TMI Blog2014 (8) TMI 872X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi Versus Sh. Dinesh Jain [2014 (6) TMI 140 - ITAT DELHI] - it is the AO who applies mind during the assessment proceedings to the issues relating to the violation of section 269SS or 269T of the Act and therefore, the limitation should commence from the date of the Assessment Order. 'journal entries' are outside the scope of the relevant penal provisions - the provisions of clause (a) of section 275(1) of the Act would not apply and in alternative, the provisions of section 275(1)(c) only be attracted in the matters of penalties levied u/s 271D/271E of the Act - the limitation 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 - The orders of the penalty of this kind have to be explained considering the provisions of clause (c) of section 275(1) of the Act - these preliminary acts constitute "action for the imposition of penalty" - An action for imposition of penalty is always anterior in time to the "actual" imposition of penalty – Decided in favour of Assessee. Applicability of provisions of section 273B - Reasonable Cause – Held that:- The journal entries are hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e grounds raised in the appeal read as under: 1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in upholding the order passed by the Addl. CIT under section 271D of the Act on the basis that the appellant had violated the provisions of section 269SS of the Act and also argued that there was no reasonable cause for such alleged contravention. 2. On the facts and in the circumstances of the case and in law, the CIT (A) erred in upholding the penalty imposed under section 271D of the Act without appreciating the fact that the appellant had not accepted any loan or deposit of money more so in contravention of the provisions of section 269SS of the Act. 3. On the facts and in the circumstances of the case and in law, the CIT (A) erred in upholding the penalty imposed under section 271D of the Act without appreciating the fact that the transactions of assigning or transferring rights / receivables and liabilities amongst the group companies by passing journal entries does not tantamount to taking or accepting of loan or deposit of money and it is not in contravention of section 269SS of the Act. Hence, the impugned penalty levied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaged in the business of land development and construction of real estate properties. Assessee filed the return of income declaring the total income at Rs. NIL and the same was subsequently revised to adjust carry forward losses. Assessment was completed determining the total income of ₹ 26,69,084/- under the special provisions of section 115JB of the Act. In the scrutiny assessment, there is a solitary and minor addition made by the AO u/s 14A of the Act. There is no further appeal against the said order of the AO before the CIT (A). Thus, the assessment reached finality. In the assessment, vide para 6, the AO, otherwise, mentioned about Accepting / repayment of loans other than account payee cheques / draft . Eventually, AO mentioned that such accepting / repayment of loans other than account payee cheques / drafts (through journal entries) amounts to violation of the provisions of section 269SS and 269T of the Act. Subsequently, for imposing the penalty proceedings, AO made a reference to the Addl. CIT for necessary action. The contents of para 6 is extracted as under: Accepting / Repayment of loans other than account payee cheques / draft: 6. During the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 8,00,000/- Lodha Developers ₹ 1,99,54,541/- Ananthnath Contrn farm P Ltd Lodha Hi-rise ₹ 1,20,06,768/- Arihant Premises Dharmanath Infra Agro ₹ 51,45,000/- Lodha Developers ₹ 40,000/- Balaji Hitech Macrotech construction Pvt Ltd ₹ 3,00,00,000/- Durgeshwari Hi-rise Farms Pvt Ltd Lodha Hi-rise Builders Pvt Ltd Rs.2,22,51,23,478/- Macrotech Constructions ₹ 1,20,50,00,000/- Gajanand Buildtech Agro Pvt Ltd Vamadevi Developers Farms P Ltd ₹ 78,462/- Ganeshji realty and Agro P Ltd M.P. Lodha ₹ 1,00,000/- Lodha Buildcon Pvt Ltd Lodha Hi-Rise Builders Pvt Ltd ₹ 36,52,594/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vamadevi developers ₹ 63,982/- Vamadevi Developers Macrotech Constructions Gajanand Buildtech ₹ 1,44,804/- Shree Gajanand Builders Pvt Ltd ₹ 2,81,739/- Maa Padmavati Software Infocon ₹ 3,34,325/- Gandhar Buildrs Pvt Ltd Lodha Hi Rise Buildres Pvt Ltd ₹ 3,06,06,238/- Shantinath Designer Construction Pvt Ltd Lodha Hi rise Builders Pvt Ltd ₹ 15,00,000/- Lodha Impression Real Estate Pvt Ltd Arihant Premises P Ltd ₹ 4,00,00,000/- Lodha Developers Pvt Ltd ₹ 14,00,000/- Hi class buldcon Pvt ltd Arihant Premises Pvt Ltd ₹ 5,00,00,000/- Lodha Developers Ltd ₹ 15,65,000/- Naminath Builders Farms Pvt Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stantiate the reasonable cause as to why journal entries were resorted to, the assessee made the following submissions. 7.5.1. Journal entries are passed to avoid delay in procedural hassles of preparing cheque and obtaining signature of authorized person which may cost delay or to arrange temporary fund to effect such transactions. The assessee company did not have internet facility so that intercompany balance can be settled through bank account. Hence, there was a business exigency to clear transactions by passing journal entries. 7.5.2. All journal entries are genuine / bona fide and at no point of time there are remotely any cash transactions with group companies. 7.5.3. All journal entries are with group / associate companies only having permanent account number and are filing their income tax returns regularly. 