The ITO, Ward-5(4), Surat V. Shri Sanjay B.Kapadia, Surat

ITA 1058/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6043 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-06-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 07-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Keywords: Search and seizure; Reasonable cause; Tax effect
• Section: 273B; 271D; 271E; 64

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL , AM) ITA NO.1058/AHD/2010 A. Y.: 2006-07 THE INCOME TAX OFFICER, W-5(4), ROOM NO.316, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS SHRI SANJAY B. KAPADIA, C/O. M/S. SARAL ENTERPRISE, SHOP NO.4, NITYANAND APPT., MAJURA GATE, SURAT PA NO. ABOPK 8232 D (APPELLANT) (RESPONDENT) APPELLANT BY SMT. NEETA SHAH, DR RESPONDENT BY NONE O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST ORDER OF THE LEARNED CIT(A)-IV, SURAT DATED 22-12-2009 FOR ASSESSMENT YEAR 2006-07 CHALLENGING THE ORDER OF TH E LEARNED CIT(A) IN DELETING THE PENALTY LEVIED U/S 271D OF THE IT ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR AY 2006-07 IN CASE OF M/S. SARAL EN TERPRISE, THE AO OBSERVED THAT THE ASSESSEE HAS ACCEPTED LOAN/DEPOSI T OF RS.2,50,000/- ON VARIOUS DATES IN CASH. THE AO FURTHER OBSERVED T HAT EVEN THOUGH THE ASSESSEE IS A PARTNER IN THE FIRM I.E. M/S. SARAL E NTERPRISE, THE ABOVE TRANSACTIONS WERE FOUND TO BE IN THE NATURE OF DEBT OR CREDITOR RELATIONSHIP. THE AO THEREFORE, OBSERVED THAT THERE IS CONTRAVENTION OF PROVISIONS OF SECTION 269SS OF THE IT ACT AND ACCOR DINGLY THE AO ISSUED SHOW CAUSE NOTICE FOR IMPOSING PENALTY U/S 271D OF THE IT ACT. IN RESPONSE TO THE SAME THE ASSESSEE SUBMITTED THAT TH E CASH TRANSACTIONS ITA NO.1058/AHD/2010 ITO, W-5(4),SURAT VS SHRI SANJAY B. KAPADIA, SURAT 2 WERE DONE THROUGH FLOATING CAPITAL ACCOUNT ON WHICH NO FINANCIAL CHARGE IS LEVIED. IT WAS FURTHER STATED THAT THE ASSESSEE WAS UNDER BONA FIDE IMPRESSION THAT TRANSACTIONS BETWEEN PARTNER AND FI RM ARE OUTSIDE THE PURVIEW OF THE PROVISIONS OF SECTION 269SS OF THE I T ACT. THE AO HOWEVER, REJECTED THE CONTENTION OF THE ASSESSEE ON THE GROU ND THAT IN THE AUDIT REPORT OF THE FIRM ALSO SHOWS THAT RELATIONSHIP OF THE ASSESSEE IN RESPECT OF THESE TRANSACTIONS WERE PURELY IN THE NATURE OF DEBTOR OF THE FIRM AND NOT PARTNER. ACCORDINGLY, THE AO IMPOSED PENALTY U/ S 271D OF THE IT ACT. 3. PENALTY ORDER WAS CHALLENGED BEFORE THE LEARNED CIT(A) AND IT WAS ARGUED THAT THE ASSESSEE IS A PARTNER IN THE FIRM I .E. M/S. SARAL ENTERPRISE. IT WAS CONTENDED THAT IN THE FIRM, THE ASSESSEE IS HAVING CAPITAL ACCOUNT WHICH IS IN THE NATURE OF FIXED CAP ITAL AND APART FROM