Radhamadhav Realcon Pvt.Ltd, Pune V. Joint Commissioner of Income-tax, Range - 10, Pune

ITA 137/PUN/2018

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 9828 (ITAT-PUNE)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-06-2018
• Assessment Year: 2013-2014
• Appeal Filed On: 15-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B KISHORE
• Assessee Lawyers: RAKESH MOHAN
• Keywords: Source of fund; Initiation of penalty proceedings; Reasonable cause; Bad and doubtful debts
• Section: 273B; 260A; 69; 27

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.137/PUN/2018 / ASSESSMENT YEAR : 2013-14 RADHAMADHAV REALCON PVT. LTD., C/O VIPIN GUJARATHI & CO CHARTERED ACCOUNTANTS 403, POONAM PLAZA, MARKET YARD ROAD, OPP: KAMAL NURSING HOME, GULTEKADI, PUNE 411037 PAN: AAECR8482N . /APPELLANT VS. JT. CIT, RANGE 10, PUNE . / RESPONDENT ASSESSEE BY : SHRI RAKESH MOHAN REVENUE BY : SHRI B. KISHORE (CIT) / DATE OF HEARING : 27.06.2018 / DATE OF PRONOUNCEMENT: 25.09.2018 / ORDER PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE O RDER OF COMMISSIONER OF INCOME TAX (APPEALS)-6, PUNE, DATED 31.10.20 17 FOR THE ASSESSMENT YEAR 2013-14. 2. THE PROCEEDINGS RELATE TO THE LEVY OF PENALTY UNDER S ECTION 271E R.W.S. 269T OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 3. THE GROUNDS RAISED BY THE ASSESSEE ARE EXTRACTED AS FOLLOWS: 1) THE LD. CIT(A) ERRED IN UPHOLDING THE LEVY OF P ENALTY OF RS.51,50,00,000 U/S 271 E OF THE INCOME TAX ACT, 1 961 ('ACT'] FOR ALLEGED VIOLATION OF S. 269T OF THE ACT, WITHOUT AP PRECIATING THAT THE APPELLANT HAD NOT COMMITTED ANY DEFAULT IN TERMS OF S. 269T AT ALL. NEITHER WAS THERE ANY RELEVANT 'LOAN' OR DEPOSIT' TAKEN BY THE APPELLANT, NOR WAS THERE ANY 'REPAYMENT' MADE BY THE APPELLANT. ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 2 2) THE LD. CIT(A) ERRED IN HOLDING THAT THE ALLOTMEN T OF SHARES AGAINST SHARE APPLICATION MONEY AMOUNTED TO A 'REPAYMENT' O F 'LOAN' OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE. THE ID. CIT(A) ERRED IN NOT APPRECIATING THAT THE RELEVANT AMOUNTS WERE RECEIVED BY THE ASSE SSEE THROUGH BANKING CHANNELS TOWARDS SHARE APPLICATION MONEY. I N LAW, SHARE APPLICATION MONEY IS NOT A 'LOAN' OR A 'DEPOSIT' FOR THE PURPOSES OF S. 269T. CONSEQUENTLY, THE QUESTION OF REPAYMENT OF ANY 'LOAN' OR 'DEPOSIT' DOES NOT AT ALL ARISE, AND THE PROVISIONS OF S. 269T ARE WHOLLY INAPPLICABLE. 3) THE LD. CIT(A) ERRED IN FAILING TO APPRECIATE TH AT (A) SHARE APPLICATION MONEY WAS RECEIVED THROUGH BANKING CHANNELS, (B) SHARES WERE DULY ALLOTTED AT PAR AND WITHOUT ANY PREMIUM, (C) ALL REPORTING REQUIREMENTS WERE COMPLIED WITH, (D) AND THE AUTHOR ITIES UNDER THE COMPANIES ACT HAD NOT RAISED ANY OBJECTION ON THE T RANSACTION. ACCORDINGLY, THE CASE WAS NOT NE WHICH AT ALL INVO LVED ANY LOAN OR ADVANCE. THE LOWER AUTHORITIES ERRED IN FAILING TO CONSIDER RELEVANT MATERIALS, AND CONSIDERED IRRELEVANT MATERIALS; AND THEREBY REACHED A CONCLUSION WHICH NO REASONABLE PERSON PROPERLY INST RUCTED IN THE LAW COULD HAVE REACHED. 4) THE LD. CIT(A) ERRED IN PROCEEDING ON THE BASIS THAT ON THE DATE OF RECEIPT OF CERTAIN PART OF THE AMOUNTS, THE AUTHORI SED SHARE CAPITAL HAD ALREADY BEEN FULLY SUBSCRIBED. HE FAILED TO APPRECIATE THE AUTHORISED SHARE CAPITAL WAS DULY INCREASED AND NO VIOLATION IN THIS REGARD IS POINTED OUT BY THE AUTHORITIES UNDER THE COMPANIES ACT. ACCORDINGLY, THERE IS NO BASIS FOR RECHARACTERIZING THE SHARE AP PLICATION MONEY AS BEING A 'LOAN'. 5) THE LD. CIT(A) ERRED IN PROCEEDING ON THE BASIS THAT THE TRANSACTION OF ALLOTMENT OF SHARES WAS NON-GENUINE / COLOURABLE ON THE BASIS THAT THE ALLOTTEE WAS AN 'STPI COMPANY WITH M EAGRE ACTIVITIES'. THIS CONSIDERATION IS WHOLLY IRRELEVANT FOR THE PUR POSES OF S. 269T. IN ANY EVENT, AS A MATTER OF FACT, THE TRANSACTIONS WERE O N RECORD DURING SCRUTINY ASSESSMENT PROCEEDINGS AND NO ADDITION WAS MADE IN RESPECT OF THESE TRANSACTIONS. ON FACTS, THE TRANSACTIONS CANNOT BE CATEGORISED AS PARTICULARLY WHEN THE FACT OF ALLOTMENT OF SHARES I TSELF IS NOT AT ALL DISPUTED. THE ID. CIT(A) ERRED IN MAKING FINDINGS O N THE ALLEGED COLOURABLE NATURE OF THE TRANSACTION WITHOUT CONSID ERING THE SUBSTANTIAL EVIDENCE PLACED ON RECORD BEFORE HIM WHICH INDICATE D THAT THE TRANSACTIONS WERE ENTIRELY GENUINE. 6) IN ANY EVENT, THE LD. CIT(A) FAILED TO APPRECIAT E THAT AS A MATTER OF LAW, EVEN ASSUMING (WITHOUT CONCEDING) THAT THERE W AS ANY 'LOAN' WHICH WAS CONVERTED INTO SHARE CAPITAL, THAT DOES NOT AT ALL RESULT IN A VIOLATION OF S. 269T. THE QUESTION OF LEVYING PENAL TY U/S 269T ARISES ONLY WHEN THERE IS A 'REPAYMENT'. THE CONVERSION OF A LO AN INTO SHARE CAPITAL DOES NOT AMOUNT TO A REPAYMENT. 7) WITHOUT PREJUDICE TO THE ABOVE AND IN ANY EVENT, THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT RELEVANT AMOUNTS WERE RECEIVED IN THE PREVIOUS YEARS RELEVANT TO AY 2010-11 AND 2011-12, AND WERE ALREADY REFLECTED AS SHARE APPLICATION MONEY IN THOSE YEARS . HENCE, EVEN ASSUMING (WITHOUT CONCEDING) THAT IN LAW THERE IS A NY REPAYMENT, THE SAME HAS NOT OCCURRED IN THE PERIOD RELEVANT TO THE AY 2 013-14 AND HENCE, THERE IS NO VIOLATION OF S. 269T DURING THE PERIOD UNDER CONSIDERATION. ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 3 8) WITHOUT PREJUDICE TO THE ABOVE AND ASSUMING (WIT HOUT CONCEDING) THAT THERE WAS ANY VIOLATION OF S. 269T, IN ANY EVE NT THE LD. CIT(A) OUGHT TO HAVE HELD THAT THERE WAS REASONABLE CAUSE FOR THE SAME. THERE WAS FACTUALLY NO MONEY WHICH WAS DISBURSED BY THE APPELLANT AT ALL. SHARES WERE IN FACT ALLOTTED. IF AT ALL THERE WAS A NY BREACH OF S. 269T, IT WOULD ONLY BE OF A TECHNICAL NATURE. INTER ALIA FOR THESE REASONS, THE LD. CIT(A) OUGHT TO HAVE HELD THAT IF AT ALL THERE WAS ANY BREACH, THE SAME WAS DUE TO A REASONABLE CAUSE, AND LEVY OF PENALTY WOULD NOT BE JUSTIFIED. 9) THE APPELLANT CRAVES LEAVE TO ADD/ALTER THE ABOV E GROUNDS, EACH OF WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER. THE ABOVE GROUNDS INDICATE THAT GROUND NOS. 1 TO 6 REL ATES TO THE MERITS OF THE LEVY OF PENALTY U/S.271E OF THE ACT. FURTHER , GROUND NO.7 RELATES TO THE PROPER YEAR FOR LEVY OF SAID PENALTY QUA THE YEAR OF BOOK ENTRIES. FINALLY, GROUND NO.8 RELATES TO THE REASONABLE CA USE FOR SUCH BOOK ENTRIES AND SUBSEQUENT ALLOTMENT OF 9% REDEEMABLE P REFERENCE SHARES. 4. BRIEFLY STATED RELEVANT FACTS RELATING TO THE LEVY OF SA ID PENALTY INCLUDES THAT THE ASSESSEE IS ENGAGED IN THE REAL ESTATE BUSINESS AND HAD PLAN TO DEVELOP AN INTEGRATED TOWNSHIP IN PUNE AND M UMBAI. THE ASSESSEE COMPANY WAS ORIGINALLY INCORPORATED ON 02.07.200 8 IN THE NAME OF M/S.PADMAJI REALCON PVT. LTD., THE SAME WAS REC HRISTENED AS M/S.RADHA MADHAV REALCON PVT. LTD. ON 16.06.2010 WITH THE AUTHORIZED/PAID-UP CAPITAL OF RS.5 LAKHS ONLY. 4.1 DURING THE YEAR, THE ASSESSEE FILED RETURN OF INCOME DE CLARING NIL INCOME. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143 (3) OF THE ACT ACCEPTING THE INCOME RETURNED BY THE ASSESSEE. HOWEVE R, IN PARA 6 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER MADE REFERENC E TO THE VIOLATION BY THE ASSESSEE SO FAR AS PROVISIONS OF SECTION 2 69T OF THE ACT ARE CONCERNED. IN THE ASSESSMENT PROCEEDINGS, THE ASS ESSING OFFICER ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 4 MENTIONED THAT THE ASSESSEE RECEIVED LOANS FROM M/S.VSK TECHNOLOGIES PVT. LTD. (IN SHORT VSK) IN ASSESSMENT YEARS 2010-11, 2011-12 AND 2012-13 AND THE SAME WAS SQUIRED UP BY WAY OF ALLOTMENT OF SHARES TO VSK. THIS METHOD OF REPAYMENT OF UNSECURED LOANS WAS CO NSIDERED BY THE AO AS VIOLATION OF PROVISIONS OF SECTION 269T OF THE ACT . EVENTUALLY, THE ASSESSING OFFICER LEVIED PENALTY ON 29.09.2015 AFTER FOLLOW ING THE DUE PROCESS OF LAW. IN THE SAID PENALTY ORDER, THE AS SESSING OFFICER DISCUSSED (A) THE DETAILS OF UNSECURED LOANS RECEIVED BY TH E ASSESSEE IN THE SAID ASSESSMENT YEARS; (B) THE CONVERSION OF THE SAME INTO SHARE APPLICATION MONEY (IN SHORT SAM) BY WAY OF JOURNAL ENTRIE S IN ASSESSEES BOOKS OF ACCOUNT; AND (C) THE SAME IS FINALLY C ONVERTED INTO PREFERENTIAL SHARES AND ALLOTMENT TO M/S. VSK TECHNOLOGIES PVT. LTD. (IN SHORT VSK). FURTHER, THE ASSESSING OFFICER DISCUSSED THE DETAILS O F VSK COMPANY, WHICH IS OWNED BY SHRI DEEPAK BAREJA AND SHRI S UNIL SURI; THE DETAILS OF LOANS GRANTED PERIODICALLY BY THE SAID VSK T O THE ASSESSEE; THE DETAILS OF RESOLUTION PASSED BY THE COMPANY ALLOTTING T HE SHARES TO VSK; THE WAY THE AUTHORIZED SHARE CAPITAL WAS INCREASED FROM RS.5 LAKHS TO RS.60 LAKHS OVER THE YEARS; THE WAY THE SAID LO ANS GIVEN TO THE COMPANY WERE UTILIZED FOR BUYING THE LANDS THROUGH SHRI DIG AMBAR D PATIL AND MRS. JYOTSNA PATIL, DIRECTORS OF THE ASSESSEE COM PANY ETC., THE ASSESSING OFFICER ALSO DISCUSSED THE WAY THE LOANS GIVE N TO OTHERS AMOUNTING TO RS.4.32 CRORES BY THE ASSESSEE AND THE W AY THEY ARE WRITTEN OFF AS BAD DEBTS. FURTHER ALSO, ASSESSING OFFICER CONSIDERED THE ASSESSEES ARGUMENTS THAT THE AMOUNT RECEIVED BY THE COMPANY FROM VSK IS NOT LOAN OR ADVANCE AND IN FACT, FROM THE BEGINNING, THEY WERE ALWAYS GIVEN FOR SHARE APPLICATION MONEY ETC., FURTHER, T HE ASSESSING OFFICER ALSO CONSIDERED JOURNAL ENTRIES PASSED BY THE ASSES SEE WHILE ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 5 CONVERTING LOANS AND ADVANCES INTO SHARE APPLICATION MONE Y AND THEN IN TURN, FINALLY INTO THE PREFERENTIAL SHARES TILL THE TIME THE SHARES ACTUALLY ALLOTTED IN THE YEAR UNDER CONSIDERATION. THE FACT OF NON CONVERSION OF LOAN TO SHARE APPLICATION MON EY IN THE SAME YEAR IN THE BOOKS OF VSK WAS ALSO DISCUSSED. THE VSK CONVERTED THE LOANS INTO SHARE APPLICATION MONEY/PREFEREN CE SHARES IN THE YEAR UNDER CONSIDERATION ONLY UNLIKE THE ASSESSEE. 4.2 FURTHER, THE ASSESSING OFFICER ANALYZED THE PROVISIONS OF SECTION 269T OF THE ACT AND ALSO THE DECISIONS CITED BY THE ASS ESSEE I.E. IN THE CASE OF CIT VS. NOIDA TOLL BRIDGE CO. LTD. 263 ITR 260 (DEL HI), CIT VS. TRIUMPH INTERNATIONAL FINANCE (I) LTD. 345 ITR 270 (BOM.) AN D LODHA BUILDERS PVT. LTD. & OTHERS VS. ACIT IN ITA NO.476/M/2014 AND HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM VSK CON STITUTES THE LOANS OR ADVANCES. THUS, THE ASSESSING OFFICER HELD THAT REPAYMENT OF LOAN BY RESORTING TO JOURNAL ENTRIES, CONSTITUTES THE CONT RAVENTION OF PROVISIONS OF SECTION 269T OF THE ACT. ACCORDINGLY, AO APP LIED THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. TRIUMPH INTERNATIONAL FINANCE (I) LTD. (SUPRA). EVENTUALLY, A O LEVIED THE PENALTY OF RS.51.50 CRORES QUA THE LOANS OR ADVANCE S CONVERTED BY THE ASSESSEE BY WAY OF BOOK ENTRIES. AO HELD THAT THE ASSESSEE VIOLATED THE MODE OF REPAYMENT OF LOAN SPECIFIED IN SECTION 269T OF T HE ACT. THE STATUTE PROVIDES FOR REPAYMENT OF LOANS BY WAY OF ACCOUN T PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT ONLY. 4.3 FURTHER, ON THE REASONABLE CAUSE-LINKED SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER DISCUSSED THE ISSUE OF REAS ONABLE CAUSE QUA THE PROVISIONS OF SECTION 273B OF THE ACT AND HELD THE P RINCIPLE OF ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 6 EMPTY FORMALITY AS OUTLINED BY THE JURISDICTIONAL HIGH COUR T IN THE CASE OF CIT VS. TRIUMPH INTERNATIONAL FINANCE (I) LTD. (SUP RA) DO NOT APPLY TO THE FACTS OF THE PRESENT CASE. AS PER DISCUSS ION GIVEN IN PARAS 11 TO 13 OF THE PENALTY ORDER, THE ASSESSING OFFICER PROCEEDED TO LEV Y THE PENALTY UNDER SECTION 271E OF THE ACT FOR ASSESSMENT YEAR 2013-14. THE SAID PARAS 11 TO 13 ARE EXTRACTED AS UNDER:- 11. RM HAS ALLOTTED 51,50,000 PREFERENCE SHARES OF RS. 100/- EACH IN LIEU OF DEPOSIT RECEIVED OF RS.51,50,00,000/- FROM VSK. THE FACE VALUE OF EQUITY SHARES OF RM IS VALUED AT RS.10/- EACH. HOWEVER PREFERENCE SHARES ARE VALUED AT A PREMIUM. SUCH PREMIUM IS FIX ED WITHOUT ANY BASIS. RM HAS NOT CONDUCTED ANY BUSINESS FROM THE DATE OF ITS INCORPORATION WHICH IS EVIDENT FROM NIL TURNOVER RE PORTED IN THE FINANCIALS YEAR AFTER YEAR. FURTHER, RM HAS CONSISTENTLY REPOR TED LOSSES ON ACCOUNT OF SOME INDIRECT EXPENSES. RM HAS CLAIMED REAL ESTA TE DEVELOPMENT AS ITS OBJECTIVE BUT THERE ARE NO INSTANCES TOWARDS TH E SAID OBJECTIVE EXCEPT FOR THE COMPANY'S CLAIM THAT ADVANCES ARE GIVEN TO THE DIRECTORS FOR THE PURPOSE OF PROCURING LAND. THE PROGRESS ON THE PURP OSE FOR WHICH ADVANCES ARE RECEIVED BY THE DIRECTORS IS NOT REPOR TED AND NOTHING IN SUPPORT OF THE SAME IS BROUGHT ON RECORD. RM HAS RE GARDED LOANS GIVEN TO OTHER ENTITIES AMOUNTING TO RS.4.32 CR. AS BAD AND DOUBTFUL. HENCE RM IS INACTIVE EXCEPT FOR THE ISOLATED TRANSACTION OF RECEIVING ADVANCES FROM VSK AND GIVING THE SAME TO THE DIRECTORS . IN THESE CIRCUMSTANCES IT CAN ONLY BE INFERRED THAT THE TRANSACTION OF RECEIV ING DEPOSITS FROM VSK AND REPAYMENT OF THE SAME BY ALLOTMENT OF PREFERENCE SHARES AT A HIGH PREMIUM CAN BE REGARDED AS A COLOR ABLE TRANSACTION. 12. IN SOME CASES GENUINE BUSINESS CONSTRAINTS MAY NECE SSITATE REPAYMENT OF LOAN/DEPOSIT BY A MODE OTHER THAN THE MODE PRESCRIBED UNDER SECTION 269T. TO CATER TO THE NEEDS OF SUCH E XIGENCIES, THE LEGISLATURE HAS ENACTED SECTION 273B WHICH PROVIDES THAT NO PENALTY UNDER SECTION 271 E SHALL BE IMPOSED FOR CONTRAVENT ION OF SECTION 269T IF, REASONABLE CAUSE FOR SUCH CONTRAVENTION IS SHOWN. AS ALREADY DISCUSSED IN THE PRESENT CASE THERE ARE NO GENUINE BUSINESS EXIGENCIES THAT HAVE FORCED THEM TO ISSUE PREFERENCE SHARES AT AN INFLAT ED VALUE COMPARED TO THE ACTUAL MARKET VALUE OF THE SHARES OF RM. FURTHE R AS OBSERVED BY THE HON'BLE HIGH COURT IN THE CASE OF TRIUMPH INTERNATI ONAL FINANCE (I) LTD, IF ALLOTMENT OF SHARES(EQUITY OR PREFERENTIAL) REPRESE NTS ONLY A EMPTY FORMALITY TO REPAY THE LOAN/DEPOSIT AMOUNT BY ACCOUNT-PAYEE CHEQUE/DRAFT AND RECEIVE BACK ALMOST THE SAME AMOUN T TOWARDS THE SALE PRICE OF THE SHARES, THEN SUCH CASES ARE SAVED BY REASONABLE CAUSE. IN THE INSTANT CASE, ALLOTMENT OF PREFERENCE SHARES DOES NOT REPRESENT AN EMPTY FORMALITY. ON THE CONTRARY, SHARES OF RM ARE OVERVALUED ARBITRARILY 'WITHOUT ANY BASIS AND THE SAME ARE ISSUED TO SQUAR E OFF THE DEPOSITS RECEIVED. 13. BASED ON THE ABOVE DISCUSSION IT IS CLEAR THAT , RM IS NOT SAVED BY REASONABLE CAUSE FOR VIOLATION OF SEC269T OF THE IT ACT. THEREFORE ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 7 DEPOSIT OF RS.51.50 CRORE RECEIVED BY RM FROM VSK, REPAID IN CONTRAVENTION OF SEC 269T OF THE IT ACT IS NOT SAVE D BY A 'REASONABLE CAUSE' FOR SUCH VIOLATION. ON ACCOUNT OF SUCH VIOLATION, RM IS LIABLE FOR PENALTY U/S 271E OF THE IT ACT, A SUM EQUAL TO THE AMOUNT OF THE DEPOSIT SO REPAID. ACCORDINGLY I THEREFORE LEVY A PENALTY OF RS.51,50,00,000/- (RUPEES FIFTY ONE CRORE AND FIFTY LAKHS ONLY) U/S. 271E OF THE IT ACT FOR A.Y. 2013-14. FROM THE CONTENTS OF PARA NO.12 QUA THE REASONABLE CAU SE, THE AO DID NOT UNDERSTAND THE ESSENCE OF ASSESSEES SUBMISSION ON REASONABLE CAUSE. AO HELD THAT ALLOTMENT OF PREFERENCE SHARES DOES NOT REPRESENT AN EMPTY FORMALITY. WHEREAS THE ASSESSEES SUBMISSION SAYS THAT REPAYMENT OF LOAN TO VSK AND RECEIVING THE SAME FOR SHAR E APPLICATION MONEY BY THE ASSESSEE CONSTITUTE AN EMPTY FORMALITY. TH IS WRONG UNDERSTANDING OF AO LED HIM TO THE WRONG CONCLUSION. 5. THE PROCEEDINGS BEFORE CIT(A) : AGGRIEVED WITH THE ABOVE LEVY OF PENALTY BY THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPE AL BEFORE THE CIT(A). DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE SUB MITTED THAT (I) LOANS AND ADVANCES TAKEN BY THE ASSESSEE FROM VSK WE RE MEANT ALWAYS FOR SHARE APPLICATION MONEY FROM THE VERY BEGINNING OF RECEIVING LOANS. THEREFORE, AS PER THE ASSESSEE, THE IMPUGNED LOANS DO NOT CONSTITUTE THE LOANS OR ADVANCES FOR ATTRACTING THE PRO VISIONS OF SECTION 269T OF THE ACT; (II) THE LOANS AND ADVANCES WERE NEVER R EPAID BY CASH TO THE VSK AND THEREFORE, THE PROVISIONS OF SECTION 269T OF THE ACT HAS NO APPLICATION; (III) IT IS THE CASE OF RECEIVING SHARE APPLICATI ON MONEY FROM VSK AND IN RETURN, THE SHARES WERE ALLOTTED BY PAS SING THE RESOLUTION OF THE BOARD OF THE COMPANY AND THEREFORE, IT I S ALWAYS A CASE OF INVESTMENT IN SHARES, HENCE PENALTY LEVIED SHOULD N OT BE SUSTAINED; AND (IV) NOTWITHSTANDING THE ABOVE, EVEN IF SQUIR ING UP OF ENTRIES RELATING TO THE LOANS OR ADVANCES, AMOUNTS TO R EPAYMENT BY THE ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 8 ASSESSEE AND SUCH SQUIRING DID NOT HAPPEN IN THE YEAR U NDER CONSIDERATION. THEREFORE, THE PROVISIONS OF SECTION 269T OF THE ACT SHOULD HAVE BEEN INVOKED IN EARLIER ASSESSMENT YEARS IN W HICH LOANS OR ADVANCES WERE CONVERTED INTO SHARE APPLICATION MONEY TH ROUGH PASSING OF JOURNAL ENTRIES. 5.1 REGARDING THE REASONABLE CAUSE, THE ASSESSEE ARGUED THAT THE REPAYING LOANS TO VSK IS AN IMPOSSIBLE TASK AS THE MONEY SO RECEIVED BY THE ASSESSEE FROM VSK WAS ALREADY FOUND WAY INTO THE OTHERS BY WAY OF ADVANCES FOR APPROPRIATION FOR PURCHASE OF LANDS, WHICH IS THE CORE ACTIVITY OF THE ASSESSEE COMPANY. RECEIVING THE SAID ADVA NCES FROM THEM ONLY FOR RETURNING TO VSK AND IN TURN TO RECEIVE T HE SAME FROM VSK THROUGH BANKING CHANNELS TOWARDS THE SHARE APPLICAT ION MONEY, CONSTITUTES AN EMPTY FORMALITY. FURTHER, ASSESSEE SUBMIT TED THAT THIS KIND OF EMPTY FORMALITY CAN CONSTITUTE REASONABLE CASE WITH IN THE MEANING OF SECTION 273B OF THE ACT AND RELIED ON THE JUDG MENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TRIUMPH INT ERNATIONAL FINANCE (I) LTD. (SUPRA). HE ALSO ANALYZED THAT THE ASSESS ING OFFICER FAILED TO UNDERSTAND THE REASONABLE CAUSE AND THE ARGUM ENT OF THE ASSESSEE IN THIS REGARD. 5.2 ON CONSIDERING ALL THE ARGUMENTS AND THE CASE OF THE AO; THE CIT(A) EXAMINED THE FACTS OF THE CASE; ANALYZED THE FUNDS FLOW OF LOANS WHICH ARE RECEIVED BY THE ASSESSEE FROM VSK; CIT(A) ANAL YZED THE APPLICATION OF FUNDS THROUGH DIRECTORS OF THE COMPANY; CIT(A ) NOTED THAT THE DIRECTORS NEVER INVESTED THE SAME BY BUYING T HE LAND NOR RETURNED THE MONEY TO THE COMPANY; THE LOANS AND ADVA NCES ARE IN FACT NOT FOR THE SHARE APPLICATION MONEY AS THE ASSESSEE DID NOT HAVE ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 9 ADEQUATE AUTHORIZED CAPITAL FOR ALLOTTING THE SHARES ETC., EVENTUALLY, CIT(A) HELD THAT IT IS CASE OF COLOURABLE TRANSACTION AND THE PROVISION S OF SECTION 269T OF THE ACT ARE SQUARELY ATTRACTED TO THE TRANSACTION OF REPAYMENT OF LOANS OR ADVANCES THROUGH THE JOURNAL EN TRIES WITH THE VSK. 5.3 REGARDING REASONABLE CAUSE ALSO, THE CIT(A) DID NOT APP RECIATE THE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE PE NALTY LEVIED BY THE ASSESSING OFFICER. REGARDING THE YEAR OF LEVY OF PENALTY , THE CIT(A) DISMISSED THE SAME SAYING THAT THE DEFAULT OF THIS KIND IS N OT ASSESSMENT YEAR SPECIFIC AND PENALTY ACCORDINGLY LEVIED FOR EVERY DEFAULT OR CONTRAVENTION OF PROVISIONS OF SECTION 269T OF THE ACT. EVENTUALLY, THE CIT(A) CONFIRMED THE PENALTY AS PER DISCUSSION IN PARAS 6.1.3 TO 9 OF HIS ORDER. THE ABOVE REFERRED DECISIONS REFERRED BY THE CIT(A) ARE NARRATED IN THE SAID PARAS. 