7.5.4. There is no revenue loss to the exchequer. 7.5.5. All the transactions are recoreded in the account of the assessee and there are corresponding entries in the books of account of the respective parties which satisfied the test of business exigency. 7.5.6. The AR further submitted during the period when journal entries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rea issues. Eventually, the Addl. CIT levied the penalty of ₹ 495,23,61,634/- u/s 269SS of the Act within the meaning of section 271D of the Act. Further, depending on the nature of credit, journal entries are summarized into 6 categories, namely (i) assignment of debit balance to a group company (4.75 Crs); (ii) lender assigns debt to group company (Rs. 93.47 Crs); (iii) assigning of group debt to an independent company (Rs. 374.92 Crs); (iv) Directors / family account transfers (Rs. 2.81 Crs); (v) payment / receipt on behalf of group company (Rs. 19.19 Crs) and (vi) miscellaneous (Rs. 0.10 Crs). Addl CIT passed similar penalty order u/s 271D in respect of other group concerns namely M/s. Lodha Properties Development Pvt Ltd (Rs. 30,11,30,396/-); M/s. Adhinath Builders Pvt Ltd (Rs. 32,81,39,868/-); M/s. Ajitnath Hi-tech Builders Pvt Ltd (Rs. 81,75,244/-); M/s. Aasthavinaya Real Estate Pvt Ltd (Rs. 61,50,900/-); M/s. Ajitnath Hi-tech Builders Pvt Ltd and M/s. Infratech Builders and Agro Pvt Ltd (Rs. 36,67,81,854/-). Aggrieved with the same, assessee filed an appeal before the CIT (A). Before the CIT(A): 8. During the first appellate proceedings, CIT (A)-38, Mumbai p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the CIT (A), wherein, he dealt with the remand report, provisions of section 46A of the IT Rules, 1962. CIT (A) is of the opinion that the journal entries constitute contravention of provisions of section 269SS of the Act and therefore, such contravention attracts the provisions of section 271D of the Act. He relied heavily on the judgment of the jurisdictional High Court in the case of Triumph International (I) Ltd (supra). The contents of para 9.4 to 9.9 of the CIT (A)'s order are relevant here. Further, CIT (A) held that genuineness of the transactions is no excuse for avoiding the provisions of these sections. Relevant paras of the said judgment of Bombay High Court were extracted in para 9.13 of the impugned order. Assessee detailed the reasonable cause for each of the transactions as evident from para 9.16 of the impugned order. However, the same were not considered as reasonable causes by the CIT (A). CIT (A) referred to the judgment of the Hon'ble Rajasthan High Court in the case of Madhan Lal Mahaveer Prasad (296 ITR 377) to support his case. In any case, this is not the case where the journal entries were held as contravention to the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect than that of the non-jurisdictional High Court judgment. Para 9.34 and 9.35 of the CIT (A)'s order are relevant here. Essentially, for dismissing the assessee's legal issue on the limitation of time, CIT (A) relied on the said order of the Special Bench in the case of Dewan Chand Amit Lal (supra) and held that the penalty proceedings are not barred by the limitation of time as the show cause notice issued by the Addl. CIT dated 15.2.2012 and the due date after considering the extended time u/s 129 of the Act is 30.9.2012. Since, the Addl. CIT passed order on 28.9.2012, the impugned orders of the penalty are valid. Accordingly, the CIT(A) dismissed the legal issue. In any case, it is not the case of the CIT (A) that the provisions of section 275(1)(a) of the Act apply to the facts of the present case. Aggrieved with the above conclusions on both the legal as well as on merits, the assessee is in appeal before the Tribunal in all the cases under consideration. Before the ITAT: 11. During the proceedings before us, Shri P.J. Pardiwala Ld Counsel for the assessee pickup the facts and developments relating to the case of M/s. Lodha Builders Pvt Ltd. To start with, Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30.9.12 28.9.12 4 Adinath Builders Pvt Ltd 15.12.11 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 5 Ajinath Hi- Tech 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 6 Infratech Builders and agro Pvt Ltd 25.11.11 ACIT 11.1.12 271D 15.2.12 31.3.12 30.5.12 31.8.12 31.8.12 30 30.9.12 28.9.12 7 Lodha Properties Development Pvt Ltd 7.12.11 ACIT 11.1.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the assessee vehemently contested the AO.s proposals in the matter. Rejecting the assessee.s explanation, AO formed an opinion in the matter against the assessee and eventually, AO made a referral to the Addl CIT, who is the authority empowered to impose the penalty under the statute. Ld Counsel submitted that the provisions of relevant sections of the Act do not provide on who is empowered to initiate such penalty proceedings. However, it only provides for who is empowered to impose penalty. In this regard, Ld Counsel relied on various decisions to strengthen his legal proposition. Further, he mentioned that the show cause notice first issued by the Assessing Officer is valid in such matters and filed copies of judgments of the Hon.ble High Courts of Delhi and Rajasthan. He also mentioned that the Special Bench decision in the case of Dewan Chand Amit Lal (supra) is not a binding judgment considering the existence of judgments of various High Courts i.e., CIT vs. Hissaria Bros [2007] 291 ITR 244 (Raj) which upheld the order of the Tribunal, wherein the penalty show cause notice, which was issued by the AO, is found valid for the purpose of computing the time limitation u/s 275 