M/s. New Kenilworth Hotel Private Limited , Kolkata V. Additional CIT, Range - 8, Kolkata, Kolkata

ITA 1155/KOL/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2771 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 28-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RADHEY SHYAM
• Keywords: Business expenditure; Reasonable cause; Assessment record
• Section: 273B; 271E

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D, BENC H KOLKATA BEFORE SHRI S.S.VISWANETHRA RAVI, JM &DR. A.L.SAINI , AM ./ITA NO.1155/KOL/2018 ( / ASSESSMENT YEAR: 2009-10) M/S NEW KENILWORTH HOTEL PVT. LTD. 1&2 LITTLE RUSSEL STREET, KOLKATA-700071 VS. ACIT, RANGE-8, KOLKATA ./ ./PAN/GIR NO. : AABCN 0986 A (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI SRIKUMAR BANERJEE, FCA RESPONDENT BY : SHRI RADHEY SHYAM, CIT DR / DATE OF HEARING : 03/04/2019 /DATE OF PRONOUNCEMENT : 12/06/2018 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAIN ING TO ASSESSMENT YEAR 2009-10, IS DIRECTED AGAINST AN ORDER PASSED BY THE COMMISSIONER OF INCOME TAX(APPEALS)-VIII, KOLKATA WHICH IN TURN ARISES OUT OF PENALTY ORDER PASSED BY THE ASSESSING OFFICER U/S.271E OF THE INCOME TAX AC T, 1961 (HEREINAFTER REFERRED TO AS THE ACT), DATED 31.10.2013. 2. HOWEVER IN THIS APPEAL THE ASSESSEE HAS RAISED M ULTIPLE GROUNDS OF APPEAL BUT AT THE TIME OF HEARING THE SOLITARY GRIEVANCE HAS BEEN CONFINED TO THE ISSUE THAT THE LD. CIT(A) WAS ERRED IN LAW AS WELL AS IN FACTS BY CONFIRMING THE IMPOSITION OF PENALTY OF RS. 1 LAC U/S 271E OF THE ACT. M/S NEW KENILWORTH HOTEL PVT. LTD. ITA NO.1155/KOL/2018 ASSESSMENT YEAR:2009-10 P PP PA AA AG GG GE EE E | || | 2 22 2 3. BRIEF FACTS QUA THE ISSUE ARE THAT IN COURSE OF SCRUTINY PROCEEDINGS FOR THE ASSESSMENT YEAR 2009-10 IT WAS OBSERVED BY AO FROM THE TAX AUDIT REPORT IN FORM NO. 3CA THAT THE ASSESSEE COMPANY HAS REPAID A LOAN AMOUNT OF RS. 55,33,000/- DURING THE F.Y. 2008-09, OUT OF WHICH R S. 1,00,000/- WAS REPAID TO SHRI RAJU BHARAT, MD OF THE COMPANY OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE/ BANK DRAFT. THE PROVISION OF SECTION 269T OF THE AC T STIPULATES THAT NO BRANCH OF A BANKING COMPANY OR A CO-OPERATIVE BANK AND NO OTHER COMPANY OR CO-OPERATIVE SOCIETY AND FIRM OR OTHER PERSON SHALL REPAY ANY LO AN OR DEPOSIT MADE WITH IT OTHER WISE THAN BY WAY OF AN ACOCUNT PAYEE CHEQUE OR ACCO UNT PAYEE DRAFT DRAWN IN THE NAME OF THE PERSON WHO HAS MADE LOAN OR DEPOSIT. TH EREFORE, AO NOTICED THAT THERE WAS A VIOLATION OF PROVISION OF SECTION 269T OF THE ACT IN REPAYING THE ABOVE AMOUNT OF RS. 1,00,000/- OF LOAN IN A MODE OTHERWIS E THAN BY OF AN ACCOOUNT PAYEE CHEQUE OR ACCOUNT PAYEE DRAFT AND ACCORDINGLY THE ASSESSEE COMPANY IS LIABLE TO LEVY OF PENALTY U/S 271E OF THE ACT FOR A SSESSMENT YEAR 2009-10. 4. THE ASSESSEE COMPANY DURING THE PENALTY PROCEEDI NGS SUBMITTED THE FOLLOWINGS: THE FACT OF THE CASE WAS THAT RS. 1,00,000/- WAS P AID IN CASH TO THE MANAGING DIRECTOR OF THE COMPANY AND THE SAID MONEY WAS DEPO SITED TO THE BANK ACCOUNT ON THE MANAGING DIRECTOR ON THE SAME DATE. THE MANA GING DIRECTOR HOLDS SHARE OF THE COMPANY 90.30% OF THE TOTAL PAID UP CAPITAL OF THE COMPANY. IN THE ASSESSMENT ORDER, THE LD. ASSESSING OFFICER HAD LIF TED THE CORPORATE VEIL. AS THE CORPORATE VEIL WAS LIFTED BY THE ASSESSING OFFICER, THE COMPANY AND MD, BEING 90.3% OF THE TOTAL PAID UP CAPITAL OF THE COMPANY, IS ONE PERSON. SO PAYMENT OF RS. 1 LAKH IN CASH WAS NOTHING BUT A PAYMENT FROM O NE HAND TO ANOTHER HAND OF THE SAME PERSON. THE ASSESSEE FURTHER SUBMITTED AS FOLLOWS: IT IS IMPORTANT TO NOTE THAT FOR THE AFORESAID REA SON (LIFTING OF CORPORATE VEIL), THE LD. ASSESSING OFFICER HAS NOT INITIATED THE PENALTY PROCEEDING IN THE ASSESSMENT ORDER THOUGH HE WAS VERY MUCH AWARE THAT RS. 1 LAKH WAS PAID IN CASH TO MD. MOREOVER, THE BASIC OBJECTIVE TO INSERT SECTION 269 SS AND 269T IS TO CURB THE BLACK MONEY IN THE ECONOMY. IN THE INSTANT CASE THE IDENTITY OF THE PAYER AND THE PAYEE IS VERY MUCH ESTABLISHED, BOTH ARE TAX PAYER ASSESSEE, TRANSACTION WAS PROPERLY RECORDED AND CASH WAS DEPOSITED TO THE BAN K OF THE MD. SO IT WAS NOT A CASH TRANSACTION AS ENVISAGED BY THE RELEVANT PROVI SION OF THE ACT. 5. HOWEVER, THE ASSESSING OFFICER REJECTED THE CONT ENTION OF THE ASSESSEE HELD AS FOLLOWS: M/S NEW KENILWORTH HOTEL PVT. LTD. ITA NO.1155/KOL/2018 ASSESSMENT YEAR:2009-10 P PP PA AA AG GG GE EE E | || | 3 33 3 1. THE ASSESSEE COMPANY HAS STATED IN THE SUBMISSI ON THAT RS. 1,00,000/- WAS PAID IN CASH TO THE MANAGING DIRECTOR OF THE COMPAN Y AND THE SAID MONEY WAS DEPOSITED TO THE BANK ACCOUNT OF ON THE MANAGING DI RECTOR ON THE SAME DATE WHICH CONFIRMS THE FACT THAT LOAN WAS REPAID BY A MODE OTHERWISE THAN BY A/C PAYEE CHEQUE/DRAFT. 2. THE PRINCIPLE OF LIFTING OF CORPORATE VEIL EMP LOYED THE ASSESSING OFFICER IN THE ASSESSMENT ORDER WAS IN RESPECT OF THE SUM OF R S. 26,23,630/- PAID TO THE MANAGING DIRECTOR, SHRI RAJU BHARAT AS INCENTIVE ON NET PROFIT OF THE COMPANY FOR THE F.Y. 2008-09 IN PLACE OF PROFIT OR DIVIDEND S. THIS WAS CLAIMED AS DEDUCTION IN COMPUTATION OF INCOME AND WAS DISALLOW ED AS BUSINESS EXPENDITURE AND ADDED BACK TO THE TOTAL INCOME U/S 36(1)(II) OF THE ACT BY THE ASSESSING OFFICER. IN VIEW OF THE ABOVE DISCUSSION, I AM OF THE CONSID ERED OPINION THAT IN THIS CASE THE ASSESSEE COMPANY HAS VIOLATED THE PROVISION OF SECTION 269T OF THE ACT, AND IS THEREFORE, LIABLE TO PAY, BY WAY OF PENALTY A SUM E QUAL TO THE AMOUNT OF LOAN OR DEPOSIT SO REPAID. IN MY OPINION, IT IS A FIT CASE FOR IMPOSITION OF PENALTY U/S 271E OF THE INCOME TAX ACT, 1961. 6. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONFIRMED T HE PENALTY IMPOSED BY THE ASSESSING OFFICER OBSERVING THE FOLLOWING: I HAVE GONE THROUGH THE STATEMENT OF FACTS OF THE APPELLANT AND PERUSAL OF RELEVANT ASSESSMENT RECORDS. THE A/R OF THE APPELLA NT HAD HELD THAT THE LOAN AMOUNT OF RS.1,00,000/- WHICH WAS REPAID TO SHRI RA JU BHARAT, MD OF THE COMPANY WOULD NOT COME UNDER THE PURVIEW OF SECTION 269T OF I T ACT, 1961 AND THEREFORE NOT LIABLE FOR IMPOSITION OF PENALTY U/S 271E OF THE ACT. THE A/R OF THE APPELLANT HAD FURTHER CLARIFIED THAT THE MD SHRI RA JU BHARAT HELD SHARE AMOUNTING TO 90.30 PERCENT OF THE TOTAL PAID OF CAP ITAL OF THE COMPANY. IN THE ASSESSMENT ORDER, THE AO HAD LIFTED THE CORPORATE V EIL AS THE CORPORATE VEIL IN WHICH IT WAS REVEALED THAT AS THE MD OF THE COMPANY HELD 90.30% OF THE TOTAL CAPITAL OF THE COMPANY, SO THE COMPANY AND THE PERS ON ARE ACTUALLY ONE PERSON. SO PAYMENT OF RS.1,00,000/- IN CASH WAS NOTHING BUT WAS PAYMENT OF ONE HAND TO ANOTHER HAND OF THE SAME PERSON. THE APPELLANT FURT HER SUBMITTED THAT AS THE TRANSACTIONS WERE PROPERLY RECORDED AND CASH WAS DE POSITED IN THE BANK ACCOUNT OF THE MD, THERE WAS NO INTENTION TO EVADE ANY STAT UTORY PROVISIONS WITH THE OBJECTIVE OF EVADING TAXES. THE SUBMISSION OF THE APPELLANT IS BASED ON MISCONC EPTION OF THE PROVISION OF THE I T ACT. AS PER SECTION 2 (31) OF THE I TACT, 1961, THE TERMS PERSON INCLUDES- (I) AN INDIVIDUAL (II) A HINDU UNDIVIDED FAMILY (III) A COMPANY (IV) A FIRM (V) AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS , WHETHER INCORPORATED OR NOT, (VI) A LOCAL AUTHORITY. AND M/S NEW KENILWORTH HOTEL PVT. LTD. ITA NO.1155/KOL/2018 ASSESSMENT YEAR:2009-10 P PP PA AA AG GG GE EE E | || | 4 44 4 (VII) EVERY ARTIFICIALLY JUDICIAL PERSON, NOT FAILING WIT HIN ANY OF THE PRECEDING SUB-CLAUSES FROM BARE READING OF SECTION 2(31) OF THE ACT, IT I S CLEAR THAT UNDER THE I T ACT AN INDIVIDUAL AND COMPANY ARE TWO SEPARATE LEGAL ENTIT IES WHO ARE ASSESSED SEPARATELY. THE CLAIM OF THE APPELLANT THAT THE MD OF THE COMPANY WHO CONTROLS 90.30% OF THE PAID OF CAPITAL AND THE COMPANY ARE T HE SAME PERSON IS NOT LEGALLY TENABLE. MOREOVER, PAYMENT OF CASH TO MD WHO IS THE MAJORITY SHAREHOLDER DOES NOT FALL WITHIN THE EXCLUSION CLAUSE UNDER THE PROV ISO TO SECTION 269T OF THE ACT. THE PENALTY IMPOSED BY THE AO AMOUNTING TO RS.1,00, 000/- U/S 271E , IS THEREFORE CONFIRMED. THIS GROUNDS OF APPEAL FAILS, AND IS NOT ALLOWED. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE ASSESS EE IS IN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFOR E US THAT THE ASSESSEE COMPANY HAS GIVEN AN AMOUNT OF CASH OF RS. 1 LAKH TO THE MANAGING DIRECTOR OF THE COMPANY FOR THE PURPOSE OF EXPENSES BE INCURRED FOR THE COMPANY. HOWEVER THIS CASH WAS REMAINED UNUTILIZED THEREFORE THE MANAGIN G DIRECTOR OF THE COMPANY HAS DEPOSITED WRONGLY IN HIS BANK ACCOUNT AND THEREFORE THE ASSESSING OFFICER IMPOSED PENALTY U/S 271E PRESUMING THAT SHAREHOLDER HAVING SUBSTANTIAL INTEREST HAS TAKEN THE LOAN WHICH TANTAMOUNT TO VIOLATION OF SECTION 269SS AND 269TT OF THE ACT. THE LD. COUNSEL ALSO POINTED OUT THAT THER E WAS NO MALAFIDE INTENTION OF THE ASSESSEE TO UTILIZE THE COMPANYS FUND THEREFOR E THE PENALTY LEVIED BY THE ASSESSING OFFICER SHOULD BE DELETED. 