6. AGGRIEVED WITH THE ABOVE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE GROUNDS CITED ABOVE. BEFORE THE TRIBUNAL 7. BEFORE US, LEARNED COUNSEL NARRATED THE WAY THE COMP ANY WAS ORIGINALLY INCORPORATED, THE LOANS WERE RECEIVED FROM VSK TE CHNOLOGIES PVT. LTD.(VSK) AND ALSO PROVIDED DATE-WISE DETAILS OF LOANS RECEIVED. LD. COUNSEL SUBMITTED THAT THE ASSESSEE RECEIVED RS.2.5 CRO RES IN ASSESSMENT YEAR 2010-11 TOWARDS THE SHARE APPLICATION MONEY. FURTHER, THE ASSESSEE RECEIVED RS.49.24 CRORES IN ASSESS MENT YEAR 2011-12. THUS, THE TOTAL AMOUNT OF UNSECURED LOANS / D EPOSITS / SHARE APPLICATION MONEY WORKS OUT TO RS.51.74 CRORES. ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 10 A.Y. AMOUNT RECEIVED AS SHARE APPLICATION MONEY 2010-11 2.50 CRORES 2011-12 49.24 CRORES TOTAL 51.74 CRORES 7.1 EXPLAINING THE APPROPRIATION OF THE SAID LOANS, LEARNED C OUNSEL MENTIONED THAT OUT OF RS.49 CRORES, RS.4.38 CRORES WAS G IVEN TO SOME UNRELATED PARTIES AS LOANS BY THE ASSESSEE. DETAILS ARE GIVEN BELOW (PAGE 17 OF THE PAPER BOOK) : REMARKS DIRECTORS (DIGAMBAR D. PATIL, MRS. JYOTSNA PATIL) 42.72 CRORES SCHEDULE-7 OF THE BALANCE SHEET FOR PURCHASE OF LANDS LOAN GIVEN TO OTHERS 4.38 CRORES CLAIMED AS BAD DEBTS PROPERTY ADVANCES 3.92 CRORES FOR PURCHASE OF LAND 51.74 CRORES THUS, THE LOAN OF RS.4.38 CRORES WAS SUBSEQUENTLY CONSIDE RED AS BAD AND DOUBTFUL DEBTS. THERE WAS DISCUSSION IN THE ORDERS T HAT OUT OF RS.49.02 CRORES GIVEN TO THE DIRECTORS IN ASSESSMENT YEA R 2011-12 AND THE SAME WAS ALREADY UTILIZED IN PROCURING THE LAND FOR THE COMPANY AND LEAVING NO BALANCE EITHER REFUNDABLE TO THE ASSESSEE OR TO BE INVESTED IN ACQUIRING FURTHER LANDS FOR THE COMPANY. ASSES SEE HAD TO USE THE NAMES OF THE DIRECTORS FOR BUYING THE LANDS FOR A SSESSEE AS THERE ARE SOME RESTRICTIONS IN MAHARASHTRA FOR THE COMP ANY TO HOLD THE AGRICULTURAL LANDS IN THE NAME OF THE ASSESSEE. NORMALLY, IT IS THE ASSESSEE WHICH GIVES CHEQUES AND MONEY THROUGH THE DIR ECTORS. LEARNED COUNSEL ALSO MENTIONED THAT THE VSK WAS UNDER INVESTMENT AGREEMENT WITH THE ASSESSEE FOR SUPPLY OF LOANS IN EXCEE DING AROUND RS.100 CRORES FOR THE BUSINESS PURPOSES AND THE PAYMEN T OF RS.51.74 CRORES TO THE ASSESSEE IS PART OF COMPLIANCE TO THE SA ID AGREEMENT. ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 11 THERE WAS DISCUSSION IN THE ORDERS ABOUT HOW THE VSK R ECEIVED FUNDS FROM HONG KONG BASED COMPANY I.E. CITI RELIANCE LTD. THE CONTENTS OF CIT(A)S ORDER IN PARA 6.2.4 DESCRIBES THESE FACTS. RELYING ON THE FINANCIAL STATEMENT OF ASSESSEE, LEARNED COUNSEL SUBMITTED T HAT THE ASSESSEE REFLECTED THE AMOUNT AS LOANS AND ADVANCES BE FORE THEY ARE IMMEDIATELY CONVERTED INTO SHARE APPLICATION MONEY BY PAS SING JOURNAL ENTRIES WHICH ARE FURTHER CONVERTED INTO 9% REDEEMABLE CUMULATIVE PREFERENTIAL SHARES ( IN SHORT 9% RCP SHARES). ASSESSE E GOT THE APPROVAL OF THE ROC FOR INCREASED AUTHORIZED CAPITAL. EVEN TUALLY, THE ASSESSEE ALLOTTED SHARES TO VSK AT FACE VALUE OF RS.100/- WITHOUT ANY PREMIUM. 7.2 CONSIDERING THE ABOVE FACTS OF THE CASE, LEARNED COUN SEL ARGUED THAT THE INFLOW OF FUNDS FROM VSK TO THE ASSESSEE HAS GEN ESIS IN THE INVESTMENT AGREEMENT DATED 02.02.2010 AND PROVIDING THE PART OWNERSHIP OF THE COMPANY TO VSK BY ALLOTTING REQUISITE SHA RES HAS BEEN THE ORIGINAL IDEA OF THE COMPANY. IN TUNE WITH THE SAME, T HE ASSESSEE ALLOTTED 9% RCP SHARES TO VSK TO MAKE VSK AS A PREFERE NTIAL SHAREHOLDER OF THE COMPANY, WHICH IS INCORPORATED FOR THE PURPOSE OF DEVELOPMENT OF TOWNSHIPS IN PUNE AND MUMBAI. AS PER THE ASSESSEE, TAKING LOANS AND ADVANCES IS NEVER THE INTENTION OF ASSES SEE, AND THEREFORE, THE LOAN OF RS.51.74 CRORES FROM VSK WAS NEVER FOR LOANS AND ADVANCES AND IT IS ALWAYS FOR THE ALLOTMENT OF OWNERSHIP O F THE COMPANY TO VSK EVENTUALLY. HE ALSO SUBMITTED THAT LOANS AND ADV ANCES WERE SUBSEQUENTLY CONVERTED INTO SHARE APPLICATION MONEY PEN DING THE REQUEST FOR INCREASE OF THE AUTHORIZED CAPITAL LIMITS WITH T HE RELEVANT ROC. SOON AFTER THE PERMISSION IS RECEIVED, THE ASSESSEE MADE BOOK ENTRIES CONVERTING THE LOAN INTO SHARE APPLICATION MONEY (IN SHORT SAM) ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 12 AND THEN ALLOTTED THE SAID 9% RCP SHARES. THESE BOOK EN TRIES OF THE SAID CONVERSION OF LOAN INTO SAM, WHICH HAS THE CONSEQUENT EFFECT OF REPAYMENT OF LOANS TO VSK, WAS CONSIDERED BY THE ASSESS ING OFFICER AS CONTRAVENTION TO THE PROVISIONS OF SECTION 269T OF THE AC T. THESE PROVISIONS STATE THAT THE REPAYMENT OF LOAN HAS TO BE DONE BY WAY OF ISSUE OF ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE DEMAND DRAFT. TAKING OBJECTION TO THE SAME, LEARNED COUNSEL SUBMITTED THAT TH E SAID PROVISIONS DO NOT APPLY TO THE CASE OF SHARE APPLICATION MONEY, MORE SO WHEN THE SHARES ARE EVENTUALLY ALLOTTED TO VSK. ASSESS EE ALSO QUESTIONS THE TIMING/ASSESSMENT YEAR IN THE PENALTY PROC EEDINGS IS INITIATED. THE FACT THAT SIMILAR PENALTIES WERE DELETED BY T HE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. NOIDA TOLL BRIDGE CO. LTD. (SUPRA), WAS HIGHLIGHTED BY THE LEARNED COUNSEL. REFERRING TO THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF CIT VS. T RIUMPH INTERNATIONAL FINANCE INDIA LTD. (SUUPRA), LEARNED COUNSEL S UBMITTED THAT THE ASSESSEE GOT RELIEF FROM LEVY OF PENALTY ON THE G ROUND OF REASONABLE CAUSE (IN SHORT RC) MENTIONED IN SECTION 27 3B OF THE ACT. THUS, THE LD. COUNSEL ARGUED THAT THE PENALTY NEEDS TO BE DELETED. 7.3 ANALYZING THE RC, I.E., THE REASONABLE CAUSE FOR THE ASS ESSEE, LEARNED COUNSEL SUBMITTED THAT LOANS RECEIVED FROM VSK/UT ILIZED FOR BUSINESS PURPOSES. LD. COUNSEL MENTIONED THAT WHEN THE LOANS ARE USED FOR BUSINESS PURPOSE, IT IS IMPOSSIBLE FOR THE ASSESSE E TO REPAY THE LOANS AS THE SAME ARE INVESTED IN STOCK-IN-TRADE THROU GH SHRI DIGAMBAR D PATIL, DIRECTOR OF THE COMPANY. OBTAINING SHARE HOLDING OF THE ASSESSEE IS THE MAIN OBJECT OF VSK THE FUNDING SHOULD HAV E BEEN SHOWN IN THE BOOKS AS THE SHARE APPLICATION MONEY ONLY FROM THE BEGINNING. NOW ASSESSEE IS DIVESTED OF ADEQUATE FUNDS FOR REPAYMENT ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 13 BY WAY OF ACCOUNT PAYEE CHEQUE OR DEMAND DRAFT. TO ISS UE THE CHEQUES TO VSK FOR REPAYMENT OF LOANS IN ORDER TO COMPLY WITH TH E PROVISIONS OF SECTION 269T OF THE ACT, THE ASSESSEE WOULD HAVE TO RAIS E THE FUNDS TO REPAY AND THE SAME SHOULD BE RETURNED FROM VSK TOWARD S 9% RCP SHARES OR SHARE APPLICATION MONEY. THIS TRANSACTION OF IS SUING ACCOUNT PAYEE CHEQUES/DEMAND DRAFTS AND RECEIVING THE SAME FOR INVESTMENT IN SAM BY THE ASSESSEE, SHOULD CONSTITUTE AN EMPTY FORMA LITY AS DISCUSSED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF C IT VS. TRIUMPH INTERNATIONAL FINANCE (I) LTD. (SUPRA). CONSIDERING THE FACTS RELATING TO REASONABLE CAUSE, THE FA CTS ARE IDENTICAL, JOURNAL ENTRIES WERE PASSED IN BOTH THE CASES A ND THEREFORE, BENEFITS OF REASONABLE CAUSE SHOULD BE DECIDED IN FAVOUR OF ASSESSEE AND DELETE THE PENALTY LEVIED BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A). 7.4 FURTHER, ON THE ISSUE OF CORRECT ASSESSMENT YEAR INIT IATION OF PENALTY, ELABORATING THE ASSESSING OFFICERS FAILURE TO INITIATE / LEVY PENALTY IN ASSESSMENT YEAR 2012-13, WHERE THE CONVERSIO N OF LOANS AND ADVANCES TO SHARE APPLICATION MONEY WAS DONE BY PASSIN G JOURNAL ENTRIES, LEARNED COUNSEL SUBMITTED THAT ASSESSMENT YEAR 2013-14 IS THE YEAR OF ALLOTMENT OF SHARES TO THE ASSESSEE AND THE DEFA ULT, IF ANY, IS NOT RELATABLE TO THE YEAR UNDER CONSIDERATION. A.Y. 2012-13 IS THE YEAR, WHERE THE DEFAULT OCCURRED AND THERE THE PENALTY SHOULD HAVE BEEN INITIATED. THE CIT(A) DID NOT DEAL WITH THIS ISSUE IN PARA 8 O F HIS ORDER, WAS ALSO HIGHLIGHTED BY THE LEARNED COUNSEL. IT IS THE CAS E OF LEARNED COUNSEL FOR THE ASSESSEE THAT THE AMOUNTS RECEIVED BY THE ASSESSEE FROM VSK DO NOT CONSTITUTE LOANS OR ADVANCES. THEREFORE , THE ALLOTMENT ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 14 OF SHARES TO VSK DO NOT CONSTITUTE ANY REPAYMENT OF SA ID LOANS OR ADVANCES IN ORDER TO ATTRACT PROVISIONS OF SECTION 269T OF THE ACT. FURTHER, IT IS THE CASE OF ASSESSEE THAT, NOTWITHSTANDING THE ABOVE ARGUMENTS, THE ASSESSEE PASSED THE JOURNAL ENTRIES FOR CONVERTING THE LOANS AND ADVANCES TO SHARE APPLICATION MONEY AND PASSI NG JOURNAL ENTRIES FOR SQUARING UP OF LOANS WITH VSK AND EVENTUALLY ALLOTTING PREFERENTIAL SHARES TO VSK, CONSTITUTES PART OF REASONABLE CAUSE. THE ASSESSEE HAD FOR RESORTING TO BOOK ENTRIES, OTHERWISE TH E ASSESSEE HAD TO RAISE FUNDS TO REPAY THE LOANS TO VSK AND ISSUE CHEQ UES TO VSK TO SQUARE UP THE LOANS FIRST. CONSIDERING THE INVESTMENT AG REEMENT ON ALLOTMENT OF SHARES TO VSK, THE ASSESSEE HAD TO TAKE CH EQUES AGAIN FROM VSK FOR ALLOTMENT OF SHARES AND THE SAME SHOULD CONS TITUTE EMPTY FORMALITY. FINALLY, IT IS THE CASE OF ASSESSEE THAT THERE IS AN ERROR IN LEVYING PENALTY IN THE YEAR UNDER CONSIDERATION WHEN THE DEFAULT, IF ANY, I.E. CONVERSION OF LOANS AND ADVANCES TO SHARE APPLICATION MONEY HAPPENED IN THE PRECEDING ASSESSMENT YEAR 2012-13. 