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CIT Versus M/s Chandra Cement Ltd.

Penalty under Section 271-D - receipt of unsecured loan in cash - Held that:- There is a direct nexus of the money having flown from R.P. Goyal in the books of account of the assessee, may be towards payment of constructional activities of the assessee but it does not alter the character of deposit. The company after having received such amount was duty bound to repay back to the creditor which in the instant case may be a Director or otherwise and it is not the case of the assessee that the amo .....

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d flowing of funds is sufficient to prove that the amount was admittedly received by cash in the account of assessee as having been received from R.P. Goyal and found credited as an “unsecured loan”, proves that it was in the nature of a loan and certainly such loan having been received by cash, falls within the ambit of Section 269-SS. - We are not impressed by the argument raised by the learned counsel for the assessee that R.P. Goyal being a semi literate and educated upto only 9th class, .....

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he years R.P. Goyal being in the business for years together, was not aware of the provisions of law although the presumption to know the law is to the contrary. Equally important is the fact that a Limited Company right from being formed is assisted by Chartered Accountant and Company Secretary, who are well qualified professionals & the justification tendered that R.P. Goyal being less literate, deserves no indulgence and it goes without saying that ignorance of law is no excuse. - This fi .....

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1-8-2016 - Hon'ble Mr. Justice Ajay Rastogi And Hon'ble Mr. Justice J.K. Ranka Mr. Anuroop Singhi Mr. Sandeep Pathak for the appellant Mr. Anant Kasliwal for the respondent ORDER By the Court ( Per Ranka, J.) 1. The instant two appeals under Section 260-A of the Income Tax Act, 1961 were admitted by this Court vide order dt. 8.2.2012 on the following question of law. It relates to the assessment years 1992-93 and 1993-94 :- Whether Tribunal was justified in holding on the facts found tha .....

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was noticed by the Assessing Officer during the course of scrutiny that balance-sheet of the respondent company indicated "unsecured loans" from the Chairman-cum-Managing Director, namely R.P. Goyal and on further verification of the accounts it transpired that the respondent had received cash through the said Managing Director on various occasions and majority of the cash deposits was exceeding ₹ 20,000/- and certain amounts were even to the extent of ₹ 4,05,960/-, ₹ .....

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yala, where the Cement Plant was being set up, of which the project cost was of ₹ 1.60 crore and that there was a delay in getting sanction from the financial institutions of the term loan and, therefore, the Promoter-Director decided to give funds from his own resources. Further, no money had been accepted by the assessee company in cash and the money had been directly disbursed for the sake of payments towards constructional activities or/and setting up of the Plant and that it was neith .....

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assessee that the said amount was immediately incurred towards payment of construction / setting up of the Plant, was not correct as on examining the books of account, such contention was found 'not proved' as even after deposit by R.P. Goyal by cash in the account of assessee, gradually the expenditure was incurred and not immediately. 5. The AO also noticed that though the claim of R.P. Goyal was that he had advanced the money from his proprietorship concern, namely M/s. Chintpurni Ent .....

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ied, imposed penalty under Section 271-D of the Act at ₹ 79,78,368/- in the assessment year 1992-93 and ₹ 1,98,55,171/- in the assessment year 1993-94. 6. The matter travelled in appeal before the Commissioner of Income Tax (Appeals), before whom the facts were reiterated and also pleaded that there was a bona fide belief and reasonable cause in depositing the said amounts as the deposits by the Managing Director of a Limited Company does not partake character of a "loan or depo .....

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bout the seizure of the books of account was produced. In the assessment year 1993-94, before the CIT(A) one handwritten cash book, between 1.4.1992 and December 1992, was produced and the CIT(A) noticed that the said so-called cash book is in a good condition, which appeared to the CIT(A) that it was made afresh. The CIT(A) also noticed that there were contradictory explanation of R.P. Goyal vis-a-vis the assessee and doubted the very deposits and upheld the penalty imposed. 7. Further, appeal .....

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Tribunal noticed that R.P. Goyal, the Chairman-cum- Managing Director was the Promoter-Director of the Company and was looking after the entire set up of the Plant, since the assessee applied for term loan to the financial institution and the funds were delayed, therefore, there was no harm in the amount having been deposited by R.P. Goyal. The Tribunal also held that it was a unilateral act of R.P. Goyal to involve and utilise his own money by withdrawing from his own sources and a unilateral .....