8. ON THE OTHER HAND, THE LD. DR VEHEMENTLY SUBMITT ED THAT THE DIRECTOR OF THE COMPANY WHO IS ONE OF THE MAJOR SHAREHOLDER OF THE COMPANY HAS TAKEN CASH AMOUNTING TO RS. 1 LAKH AND DEPOSITED IN HIS OWN B ANK ACCOUNT THEREFORE IT IS A CLEAR VIOLATION OF ACCEPTING THE LOAN IN CASH WHICH IS PROHIBITED BY THE PROVISION OF SECTION 269SS/269TT OF THE ACT. LD. DR POINTED OUT THAT GIVING THE LOAN OR REPAYMENT OF LOAN OTHERWISE THAN ACCOUNT PAYEE CHEQ UE IN EXCESS OF RS. 20,000/- IS PROHIBITED, HOWEVER IN THE INSTANT CASE, THE ASS ESSEE COMPANY HAS VIOLATED THE PROVISION OF SECTION 269TT/269SS AND THEREFORE THE PENALTY SHOULD BE LEVIED. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE AMOUNT OF RS. 1 LAKH WAS REPAID TO SHRI RAJU BHARAT, MANAGING M/S NEW KENILWORTH HOTEL PVT. LTD. ITA NO.1155/KOL/2018 ASSESSMENT YEAR:2009-10 P PP PA AA AG GG GE EE E | || | 5 55 5 DIRECTOR OF THE COMPANY OTHERWISE THAN PAY AN ACCOU NT PAYEE CHEQUE. MR. RAJU BHARAT IS A SUBSTANTIAL SHARE HOLDER IN THIS COMPAN Y THEREFORE THE PROVISION OF SECTION 271E IS CLEARLY ATTRACTED IN THE ASSESSEES CASE UNDER CONSIDERATION. WE NOTE THAT THERE IS THE VIOLATION OF SECTION 269TT OF THE ACT IN REPAYING THE LOAN OF RS. 1 LAKH, OTHERWISE THAN ACCOUNT PAYEE CHEQUE AND ACCOUNT PAYEE DRAFT AND ACCORDINGLY THE ASSESSEE COMPANY IS LIABLE TO PAY P ENALTY U/S 271E OF THE ACT. WE NOTE THAT DURING THE COURSE OF HEARING, THE LD. COU NSEL EXPLAINED THE BENCH THAT THE CASH AMOUNT OF RS. 1 LAKH BY MISTAKE HAS BEEN DEPOS ITED IN THE BANK ACCOUNT OF SHRI RAJU BHARAT, MANAGING DIRECTOR OF THE COMPANY. HOWEVER WE NOTE THAT THE ASSESSEE HAS NOT EXPLAINED THE REASON WHY THE SAID AMOUNT OF RS. 1 LAKH HAS BEEN DEPOSITED IN THE BANK ACCOUNT OF SHRI RAJU BHARAT W HAT IS THE URGENCY OR IMMEDIATE NEED FOR THE COMPANYS BUSINESS TO DEPOSI T THE SAME AMOUNT IN THE BANK ACCOUNT OF THE SHAREHOLDER. SINCE THE ASSESSEE HAS NOT EXPLAINED THE REASONABLE CAUSE AS PER SECTION 273B OF THE ACT, WH ICH TALKS ABOUT PENALTY NOT TO BE IMPOSED IN CERTAIN CASES. AS PER THE PROVISION O F SECTION 273B NO PENALTY SHALL BE IMPOSED ON THE PERSON OR THE ASSESSEE, AS THE CA SE MAY BE FOR ANY FAILURE REFERRED TO IN THE SAID PROVISIONS IF THE ASSESSEE PROVES THAT THERE WAS A REASONABLE CAUSE FOR THE SAID FAILURE. WE NOTE THAT THE LD. CO UNSEL FOR THE ASSESSEE HAS FAILED TO EXPLAIN THE REASONABLE CAUSE, THEREFORE WE CONFI RM THE PENALTY IMPOSED BY THE ASSESSING OFFICER. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 12.06.2019. SD/- (S.S.VISWANETHRA RAVI) SD/- (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER DATED 12/06/2019 SB, SR. PS M/S NEW KENILWORTH HOTEL PVT. LTD. ITA NO.1155/KOL/2018 ASSESSMENT YEAR:2009-10 P PP PA AA AG GG GE EE E | || | 6 66 6 COPY OF THE ORDER FORWARDED TO: 1. M/S KENILWORTH HOTEL PVT. LTD. 2. ACIT, RANGE-8, KOLKATA 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES