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Commissioner of Income-tax, Mysore Versus Canara Housing Development Co.

2015 (11) TMI 71 - KARNATAKA HIGH COURT

Penalty under section 271E - violation of the provisions of section 269T - ITAT deleted penalty levy - Whether the Tribunal was correct in accepting the additional evidence placed before it by the assessee when the same was not produced before the Assessing Officer and the Appellate Commissioner, when the assessee has not assigned any reasons for not producing the same before the Assessing Officer? - Held that:- It is clear that the question as to whether the firms in question were group concern .....

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ents dated 5.10.2004 are both unregistered documents. There could be substance in the submission of the learned counsel for the Revenue, that the said documents could have been prepared at a later date for the purposes of this case. Merits of the said documents shall be considered while dealing with the second substantial question of law. At present, we have to only consider whether the filing of additional documents, which were available with the assessee at the initial stage, would be justifie .....

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er the first substantial question of law in favour of the Revenue

Whether the Tribunal was correct in holding that the repayment made by the assessee in favour of Annapoorneshwari Investment and Adarsh Enterprises is in the nature of current account transaction and hence the same is not in violation of section 269T? - Held that:- The common partner between the assessee and AE is one Sri Satish Pai, but no such plea had been raised by the assessee before the Assessing Officer, as has b .....

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perusal of the replies given to the notices and other documents, the assessee has only stated that Sri Rama Krishna is a common partner between the assessee firm and the firm AI, but nothing has been said about the assessee and AE firms having a common partner. On being asked, Sri Parthasarathi, learned counsel for the respondent-assessee could not place any document from the entire record to show that such information was ever given to any of the authorities below. As such, the observation mad .....

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espondent : Sri. S. Parthasarathi, Adv. JUDGMENT Vineet Saran, J. - The Revenue is in appeal against the order of the Tribunal whereby the penalty, which was imposed under section 271E of the Income Tax Act (Act for short) by the Additional Commissioner of Income Tax, and confirmed by the Commissioner of Income Tax (Appeals), has been set aside by the Tribunal. The brief facts relevant for the purpose of this case are that for the assessment year 2005-06, respondent assessee had repaid certain a .....

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ction 269T of the Act. The payments of ₹ 14.6 crores made in cash by the assessee to AI were made on several occasions between 28.10.2004 to 22.3.2005, and payment of ₹ 0.12 crores (12 lakhs) to AE was made in cash by the assessee on 16.12.2004. In response to the said notice, assessee submitted its reply on 8.3.2008, stating that since one of the partners of the assessee and AI firms was common, being Sri A Ramakrishna, and both the firms were carrying on the business in real estate .....

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, by way of drawing from the firm, to meet the expenses of emergency situation. The Assessing Officer - Additional Commissioner of Income Tax, by his order dated 2.6.2008, held that merely because one partner of the assessee firm was also a partner in the other firm - AI, the same could not be treated as an internal transaction in the nature of current account transaction, specially when the assessee firm had taken an advance from AI and AE firms to the tune of over ₹ 50 crores, as was sho .....

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view of the above, I conclude that (i) the appellant in one hand and AI and AE are not even group concerns what to speak of sister concerns and each are independent from the other. (ii) The common links i.e., Sri A Ramakrishna and Sri Satish Pai are not the determining person channelising the course of repayment through cash. (iii) The transactions entered into between appellant and AI and appellant and AE was in the nature of loan as reflected in the accounts of the appellant filed with the de .....

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treated as loan and the account holder is treated as a borrower which is opened only by obtaining some collateral security of stock/FDs. It is unlike saving bank of fixed deposits where the bank acts as a Borrower. (v) The transactions between the appellant and AI/AE are covered within the definition of loan or deposit enshrined in Expln. (iii) to Sec. 269T. (vi) The fact that the transacting parties do not treat the transactions as loan or deposit is immaterial because law points treat these tr .....

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no help because records do not justify or corroborate the same. The audit report clearly shows AI as lenders of money to the appellant firm. No such claim has been made by the appellant in case of Sri Satish Pai of AE." (Emphasis Supplied) Challenging the order of the Appellate Commissioner, assessee filed a further appeal before the Tribunal, where certain additional evidence by way of documents had been filed, which were: (i) Agreement to sell dated 5.10.2004 between AI and Sahara India C .....