IT FLOATING ACCOUNT ALSO EXISTS. IN THE FIXED CAPITAL ACCOUNT, THE ASSESSEE HAS CREDIT BALANCE OF RS.30,09,886/- AT THE END OF THE YEAR AND IN THE FLOATING ACCOUNT, THERE IS DEBIT BALANCE OF RS.32,9 1,578/- AT THE END OF THE YEAR. THE ASSESSEE ACCEPTED THE AMOUNT OF RS.2, 50,000/- ON DIFFERENT DATES (EACH OF RS.25,000/-) IN CASH UNDER FLOATING ACCOUNT AND OUT OF THE SAME, A SUM OF RS.45,000/- HAS BEEN REPAID BY THE A SSESSEE IN CASH. IT WAS SUBMITTED THAT NO INTEREST IS CHARGED/PAID ON T HE FLOATING CAPITAL ACCOUNT BALANCE. IT WAS FURTHER ARGUED THAT THE ASS ESSEE IS UNDER A BONA FIDE IMPRESSION THAT TRANSACTIONS BETWEEN PARTNERS AND FIRMS ARE NOT COVERED BY THE PROVISIONS OF SECTION 269SS AND 269T OF THE IT ACT AS THE SAME DOES NOT REPRESENT LOAN TRANSACTION SINCE TRAN SACTIONS ARE NOT DONE WITH THE THIRD PARTY BUT BETWEEN THE PARTNER AND TH E FIRM WHICH REPRESENT ONLY THE TRANSFER OF MONEY FROM ONE POCKE T TO ANOTHER. HE FURTHER PLACED RELIANCE ON THE DECISION OF THE ITAT AHMEDABAD BENCH IN THECAE OF SHREPAK ENTERPRISES VS DCIT 64 ITD 300 WH EREIN IT IS HELD THAT AMOUNT PAID BY FIRM TO PARTNERS AND VICE VERSA IS PAYMENT TO SELF AND DOES NOT PARTAKE THE CHARACTER OF LOAN OR DEPOS IT IN GENERAL LAW AND THE PROVISIONS OF SECTION 269SS ARE NOT APPLICABLE TO SUCH FACTS. HE ITA NO.1058/AHD/2010 ITO, W-5(4),SURAT VS SHRI SANJAY B. KAPADIA, SURAT 3 FURTHER RELIED ON THE DECISION OF RAJASTHAN HIGH CO URT IN THE CASE OF CIT VS LOKPAT FILM EXCHANGE (CINEMA) 304 ITR 172, WHERE IN PENALTY WAS DELETED IN THE CASE OF FIRM IN ACCEPTING THE CASH F ROM PARTNERS ON THE BELIEF THAT ACCEPTING THE CASH FROM PARTNERS DID NO T VIOLATE THE PROVISIONS OF THE ACT. RELIANCE WAS ALSO PLACED ON OTHER DECIS IONS OF HIGH COURTS IN SUPPORT OF THE CONTENTION THAT PENALTY U/S 271D OF THE IT ACT CANNOT BE IMPOSED WHEN THERE IS A REASONABLE CAUSE FOR CONTRA VENTION OF THE PROVISIONS OF SECTION 269SS/269T OF THE IT ACT. IT WAS ALSO SUBMITTED THAT THE TRANSACTIONS IN THE INSTANT CASE ARE VERY MUCH GENUINE AND THE SAME HAS NOT BEEN DOUBTED BY THE AO. AS REGARDS REF ERENCE TO AUDIT REPORT IN FORM NO.3CD, IT WAS CONTENDED THAT THE AM OUNT DUE FROM THE ASSESSEE IS REFLECTED UNDER THE HEAD OF LOANS, ADVA NCES AND DEPOSITS AND THIS DOES NOT LEAD TO THE CONCLUSION THAT TRANSACTI ONS ARE NOT DONE IN THE PARTNERS CAPACITY AND ACCORDINGLY CONTENDED THAT P ENALTY IMPOSED U/S 271D OF THE IT ACT IS REQUIRED TO BE DELETED. 4. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION OF THE ASSESSEE AND MATERIAL ON RECORD DELETED THE PENALTY. HIS FIN DINGS ARE REPRODUCED AS UNDER: I HAVE CONSIDERED THE REASONS GIVEN BY THE ASSESSI NG OFFICER AND ALSO THE SUBMISSIONS OF THE APPELLANT. AFTER CA REFULLY GOING THROUGH THE FACTS OF THE CASE, IT IS SEEN THA T THE RATIO OF ITAT AHMEDABAD BENCH IN THE CASE OF M/S. SHREPAK ENTERPRISES V. DCIT 64 ITD 300 & ALSO THE DECISIO N OF RAJASTHAN HIGH COURT IN THE CASE OF CIT V/S LOKPAT FILM EXCHANGE (CINEMA) [304 ITR 172] IS DIRECTLY APPLICA BLE TO THE FACTS OF THE CASE. THE ASSESSEE IS A PARTNER IN THE FIRM VIZ. M/S. SARAL ENTERPRISE AND THEREFORE, AS HELD IN THE ABOVE DECISIONS, THE PROVISIONS OF SECTION 269SS DOES NOT APPLY TO SUCH TRANSACTIONS. IT HAS BEEN FURTHER OBSERVED BY HONOURABLE AHMEDABAD ITAT IN THE DECISION CITED SUPRA THAT SEC TION 269SS WAS INTRODUCED TO COUNTER THE TACTICS OF EXPL AINING UNACCOUNTED CASH FOUND IN THE COURSE OF SEARCH. ADM ITTEDLY, AS NO SEARCH AND SEIZURE HAD TAKEN PLACE IN THE INS TANT CASE, THE QUESTION OF IMPOSING PENALTY DOES NOT ARISE. HE NCE, ITA NO.1058/AHD/2010 ITO, W-5(4),SURAT VS SHRI SANJAY B. KAPADIA, SURAT 4 PENALTY IMPOSED BY ASSESSING OFFICER U/S 271D IS HE REBY DELETED. IN THE RESULT, THE APPEAL IS ALLOWED. 5. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT THE DECISIONS CITED BY THE LEARNED CIT(A) ARE NOT I DENTICAL TO THE FACTS OF THE CASE OF THE ASSESSEE. THE ASSESSEE HAD TAKEN LO AN/DEPOSIT IN CASH FROM THE FIRM FOR WHICH NO EXPLANATION IS GIVEN. PE NALTY WAS, THEREFORE, RIGHTLY IMPOSED AGAINST THE ASSESSEE. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNE D DR AND PERUSED THE FINDINGS OF THE AUTHORITIES BLOW. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS A PARTNER IN THE FIRM FROM WHERE THE AS SESSEE HAS ACCEPTED LOAN/DEPOSIT OF RS.2,50,000/- ON VARIOUS DATES IN C ASH. THE RELATION BETWEEN THE ASSESSEE AND THE FIRM ARE OF THE FIRM A ND THE PARTNER. ACCORDING TO LAW OF THE PARTNERSHIP, PARTNERS ARE A GENT OF THE FIRM FOR THE PURPOSES OF THE BUSINESS OF THE FIRM. THE NAME OF T HE PARTNERSHIP FIRM IS ASSUMED NAME OF THE PARTNERS THEREIN. THE PARTNERSH IP IS THE RELATION BETWEEN THE PARTNERS WHO HAVE AGREED TO SHARE THE P ROFIT OF A BUSINESS CARRIED ON BY ALL OR ANY OF THEM ACTING FOR ALL. TH E PERSONS WHO HAVE ENTERED INTO THE PARTNERSHIP WITH ONE ANOTHER ARE C ALLED INDIVIDUAL PARTNERS AND COLLECTIVELY A FIRM. THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE FIRM ARE, THEREFORE, NOT OF THE DEBTOR AND CRED ITOR. THE ASSESSEE SUBMITTED THAT CASH TRANSACTIONS ARE DONE THROUGH F LOATING CAPITAL ACCOUNT ON WHICH NO FINANCIAL CHARGES ARE LEVIED. I T WOULD, THEREFORE, PROVE THAT THE TRANSACTIONS OF CASH ARE BETWEEN THE ASSES SEE AND THE FIRM ONLY IN WHICH THE ASSESSEE WAS A PARTNER. IT WOULD ALSO PRO VE THAT THE ASSESSEE REMAINED UNDER BONA FIDE BELIEF THAT IT IS A TRANSA CTION WITH SELF BECAUSE THE PARTNERS REPRESENTED THE FIRM. ITAT AHMEDABAD B ENCH IN THE CASE OF SHREPAK ENTERPRISES (SUPRA) RELIED UPON BY THE ASSE SSEE BEFORE THE LEARNED CIT(A) CONSIDERED THE IDENTICAL ISSUE IN WHICH IT W AS HELD THAT AMOUNT ITA NO.1058/AHD/2010 ITO, W-5(4),SURAT VS SHRI SANJAY B. KAPADIA, SURAT 5 PAID IN SUCH CIRCUMSTANCES IS A PAYMENT TO SELF AND DOES NOT PARTAKE A CHARACTER OF LOAN IN GENERAL LAW. HONBLE RAJASTHAN HIGH COURT IN THE CASE OF LOKPAT FILM EXCHANGE (CINEMA) (SUPRA) ALSO DELET ED THE PENALTY IN THE CASE OF FIRM IN ACCEPTING THE CASH FROM THE PARTNER S ON THE BELIEF THAT ACCEPTING OF CASH FROM PARTNERS DOES NOT VIOLATE PR OVISIONS OF LAW AND, THEREFORE, SUCH EXPLANATION WAS HELD TO BE COMPLIED WITH THE PROVISIONS OF LAW. HONBLE PUNJAB & HARYANA HIGH COURT IN THE CAS E OF CIT VS SUNIL KUMAR GOEL 315 ITR 163 HELD THAT THERE WAS NO DISPUTE ABOUT THE FACT THAT THE CASH TRANSACTIONS OF THE ASSESSEE WER E WITH SISTER CONCERN AND THESE TRANSACTIONS WERE WITHIN THE FAMI LY AND DUE TO BUSINESS EXIGENCY. A FAMILY TRANSACTION, BETWEEN TW O INDEPENDENT ASSESSEES, BASED ON AN ACT OF CASUALNESS, SPECIALLY IN A CASE WHERE THE DISCLOSURE THEREOF WAS CONTAINED IN THE COMPILA TION OF ACCOUNTS, AND WHICH HAD NO TAX EFFECT, ESTABLISHED REASONABL E CAUSE UNDER SECTION 273B OF THE ACT. SINCE THE ASSESSEE HAD SAT ISFACTORILY ESTABLISHED REASONABLE CAUSE UNDER SECTION 273B O F TH4E ACT, HE MUST BE DEEMED TO HAVE ESTABLISHED SUFFICIENT CAUSE FOR NOT INVOKING THE PENAL PROVISIONS OF SECTIONS 271D AND 271E OF T HE ACT AGAINST HIM. THE DELETION OF PENALTY BY THE TRIBUNAL WAS VA LID. 7. CONSIDERING THE FACTS IN THE LIGHT OF THE ABOVE DECISIONS IT IS CLEAR THAT THE TRANSACTIONS HAD TAKEN PLACE BETWEEN PARTN ER AND THE FIRM. THEREFORE, LEARNED CIT(A) WAS JUSTIFIED IN CANCELIN G THE PENALTY IN THE MATTER. THE ASSESSEE REMAINED UNDER THE IMPRESSION SINCE IT WAS A TRANSACTION WITH THE FIRM IN WHICH HE WAS A PARTNER . THEREFORE, IT APPEARS TO BE A CASE OF REASONABLE CAUSE FOR CONTRAVENING T HE PROVISIONS OF LAW IN ACCEPTING THE CASH FROM THE FIRM. WE ACCORDINGLY, D O NOT FIND ANY INFIRMITY IN THE ORDER OF HE LEARNED CIT(A) IN CANCELING THE PENALTY IN THE MATTER. THERE IS NO MERIT IN THE APPEAL OF THE REVENUE. SAM E IS ACCORDINGLY DISMISSED. ITA NO.1058/AHD/2010 ITO, W-5(4),SURAT VS SHRI SANJAY B. KAPADIA, SURAT 6 8. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 11-06-2010 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 11-06-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD