,000/- Gandhar Builders Pvt ltd ₹ 14,50,000/- Lodha Land Developers Abhinandan Lodha ₹ 30,000/- M.P. Lodha ₹ 40,000/- Macro Tech Constrtn P Ltd Vivek Enterprise ₹ 1,64,26,354/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, the liabilities are transferred / assigned by the group companies to the assessee or to take effect of actionable claims / payments / received by group companies on behalf of the company. The journal entries were also passed in the books of accounts for reimbursement of expenses and for sharing of the expenses within the group. In such cases, the provisions of section 269SS of the Act have no application and for this, the assesse relied on the judgment of the Hon‟ble Madras High Court in the case of CIT vs. Idhayam Publications Ltd [2007] 163 Taxman 265 (Mad.) which is relevant for the proposition that the deposit and the withdrawal of the money from the current account could not be considered as a loan or advance. It is the contention of the assessee that there is no cash transactions involved and relied on the contents of the CBDT Circular No.387, dated 6th July, 1984 and mentioned that the purpose of introducing section 269SS of the Act is to curb cash transactions only and the same is not aimed at transfer of money by transfer / assignment of loans of other group companies. In this regard, Ld Counsel cited various decisions mentioned in para 7.4 of the impugned order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... binding judgment of the Hon‟ble Bombay High Court in the case of Triumph International (I) Ltd, dated 12th June, 2012 reported in 22 taxmann.com 138. Further, he reproduced the contents of the said judgment of the Hon‟ble High Court (supra) which is relevant for the proposition that where the loan / deposit were repaid by debiting the amount through journal entries, it must be held that the assessee has contravened the relevant provisions. Though the said judgment was delivered in the context of provisions of section 269T of the Act, the same was equally adopted for the provisions of section 269SS of the Act. Addl. CIT discussed on the irrelevance of the genuineness of the transactions in these matters of impugned penalty proceedings. He also examined the aspects of the bona fide and genuineness of the transactions before concluding that the assessee failed to establish the genuineness of transactions carried out. Addl. CIT further mentioned that even bona fide and genuineness of the transactions, if carried out in violation of provisions of section 269SS of the Act, the same would attract the provisions of section 271D of the Act. There was a discussion on the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l appeals of the group. Referring to the judgment of the Hon‟ble High Court in the case of Triumph International (I) Ltd (supra), assessee submitted that the commercial expediency of the group concerns is held to be acceptable reason for squiring up/swapping of the transactions by passing the journal entries and therefore, it constitutes a reasonable cause‟ in the instant case too. For this, assessee relied on the judgment in the case of Sun Engineering works Pvt Ltd 198 ITR 297 and others. It is the case of the assessee that the Hon‟ble High Court of Bombay eventually deleted the penalty on the ground of reasonable cause‟ and therefore, on appreciating the principles of commercial expediency‟ here in this case, the AO/ Addl. CIT should not have imposed the penalty. CIT (A) extracted the written submissions on the reasonable cause‟ vide the letters dated 15.4.2013 and 3.5.2013. Further, on these submissions, CIT (A) called for remand report of the AO vide letter dated 10.5.2013 and considered the remand report of the Addl. CIT dated 31.10.2013 before confirming the penalty. Further, CIT (A) discussed the factual matrix of the transactions inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initiation of the penalty proceedings during the very assessment itself (assessment dated 5.12.2011) (para 6 extracted above), the penalty order passed by the Addl. CIT on 28.9.2012 is barred by limitation of time. Assessee relied on the judgment of the Rajasthan High Court in the case of Jitendra Singh Rathore [352 ITR 327] (Raj). However, CIT (A) did not considered the said judgment of the Hon‟ble High Court. Instead, he relied on the decision of ITAT, Chandigarh Special Bench in the case of Dewan Chand Amit Lal [283 ITR (AT) 203]. In the said judgment, the Special Bench held that the limitation‟ does not commence from the date of the show cause notice issued by the Assessing Officer as Joint Commissioner is the empowered to impose the penalty. CIT (A) discussed the ratio of the said Rajasthan High Court judgment in the case of Jitendra Singh Rathore (supra) and extracted its conclusion that the period of limitation should be reckoned from the date of issue of notice from the AO and not from the date of issue of show cause notice by the Joint Commissioner. Without analyzing the distinguished features of the said judgment of the Rajasthan High Court, substantially, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings are initiated Six Months from end of month in which penalty was initiated (Asst. Order) Six months from the end of months in which penalty was initiated (SCN) Limitation for levy of penalty Extent ion of limitation u/s 275(2) Exp (i)r.w. 129 Extended limitation Date of penalty order 1 Lodha Builders Pvt Ltd 5.12.11 ACIT 11.1.12 271E 15.2.12 31.3.12 30.6.12 31.8.12 31.8.12 30 30.9.12 28.9.12 2 Lodha Builders Pvt Ltd 5.12.11 ACIT 11.1.12 271D 15.2.12 31.3.12 30.6.12 31.8.12 31.8.12 30 30.9.12 28.9.12 3 Ashtavinayak Real Estate Pvt Ltd 25.11.11 ACIT 11.1.12 271D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Therefore, the provisions of clause (a) have no relevance for the purpose of computing the time limitation. In this regard, he relied on various decisions to suggest that the penalty proceedings are separate and the limitation of time is to be accounted as per the provisions of clause (c) to section 275(1) of the Act. Referring to the said provisions of the said clause (c), Ld Counsel mentioned that the imposition of penalty needs to be completed not after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later . Referring to the interpretation of the expressions action for imposition of penalty‟, Mr Pardiwala mentioned that such action‟ if any is always anterior (= earlier) in time qua the initiation of the penalty. 14. Referring to the facts of the present case, Ld Counsel mentioned that the said action‟ has begun with the first show cause notice issued by the AO in the assessment proceedings (para 6 of the assessment order). Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Bench decision of the Tribunal. 15. Per contra, on this legal issue, it is the contention of Ld Sri Girija Dayal, CIT- DR that the impugned penalty orders of the AO and the CIT(A) need to be confirmed. Accordingly to him the provisions of clause (a) to section 275(1) apply to the present case and in that case, the orders are very much valid legally as there is no expiry of limitation of time. Further, he mentioned that the time limitation commences from the date of issue of show cause notice by the Addl. CIT, who has an authority to impose the penalty and not from the date of the SC notice of the AO or his order of the assessment, which contains the proposal to make a reference to the Addl. CIT for imposing the penalty. If the provisions of clause (a) are applied and the date of show cause notice issued by the Addl. CIT is considered, the penalty orders dated 28.9.2012 are very much in time and therefore, they are valid. However, in such case, Ld DR could not demonstrate the circumstances where the provisions of clause (c) of section 275(1) of the Act, can be invoked. It is thus summed up by the assessee‟s counsel that if the penalty matters are covered by the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21 to 27 of the said judgment and the same are produced as under: 21. By substituting section 275(1), which became operative from 1-4- 1989, the provision of divided cases for the purpose of prescribing limitation for completing penalty proceedings into three categories : (i)Category I covers cases where the assessment to which the proceedings for imposition of penalty relate is the subject-matter of an appeal to the Dy. CIT(A) or the CIT(A) under section 246 or with effect from 1-6-2000, section 246A or an appeal to the Tribunal under section 253; (ii)Category II covers cases where the relevant assessment is the subject-matter of revision under section 263; and (iii)Category III covers all other cases not falling within category I and category II which is governed by clause (c). By dividing into three categories the period of limitation for cases falling under category (i), i.e., clause (1)(a) is the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed or six months from the end of the month in which the order of the Dy. CIT(A) or the CIT(A) or, as the case may be, the Tribunal is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be initiated during the course of relevant assessment proceedings or the other relevant proceedings, as the case may be. The penalty proceedings could also be initiated during the appellate proceedings arising out of the relevant assessment proceedings. It is only where the assessment proceedings are independent and not directly linked to the assessment proceedings that the result of such proceedings in the course of which the penalty proceedings were initiated does not affect the levy of penalty. On such penalty proceedings, independent of the assessment proceedings, clause (c) has been made applicable. In this category, the period of limitation for completing the penalty proceedings is linked with the initiation of the penalty proceedings itself. In such cases, the penalty proceedings can be initiated independent of any proceedings but obviously, the penalty proceedings can be initiated only when the default is brought to the notice of the concerned authority which may be during the course of any proceedings and, therefore, for this type of cases where the penalty proceedings have been initiated in connection with the defaults for which no statutory mandate is there about any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able income; if clause (a) was to be invoked, no necessity of clause (c) would arise. 