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. We have heard both the parties on the legal issues raised in the Additional Ground i.e., applicability of the provisions of clause (c) to section 275(1) of the Act to the impugned penalties and the manner of computing the limitation of time provided in the said clause. To decide the above issues, in our opinion, the provisions of section 275 of the Act are required to analysed. The same read as under: 275(1)[(a) in a case where the relevant assessment or other order is the subject matter of an appeal to the Commissioner (Appeals) under section 246 [or section 246A] or an appeal to the Appellate Tribunal under section 253, 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 the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later : [Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alling under category II is six months from the end of the month in which such order on revision is passed and the period of limitation for the cases falling under the above category III 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 action for imposition of penalty is initiated, whichever period expires later. In the last category, filing of appeal in respect of order passed in proceedings during which penalty proceedings were initiated is not relevant. To this effect, a Circular No. 551, dated 23-1-1990 [(1990) 82 CTR (St.) 325] and another Circular No. 554, dated 13-2-1990 [(1990) 82 CTR (St.) 280] were issued by the CBDT. 23. A close scrutiny of section 275 which is reproduced hereinabove shows that clause (1)(a) covers those cases where the penalty proceedings are in respect of a default related to principal assessment for a particular assessment year and the penalty proceedings are required to be initiated in the course of that proceedings only. In such cases where the relevant assessment order or other orders are the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e initiated, a different period of limitation has been prescribed under clause (c) as a separate category. In cases falling under clause (c), penalty proceedings are to be completed within six months from the end of the month in which the proceedings during which the action for imposition of penalty is 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. There is no provision under clause (c) for the extended period of limitation commensurating with completion of the appellate proceedings, if any, arising from the proceedings during the course of which such penalty proceedings are initiated as in the case where the penalty proceedings are linked with the assessment proceedings or the other relevant proceedings. 26. The expression 'other relevant thing used in section 275(1)(a) and clause (b) of sub-section (1) of section 275 is significantly missing from clause (c) of section 275(1) to make out this distinction very clear. 27. We are, therefore, of the opinion that since penalty proceedings for default in not having transactions through the bank as required under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the order of the Tribunal in the case of Hissaria Bros (supra). However, it is a fact that the said decision of the Tribunal in the case of Hissaria Bros (supra) was subsequently upheld by the Hon'ble Rajasthan High Court. Therefore, considering the principle of precedence, it is necessary for the Tribunal to follow the order of the High Court where there is no contrary judgment from the jurisdictional High Court. As stated earlier, the said judgment from the Rajasthan High Court was also followed in the case of Jitendra Singh Rathore (supra). Therefore, in a case where the AO made a reference in the assessment order about the requirement of initiating the penalty proceedings and acted by making a reference to the JCIT, who is actually empowered by the statute to impose the penalty u/s 271D and 271E of the Act, the limitation should be counted right from the date of such reference in the assessment order / issue of show cause notice by the AO. 19. Further, the judgment of Hon'ble Delhi High Court in the case of M/s Noida Toll Bridge Co. Ltd [262 ITR 260] (Del) is relevant. We have also come across another judgment of the same High court in the case of CIT vs. Worldwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 269SS of the Act were not attracted, the Tribunal has noticed that (i) in the instant case, the transaction was by an account payee cheque; (ii) no payment on account was made in cash either by the assessed or on its behalf; (iii) no loan was accepted by the assessee in cash, and (iv) the payment of ₹ 4.85 crores made by the assesee IL FS, which holds more than 30 per cent of the paid-up capital of the assessee, by journal entry in the books of account of the assessed by crediting the account of IL FS. Having regard to the aforenoted findings, which are essentially findings of fact, we are in complete agreement with the Tribunal that the provisions of section 269SS were not attracted on the facts of the case. Admittedly, neither the assessee nor IL FS had made any payment in cash. The order of the Tribunal does not give rise to any question of law, much less a substantial question of law. We accordingly decline to entertain the appeal. Dismissed. 