TMI Blog2016 (1) TMI 1497X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to in Section 273B of the Act for taking the loan in cash from M/s Lakshmi Trading Company in violation of Section 269SS of the Act read with Section 271D of the Act, thus, in our considered view the penalty imposed by the authorities below need to be confirmed to that extent while the penalty remaining for reasons and manner of deletion as stated above in preceding para s is hereby deleted. - 1986/Mum/2013, 2967/Mum/2013 - - - Dated:- 19-1-2016 - SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri Hari S. Raheja, AR For The Revenue : Shri C.W. Angolkar, DR ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER : These two appeals filed by the assessee firm, being ITA Nos. 1986/Mum/2013 2967/Mum/2013 , both for the assessment year 2005- 06 are filed against separate orders of the learned Commissioner of Income Tax (Appeals)-28,Mumbai dated 27-03-2012 and learned Commissioner of Income Tax(Appeals)-27, Mumbai dated 23.12.2011 respectively (Hereinafter called the CIT(A) ). 2. The assessee firm has raised the following concise grounds of appeal in the memo of appeal s filed with the Tribunal :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty be deleted. 3. The Appellant craves leave to add, delete, withdraw and / or modify any one / more or all the above Grounds of Appeal on or before the date of final Hearing. 3. In both these appeals bearing ITA Nos. 1986/Mum/2013 2967/Mum/2013, the assessee firm has filed application/petition(s) along with separate affidavit s for condonation of delay of 283 days and 370 days respectively with respect to the two appeals stating therein that due to their accountant having resigned in the month of June 2012, the delay has occurred, as the files was retained by the accountant and was not handed over to the Chartered Accountant in time for preparing and filing of an appeal with the Tribunal and immediately, when the matter came to the notice of the assessee firm on an enquiry made by Chartered Accountant with respect to filing of appeal s with the Tribunal , immediate action has been taken by the assessee firm in filing both the appeals. The assessee firm has requested for condonation of delay in filing of the appeal(s) and prayed that in the interest of justice , these delay should be condoned. The assessee firm relied upon the decision of Hon ble Supreme Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lecting that ₹ 48.6 Lakhs was received as cash loan by the assessee firm from M/s Laxmi Trading Company during the previous year. The assessee firm submitted that there is no mala-fide interest in accepting the cash loans and they were taken on the ground of urgent business necessity and commercial exigency. The cash deposits were taken to prevent bouncing of cheque s issued by the assessee firm on the ground of insufficiency of funds. The assessee firm submitted that it was under a bona-fide belief that accepting of cash loan to meet urgent requirement/necessity in business do not violate any provisions of the law and it is merely a technical or venial breach of law being bona-fide mistake on account of ignorance of the provisions of law which is a reasonable cause within the meaning of Section 273B of the Act. The assessee firm submitted that it was running current account transactions with M/s. Laxmi Trading Company, whereby there is a continuous flow of funds between the two concerns as and when the funds are required . Hence as per the assessee firm, these current accounts transactions between the two concerns could not be regarded as loans or deposits as contemplate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the transaction as loan transactions in audit report filed in compliance to Section 44AB of the Act. Thus, this plea of the assessee firm was rejected by the AO holding that cash loan from M/s. Laxmi Trading Company is a clear breach of the provisions of Section 269SS of the Act. The other plea taken by the assessee firm that it is because of business urgency and exigency that it has accepted the said loans in cash, the AO held that no evidence have been filed with respect to the business expediency/exigency. The AO also held that there could be business urgency on one or two instances but repetitive cash transactions spread over a period of about 3 months is inexplicable. Further, it is also observed by the AO that most of the cash loans received by the assessee firm were utilized in repaying or advancing fresh loans to the sister concerns as shown below: i. Three cash deposits totaling ₹ 10 Lakhs received from M/s. Laxmi Trading Company on 21-04-2004. Cheque repayment of ₹ 10 Lakhs towards a loan from the sister concern namely Anish Metals Pvt. Ltd. on 21-04-2014. It was observed by the AO that the assessee firm though receiving the amounts in cash is repayi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there was an opening balance of ₹ 7,03,368/- due to the assessee firm from M/s. Laxmi Trading Company as on 01-04-2004 and when the amount in cash of ₹ 10 Lakhs was received, it was in fact loan of ₹ 2,96,632/- received on 21-04-2004 in cash , while ₹ 7,03,368/- was the refund of the amount due to the assessee firm from the said concern M/s Laxmi Trading Company. The assessee firm also submitted duly signed copy of their account in the books of M/s. Laxmi Trading Company to substantiate the contentions. The assessee firm also submitted that cash loans were utilized for business exigency as under : a) Aggregate amount of loan advanced/loan repaid to sister concerns ₹ 23,91,632/-. b) ₹ 4,50,000/- was paid to Major Metals towards share application. The assessee firm also submitted that ₹ 28,95,000/- was further advanced to sister concern to meet their urgent need . The assessee firm submitted that ignorance of provisions of law constitute reasonable cause and no penalty is leviable in view of provisions of Section 273B of the Act. The assessee firm relied on the case of Vir Sales Corporation v. ACIT [50 TTJ 130](Ahd. Trib.