18. Similar interpretations were taken by the ITAT, Rajkot Bench (Third Member) in the case of ACIT vs. Dipak Kantilal Takvani [2013] 39 taxmann.com 53 (Rajkot - Trib.) (TM) and the penalty orders u/s 271D and 271E of the Act, being unconnected to the income of the assessee, are to be considered as per the provisions of clause (c) of section 275(1) of the Act. The said Rajkot Bench of ITAT has followed the judgment of the Rajasthan High Court in the case of Jitendra Singh Rathore (supra). In this case, the Hon‟ble High Court also observed that the first show cause notice for levy of penalty was issued by the AO though the authority obtained to initiate penalty proceedings has also subsequently issued a show cause notice as well. Hon‟ble High Court held that the penalty proceedings were initiated by issue of first notice from the AO and not from the date of issue of notice by the JCIT and thus, the penalty order passed after expiry of 6 months from the end of the month in which the action for imposition of penalty initiated was barred by limitation. The said decision of the ITAT in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monies are receivable in the books of accounts, is clearly outside the ambit of the provision of section 269SS of the Act, because pasing such entries does not involve acceptance of any loan or deposit of money. In the present case, admittedly no money was transacted other than through banking channels M/s. PACL India Ltd made certain payments through banking channels to land owners. This payment made on behalf of the assessee was recorded by the assessee in its books by crediting the account of M/s. PACL India Ltd. In view of this admitted position, no infringement ofsection 269SS of the Act is made out. This court, in the case of Noida Toll Bridge Co. Ltd (supra), considered a similar case where a company had paid money to the Government of Delhi for acquisition of a land on behalf of the assessee therein. The Assesing officer levied a penalty under section 271D of the Act for alleged violation of the provisions of section 269SS of the Act since the books of the assessee reflected the liability on account of the lands acquired on its behalf. On appeal, the CIT (A) affirmed the penalty. The order of the CIT was successfully impugned by the assesee before the ITAT. On appeal, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imitation period would be counted from the date of assessment order with the AO's decision to make referral to his Addl CIT, who is authorized to impose penalty. 22. In the instant case, it is an undisputed fact that the Assessing Officer discussed the details as to the violation of the provisions of section 269SS and 269T of the Act in the assessment order. It also contains a reference to the requirement of making a reference to the Addl. CIT, CR-6, Mumbai for necessary action. Para 6 of the assessment order, which is already extracted above paras, bears witness to the above findings. Further, to give effect to his findings in the assessment order, the AO wrote a letter to the Addl. CIT on 11.1.2012, intimating to him about the violation to the said provisions of the Act. On receipt of the said reference from the AO, Addl. CIT issued a show cause notice on 15.2.2012 calling for explanation of the assessee as to why the penalty u/s 271D should not be imposed in the case of the assessee. Eventually, Addl. CIT passed a penalty order u/s 271D of the Income Tax Act on 28.9.2012. Considering the fact that the assessment order is dated 5.12.2011 and as per the provisions of clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or] clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.] 24. Brief facts of the present case are that the assessee belongs Lodha group of cases and there are large number of transactions involving the receipts and payments of loans and advances among the sister concerns of the Lodha group settled by way of journal entries‟. During the assessment proceedings, AO asked the assessee to show cause as to why loans were accepted / repaid other than by the account payee cheque / draft. In this regard, assessee informed that the said loans / advances were transacted with the sister concerns only by way of journal entries‟ and there is no cash transactions involved the provisions of section 269SS and 269T have no application to the facts of the case. Thus, it is the case of the assessee that the said transactions with the sister concerns are for commercial reasons and they should be kept outside the scope of the provisions of sections 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned journal entries in that case do not escape the rigors of the provisions of section 269SS/269T of the Act. The CIT (A) did not appreciate the reasons‟ given by the assessee for receiving loans and advances through journal entries‟ as reasonable causes‟. It is the finding of Honble High court in the case of M/s Triumph International Ltd supra, that the transactions in question were undertaken not with a view to receive loans / deposits in contravention of section 269SS but with a view to extinguish the mutual liability of paying / receiving the amounts by the assessee and its sister concern to the customers. In the absence of any material on record to suggest that the transactions in question were not reasonable or bona fide and in view of section 273B of the Act, we see no reason to interfere with the order of the Tribunal in deleting the penalty..‟ He ignored the above finding of the Court and confirmed the penalty levied by the Addl. CIT. Aggrieved with the above decision of the CIT (A), the assessee is in appeal before the Tribunal with the argument that the assessee‟s reasons constitutes a reasonable cause. 