7.5 WRITTEN SUBMISSIONS : FURTHER, LEARNED COUNSEL FILED WRITTEN SUBMISSIONS IN THIS REGARD EXPLAINING THE REASONABLE CAUSE ISSUE AND OTHERS AND THE RELEVANT PARAS FROM THE SAID SUBMISSIONS ARE EXTRACTED HEREUNDER: 1.2 IN PARA NO. 2 OF THESE SUBMISSIONS, IT IS ADMI TTED THAT THE APPELLANT HAS RECEIVED LOAN FROM VSK TECHNOLOGIES P VT. LTD. DURING F.Y. 2009-10 & 2010-11 AND THAT THESE AMOUNTS APPEAR IN THE BALANCE SHEET OF APPELLANT AS ON 31.03.2010, 31.10.2011 AND 31.03 .2012 AS SHARE APPLICATION MONEY. THE TRUE NATURE OF THIS TRANSACT ION, CONVERSION OF LOANS INTO SHARE APPLICATION MONEY IS BEING CHALLEN GED BY THE DEPARTMENT ON THE PRETEXT OF WHAT IS APPARENT IS NOT REAL BY A RGUING THAT THE TRUE NATURE OF THE TRANSACTION HAS TO BE ASCERTAINED ONL Y BY KNOWING THE PURPOSE AND INTENTION OF VSK TECHNOLOGIES PVT. LTD. FURTHER IN PARA NO. 4, THEY ARE REFERRING TO LIFTING VEIL OF CORPORATE ENT ITY TO UNDERSTAND THE TRUE NATURE. IT HAS BEEN FURTHER ARGUED THAT IN THE BALA NCE SHEET OF VSK TECHNOLOGIES PVT. LTD., THE AMOUNT UNDER CONSIDERAT ION IS BEING REFLECTED UNDER THE HEAD LOANS AND ADVANCES' AND, IT IS ONLY DURING A.Y. 2013-14 ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 15 THAT THE AMOUNT IS SHOWN AS INVESTMENT. IT IS CONC LUDED ACCORDINGLY THAT VSK TECHNOLOGIES PVT. LTD. HAVE THROUGHOUT TREATED THE MONEY ADVANCED TO THE APPELLANT AS 'LOANS' AND CONSEQUENTLY, DURIN G A.Y. 2013-14, IT IS THE LOANS' WHICH HAS BEEN TRANSFERRED BY WAY OF JV ENTRY INTO SHARE CAPITAL. 1.3 THE ARGUMENTS OF THE DEPARTMENT ARE BASED ON IN CORRECT APPRECIATION OF THE BALANCE SHEET OF VSK TECHNOLOGI ES PVT. LTD. IN THE BALANCE SHEET, COPY OF WHICH HAS BEEN FILED WITH TH E WRITTEN SUBMISSION BY THE DEPARTMENT FOR A.Y. 2012-13, IN NOTE NO. 14, WHICH HAS BROAD HEADING OF 'LONG TERM LOANS AND ADVANCES', THE AMOU NT UNDER CONSIDERATION IS SHOWN UNDER SUB HEADING OF 'UNSECU RED ADVANCES TO RADHAMADHAV REALCON PVT. LTD.. THE DEPARTMENT IS MISSING THE FACT THAT UNDER THE BROAD HEADING OF 'LONG TERM LOANS AN D ADVANCES', THE ADVANCES GIVEN FOR THE PURCHASE OF SHARES ARE ALSO INCLUDED. THE AMOUNT UNDER CONSIDERATION IS IN FACT ADVANCE FOR PURCHASE OF SHARES AND NOT LOAN TO RADHAMADHAV REALCON PVT. LTD. IN THIS CONNE CTION, IT IS POINTED OUT TO MAKE THINGS CRYSTAL CLEAR THAT IN NOTE NO. 1 4 FOR THE EARLIER ASSESSMENT YEAR, THE SAME AMOUNT IS REFLECTED AS AD VANCES FOR SHARE APPLICATION. THEREFORE, THE DEPARTMENT HAS PROCEEDE D ON INCORRECT PRESUMPTION ABOUT THE BALANCE SHEET OF VSK TECHNOLO GIES PVT. LTD. 1.4 EVEN OTHERWISE, THE DEPARTMENT IS TRYING TO RAI SE ISSUE OF LIFTING THE VEIL OF THE COMPANY AND GOING INTO THE TRUE NAT URE OF THE TRANSACTION AT THIS STAGE OF IMPOSITION OF PENALTY UNDER CONSID ERATION BY THE HON'BLE TRIBUNAL, WHEREAS AS A MATTER OF FACT, THROUGHOUT T HE ASSESSMENT PROCEEDINGS FOR ALL THE ASSESSMENT YEARS INVOLVED, THE STATUS OF CORPORATE ENTITY HAS NOT BEEN DISTURBED BY THE DEPARTMENT ITS ELF, EVEN THOUGH THE SCRUTINY ASSESSMENTS HAVE BEEN MADE. IT IS ALSO THE FACT THAT ALL RULES AND REGULATIONS RELATING TO REGISTRAR OF COMPANIES AND COMPANIES LAW HAVE BEEN COMPLIED AND HAVE BEEN ACKNOWLEDGED BY TH E DEPARTMENT ON VARIOUS STAGES OF IMPOSITION OF THIS PENALTY. SUCH ISSUES CANNOT BE RAISED IN ISOLATION ONLY TO SUIT THE PURPOSE OF THE DEPART MENT IGNORING THE BLUNT REALITIES OF THE BALANCE SHEET OF THE APPELLANT COM PANY DULY ACCEPTED BY THE REGISTRAR OF THE COMPANIES, WHERE THERE ARE SPE CIFIC STIPULATIONS OF SHARE APPLICATION MONEY, WHICH HAS NEVER BEEN CHALL ENGED IN THE PAST IN ANY OF THE EARLIER ASSESSMENT YEARS EITHER BY THE D EPARTMENT ITSELF OR BY ROC. 1.5 MOREOVER AN ISSUE OF IMPOSITION OF PENALTY HAS TO BE DECIDED BY FACTS RELEVANT ON RECORD OF APPELLANT ASSESSEE AND NOT ANY THIRD PARTY. WHAT ENTRIES HAVE BEEN MADE IN BOOKS OF ACCOUNT OF A THIRD PARTY ARE OF NO DIRECT SIGNIFICANCE FOR THE PURPOSE AT HAND. 1.6 IT IS THEREFORE PRAYED THAT THE CONTENTIONS RAI SED BY THE DEPARTMENT IN THEIR SUBMISSIONS MADE ON 27.06.2018 BE DISMISSED AS NOT RELEVANT FOR THE PURPOSE AT HAND. 2. IN THE COURSE OF PROCEEDINGS ON 27.06.2018, THE APPELLANT WAS DIRECTED TO FILE WRITTEN SUBMISSIONS ON THE ISSUE O F REASONABLE CAUSE IN THE FACTS OF THE CASE. IN THIS CONNECTION, IT IS SU BMITTED AS UNDER: 2.2 HON'BLE BOMBAY HIGH COURT HAVE DEALT WITH THE I SSUE OF REASONABLE CAUSE IN THEIR JUDGMENT IN THE CASE OF TRIUMPH INTERNATIONAL FINANCE (I) LTD. REPORTED IN 345 ITR 270. THEY HAVE LAID DOWN PARAMETERS AND CIRCUMSTANCES AS TO WHEN THE BE NEFIT OF REASONABLE CAUSE CAN BE DENIED IN SITUATIONS WHERE TRANSACTIONS ARE ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 16 EFFECTED THROUGH JV ENTRIES TO THE VIOLATION OF SEC TION 269 T OF THE ACT. THESE ARE SUMMARIZED IN FOLLOWING PARAGRAPHS: PARA NO. 23: 'THE EXPRESSION 'REASONABLE CAUSE' USED IN SECTION 273B IS NOT DEFINED UNDER THE ACT. UNLIKE THE EXPRESSION 'S UFFICIENT CAUSE' USED IN SECTION 249 (III), 253 (V) AND 260A (IIA) OF THE ACT, THE LEGISLATURE HAS USED THE EXPRESSION 'REASO NABLE CAUSE' IN SECTION 273B OF THE ACT. A CAUSE WHICH IS REASONABLE MAY NOT BE A SUFFICIENT CAUSE. THIS, THE EXPRESSION 'REASONABLE CAUSE' WOULD HAVE WIDER CONNOTATION THAN THE EXPRESSION 'SUFFICIENT CAUSE'. THEREFORE, THE EXPRESSION 'REASONABLE CAUSE' IN SEC TION 273B FOR NON-IMPOSITION OF PENALTY U/S 271E WOULD H AVE TO BE CONSTRUED LIBERALLY DEPENDING UPON THE FACTS OF EACH CASE.' 2.3 THEREFORE A LIBERAL VIEW IS SOUGHT FROM THE HON 'BLE TRIBUNAL IN THE PRESENT FACTS OF THE CASE AS WELL. FURTHER HON'BLE COURT HAVE ALSO HELD AS UNDER: PARA NO. 24 'IN THE PRESENT CASE, THE CAUSE SHOWN BY THE ASSESS EE FOR REPAYMENT OF THE LOAN/DEPOSIT OTHERWISE THAN BY ACC OUNT PAYEE CHEQUE/BANK DRAFT WAS ON ACCOUNT OF THE FACT THAT THE ASSESSEE WAS LIABLE TO RECEIVE AMOUNT TOWARDS T HE SALE PRICE OF THE SHARES SOLD BY THE ASSESSEE TO THE PER SON FROM WHOM THE LOAN/DEPOSIT WAS RECEIVED BY THE ASSESSEE. IT WOULD HAVE BEEN AN EMPTY FORMALITY TO REPAY THE LOAN/DEPOSIT AMOUNT BY ACCOUNT PAYEE CHEQUE/DRAFT A ND RECEIVE BACK ALMOST THE SAME AMOUNT TOWARDS THE SAL E PRICE OF THE SHARES.' 2.4 IN THE PRESENT FACTS OF THE CASE, THE SITUATION IS EXACTLY IDENTICAL. THE LOANS WERE ACCEPTED IN THE PAST AND WERE LYING IN THE BOOKS OF ACCOUNT OF THE APPELLANT AS SHARE APPLICATION MONEY . IT WAS DECIDED TO ISSUE SHARES AGAINST THE SHARE APPLICATION MONEY. T HERE EXISTS A BOARD RESOLUTION TO THIS EFFECT WHICH IS ON RECORD AND AD MITTED IN THE ORDERS OF LOWER AUTHORITIES. A STRICT COMPLIANCE OF SECTION 2 69 T WOULD HAVE REQUIRED REPAYING THE SHARE APPLICATION MONEY BY IS SUE OF CHEQUE/DRAFT AND THEN RECEIVING BACK THE SAME AMOUNT BY CHEQUE / DRAFT. THIS WOULD HAVE BEEN, TO USE THE TERMINOLOGY AS DONE BY HNO'BL E COURT, 'AN EMPTY FORMALITY' ONLY. 2.5 FURTHER, HON'BLE COURT HAVE ALSO OBSERVED AS UN DER: 'NEITHER THE GENUINENESS OF THE RECEIPT OF LOAN/DEP OSIT NOR THE TRANSACTION OF REPAYMENT OF LOAN BY WAY OF ADJU STMENT THROUGH BOOK ENTRIES CARRIED OUT IN ORDINARY COURSE OF BUSINESS HAS BEEN DOUBTED IN REGULAR ASSESSMENT. T HERE IS NOTHING ON RECORD TO SUGGEST THAT THE AMOUNTS ADVAN CED BY INVESTMENT TRUST OF INDIA TO THE ASSESSEE REPRESENT ED THE UNACCOUNTED MONEY OF THE INVESTMENT TRUST OF INDIA OR THE ASSESSEE.' 2.6 IN THE PRESENT CASE ALSO, THE ADJUSTMENT MADE IN THE BOOKS OF ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 17 ACCOUNT THROUGH BOOK ENTRIES CARRIED OUT IN ORDINAR Y COURSE OF BUSINESS HAS BEEN DOUBTED IN REGULAR ASSESSMENT. ALSO THERE IS NOTHING ON RECORD, NOT EVEN AN IOTA OF DOUBT RAISED BY THE AUTHORITIES TO THE EFFECT THAT THE AMOUNTS ADVANCED BY VSK TECHNOLOGIES PVT LTD REPRES ENTED THE UNACCOUNTED MONEY OF VSK TECHNOLOGIES PVT LTD OR TH AT OF THE APPELLANT. 2.7 FURTHER IN THE SAME PARAGRAPH NO. 24 IT HAS BEE N HELD AS UNDER: IT IS NOT IN DISPUTE THAT SETTLING THE CLAIMS BY M AKING JOURNAL ENTRIES IN THE RESPECTIVE BOOKS IS ALSO ONE OF THE RECOGNIZED MODES OF REPAYING LOAN/DEPOSIT. THEREFO RE, IN THE FACTS OF THE PRESENT CASE, IN OUR OPINION, THOU GH THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 269 T, THE ASSESSEE HAS SHOWN REASONABLE CAUSE AND, THEREFORE, THE DECISION OF THE TRIBUNAL TO DELETE THE PENALTY IMPO SED UNDER SECTION 271E OF THE ACT DESERVES ACCEPTANCE' 2.8 IN THE PRESENT CASE ALSO, THE TRANSACTION HAS B EEN COMPLETED BY PASSING JOURNAL ENTRIES IN THE BOOKS OF ACCOUNT OF THE APPELLANT AND VSK TECHNOLOGIES PVT. LTD. IT IS AN ACCEPTED MODE OF RE PAYING LOAN/DEPOSIT. THERE EXIST REASONABLE CAUSE AS EXPLAINED IN THE PR ECEDING PARAGRAPHS. THE PENALTY THEREFORE DESERVES TO BE CANCELLED. 