20. Thus, the judgment in the case of M/s Worldwide Township Projects Ltd vide ITA No.232/2014 is relevant for the proposition that the provisions of section 275(1)(a) of the Act would not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the end of the month in which the action was initiated expires on 30.6.2012. After considering the explanation of limitation u/s 275(2), Explanation 1 read with section 129 of the Act, extended limitation expires on 30.7.2012 against the above due dates, the penalty order passed by the Addl. CIT on 28.9.2012, which is barred by the limitation. Thus, the orders of the penalty of this kind have to be explained considering the provisions of clause (c) of section 275(1) of the Act. Further, it is the summary of the decision cited above that any case where AO made a reference in the assessment order, after discussing the same with the assessee during the regular assessment proceedings or made a referral to the Addl. CIT for imposition of the penalty. In our opinion, these preliminary acts constitute action for the imposition of penalty . An action for imposition of penalty is always anterior in time to the actual imposition of penalty. In our opinion, the AO's discussion given in para 6 of the assessment order and AO's letter dated 6 to the Addl. CIT constitutes action for imposition of penalty . Therefore, we are of the opinion, the assessee should succeed on the legal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot consider the 'explanations' as the 'reasonable causes' and imposed the penalties in all the seven cases under consideration. 25. During the first appellate proceedings also, assessee made a detailed submission on various aspects of the reasonable causes which were already discussed in the paras above. On perusal of the impugned order, we find that CIT (A) relied heavily on the judgment of the jurisdictional High Court in the case of Triumph International (I) Ltd, supra dated 17.8.2012 for the proposition that the receiving loans and repayments through 'journal entries' constitutes 'violation' within the meaning of provisions of section 269SS and 269T of the Act. The contents of para 9 of the said judgment are relevant here which read as under: 9. The question as to whether loans / deposits can be repaid by debiting the accounts through journal entries has been considered by this Court in the assessee's own case in Income Tax Appeal No.5746 of 2010 decided on 12th June, 2012. Applying the ratio laid down therein we hold that receiving loans / deposits through journal entries would be in violation of section 269SS of the Act. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: 1 Alternate mode of raising funds; 2 Assignment of receivables; 3 Squaring up transactions; 4 Operational efficiencies/MIS purpose; 5 Consolidation of family member debts; 6 Correction of errors; and 7 Loans taken in case 27.1. All the transactions that involved the impugned journal entries fall in one of the above seven reasons and they are only for 'business purposes' of the assessees' under consideration. 28. Further, the assessee also classified the impugned transactions amount the said seven groups and the said chart is inserted here as under for completeness of this order: Classification of reasonable causes The Chart showing the details of groups of the transactions to which falls into each of the group are tabulated as under: Sl No.1, 2, 3, 4, 5, 6 7 refer to the categories mentioned in the preceding table inserted in page 23 of the order relating to 'Classification of Reasonable Causes'. 29. Submission of the assessee justifying the claim of immunity u/s 273B of the Act to the impugned journal entries is as under: a) The seven categories of entries and a ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e/bank draft was on account of the fact that the assessee was liable to receive amount towards the sale price of the shares sold by the assessee to the person from whom loan/deposit was received by the assessee. It would have been an empty formality to repay the loan/deposit amount by account-payee cheque/draft and receive back almost the same amount towards the sale price of the shares. 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. There is nothing on record to suggest that the amounts advanced by Investment Trust of India to the assessee represented the unaccounted money of the Investment Trust of India or the assessee. The fact that the assessee company belongs to the Ketan Parekh Group which is involved in the securities scam cannot be a ground for sustaining penalty imposed under Section 271E of the Act if reasonable cause is shown by the assessee for failing to comply with the provisions of Section 269T. It is not in dispute that settling the claims by making journal entries in the respective boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans. Further, we asked ourselves as to why should the assessee under consideration take up issuing number of account payee cheques / bank drafts which can be accounted by the journal entries. This being the spirit of Hon'ble High Court of Bombay, we adopt the same to the present issue. As such, the same is binding on us. What is the point in issuing hundreds of account payee cheques / account payee bank drafts between the sister concerns of the group, when transactions can be accounted in books using journal entries, which is also an accepted mode of accounting? In our opinion, on the factual matrix of these cases under consideration, journal entries should enjoy equal immunity on par with account payee cheques or bank drafts. Of course, the above conclusion apply so long as the transactions are for business purposes and do not involve unaccounted money and they are genuine. In fact, such journal entries shall save large number of cheque books for the banks. 35. Further, There is no dispute that the impugned journal entries in the respective books were done with the view to raise funds from the sister concerns, to assign the receivable among the sister concerns, to adjust or ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