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h loan from M/s. Laxmi Trading Company and the assessee firm could have got the funds transferred immediately through cheque to the bank accounts of the assessee firm from M/s Laxmi Trading Company as the bank accounts of both the assessee firm and M/s Laxmi Trading Company existed within the same branch of the same bank i.e. Bank of Baroda, CP Tank Branch. The CIT(A) observed that after receiving cash loan from M/s Laxmi Trading Company, the assessee firm has mainly advanced the amounts to its sister concerns. The CIT(A) held that if there is a requirement of sister concerns, it is a separate taxable entity, loan could have been taken directly by sister concerns from M/s Laxmi Trading Company without involving the assessee firm and hence the business need of the separate taxable entity cannot become business need of the assessee firm. Thus, there is no evidence on record to show any business exigency/expediency even of the sister concern to take these cash loans . The CIT(A) also held that assessee firm cannot take plea that the assessee firm is not aware of the law and the onus is on the assessee firm to show the reasonable cause and the assessee firm has failed to make out a cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 21.04.2014 and to that extent of ₹ 7,03,368/- , penalty cannot be levied as there is no breach or violation of Section 269SS of the Act so far as the assessee firm is concerned. The assessee firm contended that the object of introduction of Section 269SS and 271D of the Act is to curb evasion of taxes and circulation of un-accounted money and genuine business transactions are not hit by Section 269SS and 271D of the Act and hence , the assessee firm cannot be penalized for such genuine mistake and discretion is with the authorities u/s. 273B of the Act , not to impose penalty in genuine cases where reasonable cause is shown. 7. Ld. DR relied upon the orders of the authorities below. 8. We have heard the rival contentions and perused the material on record. We have observed that the assessee firm is in the business of dealing in shares and securities and also receiving loans and advancing loans . Perusal of the statement of account of the assessee firm with M/s Laxmi Trading Company which is placed at paper book, page 2 clearly reveals that there no business/ commercial transactions entered by the assessee firm with M/s Laxmi Trading Company but rather these transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming the existence of opening debit balance of ₹ 7,03,368/- being receivable by the assessee firm from M/s Laxmi Trading Company as at 01-04-2004 in the books of the assessee firm, we are remitting the matter to the file of AO and allow the afore-stated relief after due verification by AO. The assessee firm is directed to appear before the AO and satisfy the AO about the existence of opening debit balance of ₹ 7,03,368/- being receivable from M/s Laxmi Trading Company as at 01-04-2004 in the books of the assessee firm. The AO shall grant necessary opportunity of hearing to the assesse firm in accordance with law to comply principles of natural justice. We order accordingly. However, with respect to the remaining balance amount of ₹ 41,56,632/- i.e. ₹ 48.6 Lakhs less 7,03,368/- being received as loan in cash by the assessee firm from M/s Laxmi Trading Company during the previous year, we are of the considered view that the penalty of ₹ 41,56,632/- has been rightly imposed by the AO and confirmed/sustained by the CIT(A) as the assessee firm by accepting cash loan of ₹ 20000 or more from Laxmi Trading Company to tune of ₹ 41,56,632/- during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace of tax evasion so that the taxpayer is not allowed to give a false explanation for his un-accounted money or if has introduced some false entries in his accounts, he shall not escape by giving false explanations. Thus, it is not only the loan transaction which should be genuine but the taxpayer should come forward with reasonable cause as provided u/s 273B of the Act to get out of clutches of Section 269SS of the Act read with Section 271D of the Act. Thus, both the above conditions are to be cumulatively satisfied by the taxpayer. Hon ble Supreme Court in the case of Assistant Director of Inspection v. Kum. A.B.Shanthi (2002) 255 ITR 258(SC) has explained the reasons and consequences of Section 269SS of the Act ,271D and 273B of the Act : 8. The contention of the appellant s counsel has no force. The object of introducing section 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money, or if he has given some false entries in his accounts, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money is unearthed and the taxpayer would usually give the explanation that he had bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India [1995] 211 ITR 1572 also upheld the constitutional validity of section 269SS. Speaking for the Bench, Acting Chief Justice G.T. Nanavati (as he then was) held : . . . A borrower by adopting the device of giving a false explanation or making false entries or by obtaining confirmatory letters is found evading payment of tax. Thus, the borrower as a class is found to be indulging in such practices. By making such false entries or by giving false explanations or by creating false evidence, it is the borrower who was found to be evading payment of tax. In the case of a lender, we fail to appreciate how while lending money by not making payment by a cheque or a draft, he would evade payment of income-tax. Therefore, though the transaction of loan can be regarded as a single transaction, and the borrower and the lender can be said to be equal integral parts, when we view them from the angle of tax evasion, we find that they cannot be regarded as equal or similarly situated. Compared to the class consisting of lenders, the class consisting of borrowers can be said to be in a position to evade tax by adopting the devices, for curbing which provisions have been made in Chapte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 44AB of the Act. The assessee firm argued