27. During the proceedings befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of section 273B of the Act. The judgment in the case of Triumph International (I) Ltd dated 12.6.2012 (this judgment is different from that of judgment of Triumph International (I) Ltd dated 17.8.2012) and it explains the guidelines for the expression reasonable cause . 31. The contents of paras 23 and 24 of the said of judgment of the Hon‟ble High Court in the case of Triumph International (I) Ltd, dated 12.6.2012 reported in 345 ITR 370 (Bom) are relevant and the same reads as under: 23. The expression 'reasonable cause' used in Section 273B is not defined under the Act. Unlike the expression 'sufficient cause' used in Section 249(3), 253(5) and 260A(2A) of the Act, the legislature has used the expression 'reasonable cause' in Section 273B of the Act. A cause which is reasonable may not be a sufficient cause. Thus, the expression 'reasonable cause' would have wider connotation than the expression 'sufficient cause'. Therefore, the expression 'reasonable cause' in Section 273B for non-imposition of penalty under Section 271E would have to be construed liberally depending upon the facts of each case. 24. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is no finding of AO in the order of the AO during the assessment proceedings that the impugned transactions constitutes unaccounted money and are not bona fide or not genuine. As such, there is no information or material before the AO to suggest or demonstrate the same. In the language of the Honble High court, neither the genuineness of the receipt of loan/deposit nor the transaction of repayment of loan by way of adjustment through book entries carried out in the ordinary course of business has been doubted in the regular assessment. Admittedly, the transactions by way of journal entries are aimed at the extinguishment of the mutual liabilities between the assessees and the sister concerns of the group and such reasons constitute a reasonable cause. 34. In the present case, the causes shown by the assessee for receiving or repayment of the loan/deposit otherwise than by account-payee cheque/bank draft, was on account of the following, namely: alternate mode of raising funds; assignment of receivables; squaring up transactions; operational efficiencies/MIS purpose; consolidation of family member debts; correction of errors; and loans taken in case. In our opinion, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y imposed under Section 271D/E of the Act are not sustainable. Regarding an amount of money‟ said to have been paid in violation of the said provisions, the same needs to be deleted in view of our decision on the legal issue discussed in para 16 to 22 of the this order. Accordingly, the grounds raised in this regard are allowed. 1. I.T.A. No.475/M/2014 (AY 2009-10) (Lodha Properties Development Pvt Ltd) 2. I.T.A. No.477/M/2014 (AY 2009-10) (Asthavinayak Real Estate Pvt Ltd) 3. I.T.A. No.478/M/2014 (AY 2009-10) (Aadinath Builders Pvt Ltd) 4. I.T.A. No.479/M/2014 (AY 2009-10) (Ajitnath Hi-Tech Builders Pvt Ltd) 5. I.T.A. No.480/M/2014 (AY 2009-10) (Lodha Crown Buildmart Pvt Ltd) 36. All these appeals relate to the penalty u/s 271D of the Act. The facts, arguments and the legal propositions are identical, in principle, in all the five appeals under consideration. Therefore, our findings given in the context of the appeal in the case of Lodha Builders P Ltd (supra) are applicable to all the other five appeals of the assessees. Accordingly, the grounds raised in these appeals under consideration are also allowed. 37. In the result, all the 7 appeals of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of accounts, in breach of Section 269SS of the Act. In terms Section 269SS of the Act prohibits a person from taking / accepting any loan / deposit or specified sum, otherwise by an account payee cheque or by an account payee bank draft or by use of electronic clearing system of a bank if the amount involved is in excess of ₹ 20,000/-. This imposition of penalty under Section 271D of the Act, was upheld by a common order dated 31St December, 2013 passed by the Commissioner of Income Tax (Appeals). On further appeal, the impugned order dated 27t1 June, 2014 of the Tribunal, inter a/ia held that penalty under Section 271D of the Act is not imposable in view of Section 273B of the Act. This for the reason that there was a reasonable cause for the failure to comply with Section 269SS of the Act. (b) On merits of the issue, the parties before us are agreed that the Tribunal was correct in holding that receipt of any advance / loan by way of journal entries is in breach of Section 269SS of the Act as the decision of this Court in Commissioner of Income Tax Vs. Triumph International Finance (I) Ltd. 345 ITR 270 is binding upon it. However, the Revenue's grievance is with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consolidate debts, to correct clerical errors etc. Further; the Tribunal records that as observed by this Court in Triumph International Finance (supra) that journal entries constituted a recognized modes of recording of transactions and in the absence of any adverse finding by the authorities that the journal entries