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2016 (5) TMI 1168 - ITAT KOLKATA

2016 (5) TMI 1168 - ITAT KOLKATA - TMI - Penalty u/s 271D - violation of provisions of section 269SS - Held that:- We find that the assessee instead of merely responding by way of journal entry on 26.9.2006 in its books, had erroneously passed a receipt entry and a payment entry in its cash book. Hence the entire penalty proceedings had been triggered only based on mere book entries of the assessee and there is no categorical finding that the assessee indeed had received cash from the director w .....

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t is quite evident from the relevant pages of the cash book itself, forming part of the paper book filed before us. We find that the closing cash balance as on 26.9.2006 was only ₹ 13,17,466.11 and it had not increased by ₹ 17,25,000/- as alleged by the Learned AO. We are convinced that there is no case for invoking the provisions of section 269SS of the Act and hence the penalty levied u/s 271D for violation of section 269SS of the Act thereon is quashed herewith - Decided in favour .....

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volved was unaccounted. - There is no case for invoking the provisions of section 269T of the Act and hence the penalty levied u/s 271E for violation of section 269T of the Act thereon is quashed herewith.- Decided in favour of assessee - ITA Nos. 209 & 210/Kol/2013 - Dated:- 8-4-2016 - Shri N. V. Vasudevan, Judicial Member And Shri M. Balaganesh, Accountant Member For the Appellant/assessee: Shri P.K. Himmatsinghka,FCA, ld.AR For the Respondent/department: Shri Rajendra Prasad, JCIT, ld.Sr.DR O .....

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be levied for violation of provisions of section 269SS of the Act in the facts and circumstances of the case. 3. The brief facts of this issue is that the assessee is a private limited company engaged in the business of civil construction works. The assessee had availed bank loan from Punjab National Bank (PNB) for the purpose of its business and could not repay the dues to the bank and thereby the said loan account was classified as Non- Performing Assets (NPA) by PNB. The said loan was assigne .....

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company by the bank. This mortgage was also assigned in favour of ARCIL. As against the balance due of ₹ 57.58 lakhs with interest thereon as on 31.3.2002, the assessee agreed to pay ₹ 45 lakhs as full and final settlement to UMFL , lawful attorney of ARCIL pursuant to MOU. The MOU clearly stipulates the conditions for repayment as follows:- a) ₹ 1 lakh in cash at the time of signing of this agreement b) ₹ 4 lakhs paid by pay order no. 024079 dt 23.6.2006 drawn on UTI Ba .....

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secured landed property situated at Malda refers to agricultural lands belonging to Mr.Ashok Kumar Sarda, Director of the assessee company. The said lands which were subjected to mortgage were released by ARCIL in order to effect the sale. Mr.Ashok Kumar Sarda sold his agricultural lands and the buyer of the lands issued Pay Orders directly in favour of ARCIL-SBPS-004-IV Trust on behalf of the assessee company and handed over the Pay Orders to assessee company for ₹ 17,25,000/- as pointed .....

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17,25,000/- and correspondingly credit the director account as unsecured loan. The assessee instead of passing a journal entry in its books , routed these transactions as cash received from Director amounting to ₹ 17,25,000/- and also amount repaid to PNB by cash amounting to ₹ 17,25,000/- . The receipt entry was entered on 13.9.2006 as follows:- ( in Rs.) Cash Account Dr 17,25,000 To Ashok Kumar Sarda Account (Being sale proceeds of agrilanded property of aks received in mode of dem .....

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ed that this receipt transaction on 13.9.2006 is totally separate from the demand drafts handed over to UMFL on 26.9.2006. He further stated that the narration mentioned above appears to be misleading and incorrect and he made an allegation that the assessee had changed the said narration to suit his needs. Based on these observations, he invoked the provisions of section 269SS of the Act for receipt of cash loans exceeding ₹ 20,000/- and show caused the assessee why penalty u/s 271D of th .....

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earned AO not convinced with the replies filed by the assessee proceeded to levy penalty u/s 271D of the Act which has been upheld by the Learned CIT(A) on first appeal. Aggrieved, the assessee is in appeal before us on the following grounds :- (1) That under the facts & circumstances of the case L'd CIT (A) erred in confirming the penalty u/s 271D ignoring the reasonable cause of recording the receipt of sale proceeds on behalf of director in the company cash book against sale of agricu .....

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company on behalf of Punjab National Bank, (lender) directly from the buyers of agricultural land belonging to director in satisfaction of bank loan granted by the bank to the appellant company. (4) That the CIT (A) was unjustified, arbitrary and unlawful in ignoring the book entry without corresponding receipt of cash being passed through Cash book and consequently erred in not considering the reasonable cause and totality of facts. (5) That under the facts & circumstances of the case, the .....

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ounds before or at the time of hearing. 3.4. The Learned AR reiterated the submissions made before the lower authorities and referred to the relevant pages of the paper book containing the evidences of the aforesaid facts. In response to this, the Learned DR vehemently supported the orders of the lower authorities. 3.5. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee. The basic facts of the case remain undisputed ar .....

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of the assessee company. Moreover, we find that the transactions of the director with the assessee company, the same is maintained in the form of a current account and it is well established that the transactions in the running current account would not take the character of a loan or deposit. In this regard, we find lot of force in the case laws relied upon by the Learned AR :- a) Decision of Hon ble Madras High Court in the case of CIT vs Idhayam Publications Ltd reported in 285 ITR 221 (MAD) .....

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hat was received by the assessee is a loan or deposit within the meaning of section 269SS. The deposit and the withdrawal of the money from the current account could not be considered as a loan or advance. Further it was also found that the assessee filed a letter dated 29-9-1997, and in that letter he explained that the amount received from Mr. S.V.S. Manian had been shown as "unsecured loan from directors" in the balance-sheet. As per the Companies Act, under the Companies (Acceptanc .....

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e, there is no violation of section 269SS of the Income Tax Act. We find no error in the order of the Tribunal and the same requires no interference. Hence, no substantial question of law arises for consideration of this court. Accordingly, we dismiss the above tax case. No costs. b) Decision of the co-ordinate bench of this tribunal in the case of Krishna Kr. Pathak (HUF) vs ITO reported in (2004) 90 TTJ 940 (Kol. Trib) in ITA NO. 2486/Kol/2002 dated 12.3.2004 In this case, there was a current .....

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t section 269SS of the Act. The Hyderabad Bench of the Tribunal has also considered the similar isseue in the case of Dillu Cine Enterprises (P) Ltd vs Addl CIT (2002) 80 ITD 484 (Hyd) wherein the director of a private limited company maintained current account with the company where he deposited and withdrew funds as per exigencies of the company. It was held that such transactions had nothing to do with evasion of tax or concealment of income and the transactions did not fall within the mischi .....

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mp; 1914/Kol/2010 dated 24.5.2011, wherein it was held that : 6. After hearing the rival submissions and on perusal of the materials available on record keeping in view of the fact that the Hon ble Madras High court in the case of CIT vs Idhayam Publications Ltd cited supra has held as under:- Held, dismissing the appeal, that the transaction between the assessee and the director -cum-shareholder was not a loan or deposit and it was only a current account in nature and no interest was being char .....

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006 in its books, had erroneously passed a receipt entry and a payment entry in its cash book. Hence the entire penalty proceedings had been triggered only based on mere book entries of the assessee and there is no categorical finding that the assessee indeed had received cash from the director when the assessee had actually denied the same. We also find that independent examination of the director was made by the Learned AO to ascertain the true facts, wherein the director had categorically sta .....

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it had not increased by ₹ 17,25,000/- as alleged by the Learned AO. 3.7. From the totality of the facts and circumstances of the case, we are convinced that there is no case for invoking the provisions of section 269SS of the Act and hence the penalty levied u/s 271D for violation of section 269SS of the Act thereon is quashed herewith. Accordingly the appeal of the assessee in ITA No. 210/Kol/2013 is allowed. ITA No. 209/Kol/2013 A.Y 2007-08 - Penalty u/s 271E 4. The only issue to be dec .....

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cash paid to aks for paying buyer of the agri-land of aks against the land sale agreement kept in abeyance Here aks refers to Ashok Kumar Sarda . 4.2. The assessee claimed that the said payments were made to its director out of balances payable in the current account of the director as the said monies were to paid back by the director to the buyers of the agricultural lands as the registration of sale deeds were kept in abeyance for removal of certain defects in the said land purchase deed. Ulti .....