that there was no mala-fide interest in repaying the said loans of ₹ 5,00,000/- in cash. The same were repaid in cash on the ground of urgency, business necessity and commercial exigency. The cash loan repayment was made to prevent bouncing of the cheque which would have been issued by the assessee firm to M/s Laxmi Trading Company, due to insufficiency of funds. The assessee firm was under a bonafide belief that repaying the loan in cash on account of urgent business necessity did not violate any provisions of the law and even if it was a mistake it amounted to a technical or venial breach of the provisions of Section 269T of the Act. The same being a bona-fide mistake on account of ignorance of law , as per the assessee firm , it constituted a reasonable cause within the meaning of Section 273B of the Act. The assessee firm reiterated its submissions which are similar to those as was advanced with respect to raising of the loan in cash from the same concern M/s. Laxmi Trading Company which are detailed in the preceding para s concerning appeal no. ITA 1986/Mum/2013 and are not repeated for the sake of brevity. The AO has rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of loans of ₹ 5 Lakhs in cash to M/s. Laxmi Trading Company on 23- 07-2004 . The CIT(A) held that ignorance of law is no excuse. The assessee firm being in business of advancing loans and repaying loans for number of years . The accounts of the assessee firm are audited by a qualified chartered accountant . The total loan availed and repaid during the year being ₹ 68 crores with 78 parties. The assessee firm has complied with requirements of Section 269SS and 269T of the Act with respect to its dealing with 77 parties and has violated the provisions of the Act with respect to only one party namely Laxmi Trading Company. Thus,the CIT(A) held contention of the assessee firm that it is not aware of the provisions of the law is not correct. The assessee firm itself having stated that it is in business of advancing and receiving loans which is also stated by auditors to be business of the assessee firm in their audit report and the auditors having reported these transactions as loan transaction, it is now incorrect to say on part of the assessee firm that the transactions with M/s Laxmi Trading Company are business transactions rather these are loan transactions as held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee firm with M/s Laxmi Trading Company which is placed at paper book,page 2 clearly reveals that there no business/ commercial transactions entered by the assessee firm with M/s Laxmi Trading Company but rather these transactions are in the nature of receiving loans and repayments of loans which also happens to be business of the assesses firm.Thus, this payment of ₹ 5,00,000/- in cash by the assessee firm to M/s Laxmi Trading Company on 23-07-2004 is repayment of loan which is in violation of provisions of Section 269T of the Act. The assessee firm has entered into transactions of loans with 78 parties aggregating to receiving and repayment of loans of ₹ 68 crores whereby with respect to 77 parties, the dealings were by cheques while dealing with M/s Laxmi Trading Company, the assessee firm dealt with both cheques and cash. The accounts of the assessee firm were audited by a qualified chartered accountant who has given a report in form no 3CD highlighting the violations of Section 269T of the Act which is placed at paper book, page 10. We are of the considered opinion the penalty of ₹ 5,00,000/- u/s 271E of the Act for violation of the provisions of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act when the reasonable cause is shown , then the penalty is not exigible. The provisions were enacted to check the menace of tax evasion so that the taxpayer is not allowed to give a false explanation for his un-accounted money or if has introduced some false entries in his accounts, he shall not escape by giving false explanation. Thus, it is not only the loan transaction with respect to which repayment of loan has been made which should be genuine but the taxpayer should come forward with reasonable cause as provided u/s 273B of the Act cumulatively to get out of clutches of Section 269T of the Act read with Section 271E of the Act. Hon ble Supreme Court in the case of Assistant Director of Inspection v. Kum. A.B.Shanthi (2002) 255 ITR 258(SC) has explained the reasons and consequences of Section 269SS of the Act , 271D and 273B of the Act , which is equally applicable to Section 269T of the Act read with Section 271E of the Act : 8. The contention of the appellant s counsel has no force. The object of introducing section 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money, or if he has given some false entries in hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Division Bench, the learned Single Judge quashed the proceedings initiated against the respondent under section 269SS. 11. A Division Bench of the Gujarat High Court in Sukhdev Rathi v. Union of India [1995] 211 ITR 1572 also upheld the constitutional validity of section 269SS. Speaking for the Bench, Acting Chief Justice G.T. Nanavati (as he then was) held : . . . A borrower by adopting the device of giving a false explanation or making false entries or by obtaining confirmatory letters is found evading payment of tax. Thus, the borrower as a class is found to be indulging in such practices. By making such false entries or by giving false explanations or by creating false evidence, it is the borrower who was found to be evading payment of tax. In the case of a lender, we fail to appreciate how while lending money by not making payment by a cheque or a draft, he would evade payment of income-tax. Therefore, though the transaction of loan can be regarded as a single transaction, and the borrower and the lender can be said to be equal integral parts, when we view them from the angle of tax evasion, we find that they cannot be regarded as equal or similarly situated. Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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