were made with a view to achieve purposes out side the normal business operations or there was any involvement of money, then, in these facts there was a reasonable cause for not complying with Section 2695S of the Act. (e) Mr. Mohanty's submission that the test laid down in Triumph International Finance (supra) will have no application in the present facts in view of the large number of entries in this case as compared to only one entry in the case before this Court. The test of reasonable cause can not, in the present facts be determined on the basis of the number of entries. If there was a reasonable cause for making the journal entries, then, the number of entries made, will not make any difference. Besides, on facts, the Tribunal was satisfied with the reasons given by the Assessee for reasonable cause and this finding is not shown to be perverse. Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... national Finance (supra). Our attention was also invited to numerous reported decisions of the Tribunal in the cases of Sunflower Builders Vs. Dy.CIT, 1997 (61) lTD (Pune) 227, Asst.CIT Vs. Ruchika Chemicals Investment (P) Ltd. 2004 (88) TTJ (Delhi)85 and Asst.CIT Vs. Lala Murari Lal Sons, 2004(2) SOT (Luck) 543 wherein it has been held journal entries in the book of accounts indicating deposit / loans will not fall foul of Section 269SS of the Act. Besides, the Delhi High Court in Commissioner of Income Tax Vs. Noida Toll Bridge Co. Ltd. 262 ITR 260 inter alia held that payment of ₹ 4.85 crores made by the assesses by a journal entry in its books of account by crediting the account of ILFS, would not fall foul of Section 2695S of the Act. This particularly in the absence of any payment being made in cash. (i) In the present facts, the period during which the journal entries were made by the respondents was in the previous year relevant to the Assessment Year 2009-10 i.e. Financial Year 2008-09. At that time, the decisions of the Tribunal in the cases of Triumph International (Supra) and decision of VH. Parekh (P) Ltd., Ketan V Parekh, Sunflower Builders (supra), Ruchi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2012-13. 2. The brief facts of the case are that the assessee is a firm engaged in the business of manufacture of printed polythene bags, filed its return of income for assessment year 2012-13 on 14.09.2012 declaring total income of ₹ 1,38,060/-. The assessment was completed u/s. 143(3) on 27.03.2015, assessing the total income of the assessee at ₹ 1,38,060/-. However, the A.O while completing the assessment, observed that the assessee has accepted loans in excess of prescribed limits otherwise then by way of account pay cheque or drafts, thereby violated the provision of section 269SS of the Act, which attracts penalty u/s. 271D of the Income Tax Act of 1961. 3. The Joint Commissioner of the Income Tax31(3), Mumbai, based on the observations of the assessing officer, initiated penalty proceedings u/s. 271D of the I.T. Act, 1961 and accordingly, issued a show cause notice dated 01.09.2015 which was duly served on the assessee, requiring it to show cause as to why penalty shall not be levied u/s.271D of the Act, for contravention of provision of Section 269SS of the I.T. Act, 1961. 4. In response to show cause notice, the assessee has filed its reply vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that there is no violation of provisions of Section 269SS of the Act, as it has accepted loans by way of book adjustment by passing necessary journal entries in the books of accounts for the existing loans appeared in the books of accounts of its sister concerns. The reasons for transferring existing loans from the books of its sister concerns is that its bankers are instating for additional capital contribution from the partners or their friends associates for the purpose of extending credit facilities. The assessee under bonafide belief, that acceptance of loans by way of book adjustment, would not attract provision of Section 269SS, has transferred existing loans from its sister concerns to its books accounts, therefore it cannot be considered as acceptance of loans other than by way of account payee cheque or bank drafts. In support of its arguments, relied upon the decision of Hon ble Bombay High Court, in the case CIT vs. Triumph International Finance (India) Ltd. (2012) 245 ITR 270 (Bom). 7. The CIT(A), after considering the relevant submissions of the assessee, held that accepting loans by way of book adjustment through journal entries is violation of Section 269SS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UF);1 SOT 346 (Agra) ix) ACIT vs. Gujarat Ambuja Proteins Ltd. 3 SOT 811 (Ahd.) 9. On the other hand, the Ld. DR strongly supported order of the CIT(A). The D.R further submitted that the provisions of section 271D would apply, if assessee accepts loans or deposits in contravention of the provision of Section 269SS of the Act. In this case, the assessee has accepted unsecured loans otherwise then by way of account payee cheque or bank draft, in contravention of Section 269SS of the Act, and hence, the A.O was rightly invoked the provision of Section 271D of the Act. 10. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O levied penalty u/s.271D of the Act, for contravention of provision of Section 269SS of the Act. According to the A.O, the assessee accepted unsecured loans otherwise then by way of account payee cheque or bank drafts in contravention of provisions of Section 269SS of the Act. It is the contention of the assessee that there is no contravention of provisions of Section 269SS of the Act, as it has accepted loans by way of book adjustments through journal entries to transfer ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of own capital or loans and advances from partners or their friends and relative for the purpose extending credit facilities. The assessee claims that these loans are genuine transaction which were accepted by way of cheques by its sister concern. The assessee further claims that it was under the bonafide belief that, acceptance of loans or deposit by book adjustment would not attract the provision of Sections 269SS of the Act. There is a reasonable cause, for failure to comply with the provision of Section 269SS of the Act, therefore penalty cannot be levied u/s. 271D of the Act. 13. Having heard both the sides and considered material on record, we find that the assessee has accepted loans by way of journal entries. The assessee has transferred loans standing in the name of its sister concern to its books of accounts for the purpose of enhancing its own funds as per the requirement of its bankers for the purpose availing credit facilities. The assessee has filed a paper book containing details of loan ledgers of parties appeared in the books of account of M/s. Atlanta International and also ledger accounts of loan creditors in the books of accounts. On perusal of detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny finding in the assessment order or in the penalty order to the effect that the repayment of loan or deposit was not a bonafide transaction and was made with a view to evade tax, the cause shown by the assessee was a reasonable cause and in view of Section 273B of the Act, no penalty u/s. 271E could be imposed for contravention of provisions of Section 269T. The relevant portion of the order is extracted below: Held, (i) that the Tribunal was not justified in holding that repayment of loan or deposit through journal entries did not violate the provisions of section 269T of the Act. ii) That it would have been an empty formality to repay the loan or deposit amount by accountpayee cheque or draft and receive back almost the same amount towards the sale price of the shares. Neither the genuineness of the receipt of loan or deposit nor the transaction of repayment of loan by way of adjustment through book entries carried out in the ordinary course of business had been doubted in the regular assessment. There was nothing on record to suggest that the amounts advanced by I to the assessee represented the unaccounted money of I or the assessee. The fact that the assesseecompany b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 269SS of the Income-tax Act ? 2. Whether the order of the Income-tax Appellate Tribunal is perverse on both law and merits ? Briefly stated, the facts giving rise to the present appeal are that the respondent-assessee, referred to as the special purpose vehicle , was promoted by one Infrastructure Leasing and Finance Services Ltd. ( IL FS ), with 30 per cent holding, to construct and operate a bridge on the river Yamuna on a build, own, operate and transfer basis. For undertaking the said project the assessee had to make a payment of ₹ 4.85 crores to the Government of Delhi in relation to the acquisition of land for the said project. 2. While completing the assessment of the assessee for the assessment year 1998-99, the Assessing Officer initiated penalty proceedings under section 271D of the Act as he was of the view that the assessee had violated the provisions of section 269SS of the Act because the payment of ₹ 4.85 crores to the Delhi Government was not made in the manner prescribed in section 269SS of the Act. We may note at this stage itself that the said payment had in fact been made by IL FS vide account payee cheque to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment Year 2007-08). It is noted that the Ld. Addl. CIT following the decision from Hon'ble jurisdictional High Court in the case of Triumph International Finance (I) Ltd. ((supra)) (also relied upon by the Ld. CIT-DR) held that there is a contravention of the provisions of section 269SS of the Act and further the assessee could not prove a reasonable cause for contravention of the provision. He observed that since the disclosure was made by the group companies before the income settlement commission, Mumbai, following search in Lodha Group of Cases on 10/01/2011, it could not be ruled out that the entities through such repayment/acceptance by way of journal entries are involved in transactions for the purpose of tax evasion. Whereas, the stand of the assessee is that the journal entries passed for transaction assigning debts and liabilities among sister concern and reimbursement of expenses do not constitute acceptance of loan or deposit of money as per the provisions of section 269SS of the Act. The stand of the Revenue is that the assessee company has also paid interest on such loans and since the transactions are more than the amount of ₹ 20,000/- and not through ..... X X X X Extracts X X X X X X X X Extracts X X X X
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