TMI Blog2013 (3) TMI 829X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has received an amount of ₹ 3,25,00,000/- in cash, from M/s Om Prakash Mahesh Kumar and Party, an Association of Persons [AOP] in which the assessee-company is also a member-person. The AOP is engaged in liquor business. Accordingly, the A.O. initiated penalty proceedings u/s 271D of the Act. During the F.Y. 2008-09 relevant to A.Y. 2009-10, on verification of this loan account, it was seen that the assessee had accepted cash loan of ₹ 3,25,00,000/- on 4.4.2008. In this account, there are numerous credit/debit entries on various dates of amounts running into several crores of rupees. It was further noticed that in this account there is an opening credit balance of ₹ 39,80,42,079/- and closing credit balance of ₹ 97,96,14,595/- which is also reflected in the balance-sheet of the assessee-company in Schedule VII, under the head other liabilities . Consequently, the A.O. issued a notice to the assessee u/s 271D of the Act holding that the provisions of section 269SS of the Act have been violated. The assessee replied to the notice by stating that this amount is not a loan. The assessee explained the meaning of the term loan with reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an or deposit so taken or accepted. He has further observed that once the violation of provisions of section 269SS is established, a penalty of the equal amount has to be mandatorily imposed on that person. While imposing penalty, he has further observed that the assessee has not shown any exceptional circumstance or urgency or business exigencies to explain the contravention of the provisions of section 269SS in accepting the cash loan/deposit. Therefore, he has held this action of the assessee to be a blatant violation of the provisions of section 269SS of the Act. He has also observed by referring to decision of Hon'ble Supreme Court rendered in the case of Assistant Director of Inspection [INV] Vs. Kum. A.B. Shanthi [2002] 255 ITR 258 [SC] wherein it has been held that breach of provisions of section 269SS is not a mere technical or venial breach and hence penalty u/s 271D of the Act is leviable for such violation. The A.O. has also not agreed with the proposition that this transaction is between two sister concerns. He has observed that there is no any centralized account and management involved between the lender AOP and the assessee-company who has allegedly taken t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made on account of the above alleged amount received from M/s Om Prakash Mahesh Kumar Party as well as at any stage, there has no doubt raised that the money involved was black money and also no such type of inquiry was made during thecourse of assessment. Further, the creditor was identifiable, the source was explained and also the genuineness of transactions was proved accepted by the department, then no question would arise to leviable of penalty u/s 271D of the IT Act, 1961. 8. That except this transaction all the transactions was made from the bank account only, which includes the repayment of the above cash transactions by account payee cheques also. Hence, the intention of the appellant is not malafide to the revenue or there was no intention to evade the tax. 9. That the alleged transaction was ledgerised in the books of accounts of the assessee, which was duly produced during the course of assessment proceedings and while completing the assessment U/s 143(3) of the IT Act, 1961, no addition was made U/s 68 of the It Act, 1961 on account of the alleged cash transaction in the quantum assessment, which also proves that the appellant has not inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n placed on numerous decisions. The ld. A.R. has also filed a lengthy paper book and also concised written submission. There is no dispute about the above mentioned facts of this case except that the A.O. has treated this amount as loan/deposit whereas the assessee is treating this amount as withdrawal from its AOP out of its capital account and the same is not treated as either deposit or loan. It is also pleaded by the assessee-company that at best this transaction can be treated to be between the two sister- concerns and therefore, again the provisions of section 269SS would not attract. With regard to payment of interest on this amount, it was stated that the Jaipur Bench of ITAT has, under identical facts and circumstances, held that only on the reason of paying a sum towards interest, the amount does not become either loan or deposit. The ld. A.R. has relied on various other decisions, which we will discuss at appropriate place. There is no denial of the fact that the assessee has taken the amount of ₹ 3.25 crores from the AOP and that it was also a member of that A.O. at the relevant time. 6. Any loan is a type of debt, which entails the redistributi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncern in violation of the provisions of section 269SS. Dy. Commissioner initiated penalty proceedings u/s 271D. Tribunal found that M was one of the directors of the company and there was a running account in his name, therefore it deleted the penalty. On appeal to the high court it was held that the order of the lower authorities clearly shows that there was a running current account in the books of account of the assessee in the name of M. M, used to pay money in the current account and used to -withdraw the money also from the current account. The revenue should establish that what 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. Therefore the transaction between the assessee and the director cum shareholder is not a loan or deposit and it is only a current account in nature, therefore the deletion of penalty was justified. (ii) Muthoot M.George Bankers Vs. AC1T [46 ITD 10](Cochin):In this case Hon'ble ITAT after considering the facts of the case held as under: we hold that the transactions inter se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, whereas in the Current Account there are number of transactions. Credit entry in the current account entails a withdrawal of money from the account of AOP, even if the withdrawal is made through capital account or current account in the books of the AOP. Once withdrawal is made from AOP and is credited in the books of account of the assessee, such credit cannot be said to be a transaction of loan and it is to be treated only as a payment made by AOP to its member since the payment to self does not partake the character of a loan and the provisions of section 269SS are also not attracted. In this regard, following decisions are relevant: (v) C1T Vs. Lakhpat Film Exchange (Cinema) [ 304 ITR 172](Raj.) In this case firm accepted cash from partners in belief that it was not different from them. Tribunal relying on the decision in CIT Vs. R.M Chidamabaram Pillai 106 ITR 292 wherein the Supreme Court said that there cannot be a contract of service, in strict law, between a firm and one of its partners-so as to consider the salary paid to the partners as income from salary held that for the purpose of section 269SS and 269T also, the firm and partners cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has a bonafide belief that the amount so taken in cash is not hit by sec.269SS and therefore as held by Raj.HC supra, a bonafide and reasonable ground existed for not adhering to the requirement of section 269SS. 8. Likewise, we are also in agreement with the ld. A.R. that these transactions can be treated as transactions between the two sister concerns and the transactions undertaken between the sister concerns definitely fall outside the purview of provisions of section 269SS of the Act. The A.O. has not accepted this theory propounded by the assessee on the reasoning that the nature of businesses, mainly of both the concerns are different, and there are no common accounts and management and the assessee has only 0.50% share in the AOP. According to the assessee, these are not relevant considerations to decide whether these are sister concerns or not. The A.O. as well as the ld. CIT(A) have tried to decide this issue only on the basis of the percentage of shares. They have stated that only when the assessee company has 10% beneficial interest in the other concern only then the transacting parties can be treated as sister concerns. Although the term sister co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n have been considered as genuine because both the parties are assessed to tax and the entries were shown in the books of accounts of both parties. In these facts the deletion of penalty by CIT (A) was confirmed. (ii) CIT vs. Shree Ambika Flour Mills [6 DTR 169 ](Guj.) In this case Hon'ble HC held that Tribunal having deleted the penalty u/s 271D and 271E observing that transaction between sister concerns are not covered by either provisions of sec.269SS or sec.269T and that the default, if any, was of venial nature, no interference is called for. (iii) CIT vs. Sunil Kumar Goel [315 ITR 163] (Pun. Har.) In this case Hon'ble Court held that ITAT was right in recording its conclusion that a reasonable cause has been shown by the assessee. The ITAT relied on the fact that assessee has produced its cash book, depicting loan taken by him unilaterally before the revenue. Another fact taken into consideration was that no prejudice was caused to the revenue in the instant action of the assessee in as much as assessee did not attempt by the impugned act to avoid any tax liability. Furthermore, there is no dispute about the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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