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urpose stated above. Apart from this, the assessee was also having sufficient cash balance to make payments to its director. The assessee tried to explain that the assessee has got reasonable cause in terms of section 273B of the Act in the aforesaid facts and circumstances and accordingly prayed for dropping the penalty proceedings u/s 271E of the Act. The Learned AO not convinced with the arguments of the assessee proceeded to levy penalty u/s 271E of the Act. On first appeal, the same was eve .....

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ricultural land (mortgaged to Punjab National Bank against credit facilities to the appellant company) upon non execution of sale document due to minor defect in the source purchase deed. (3) That the appellant didn't repay any loan in contravention to sec. 269T and consequently JCIT & CIT (A) order to this effect are wholly arbitrary, unjust, uncalled for and liable to be quashed specifically when no corresponding loan of ₹ 17,25,0001- was received by the appellant company. (4) Th .....

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made out of credit balances lying in the current account of the director and argued that current account transactions would not fall within the ambit of loan or deposit . Thirdly, he argued that the main purpose of introduction of provisions of section 269SS and 269T of the Act is to avoid evasion of tax by way of parties routing their undisclosed income in the garb of loans from various parties and were also able to obtain false confirmation from those parties and escape from taxation. In the i .....

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n undisputed and hence the same are not reiterated herein for the sake of brevity. We find lot of force in the multiple arguments advanced by the Learned AR. We have already held that the transactions between the assessee and its director are maintained in a current account which would neither be categorized as a loan or deposit. We have already relied on the various decisions in this regard hereinabove in support of this proposition. Hence the provisions of section 269T of the Act cannot be app .....

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filed by the assessee was accepted in scrutiny assessment proceedings by the Learned AO u/s 143(3) of the Act and no addition was made to prove that the assessee had routed its undisclosed income in the form of loan transactions. We find that the transactions of the assessee with its director has nothing to do with evasion of tax or concealment of income. In this regard, we place reliance on the decision of the co-ordinate bench of Jabalpur Tribunal in the case of Mahesh Prasad Soni vs Addl CIT .....

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with effect from, 1-4-1984. The intention behind bringing the above provisions on the statute was clarified by the CBDT vide, its Circular No. 387, dated 6-9-1984 (reported in 146 ITR 162 (St). The relevant part of the circular is as under: "Unaccourited cash found in the course of searches carried out by the Income Tax department is often explained by taxpayers as representing loans taken from or deposits made by the various persons. Unaccounted income is also brought into the books of ac .....

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Bank draft if the amount of such loan or the aggregate amount of such loan and deposit is ₹ 10,000 or more. This prohibition will also apply in cases where on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), and the amount or the aggregate amount remaining unpaid is ₹ 10,000 or more. The proposed prohibition would also apply to cases whe .....

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ated in the heading of Chapter XX -B of the Income Tax Act, 1961, which reads requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax legislative. Intention in bringing section 269SS in the Income Tax Act was to avoid certain circumstances to tax evasion, whereby huge transactions are made outside the books of account by way of cash. As far as the case on hand before us is concerned, there is no case against the assessee-firm that these transactio .....

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find force in the argument of the learned counsel for the assessee that the object of the provisions being unearthing of unaccounted money, is not applicable to any transaction which is done in an open manner, which is genuine and in which no unaccounted money is involved. Mere technical breach of the provisions, while the transactions are held to be genuine, do not attract the provisions of section 269SS. It is not the case of the revenue that the amounts involved were unaccounted transaction. .....

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cash or unaccounted deposit. This section is definitely not intended to penalize genuine transactions, where no tax. evasion is involved. It is well settled that the headings preferred to sections or set of sections in some modern statutes are regarded as 'preambles' to those sections. This view was approved by Farewell I.J. in Fletcher v. Birkenhead Corpn. (1907) 1 KB 205". 10. Keeping in view the intent of the legislature behind enacting the above sections, we hold that the loans .....

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ld that the stand taken by the revenue that the genuineness of the deposits/loans was not the relevant factor to be considered for levy of penalty under Section 271D was not well-founded and while referring to the CBDT Circular No. 387, dated 6- 7-1984 explaining the object of introducing the provisions of sections 269SS and 269T of the Act, it was held that it was not the intention of the legislature to penalize genuine flow of funds for meeting the urgent business necessities. Tribunal, Pune B .....

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