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finding recorded by the AO was confirmed by CIT(A) but the Tribunal in a cursory manner observed to the contrary without taking note of the material on record. 8.1 He further contended that the assessee being a Limited Company and its Managing Director R.P. Goyal, are two distinct and separate entities and Section 269-SS prescribes "loan or deposit" by any person, and "any person" would cover everyone. He further contended that admittedly both, assessee as well as R.P. Goyal .....

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56 CTR 205, The Commisioner of Income Tax v. M/s Samora Hotels P. Ltd. ITA No.313/2006 decided on 23.2.2012, Assistant Director of Inspection Investigation v. Kum. A.B. Shanthi (2002) 6 SCC 259, P. Bhasker v. Commissioner of Income Tax (2012) 340 ITR 560 (Mad.), Commissioner of Income Tax v. Navjeevan Roller And Pules Mills (2001) 251 ITR 661, and Mehta Vegetables P. Ltd. v. Union of India and Others (1998) 234 ITR 425 (Raj.), and contended that in identical circumstances the Courts have express .....

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produced and the CIT(A) after appreciation clearly observed that it appears that the cash book produced was a later creation. He also contended that both in facts and in law the Tribunal erred in deleting the penalties under Section 271-D. 9. Per contra, learned counsel for the assessee contended that R.P. Goyal, earlier was engaged in a small Kirana Shop and had a self styled business, gradually shifted to business of cement manufacturing and was in the process to establish a Mini Cement Plant .....

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but ultimately the money which was infused in by R.P. Goyal, was towards incurring of the activities of the company only. 9.1 Learned counsel further contended that in bona fide belief the money in piecemeal was deposited by R.P. Goyal being Chairman-cum-Managing Director in the books of company but that does not violate Sec.269- SS and the Tribunal rightly came to the said conclusion. He further contended that reasonable cause has been accepted by the Tribunal after having gone into the facts .....

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erumal (Indl.) [2015] 370 ITR 313 (Mad), and Krishnapada Chanda v. Commissioner of Income Tax XI I.T.A. No.383 of 2005 decided on 31.3.2015 by High Court of Calcutta. 9.2 Learned counsel for the respondent also relied upon Notes and Clauses which came to be introduced with effect from 1.4.1984 by the Finance Act, 1984, and also Circular of the Central Board of Direct Taxes bearing no.387 dated 6.7.1984 and contended that primarily the provision was brought into force taking into consideration th .....

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ons 269- SS, Section 271-D and 273-B of the Act, which are the bone of contention in between the rival parties :- 269SS. Mode of taking or accepting certain loans and deposits. No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if,- (a) the amount of such loan or deposit or the aggregate amount of such loan and de .....

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not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,- xxxx xxxx xxxx xxxx Explanation.-For the purposes of this section,- [(i) banking company means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of that Act;] (ii) co-operative bank shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949); (iii) loan or deposit .....

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ntained in the provisions of[clause (b) of sub-section (1) of] [section 271, section 271A, section 271B, [section 271BB,] section 271C, section 271D, section 271E, clause (c) or clause (d) of sub- section (1) or sub-section (2) of section 272A, sub-section (1) of section 271AA] or [sub-section (1) of section 272BB 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 .....

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n or deposit. At the same time, Sec. 273-B does leave discretion, if the person or the assessee, as the case may be, proves that there was reasonable cause for the said failure. 13. Indisputably, the amount as noticed by the AO was found credited in the books of account of the assessee company as having been received from time to time from R.P. Goyal who is said to be Chairman-cum- Managing Director of the assessee company. 14. The main thrust of argument of the learned counsel for the Revenue a .....

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he AO in the instant case. Though the Tribunal has found that the company has a separate status and entity and when the Tribunal itself finds that there are two separate entities, the subsequent observation of the Tribunal ad-infra :- there were neither compelling reason nor a compelling force by the so called artificial person-company to bring in the money, it appears that it was merely a suo moto decision of Mr. Goyal to expose himself to such a huge risk of utilizing his personal money for co .....

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ies is a sine qua non. Whether loan or deposit they both are contracts only, originated from bilateral act.. 15. We are unable to subscribe the view expressed as there is a direct nexus of the money having flown from R.P. Goyal in the books of account of the assessee, may be towards payment of constructional activities of the assessee but it does not alter the character of deposit. The company after having received such amount was duty bound to repay back to the creditor which in the instant cas .....