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of the Income Tax (Appellate Tribunal) Rules, 1963 (for short Rules of 1963) by way of an affidavit dated 11.1.2009 of a partner of the assessee firm. After accepting the additional evidence and holding that the amount earlier advanced by AI and AE to the assessee (which totaled to ₹ 50.36 crores) was neither in the nature of loan or deposit, the Tribunal further held that the said refund of money was a cash transaction between the sister concerns, which was not affected by section 269T o .....

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the Assessing Officer. (ii) Whether the Tribunal was correct in holding that the repayment made by the assessee in favour of Annapoorneshwari Investment and Adarsh Enterprises is in the nature of current account transaction and hence the same is not in violation of section 269T of the Act, when all the three firms are independent identities and the assessee cannot maintain a current account with it for Annapoorneshwari Investments and Adarsh Enterprises and consequently recorded a perverse findi .....

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additional evidence before the Tribunal, which is reproduced below: "R 29: Production of additional evidence before the Tribunal The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income tax authorities have decided the case wi .....

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be examined, or affidavit etc., or, if the income tax authorities have decided the case without affording sufficient opportunity to the assessee to adduce evidence, the Tribunal may, for sufficient reasons to be recorded, allow additional evidence to be filed. In the present case, it was the assessee which had filed an application by way of an affidavit for adducing additional evidence in support of its case, in the form of agreements, both registered and unregistered, and also cash book extract .....

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tered agreement of sale between AI and the respondent assessee - Canara Housing Development Company, by which Sahara India Commercial Corporation and four others, had entered into an agreement to sell land in favour of Manipal Academy of Higher Education (MAHE), through an agreement entered into with AI and Sri Ramakrishna as a partner of the assessee M/s Canara Housing Development Company and it provides that "it is agreed the business of the first party (AI) shall be carried on under the .....

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h the respondent - assessee M/s Canara Housing Development Company. The second agreement, which is a registered agreement of sale, is dated 31.3.2005 between M/s Gauri Ganesh Real Estate and M/s AI with MAHE shown as the purchaser. The same is a registered agreement. What has been explained in the affidavit seeking to adduce additional evidence, is to substantiate that M/s AI is a group or sister concern of the assessee. It has been submitted by Sri Parthasarathi, learned counsel for the respond .....

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e documents which have been filed by respondent-assessee before the Tribunal were all there with the assessee at the time of filing its reply to the notice dated 23.6.2008. It is submitted that in its reply to the show-cause notice itself the assessee had contended that the transactions were between inter-firms, with one of the partners being common in the firm, and as such, if the agreements (especially unregistered ones dated 5.10.2004) had existed at that time, then to substantiate the stand .....

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sister concern or group concern of AI and AE, was denied for the first time by the Appellate Commissioner, there was no occasion for the assessee to have filed the document at an earlier stage. Having heard learned counsel for the parties and on perusal of the record, what we find is that at the very initial stage, while submitting its reply dated 8.3.2008, assessee had taken a stand that the assessee firm was internally connected with the firms - AI and AE, as one partner was common in the firm .....

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he Act for making repayment of loan or deposits in cash above the prescribed limit'. From the aforesaid findings, it is clear that the question of the firms being group concerns or not was always there before the Assessing Officer. The Appellate Commissioner had also considered this aspect and arrived at a finding that the firms were not group concerns or sister concerns. From the above, it is clear that the question as to whether the firms in question were group concerns or not was always u .....

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are both unregistered documents. There could be substance in the submission of the learned counsel for the Revenue, that the said documents could have been prepared at a later date for the purposes of this case. Merits of the said documents shall be considered while dealing with the second substantial question of law. At present, we have to only consider whether the filing of additional documents, which were available with the assessee at the initial stage, would be justified or not, when they h .....

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ial question of law in favour of the Revenue and against the assessee. Question No. (ii) For deciding the second substantial question of law, which is as to whether repayments made by the assessee to AI and AE firms are in the nature of current account transactions and hence, the question of violation of section 269T of the Act was not there, we will have to examine the nature of transactions which had taken place between the assessee and the AI/AE, and also the relationship between the assessee .....

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377; 2 crores each had been made by the assessee to AI and on one occasion, cash repayment of ₹ 60 lakhs was made. The explanation given by the assessee was that the two firms were sister concerns with a common partner namely, Sri Rama Krishna, and because of urgency in the matter, payments had to be made in cash. The authorities below (Assessing Officer and Appellate Commissioner) have considered this matter, and arrived at a finding that there was no dearth of banking facility in the cit .....

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ing to a couple of crores of rupees. The assessee firm has, admittedly, taken an advance from AI (which may be by way of loan, deposit or otherwise), to the tune of over ₹ 50.36 crores, which had to be returned by the assessee. Learned counsel for the respondent assessee has submitted that advances deposited with the assessee cannot be treated as a loan or deposit, and as such, the same is not covered under the provisions of section 269T of the Act. It is contended that prior to 1.6.2002, .....

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The submission thus is, since in the notice dated 26.2.2008 itself it had been stated that the repayment had been made of the advances which were deposited by AI with the assessee firm, such repayment would not attract the provisions of section 269T of the Act. It is also contended that all the transactions were duly recorded in the account books and hence, same were bona fide transactions on which TDS had been deducted and as such, payment by the assessee in cash could, at best, be an irregular .....

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made by such firm. Merely because one partner is common, would not justify the parking of such huge funds by one firm in another firm, except by way of a loan or deposit. Much reliance has been placed on the memorandum of agreement dated 5.10.2004 between AI and the assessee - Canara Housing Development Company, which is with regard to some earlier dealing of AI with different firms/companies namely, Sahara India Commercial Corporation Ltd., Gauri Ganesh Real estate, etc., as well as another agr .....

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otherwise, the said agreement only authorizes the assessee to carry on the work on behalf of AI i.e., to supervise the work to be carried out by AI for MAHE. This agreement, in our view, would not authorize repayment of any amount, which was kept in deposit by way of loan, deposit or advance by AI with the assessee firm, in cash towards certain expenses of AI, for work with regard to a contract between AI and MAHE. The account books of the assessee showed an opening advance received from AI to .....

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s true that penalty for non-compliance of section 269T of the Act as provided under section 271E of the Act, is not automatic as section 273B provides that no penalty shall be imposable on the person or the assessee for any violation referred to under section 269T of the Act, if he proves that there was reasonable cause for such failure. It has been submitted, that considering the urgency in the matter requiring immediate payment, according to the assessee, there was reasonable cause for paying .....

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based on act of casualness, especially in case where a disclosure thereof was contained in the compilation of accounts and which had no tax effect, establishes 'reasonable cause' under section 273B of the Act. The present is not a case of family transaction. Even if it is accepted that the transaction was between two group concerns, there cannot be casualness between group concerns or sister concerns, especially when they are separate legal entities. Except for there being one common pa .....

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ering that the transactions were genuine and bona fide, for which confirmation letters had also been furnished, the benefit of section 273B of the Act was granted to the assessee. In the other case relied on by the learned counsel for the assessee, being Commissioner of Income Tax Vs Deccan Designs (India) Pvt Ltd - (2012) 347 ITR 580, the case was of repayment of loan for payment of wages, etc., which was on behalf of a sister concern to save the company from its closure. The transactions, made .....

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ut, that extreme urgency cannot be repeated on several occasions for the same amount of ₹ 2 crores paid over five months. The agreement dated 5.10.2004 is entered into between the assessee and AI with regard to the contract or agreement between AI and certain third parties who had to carry on some contract work for MAHE. All this would be an indirect way to support the stand taken by the assessee, that payment was made by the assessee in cash on behalf of AI and not even to the firm - AI, .....

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f some extreme urgency, the violation had been committed for genuine and valid reason. In the present case, the same reason has been given by the assessee for making payment in cash, not on one occasion, but more than half a dozen occasions. The same cannot be said to be reasonable cause shown by the assessee for repeatedly violating the provisions of section 269T of the Act. If the benefit of section 273B of the Act is given in cases as the present one, the very purpose of enacting section 269T .....

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