TMI Blog1995 (11) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... sums and the payment of balance amount was to be paid by a/c payee cheque. In pursuance to that agreed terms, the payment of Rs. 24,908.40 was made by a/c payee cheque on 31st May, 1989, out of total of Rs. 9,24,908.40 and the balance of Rs. 9,00,000 simultaneously transferred to 'Lallubhai Amichand Ltd. Sarafi account'. The liability standing in the goods account was adjusted to Sarafi account by passing journal entry. Similarly, out of Rs. 14,08,165.20, an amount of Rs. 8,165.20 was paid by a/c payee cheque and balance amount of Rs. 14,00,000 was transferred from goods account of sarafi account by passing journal entry on the same day. It is to be mentioned that while completing the assessment order dt. 5th Feb., 1993, the AO observed that it was acceptence of deposit of Rs. 9 lacs on 31st May, 1989, and Rs. 14 lacs on 13th July, 1989, in violation of the provisions of s. 269SS of the IT Act by the assessee so he referred the matter for levy of penalty to the Dy. CIT under s. 271D of the IT Act. The Dy. CIT (Ahd. Range-7) in that view of the matter served notice dt. 24th Feb., 1992, upon the assessee calling upon to show cause why the penalty under s. 271D was not to be imposed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case briefly are that during the year under consideration, the company had purchased raw materials from Lallubhai Amichand Ltd., Bombay, in the month of May, 1989, aggregating to Rs. 14,08,165. The said purchase price was debited to materials purchase account and credited to Lallubhai Amichand goods purchase account. It may be stated that the company has also maintained another account styled as Lallubhai Amichand Sarafi Account. Since the company was not in a position to meet the purchase price as the company was not in a position to make the payment of purchase price immediately, it was agreed that Lallubhai Amichand Ltd. to treat the same as Sarafi account in a round sum of Rs. 14 lacs. The balance amount was paid by account payee cheque. Similarly, the purchase price of Rs. 9,24,908 was converted as Sarafi deposit to the extent of Rs. 9 lacs and the balance amount was paid by account payee cheque. These two deposits credited in the Sarafi account were treated by the ITO, as made in violation of the provisions of s. 269SS of the IT Act. The ITO has discussed the provisions of s. 269SS in detail in para 6 of the assessment order and has concluded that since the depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constructive receipt. The learned CIT(A) also having referred to provisions of s. 40A(3) of the IT Act and the relevant r. 6DD, sub-cl. (a), drawn the analogy of constructive receipt. He observed that though payment of the expenditure beyond certain limit, that was Rs. 2,500, was to be made either by account payee cheque or account payee bank draft but in certain cases as per r. 6DD the rigour of provisions of s. 40A sub-s. (3) was not attracted as the payment was made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or service rendered by such payee. According to the learned CIT(A), acceptance of deposits by adjustment of books of accounts was also one mode of taking or accepting a deposit. The learned CIT(A) further having referred to CBDT Circular No. 479, dt. 16th Jan., 1987, which was with reference to provisions of s. 269T of the Act, recorded that though provision spoke of reverse situation nature but analogy or reasoning embedded was not equally applicable in the present case. The learned CIT(A) observed that as per provisions of s. 269SS the deposit was not to be repaid other than by account payee cheque or account payee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned counsel said that the odd sums for Rs. 49,908.40 and Rs. 8,165.20 were paid by account payee cheques out of the two sets of the purchase price of the goods namely, 9,24,908.40 and Rs. 14,08,165.20. The learned counsel said that again there was no dispute about the book adjustment of Rs. 9 lacs and Rs. 14 lacs from goods purchase account to Sarafi account of M/s Lallubhai Amichand Ltd. The learned counsel emphasized that at that juncture the authorities below misconceived the whole aspects. The learned counsel said that there was a mere book adjustment by transfer from one account to another account of the same party in the books of the assessee without involving any transfer of money. The learned counsel said that such book adjustment from one account to other account could not be said a deposit or loan as was contemplated under s. 269SS of the Act. The learned counsel of assessee referring to the provisions of s. 269SS read with Explanation to sub-cl. (iii) submitted that to have the application of the provisions of s. 269SS it necessarily required involvement of money that being transferred from depositor to depository or from lender to loanee and here in the instant case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was reasonable cause for such violation and so in view of command of the provisions of s. 273B of the IT Act no penalty was to be levied. According to the learned counsel of the assessee the order of the learned CIT(A) was unjustified and that required to be reversed. 5. On the other hand, Shri M.P. Lohia, the learned Departmental Representative strongly supported the orders of the authorities below particularly, the learned CIT(A). He also vehemently opposed the submissions of the learned counsel of the assessee and submitted that by book adjustment a sum of Rs. 23 lakhs was transferred from goods purchase account to Sarafi account. The receipt in the Sarafi account was a constructDepartmental Representativee receipt creating a deposit in the books of accounts of assessee. The learned Departmental Representative of Revenue emphasised that the deposit or loan was created in a number of cases by passing book entries or showing constructive receipt. The learned Departmental Representative said that in cases of providing overdraft facilities to customers by bank the loan in the name of the customers in the bank account was created only by making entries in the books of accounts. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts by transferring Rs. 9 lakhs and Rs. 14 lakhs from goods purchase account to Sarafi account standing in the name of M/s Lallubhai Amichand Ltd. Can this book adjustment of one party be said deposit or loan as contemplated under s. 269SS of the IT Act ? The goods purchase account and the Sarafi account is of the same person. Rs. 23 lakhs have been transferred from goods purchase account to Sarafi account. It is adjustment of accounts from one to the other of the same creditor. Speaking in other words, shifting a liability from one account to another account. The papers compiled at pp. 1 to 11 can be referred to see in what manner such adjustment has been made. PP 1 and 2 are respectively goods purchase account and Sarafi account. By hawala entries, the transfer has been effected, pp. 5 and 6 are debit/credit vouchers, pp. 9 to 11 are copies of the cash book. There is nothing to show that if actually deposit or loan has been created. 7. No doubt deposit or loan can be created by constructive receipt by book adjustment or account adjustment, but for creation of such deposit or loan by dint of such constructive receipt there must be manifest intention to do so. From the deposito ..... X X X X Extracts X X X X X X X X Extracts X X X X
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