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finding of the Tribunal in our view is wholly perverse. The conduct or the entry and flowing of funds is sufficient to prove that the amount was admittedly received by cash in the account of assessee as having been received from R.P. Goyal and found credited as an unsecured loan , proves that it was in the nature of a loan and certainly such loan having been received by cash, falls within the ambit of Section 269-SS. 16. We are not impressed by the argument raised by the learned counsel for the .....

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ns were in force for almost 8 years and we cannot loose sight of the fact that over the years R.P. Goyal being in the business for years together, was not aware of the provisions of law although the presumption to know the law is to the contrary. Equally important is the fact that a Limited Company right from being formed is assisted by Chartered Accountant and Company Secretary, who are well qualified professionals & the justification tendered that R.P. Goyal being less literate, deserves n .....

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gs. 18. We have gone through the Notes and Clauses also which have been introduced from 1.4.1984 and the Circular of the Board, though states that the provision was brought into force taking into consideration that in survey and search proceedings whenever unaccounted cash is found in the premises of the person surveyed or searched, the claim is invariably made that the alleged amount is received from A, or B, or C, etc. and to plug such loopholes this provision was brought but that might be int .....

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parameters of law and is not violative of Art.14 of the Constitution and it was enacted with legislative competence. The judgment further lays down that if there is a genuine and bona fide transaction and the loan or deposit has been received for some bona fide reason, the Authority vested with the power to impose penalty has got discretionary power not to impose the same. However, for the reasons assigned earlier, in our view no reasonable cause in the instant case is made out. 20. The judgmen .....

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; 20,000/-. It was claim of the assessee that a Hotel was being set up by the assessee (Limited Company) at Shimla and for the purposes of construction of the said Hotel funds were contributed by its Directors/shareholders in the form of loan as and when required. It was the claim of the assessee that the amount was towards share capital money, and there also reasonable cause was pleaded but penalty was imposed by the AO. The CIT(A) also confirmed the penalty imposed by the AO, however, the Trib .....

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of Income Tax (supra) is also a case where the assessee was engaged in the business of construction and the finding recorded by the Revenue was that one M.T. Nair agreed to provide financial support which was to the tune of ₹ 6,51,000/- and the said amount was paid in cash on various dates commencing from April 1993 and the AO having noticed that there was contravention of Section 269-SS, imposed penalty under Section 271-D at ₹ 7,35,475/- after noticing other credits also, and the H .....

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audited accounts as well as the annual report of the assessee duly approved by its general body, indicate the money deposited by R.P. Goyal as unsecured loan . 23. The argument of the learned counsel for the assessee that the amount in any case had to be paid to petty labourers and contractors in a remote place where the company has been established is beyond the purview of the question being raised by the Revenue. Question in the instant case is the manner in which the amount has been received .....

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o the extent of almost ₹ 2.80 crore which is quite substantial, raises doubt as to availability of such substantial cash in his books of account and as to where such cash of almost ₹ 2.80 crore was lying. Admittedly, it is claimed that R.P. Goyal deposited the said amount in the two assessment years through its proprietorship concern M/s. Chintpurni Enterprises and both AO as well as the CIT(A) have raised serious doubt about the source of the said amount and the assessee was require .....

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r of money had his bank account. The statement of Shri R.P. Goyal was recorded u/s 131 and he could not give a reasonable cause that why the money was not transferred to the assessee company by way of account payee's cheque. It may be further highlighted that the sources of advances by Shri R.P. Goyal to the assessee company were also examined. Shri R.P. Goyal stated to have advanced the amounts from his proprietorship concern M/s. Chintpurni Enterprises. Shri R.P. Goyal was specifically ask .....

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sing Officer of Shri R.P. Goyal to examine the loan at his level. 25. The CIT(A) also noticed as a vital factor that neither the assessee nor R.P. Goyal were interested in producing the books of account of M/s. Chintpurni Enterprises and thus raised a serious doubt as to whether R.P. Goyal was in a position to have substantial cash in hand to the tune of almost ₹ 2.80 crore in his books of account. In our view the amount is not petty and one was certainly required to prove the source of th .....

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ase of Hindustan Steel Ltd. v. State of Orissa (supra) relied upon by the learned counsel for the assessee does not help the assessee in any manner as the Apex Court has held that when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute, in such cases penalty may not be imposed, but in our view it is neither a technical nor venial breach of the provision .....

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