3. THE PARAMETERS LAID DOWN BY HON'BLE COURT HAVE B EEN LATER SUMMARIZED SUCCINCTLY IN THEIR LATER AND A RECENT J UDGMENT IN THE CASE OF AJITNATH HIGHTECH BUILDERS PVT. LTD. IN ITA NO. 171 OF 2015, A COPY OF WHICH WAS HANDED OVER IN THE COURSE OF PROCEEDINGS. IT HAS BEEN IDENTIFIED THAT IF THE FOLLOWING CIRCUMSTANCES EXIS T THEN BENEFIT OF REASONABLE CAUSE CANNOT BE GRANTED. THESE ARE AS U NDER: 1. IT IS ESTABLISHED THAT JV ENTRIES ARE MADE TO AC HIEVE A PURPOSE OUTSIDE THE NORMAL BUSINESS OPERATIONS. 2. THERE IS INVOLVEMENT OF MONEY. 3. GENUINENESS OF JVS DOUBTED IN ASSESSMENT PROCEED INGS. 3.2 CONSEQUENTLY IF THESE DO NOT HOLD GOOD THEN JV SHALL TANTAMOUNT TO A REASONABLE CAUSE. IN THE PRESENT FACTS, NONE OF THESE CAUSES EXIST SO AS TO DENY THE APPELLANT THE BENEFIT OF REASONABLE CAUSE. THE PENALTY THEREFORE SHOULD BE CANCELLED. 3.3 THERE IS NO TRANSACTION OF CASH. THERE IS NO ST IPULATION AT ALL THAT THE MONEYS INVOLVED ARE UNACCOUNTED MONEY EITHER OF APPELLANT OR OF VSK TECHNOLOGIES PVT. LTD. THE JOURNAL ENTRIES HAVE NOT BEEN DOUBTED IN THE ASSESSMENT PROCEEDINGS. THE TRANSACTION OF TRANSFER OF SHARE APPLICATION MONEY TO SHARE ACCOUNT BY PASSING JOURNAL ENTRIES H AS BEEN DONE AS A PRUDENT COMMERCIAL TRANSACTION. THIS MODE IS A RECO GNIZED MODE OF TRANSACTION IN COMMERCIAL AS WELL AS ACCOUNTING WOR LD. THE GENUINENESS OF THESE JV TRANSACTIONS HAS NOT BEEN QUESTIONED IN ASSESSMENT PROCEEDINGS. THERE IS NO PURPOSE IMPUTED OUTSIDE TH E COMMERCIAL MOTIVE OF APPELLANT. THERE IS NO INVOLVEMENT OF CASH ALLEG ED. NO UNDISCLOSED INCOME IS ALLEGED ASSOCIATED EITHER OF THE APPELLAN T OR OF VSK TECHNOLOGIES PVT. LTD. THERE IS NO ALLEGATION OF PR OLIFERATION OF BLACK MONEY WHICH WAS THE INTENDING OBJECTIVE BEHIND INSE RTION OF SECTION 269SS AND 269 T OF THE ACT. THEREFORE THE OBJECTIVE AS EXPLAINED IN CBOT CIRCULAR NO 345 DATED JUNE 28, 1982 ARE NOT BEING V IOLATED IN THE FACTS OF THE CASE. ALL THAT APPELLANT HAS DONE IS THAT INSTE AD OF REPAYING THE AMOUNT BY ACCOUNT PAYEE CHEQUE/DEMAND DRAFT AND REC EIVING BACK THE ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 18 SAME AMOUNT BY WAY OF DEMAND DRAFT/CHEQUE, AS A MAT TER OF COMMERCIAL PRUDENCE, UNDERTAKEN THE TRANSACTION OF ISSUE OF SH ARES BY PASSING JV ENTRIES AND TRANSFERRING AMOUNTS FROM SHARE APPLICA TION MONEY TO SHARES. THIS MODE IS LEGALLY PERMISSIBLE IN COMMERC IAL TRANSACTIONS AS ALSO IN ACCOUNTING PRACTICE. THEREFORE IT MUST BE H ELD THAT GENUINE TRANSACTIONS LIKE THE TRANSACTION IN THE PRESENT CA SE DESERVE THE BENEFIT OF REASONABLE CAUSE ENSHRINED IN SECTION 273 B OF THE ACT. IT IS PRAYED ACCORDINGLY THAT THE PENALTY IMPOSED BE CANCELLED. 8. PER CONTRA, LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF ASSESSING OFFICER AND CIT(A). LEARNED DR ANALYZED THE ADV ERSE CONSEQUENCES DRAWN BY THE CIT(A) IN HIS ORDER. HE SUBMIT TED THAT THE FUNDS FROM HONG KONG WERE TRANSFERRED TO VSK BEFORE THE Y ARE FINALLY RECEIVED BY THE ASSESSEE. THE SAID FUNDS WERE FURTHER T RANSFERRED TO SHRI DIGAMBAR D PATIL FOR THE PURPOSE OF ACQUIRING THE LAND AND QUESTIONED THE WAY SHRI DIGAMBAR D PATIL HAD RECEIVED THE FUNDS FROM THE COMPANY WHICH IS NOT USUAL METHOD OF INVESTMENT IN STOCK-IN- TRADE. MENTIONING THAT IT IS A CASE OF COLOURABLE TRANSACTION, LEARN ED DR SUBMITTED FOR CONFIRMING PENALTY UNDER SECTION 271E OF THE ACT. HIGHLIGHTING THE FACT THAT THE BOOK ENTRIES IN THE ACCOUN TS OF ASSESSEE AS WELL AS VSK ARE NOT IN SYNC QUA THE RELEVANT ASSESSM ENT YEARS, LEARNED DR SUBMITTED THAT THE FUNDS ARE ALWAYS RECEIVED BY THE ASSESSEE IN THE FORM OF LOANS OR ADVANCES ONLY AND RELIED HEAVILY ON THE ENTRIES APPEARING IN THE BALANCE SHEETS OF BOTH THE COMP ANIES. ACCEPTING THE FACT THAT SHARES WERE FINALLY ALLOTTED, LEARN ED DR SUBMITTED THAT IT SHOULD NOT ALTER THE SUSTAINABILITY OF PEN ALTY, IN VIEW OF THE JURISDICTIONAL HIGH COURTS DECISION IN THE CASE OF CI T VS. TRIUMPH INTERNATIONAL FINANCE (I) LTD. (SUPRA). EMPHASIZING TH AT THE AMOUNT RECEIVED BY THE COMPANY CONSTITUTES LOANS AND A DVANCES ONLY, HE SUBMITTED THAT THE REPAYMENT BY WAY OF JOURNAL ENTR IES IN THE BOOKS OF ACCOUNT CONSTITUTE CONTRAVENTION TO THE PROVISIONS OF SECTION 269T OF ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 19 THE ACT AND THEREFORE, PENALTY UNDER SECTION 271E OF THE ACT IS RIGHTLY LEVIED. REFERRING TO THE REASONABLE CAUSE RELATED ISSUES A ND FACTS, LEARNED DR SUBMITTED THAT THE FACTS OF THE JURISDICTIONAL H IGH COURT IN THE CASE OF CIT VS. TRIUMPH INTERNATIONAL FINANCE (I) LTD. ( SUPRA) ARE DISTINGUISHABLE AND THEREFORE, PENALTY CANNOT BE DELETED ON THE GROUND OF REASONABLE CAUSE AND ALSO IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TRIUMPH INTERNATIONAL FIN ANCE (I) LTD. (SUPRA). 9. DECISION OF THE TRIBUNAL : WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE, WRITTEN SUBMISSIONS, PAPER BOOK FILED BEFORE US. WE FIND THERE ARE COUPLE OF MAJOR ISSUES FOR ADJUDICATION. THEY ARE (1) WHETHER THE TRANSACTIONS IN QUESTION BETWEEN THE VSK TO ASSESSEE AND TO VSK CONSTITUTES T HE LOAN TRANSACTION- PAYMENTS/LOAN REPAYMENTS THEREBY ATTRACT ING THE PROVISIONS OF SECTION 269T OF THE ACT; (2) YEAR OF INITIATION OF PENALTY PROCEEDINGS AND (3) WHETHER THE REASON OF LOCK OF FUNDS WIT H THE ASSESSEE OR COUPLED WITH THE EMPTY FORMALITY OF REPAYMENT BY CHEQUE/DEMAND DRAFT TO VSK TO SQUIRE UP THE LOANS AND RECEIVING THE SAME BY SAME ROUTE FOR ALLOTMENT OF SHARES, CONSTITUTE A REASONABLE CAUSE (RC) WITHIN THE MEANING OF SECTION 273B OF THE ACT OR NOT FOR DELETING THE PENALTY U/S.271E OF THE ACT. 9.1 FOR ADJUDICATION OF THESE TWO CORE ISSUES, WE PROCEED TO FIRST EXTRACT RELEVANT PROVISIONS OF SECTION 269T AND 273B ETC . RELEVANT PORTIONS ARE EXTRACTED AS UNDER : 269T : MODE OF REPAYMENT OF CERTAIN LOANS OR DEPOSITS NO BRANCH OF A BANKING COMPANY OR A CO-OPERATIVE BANK AND NO OTHER COMPANY OR CO-OPERATIVE SOCIETY AND NO FIRM OR OTHE R PERSON SHALL REPAY ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 20 ANY LOAN OR DEPOSIT MADE WITH IT [ OR ANY SPECIFIED ADVANCE RECEIVED BY IT] OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT DRAWN IN THE NAME OF THE PERSON WHO HAS MADE THE L OAN OR DEPOSIT [ OR PAID THE SPECIFIED ADVANCE] [OR BY USE OF ELEC TRONIC CLEARING SYSTEM THROUGH A BANK ACCOUNT] IF (A ) THE AMOUNT OF THE LOAN OR DEPOSIT [ OR SPECIFIED ADVANCE] TOGETHER WITH THE INTEREST, IF ANY, PAYABLE THEREON, OR (B ) THE AGGREGATE AMOUNT OF THE LOANS O R DEPOSITS HELD BY SUCH PERSON WITH THE BRANCH OF THE BANKING COMPANY OR CO-OPERAT IVE BANK OR, AS THE CASE MAY BE, THE OTHER COMPANY OR CO-OPERATIVE SOCI ETY OR THE FIRM, OR OTHER PERSON EITHER IN HIS OWN NAME OR JOINTLY WITH ANY OTHER PERSON ON THE DATE OF SUCH REPAYMENT TOGETHER WITH THE INTERE ST, IF ANY, PAYABLE ON SUCH LOANS OR DEPOSITS, [OR] (C) THE AGGREGATE AMOUNT OF THE SPECIFIED ADVANCES RECEIVED BY SUCH PERSON EITHER IN HIS OWN CASE OR JOINTLY WITH ANY O THER PERSON ON THE DATE OF SUCH REPAYMENT TOGETHER WITH THE INTEREST, IF ANY, PAYABLE ON SUCH SPECIFIED ADVANCES.] IS TWENTY THOUSAND RUPEES OR MORE: PROVIDED THAT WHERE THE REPAYMENT IS BY A BRANCH OF A BANKIN G COMPANY OR CO-OPERATIVE BANK, SUCH REPAYMENT MAY AL SO BE MADE BY CREDITING THE AMOUNT OF SUCH LOAN OR DEPOSIT TO THE SAVINGS BANK ACCOUNT OR THE CURRENT ACCOUNT (IF ANY) WITH SUCH BRANCH OF THE PERSON TO WHOM SUCH LOAN OR DEPOSIT HAS TO BE REPAID. 273B : PENALTY NOT TO BE IMPOSED IN CERTAIN CASES - NOTWITHSTANDING ANYTHING CONTAINED IN THE PROVISION S OF [CLAUSE (B) OF SUB- SECTION (1) OF] [SECTION 271, SECTION 271A, [SECTION 271AA] SECTIO N 271B [SECTION 271BA], [SECTION 271BB,] SECTION 271C [SE CTION 271CA,] SECTION 271D, SECTION 271E, [SECTION 271F, [SECTION 271FA,] [SECTION 271FAB,] [SECTION 271FB,] [SECTION 271G.]] [SECTION 271GA,] [SECTION 271 GB] [SECTION 271H,] [SECTION 271-I,] [SECTION 271J, ] CLAUSE (C) OR CLAUSE (D) OF SUB-SECTION (1) OR SUB-SECTION (2) OF 272A, SUB -SECTION (1) OF SECTION 272AA] OR [SECTION 272B OR] [SUB-SECTION (1) [OR SU B-SECTION 1A) OF SECTION 272BB OR] [SUB-SECTION (1) OF SECTION 272BBB OR] CL AUSE (B) OF SUB-SECTION (1) OR CLAUSE (B) OR CLAUSE (C) OF SUB-SECTION (2) OF SECTION 273, NO PENALTY SHALL BE IMPOSABLE ON THE PERSON OR THE ASSESSEE, A S THE CASE MAY BE, FOR ANY FAILURE REFERRED TO IN THE SAID PROVISIONS IF H E PROVES THAT THERE WAS REASONABLE CAUSE FOR THE SAID FAILURE]. 9.2 FROM THE ABOVE, IT IS THE SPIRIT OF THE ABOVE PROVISION S RELATING TO REPAYMENT OF LOAN/ADVANCE AND THE SAME NEEDS TO BE DO NE BY THE SPECIFIED MODES ONLY, I.E. ACCOUNT PAYEE CHEQUE/DEMAND DRA FT AND NOT BY OTHER MODES. LEGAL PROVISIONS AND THE OTHER JUDGMEN TAL LAW DO NOT ALLOW TRANSACTION OF REPAYMENT OF LOAN IS DONE BY WAY OF CA SH OR BY WAY OF BOOK ENTRIES WITHOUT HAVING A REASONABLE CAUSE. THE R EASONABLE CAUSE IS NOT DEFINED IN THE ACT AND THEREFORE, THE SAME D IFFER FROM CASE ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 21 TO CASE. WE SHALL NOW EXAMINE THE AFORESAID THREE ISSUES IN THE SUCCEEDING PARAGRAPHS. 10. WHETHER TRANSACTION CONSTITUTE LOAN THEREFORE LOAN REPAYMENT : THE TRANSACTIONS OF FLOW OF FUNDS FROM VSK-ASSESSEE-VSK , CONSTITUTES LOANS AT ALL OR NOR, WHEN THE SAME IS INTENDE D FOR SHARE APPLICATION MONEY FROM THE VERY BEGINNING OF THE INCEPTION OF COMPANY. FURTHER, THE BOOK ENTRIES LEADING TO CONVERSION OF SAID LO AN TO SHARE APPLICATION MONEY AND THEN THE ALLOTMENT OF SHARES, CONSTIT UTE ANY VIOLATION OF THE PROVISIONS OF SECTION 269T OF THE ACT. 10.1 RELEVANT FACTS ARE ALREADY DISCUSSED IN THE PARAGRA PHS ABOVE. THE SAME ARE PICTORIALLY REPRESENTED AS UNDER : FLOW OF FUNDS TAKEN AS LOAN BOOK ENTRIES LENDER LONEE 10.2 UNDISPUTEDLY, THE ASSESSEE RECEIVED LOAN FROM VSK A MOUNTING TO RS.51.74 CRORES OVER THE YEARS. IN THE BEGINNING, THE T RANSACTIONS ARE RECORDED IN THE BOOKS OF BOTH LENDER AS WELL AS THE LOANE E ON THE LOANS ONLY. THESE LOANS WERE CONVERTED INTO SHARE APPLICATION MONEY IN THE PRECEDING YEAR IN THE BOOKS OF THE ASSESSEE. HOWEVER, C ORRESPONDING ENTRIES IN THE BOOKS OF THE VSK ARE NOT IN SYNC WITH THA T OF THE ASSESSEE. IN THE BOOKS OF VSK, THEY CONTINUE TO BE LOAN S TILL THE SHARES ARE ALLOTTED IN A.Y. 2013-14. ASSESSEE CONVERTED THE LOA NS TO SHARE APPLICATION MONEY AND THEN FINALLY ALLOTTED 9% REDEEMABLE CU MULATIVE DIRECTORS FOR BUSINESS PURPOSES FOR ACQUIRING LANDS UNSECURED LOANS OTHER BUSINESS USED ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 22 PREFERENCE SHARES TO VSK IN A.Y. 2013-14. ON THESE FACTS , LD. COUNSEL FOR THE ASSESSEE CLAIMS THAT THE FUNDS GIVEN BY THE VSK BEING PART OF THE ORIGINAL COMMITMENT, WERE ALWAYS MEANT FOR INVESTMENT IN COMPANY AND THE INTENTION OF VSK IS NOT FOR GIVING LOANS TO ASSESSE E EXPECTING REPAYMENT. HOWEVER, THERE ARE NO ANSWERS TO VARIOUS R ELEVANT QUESTIONS FROM THE ASSESSEE AND THEY ARE (1) WHY THE AG REEMENTS DO NOT SPECIFY THAT THE FUNDS ARE REDEEMABLE SUBJECT TO ALLOTME NT OF SHARES; (2) WHY THEY ARE SHOWN AS LOANS IN THE BOOKS OF BOTH ASSES SEE AND VSK; (3) WHY THE 9% RCP SHARES ARE ALLOTTED EVENTUALLY GIVING SOM E BENEFIT OF INTEREST FOR VSK ETC., THEREFORE, WE FIND THAT THE AMOUNT S GIVEN TO ASSESSEE, CONSTITUTE LOANS ONLY. WE PROCEED TO CONFIRM T HE VIEW OF THE CIT(A) ON THIS PART OF THE ISSUE. THE ARGUMENTS OF ASSESSEE THAT THE FUND INFLOW IS ALWAYS MEANT FOR SAID SHARES ARE DIS MISSED. ACCORDINGLY, RELEVANT GROUNDS ARE DISMISSED. 11. YEAR OF INITIATION OF PENALTY PROCEEDINGS : REGARDING THE QUESTIONS RELATING TO YEARS OF INITIATING THE PENALTY PROCEE DINGS, THE CASE OF THE ASSESSEE IS THAT ASSESSEE CONVERTED THE S AID LOAN INTO SHARE APPLICATION MONEY IN BOOKS IN THE PRECEDING ASSESSMENT YE AR AND THEREFORE, THE YEAR OF INITIATION OF PENALTY SHOULD HAVE BEEN DONE BY THE AO IN THAT YEAR AND NOT IN THE YEAR UNDER CONSIDERATION. 11.1 PER CONTRA, THE CASE OF THE REVENUE IS THAT THE SA ID BOOK ENTRIES IN THE BOOKS OF THE ASSESSEE ARE NOT IN TUNE WITH THAT OF THE VSK. THEREFORE, ARGUMENT OF LD. COUNSEL CONSTITUTES A SELF-SERVING ONE. 11.2 ON GOING THROUGH THE RELEVANT EXTRACTS RELATING TO BOOK ENTRIES OF BOTH ASSESSEE AND VSK, WE FIND THE ORDERS OF AO/CIT(A) AR E FAIR AND ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 23 REASONABLE. WE PROCEED TO EXTRACT THE RELEVANT LINES FRO M THE ORDER OF CIT(A). THE SAME READS AS UNDER : 6.1.3 THE APPELLANT ALSO CLAIMED THAT THE SHARE A PPLICATION MONEY IS NOT A LOAN OR DEPOSITS. THE APPELLANT CLA IMED THAT THE LOAN CONNOTES A TRANSACTION IN WHICH THE BORROWER APPRO ACHED THE LENDER FOR CERTAIN SUM FOR A FIXED PERIOD ON THE TERMS AND CON DITIONS AGREED BETWEEN THEM WHICH INCLUDES THE RATE OF INTEREST, T HE TENURE OF LOAN AND OTHER SECURITY CONDITIONS. THE DEPOSIT CONNOTES A TRANSACTION IN WHICH THE DEPOSITOR GIVES TO ANOTHER PERSON A DEPOSIT OF HIS BELONGINGS WHICH MAY BE MONEY ON CERTAIN TERMS AND CONDITIONS. THE DEPOSITS CAN ALSO BE MADE FOR ASSURING THE OTHER OF THE PERFORMANCE OF A CONTRACT ETC., IN THE CASE OF BAILMENT CONTRACTS. THE APPELLANT HOLDS TH AT THE TEST APPLICABLE TO THE DEPOSITS AND LOANS WHEN APPLIED TO THE RECEI PT OF SHARE CAPITAL WOULD NOT CONSTITUTE THE SAME AS DEPOSIT OR LOAN. THE APPELLANT RELIED ON THE FOLLOWING CASE LAWS : 1. CIT VS. M/S, SHRI SIDHDATA ISPAT (P) LTD. 2012 (9) TMI 846 (DELHI HC) 2. CIT VS. RUGMINI RAM RAGHAV SPINNERS (P) LTD. 304 IT R 0417 (MADRAS HC) 3. CIT VS. I.P. INDIA (P) LTD. 343 ITR 0353 (DELHI HC) 4. SHARAD HOLDING LEASING (P) LTD. VS. ACIT 95 TTJ 033 6 (PUNE ITAT) 5. ACIT VS. VARDAAN FASHION 38 ITR 0247 (DELHI ITAT) 6.1.4 THE APPELLANT RELIED THAT THE PENALTY IS NOT LEVIABLE FOR A.Y.13-14, AS THE AMOUNTS RECEIVED HAVE BEEN TRANSFERRED AS SH ARE APPLICATION MONEY IN THE F.Y. 09-10 & 10-11 ITSELF. THEREFORE, IT IS CLAIMED THAT THERE IS REPAYMENT OF LOAN BY ANY STRETCH OF IMAGINATION FOR A.Y.13-14. 6.1.5 THE IDENTIFY AND THE SOURCE OF THE FUNDS RECE IVED FROM VSK ARE DULY EXPLAINED AS THAT COMPANY HAD FILED THE REQUIR ED RETURNS OF INCOME AND IT SOURCES OF INCOME IS FROM IT AND IT ENABLE S ERVICES AND BOP SERVICES. 6.2 THE SUBMISSIONS MADE ARE GONE THROUGH. A CLOSE LOOK AT THE LEDGER EXTRACTS AND THE BANK ACCOUNTS INDICATE THAT INITIALLY, AN AMOUNT OF RS.23 LAKHS ON 19-12-2009 AND RS.42 LAKHS AND RS .50 LAKHS ON 30- 12-2009 WERE PAID DIRECTLY BY VSK TECHNOLOGIES TO D IGAMBAR D. PATIL PRIOR TO THE INVESTMENT AGREEMENT DTD.2-2-2010 MENTI ONED ABOVE. SUBSEQUENT TO THE INVESTMENT AGREEMENT, THESE AMOUN TS WERE RETURNED BACK TO THE VSK TECHNOLOGIES PVT. LTD. BY DIGAMBAR PATIL ON 22-2-2010. THESE RETURNED AMOUNTS WERE IMMEDIATELY ADVANCED BY VSK TO THE APPELLANT COMPANY ON 23-2-2010 (RS.50 LAKHS) AND 24 -2-2010 (RS.60 LAKHS). PRIOR TO THE RECEIPT OF THE ABOVE AMOUNTS, THE APPELLANT COMPANY RECEIVED SUMS OF RS.50 LAKHS AND RS.90 LAKHS ON 12- 2-2010 AND 16-2- 2010 RESPECTIVELY ON SIGNING THE INVESTMENT AGREEME NT DTD.2-2-2010. THUS, THE APPELLANT COMPANY RECEIVED RS.2.5 CRORES IN THE F.Y. 09-10 FROM VSK. 6.2.1 AS ON 31-2-2010, THE APPELLANT COMPANY HAD AN AUTHORIZED SHARE CAPITAL OF RS.5 LAKHS ONLY AND THIS AUTHORIZED SHAR E CAPITAL WAS ALREADY SUBSCRIBED BY THE PROMOTERS AND THUS THE PAID UP CA PITAL WAS EQUIVALENT TO AUTHORIZED SHARE CAPITAL. SO THE AMOUNTS OF RS. 2.5 CRORES COULD NOT HAVE BEEN TOWARDS SHARE APPLICATION MONEY, AS THERE WAS NO AUTHORIZED SHARE CAPITAL TO RECEIVE THE SAME. SO THEREFORE, T HIS AMOUNT HAS TO BE TREATED AS A LOAN/DEPOSIT. IT IS SHOWN UNDER SHAR E APPLICATION MONEY IN ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 24 THE FIGURES MENTIONED FOR F.Y. 09-10 OF THE BALANCE SHEET FILED FOR F.Y. 10- 11 AS IT CONTAINS THE FIGURES OF THE EARLIER YEARS. IT IS NOT CLEAR AS TO HOW THESE FIGURES ARE REFLECTED IN THE BALANCE SHEET FI LED FOR F.Y. 09-10, AS THE APPELLANT DID NOT FILE THE BALANCE SHEET FOR F.Y. 0 9-10 FILED WITH ROC. EVEN OTHERWISE, MERE REPRESENTATION OF AN AMOUNT AS SHARE APPLICATION MONEY WOULD NOT BE THE TRUE CRITERIA TO DETERMINE I TS CORRECT NATURE. 6.2.2 THE APPELLANT COMPANY RECEIVED AN AMOUNT OF R S.49 CRORES AND RS.24 LAKHS DURING THE F.Y. 10-11. ON VERIFICATION OF THE LEDGER EXTRACT, IT IS SEEN THAT THE APPELLANT COMPANY HAD RECEIVED AN AMOUNT OF RS.33.71 CRORES (2.5 CRORES IN F.Y. 09-10 AND RS.31,21,25,00 0/- BY 29-10-2010) EVEN BEFORE PASSING THE RESOLUTION FOR INCREASING T HE AUTHORIZED SHARE CAPITAL IN RESPECT OF PREFERENCE SHARES. FURTHER, THE APPELLANT HAD RECEIVED THE TOTAL AMOUNT OF RS.51.74 CRORES BY 24- 2-2011 WHICH IS THE DATE ON WHICH THE RESOLUTION WAS PASSED TO INCREASE THE AUTHORIZED SHARE CAPITAL FROM RS.49 CRORES TO RS.59 CRORES. T HUS, THE APPELLANT HAD RECEIVED RS.33.71 CRORES AND ANOTHER RS.2.5 CRORES PRIOR TO HAVING THE AUTHORIZED SHARE CAPITAL. UNDER NO CIRCUMSTANCES, THIS AMOUNT OF RS.36.21 CRORES CAN BE TREATED AS SHARE APPLICATION MONEY IN THE ABSENCE OF REQUIRED AUTHORIZED SHARE CAPITAL. IN T HE CASE OF ITO WD.13(1) NEW DELHI VS. NANDI PROMOTERS PVT. LTD. IN ITA NO.3 462/DELHI/2009 FOR A.Y. 05-06 DTD.10-12-2009, IT HAS BEEN HELD THAT NO COMPANY CAN RECEIVE ANY MONEY MORE THAN ITS AUTHORIZED SHARE CAPITAL UN DER THE COVER OF SHARE APPLICATION MONEY. IT IS ALSO SEEN THAT THE APPELLANT HAD PASSED THE GENERAL ENTRY ON 31-3-2012 TREATING THE AMOUNT OF RS.49 CRORE AS SHARE APPLICATION MONEY. EVEN THE APPELLANT HIMSEL F HAD CONSIDERED THE AMOUNTS RECEIVED AS LOANS BEFORE CONVERTING THEM IN TO SHARE APPLICATION MONEY AFTER INCREASING THE AUTHORIZED SHARE CAPITAL . THE SHARE APPLICATION MONEY WAS FINALLY CONVERTED TO 9% NON C UMULATIVE REDEEMABLE PREFERENCE SHARES @100/- PER EACH ON 3-1 0-2012. THE VSK TECHNOLOGIES WAS ISSUED 51,50,000 PREFERENCE SHARES ON THIS DATE. THERE IS A CONSIDERABLE DELAY IN ISSUING THE PREFER ENCE SHARES AND AS PER THE COMPANIES ACT 2013, A COMPANY MUST ALLOT SHARES AGAINST SHARE APPLICATION MONEY WITHIN 60 DAYS FROM THE DATE OF I TS RECEIPT FAILING WHICH THEY SHOULD REFUND THE SAME WITHIN 15 DAYS AF TER EXPIRY OF SAID 60 DAY PERIOD TO AVOID BEING CLASSIFIED AS DEPOSIT U/S.73 OF THE 2013 ACT. THE COURTS IN VARIOUS CASES HAVE ALSO HELD THAT ANY UNDUE DELAY IN ISSUE OF SHARES, THE AMOUNT HAS TO BE REFUNDED EVEN UNDER THE COMPANIES ACT, 1956. THERE HAS BEEN A FAILURE ON THE APPELLANT IN REFUNDING THE AMOUNTS. M/S. VSK WHO PROVIDED THE FUNDS HAS TREAT ED THE AMOUNTS AS LOANS AND ADVANCES IN THE BALANCE SHEET FILED WITH THE INCOME TAX DEPARTMENT. FURTHER, THE INVESTMENT AGREEMENT ITSE LF STATES THAT THE AMOUNTS ARE INVESTED FOR THE PURPOSE OF MAKING INVE STMENT IN REAL ESTATE AND NOT FOR ACQUIRING THE SHARES OF THE APPELLANT C OMPANY. IN VIEW OF THE ABOVE FACTS, THE AMOUNT RECEIVED HAS TO BE TREATED AS LOAN/DEPOSIT. THUS, THE FACTS SUGGEST THAT THE ENTRIES IN THE BOOKS O F THE ASSESSEE AND THE VSK ARE NOT IN SYNC IN THIS REGARD. T HEREFORE, WE FIND THE REASON GIVEN BY THE CIT(A) HAS MERITS. THEREFORE, WE DISMISS RELEVANT ARGUMENTS OF LD. COUNSEL FOR THE ASSESSEE. ACC ORDINGLY, RELEVANT GROUND NO.7 IS DISMISSED. ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 25 12. HAVING HELD THAT THE FUND TAKEN BY THE ASSESSEE CON STITUTES THE LOANS AND THE PENALTY PROCEEDINGS ARE INITIATED PROPERTY IN T HE YEAR UNDER CONSIDERATION, NOW WE PROCEED TO ADJUDICATE THE T RANSACTION ON REPAYMENT BY WAY OF BOOK ENTRIES QUA THE ALLOTMENT OF 9% REDEEMABLE CUMULATIVE PREFERENCE SHARES. 13. REPAYMENT LINKED TRANSACTIONS NATURE : BOOK OF ACCOUNTS OF THE ASSESSEE DEMONSTRATES UNDISPUTEDLY THE FACT OF CO NVERSION OF THE EXISTING LOAN TO THE SHARE APPLICATION MONEY BY WAY OF THE BOOK ENTRIES ONLY. THESE ENTRIES RESULTED IN SQUIRING UP OF THE SAID LOA NS AND THEREFORE, IN THIS CASE, THE LOANS GOT REPAID NEITHER BY WA Y OF ACCOUNT PAYEE CHEQUE NOR BY DEMAND DRAFT AS SPECIFIED IN THE ACT . ON THESE FACTS, THE CASE OF THE ASSESSEE IS THAT VSK NEVER GAV E LOANS TO THE ASSESSEE AND THEY ARE PART OF THE INVESTMENT INTO SHAR ES AND THEREFORE, THE REPAYMENT BY WAY OF BOOK ENTRIES DOES NOT ARISE. 13.1 ON THE OTHER HAND, THE CASE OF THE REVENUE IS THAT IT IS THE CASE O F REPAYMENT OF LOAN ONLY AND THE MODE OF THE SAID REPAYM ENT BY WAY OF BOOK ENTRIES CONSTITUTES VIOLATION OF SECTION 269T OF THE ACT. IN THIS REGARD, LD. DR SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE REVENUE BY VIRTUE OF THE BINDING JUDGMENT IN THE CASE OF CIT VS. M/S.TRIUMPH INTERNATIONAL FINANCE (I) LTD. (SUPRA). 14. WHETHER THE BOOK ENTRIES CONSTITUTES VIOLATION OF T HE PROVISIONS OF SECTION 269T OF THE ACT : ON HEARING BOTH THE SIDES, WE PERUSED THE ORDERS OF THE REVENUE AND THE SAID JUDGME NT. WE FIND, ON SIMILAR FACTS, THE REPAYMENT OF LOAN BY WAY OF BOOK ENTRIES CONSTITUTES VIOLATION OF PROVISIONS OF SECTION 269T OF THE ACT AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. M/S.TRIUMPH ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 26 INTERNATIONAL FINANCE (I) LTD. (SUPRA). RELEVANT PARA NO. 19 IS EXTRACTED AS UNDER: 19. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS REPAID LOAN / DEPOSIT BY DEBITING THE ACCOUNT THROUGH JOUR NAL ENTRIES. THE QUESTION IS, WHETHER SUCH REPAYMENT OF LOAN / DEPOS IT IS IN CONTRAVENTION OF THE MODES OF REPAYMENT SET OUT IN SECTION 269T ? THE ARGUMENT ADVANCED BY THE COUNSEL FOR THE ASSESSEE THAT THE B ONAFIDE TRANSACTION OF REPAYMENT OF LOAN / DEPOSIT BY WAY OF ADJUSTMENT TH ROUGH BOOK ENTRIES CARRIED OUT IN THE ORDINARY COURSE OF BUSINESS WOUL D NOT COME WITHIN THE MISCHIEF OF SECTION 269T CANNOT BE ACCEPTED, BECAUS E, THE SECTION DOES NOT MAKE ANY DISTINCTION BETWEEN THE BONAFIDE AND N ON-BONAFIDE TRANSACTIONS AND REQUIRES THE ENTITIES SPECIFIED TH EREIN NOT TO MAKE REPAYMENT OF ANY LOAN / DEPOSIT TOGETHER WITH THE I NTEREST, IF ANY OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE / BANK DR AFT IF THE AMOUNT OF LOAN / DEPOSIT WITH INTEREST IF ANY EXCEEDS THE LIM ITS PRESCRIBED THEREIN. SIMILARLY, THE ARGUMENT THAT ONLY IN CASES WHERE ANY LOAN OR DEPOSIT IS REPAID BY AN OUTFLOW OF FUNDS, SECTION 269T PROVIDE S FOR REPAYMENT BY AN ACCOUNT PAYEE CHEQUE / DRAFT CANNOT BE ACCEPTED BECAUSE SECTION 269T NEITHER REFERS TO THE REPAYMENT OF LOAN / DEPO SIT BY OUTFLOW OF FUNDS NOR REFERS ANY OF OTHER PERMISSIBLE MODES OF REPAYM ENT OF LOAN / DEPOSIT, BUT MERELY PUTS AN EMBARGO ON REPAYMENT OF LOAN / D EPOSIT EXCEPT BY THE MODES SPECIFIED THEREIN. THEREFORE, IN THE PRESENT CASE, WHERE LOAN / DEPOSIT HAS BEEN REPAID BY DEBITING THE ACCOUNT THR OUGH JOURNAL ENTRIES, IT MUST BE HELD THAT THE ASSESSEE HAS CONT RAVENED THE PROVISIONS OF SECTION 269T OF THE ACT. FROM THE ABOVE, IT IS A DECIDED ISSUE THAT THE SQUIRING UP OF LOANS BY WAY OF BOOK ENTRIES CONSTITUTES VIOLATION. HONBLE HIGH COU RT DISMISSED ALL THE SIMILAR ARGUMENTS OF LD. AR BEFORE STATING THAT THE SECTION 269T OF THE ACT DOES NOT DISTINGUISH THE BETWEEN THE BONAFIDE OR NON- BONAFIDE TRANSACTIONS. THEREFORE, WE PROCEED TO DISMISS TH E ARGUMENTS OF LD. COUNSEL. ACCORDINGLY, THE RELEVANT GROUND NO.6 IS DISMISSED. 15. REASONABLE CAUSE (RC) : GROUND NO.8 RELATES TO THE REASONABLE CAUSE. THE PROVISIONS OF SECTION 273B OF THE ACT ARE RELE VANT. THE PROVISIONS OF SECTION 273B OF THE ACT MANDATE FOR NOT LEVY OF PENALTY IF THERE EXIST A REASONABLE CAUSE FOR THE ASSESSEE FOR THE FAILURE TO MAKE THE REPAYMENT OF LOANS IN THE MODES OTHER THAN THE SPE CIFIED ONES. RELEVANT EXTRACT FROM THE SAID SECTION READS AS UNDER : ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 27 273B. NOTWITHSTANDING ANYTHING CONTAINED IN THE PR OVISIONS OF....................................... SECTION 2 71E......................., NO PENALTY SHALL BE IMPOSABLE ON THE PERSONS OR THE ASSESSEE, AS THE CASE MAY BE, FOR ANY FAILURE REFERRED TO IN THE SAID PRO VISIONS IF HE PROVES THAT THERE WAS REASONABLE CAUSE FOR THE SAID FAILURE. IN THIS REGARD OF REASONABLE CAUSE, THE CASE OF THE ASSESSEE IS THAT LOANS RECEIVED BY THE ASSESSEE FROM VSK ARE USED FOR THE PURPOSE OF THE BUSINESS IN ACQUIRING THE LAND FOR BUILDING THE SEZS. THIS ACTIVITY IS RELATABLE TO THE PRIMARY OBJECT OF THE COMPANY . WE FIND THAT THE SAME IS UNDISPUTED BY THE REVENUE. THUS, BY APPROP RIATING THE SAID LOANS FOR LAND PURCHASE, THE ASSESSEE IS DEVOID OF RE QUIRED FUNDS TO REPAY THE LOANS TO THE VSK BY AN ACCOUNT PAYEE/CHEQU E OR DEMAND DRAFTS. ASSESSEE SHOWED REPAYMENT BY SQUARING UP THE ACCOUNTS IN THE BOOKS BY WAY OF BOOK ENTRIES. CONSEQUENTLY, WHEN ASSE SSEE DOES NOT HAVE FUNDS TO REPAY AND HENCE, THE POSSIBILITY OF REPAYMEN T TO VSK BY WAY OF SPECIFIED MODES IS IMPOSSIBLE. THEREFORE, AS PER THE ASSESSEE, THE PAUCITY OF FUNDS FOR COMPLYING WITH THE SAID PROVISIONS OF SECTION 269T OF THE ACT, CONSTITUTES A REASONABLE CAUSE WITHIN T HE MEANING OF SECTION 273B OF THE ACT. IN ADDITION, MAKING THE REPAYMEN T BY ISSUE OF ACCOUNT PAYEE CHEQUE/DEMAND DRAFT TO VSK AND RECEIVING THE SAME TOWARDS THE SHARE APPLICATION MONEY THROUGH THE SAME MODE, CONSTITUTES AN EMPTY FORMALITY. THUS, THE SAID EMPTY FO RMALITY IS ALSO PART OF THE SAID REASONABLE CAUSE. AS PER LD. AR FOR THE ASSESSEE, MAKING REPAYMENT OF LOANS AND RECEIVING BACK SAID SUM AGA IN CONSTITUTE AN EMPTY FORMALITY. ON SIMILAR FACTS, AS PER T HE LD. AR, THE JURISDICTIONAL HIGH COURT OF BOMBAY GRANTED RELIEF TO THE AS SESSEE ON THE GROUND OF SIMILAR REASONABLE CAUSE. LD. AR RELIED ON THE JUDGMENT IN THE CASE OF CIT VS. TRIUMPH INTERNATIONAL FINANCE (I) LTD., (SUPRA). ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 28 15.1 PER CONTRA, FROM THE REVENUE EMPHASISING THE NEED FOR LITERAL INTERPRETATION OF THE STATUTE, LD. DR FOR THE REVENUE IS OF THE OPINION THAT THE PROVISIONS OF SECTION 269T OF THE ACT RELATING TO MODE OF REPAYMENT OF CERTAIN LOANS OR DEPOSITS SPECIFIES THE METH ODS OF REPAYMENT OF LOAN AND IT IS THE DUTY OF EVERY CITIZEN TO COMPLY WITH THE SAME. REGARDING THE CORE ARGUMENT OF LACK OF FUNDS DUE TO USE OF FUNDS FOR BUSINESS PURPOSES READ WITH THE ARGUMENT RELATING TO EMPTY FORMALITY AND ON THE APPLICABILITY OF SAID BINDING JUDGMENT (SU PRA.), LD. DR DOES NOT HAVE MUCH TO SAY. 16. DECISION OF THE TRIBUNAL : WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE RELATING TO REASONABLE CAUSE, I.E. LACK OF FUNDS-CUM -EMPTY FORMALITY. WE HAVE PERUSED THE ORDERS OF THE REVENUE A LONG WITH THE PAPER BOOK AND THE WRITTEN SUBMISSIONS MADE BY THE LD. COUNSELS BEFORE US. WE SHALL NOW TAKE UP THE REASONABLE CAUSE O F THE ASSESSEE AND THE MERITS OF IT. MEANING OF REASONABLE CAUSE : THE EXPRESSION REASONABLE CAUSE IS UNDEFINED IN THE ACT. HOWEVER, THE SAME WAS SUBJECT MAT TER OF DISCUSSION IN MANY ORDERS OF THE TRIBUNAL AND THE SAME E XISTS IN THE PUBLIC DOMAIN. ACCORDINGLY, WHAT CONSTITUTES A REASONABLE CAUSE CANNOT BE LAID DOWN WITH A PRECISION. IT ALL DEPENDS ON T HE FACTUAL BACKGROUND OF EACH CASE. THE REASONABLE CAUSE, AS APP LIED TO HUMAN ACTION, IS THAT WHICH WOULD CONSTRAIN A PERSON OF AVERAGE INTELLIGENCE AND ORDINARY PRUDENCE. THE WORD REASONABLE CAUSE IS INTERPRETED BY THE TRIBUNAL IN THE CASE OF MRS.MANJU KATARUKA VS. ITO 74 TTJ (KOL.) 873. RELEVANT LINES ARE EXTRACTED HERE AS UNDER : 12. WHAT WOULD CONSTITUTE REASONABLE CAUSE CANNOT BE LAID DOWN WITH PRECISION. IT WOULD DEPEND UPON THE FACTUAL BACKGRO UND. REASONABLE ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 29 CAUSE, AS APPLIED TO HUMAN ACTION, IS THAT WHICH WO ULD CONSTRAIN A PERSON OF AVERAGE INTELLIGENCE AND ORDINARY PRUDENC E. THE WORD 'REASONABLE' HAS IN LAW THE PRIMA FACIE MEANING OF R EASONABLE WITH REGARD TO THOSE CIRCUMSTANCES OF WHICH THE ACTOR, C ALLED ON TO ACT REASONABLY, KNOWS OR OUGHT TO KNOW. REASONABLE CAUSE CAN BE REASONABLY SAID TO BE A CAUSE WHICH PREVENTS A MAN OF AVERAGE INTELLIGENCE AND ORDINARY PRUDENCE, ACTING UNDER NO RMAL CIRCUMSTANCES, WITHOUT NEGLIGENCE OR INACTION OR LA CK OF BONA FIDE. WHAT CAN BE CONSTRUED AS A REASONABLE CAUSE I S TO BE DECIDED ON THE AVAILABLE FACTS OF EACH AND VERY CAS E IN A JUDICIOUS MANNER. THE DECISION ON THE MATTER SHOULD BE TAKEN BY GIVIN G SUFFICIENT ATTENTION TO PARTICULAR FACTS OF THE CASE. IT IS TO BE LOOKED FROM THE VIEW POINT OF A MAN OF AVERAGE INTELLIGENCE AND ORDINARY PRUDENCE. IT SHOULD ALSO BE BORNE IN MIND, THAT THE LAW ITSELF SPELLS O UT THE CIRCUMSTANCES IN WHICH PENALTY CAN BE LEVIED BY PROVIDING FOR REASON ABLE CAUSE FOR AVOIDING PENALTY. IN OTHER WORDS, TO DECIDE WHAT CA N BE CONSTRUED AS A REASONABLE CAUSE FOR AVOIDING PENALTY ONE HAS TO KE EP IN MIND THAT THE LAW ITSELF REQUIRES THAT THE DEFAULT SHOULD HAVE OC CURRED WITHOUT REASONABLE CAUSE TO MERIT PENALTY AND THAT THE ISSU E MUST BE DECIDED ON THE AVAILABLE FACTS AND THE NATURE OF DE FAULT IN A JUDICIOUS MANNER. BEFORE A CAUSE CAN BE SAID TO BE REASONABLE OR NOT , IT MUST BE FOUND AS A FACT THAT A PARTICULAR CAUSE OPE RATED UPON THE MIND OF THE ASSESSEE WHICH PREVENTED HIM FROM DOING THE REQUIRED ACT UNDER NORMAL CIRCUMSTANCES. IT IS TRUE THAT THE WOR D 'REASONABLE CAUSE' IS NOT DEFINED UNDER THE IT ACT BUT IT COULD RECEIV E SAME MEANING AND INTERPRETATION WHICH IS GIVEN TO THE EXPRESSION 'SU FFICIENT CAUSE'. THEREFORE, IN THE CONTEXT OF THE PENALTY PROVISIONS , THE WORD 'REASONABLE CAUSE' WOULD MEAN A CAUSE WHICH PREVENTS A REASONAB LE MAN OF ORDINARY PRUDENCE ACTING UNDER NORMAL CIRCUMSTANCES , WITHOUT NEGLIGENCE OR INACTION OR WANT OF BONA FIDES, FROM DOING THE ACT OF WHICH HE, CALLED ON TO ACT REASONABLY, KNOWS OR OUGHT TO KNOW. ALTHOUGH THE SAID INTERPRETATION WAS GIVEN IN THE CONTEX T OF LEVY OF PENALTY U/S.271F OF THE ACT, THE MEANING OF REASONABLE CAUSE HOLDS RELEVANT IN THE PRESENT CONTEXT WHERE PENALTY IS LEVIED U /S.271E R.W.S.269T OF THE ACT. IN THE INSTANT CASE, THE ASSESSEES REASONABLE CAUSE R EVOLVES AROUND THE PROBLEM OF PAUCITY OF FUNDS ON ONE SIDE AND THE EMPTY FORMALITY ON THE OTHER. ON GOING THROUGH THE FACTS RELATING TO T HIS ISSUE, THE LOANS RECEIVED BY THE ASSESSEE FROM VSK WERE SUBSTANTIALLY UTILISED FOR ACQUISITION OF THE LANDS WHICH ARE NEEDED FOR CR EATION OF TOWNSHIPS WHICH IS THE ORIGINAL INTENTION OF THE ASSESSEE. B ARRING RS.4.38 CRORES GIVEN TO THE OTHER CONCERNS, OTHERWISE, RE ST OF THE TOTAL ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 30 LOANS OF RS.51.74 CRORES WERE UNDOUBTEDLY UTILISED FOR THE BUSINESS PURPOSES. THUS, IT IS NOT THE CASE OF THE REVENUE THAT THE SAID FUNDS WERE UTILISED FOR NON BUSINESS PURPOSES. NORMALLY, THE LACK OF FUNDS BY ITSELF MAY NOT BE REASONABLE CAUSE. HOWEVER, THE REASONS FOR NOT HAVING FUND FOR REPAYMENT BY SPECIFIED MODE MAY CONSTITUTE A REA SONABLE CAUSE DEPENDING ON THE REASONS. IN THE PRESENT CASE O N HAND, IN OUR VIEW THE USE OF FUNDS FOR BUSINESS PURPOSES OF THE ASSESS EE, WILL CONSTITUTE A REASONABLE CAUSE. OTHER MODES OF RAISING FUNDS : NOW WE SHALL EXAMINE HOW THE ASSESSEE WOULD HAVE MET THE REQUIREMENT OF THE STATUTE , I.E. REPAYMENT THROUGH ACCOUNT PAYEE CHEQUE OR DEMAND DRAFT WHEN (A) THE ASSESSEE IS DIVESTED OF THE FUNDS AND (B) THERE IS NEED FOR ALLOTMENT OF SHARES TO VSK. AS A FIRST OPTION, ASSESSEE SHOULD HAVE SOLD THE SA ID ACQUIRED LANDS AND RAISE THE FUNDS TO REPAY TO VSK BY ACCOUNT P AYEE CHEQUES/DEMAND DRAFTS. THIS IS A DIFFICULT OPTION AND IT GOES AGAINST THE OBJECT OF THE COMPANY. ALTERNATIVELY, ASSESSEE SHOU LD HAVE BORROWED FURTHER FUNDS FROM THIRD PARTIES OR FROM THE OT HER PROMOTERS TO RAISE FUNDS TO REPAY TO THE VSK THROUGH THE SPECIFIED MODES OF PAYMENT. THIS IS AN IMPOSSIBLE OPTION FOR EXERCISING AS THE COMPANY ITSELF ALREADY BORROWED FUNDS OF RS.51.74 CRORES AND BORRO WER IS BENT ON DEMANDING FOR ALLOTMENT OF SHARE ON A GUARANTEE. ON HAVING GIVEN RS.51.74 CRORES OF THE LOANS TO THE ASSESSEE, LIKE ANY OT HER CREDITOR, VSK NEEDED SOME CONTROL ON THE COMPANY ONE FORM OR OT HER. FOR THAT , ASSESSEE IS UNDER OBLIGATION TO ALLOT SHARES RESORTING TO SQUARING THE BOOK ENTRIES THROUGH VOUCHERS. THUS, THE ASSESSEE IS U NDER THE OBLIGATION OR PRESSURE TO ALLOT THE SHARES. ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 31 THIS METHOD OF REPAYMENT OF LOANS IS OBVIOUSLY OUTSIDE T HE SCOPE OF PERMITTED METHODS OF REPAYMENT. NEVERTHELESS, TH E RAISING FUNDS THROUGH THE AFORESAID OPTION ONLY TO RECEIVE THE S AME BACK AGAINST THE SHARE ALLOTMENT, IS A MEANINGLESS EXERCISE. IN THE LANGUAGE OF BINDING JUDGMENT IN THE CASE OF TRIUMPH INTERNATIONAL FINANCE (I) LTD. (SUPRA.). THE SAME CONSTITUTES AN EMPTY FORMALITY. WH Y SHOULD ASSESSEE DO REPAY WHEN THE SAID MONEY IS ONLY TO RETU RN TO THE ASSESSEES ACCOUNT FOR ALLOTMENT OF SHARES? THE ANSWER LIES IN THE CONCEPT OF EMPTY FORMALITY PROFOUNDED BY THE HIGH COURT IN THE CASE OF CIT VS. TRIUMPH INTERNATIONAL FINANCE (I) LTD. (SUPRA). IT IS THE DECISION OF THE HONBLE HIGH COURT THAT REPAYING THE LOANS TO VSK THROUGH ACCOUNT PAYEE CHEQUES/DEMAND DRAFTS AND RECEIVING THE SAME TOWARDS THE SHARE APPLICATION MONEY CONSTITUTES THE EMPTY FORMALIT Y. WE PROCEED TO EXTRACT THE RELEVANT LINES FROM THE SAID JUDG MENT AND THE SAME IS PLACED HERE AS UNDER : 22. THE ARGUMENT ADVANCED ON BEHALF OF THE ASSESSE E THAT IF SECTION 269T IS CONSTRUED LITERALLY, IT WOULD LEAD TO ABSUR DITY CANNOT BE ACCEPTED, BECAUSE, REPAYMENT OF LOAN / DEPOSIT BY ACCOUNT PAY EE CHEQUE / BANK DRAFT IS THE MOST COMMON MODE OF REPAYING THE LOAN / DEPOSIT AND MAKING SUCH COMMON METHOD AS MANDATORY DOES NOT LEA D TO ANY ABSURDITY. NO DOUBT, THAT IN SOME CASES GENUINE BUS INESS CONSTRAINTS MAY NECESSITATE REPAYMENT OF LOAN / DEPOSIT BY A MO DE OTHER THAN THE MODE PRESCRIBED UNDER SECTION 269T. TO CATER TO THE NEEDS OF SUCH EXIGENCIES, THE LEGIS LATURE HAS ENACTED SECTION 273B WHICH PROVIDES THAT NO PENALTY UNDER SECTION 271E SHALL BE IMPOSED FOR CONTRAVENTION OF SECTION 269T IF REASONABLE CAUSE FOR SUCH CONTRAVENTION IS SHOWN. .. 24. IN THE PRESENT CASE, THE CAUSE SHOWN BY THE ASS ESSEE FOR REPAYMENT OF THE LOAN / DEPOSIT OTHERWISE THAN BY ACCOUNT-PAY EE CHEQUE / BANK DRAFT WAS ON ACCOUNT OF THE FACT THAT THE ASSESSEE WAS LIABLE TO RECEIVE AMOUNT TOWARDS THE SALE PRICE OF THE SHARES SOLD BY THE ASSESSEE TO THE PERSON FROM WHOM LOAN / DEPOSIT WAS RECEIVED BY THE ASSESSEE. IT WOULD HAVE BEEN AN EMPTY FORMALITY TO REPAY THE LOAN / DEPOSIT AMOUNT BY ACCOUNT-PAYEE CHEQUE / DRAFT AND RECEIVE BACK ALMOST THE SAME AMOUNT TOWARDS THE SALE PRICE OF THE SHARES . NEITHER THE ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 32 GENUINENESS OF THE RECEIPT OF LOAN / DEPOSIT NOR TH E TRANSACTION OF REPAYMENT OF LOAN BY WAY OF ADJUSTMENT THROUGH BOOK ENTRIES CARRIED OUT IN THE ORDINARY COURSE OF BUSINESS HAS BEEN DOUBTED IN THE REGULAR ASSESSMENT. THERE IS NOTHING ON RECORD TO SUGGEST T HAT THE AMOUNTS ADVANCED BY INVESTMENT TRUST OF INDIA TO THE ASSESS EE REPRESENTED THE UNACCOUNTED MONEY OF THE INVESTMENT TRUST OF INDIA OR THE ASSESSEE. THE FACT THAT THE ASSESSEE COMPANY BELONGS TO THE KETAN PAREKH GROUP WHICH IS INVOLVED IN THE SECURITIES SCAM CANNOT BE A GROU ND FOR SUSTAINING PENALTY IMPOSED UNDER SECTION 271E OF THE ACT IF RE ASONABLE CAUSE IS SHOWN BY THE ASSESSEE FOR FAILING TO COMPLY WITH TH E PROVISIONS OF SECTION 269T. IT IS NOT IN DISPUTE THAT SETTLING THE CLAIMS BY MAKING JOURNAL ENTRIES IN THE RESPECTIVE BOOKS IS ALSO ONE OF THE RECOGNIZED MODES OF REPAYING LOAN / DEPOSIT. THEREFORE, IN THE FACTS OF THE PRESENT CASE, IN OUR OPINION, THOUGH THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 269 T, THE ASSESSEE HAS SHOWN REASONABLE CAUSE AND, THEREFORE, THE DECISION OF THE TRIBUNAL TO DELETE THE PENALTY IMPOSED UNDER SECTION 271E OF TH E ACT DESERVES ACCEPTANCE. 25. IN THE RESULT, WE HOLD THAT THE TRIBUNAL WAS NO T JUSTIFIED IN HOLDING THAT REPAYMENT OF LOAN / DEPOSIT THROUGH JOURNAL EN TRIES DID NOT VIOLATE THE PROVISIONS OF SECTION 269T OF THE ACT. HOWEVER, IN THE ABSENCE OF ANY FINDING RECORDED IN THE ASSESSMENT ORDER OR IN THE PENALTY ORDER TO THE EFFECT THAT THE REPAYMENT OF LOAN / DEPOSIT WAS NOT A BONAFIDE TRANSACTION AND WAS MADE WITH A VIEW TO EVADE TAX, WE HOLD THAT THE CAUSE SHOWN BY THE ASSESSEE WAS A REASONABLE CAUSE AND, THEREFORE, IN VIEW OF SECTION 273B OF THE ACT, NO P ENALTY UNDER SECTION 271E COULD BE IMPOSED FOR CONTRAVENIN G THE PROVISIONS OF SECTION 269T OF THE ACT. 17. CONCLUSION : CONSIDERING THE ABOVE DETAILS OF THE REASONABLE CAUSE AND THE BINDING JUDGMENT IN THE CASE CITED ABOVE, WE ARE OF THE OPINION THAT THE REASON OF LACK OF FUNDS CAUSED BY THE A CT OF UTILISATION OF IT FOR THE BUSINESS PURPOSES OF THE ASSESSEE, SHALL CO NSTITUTE REASONABLE CAUSE IN THIS CASE. RAISING THE FUNDS BY SALE O F LANDS OR BORROWING FROM OTHER PARTIES TO REPAY TO VSK IS AN UNNEC ESSARY EXERCISE WHEN THE FUNDS SO PAID TO VSK IS DESTINED TO RETURN TO THE ASSESSEES BANK ACCOUNT. ON THIS REASONING, THE ASSESSEES DECISIO N IN FAVOUR OF SQUIRING UP OF THE LOANS ACCOUNT THROUGH PASSING OF JOURN AL ENTRIES, SHALL CONSTITUTE A REASONABLE CAUSE ON THE FACTS OF THE P RESENT CASE. THE SAME REASONING HAS THE STRENGTH OF THE BINDING JUR ISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF CIT VS. TRIUMPH INTERNAT IONAL FINANCE (I) ITA NO.137/PUN/2018 RADHAMADHAV REALCON PVT. LTD. 33 LTD. (SUPRA). IN THIS CASE, THE AMOUNT WAS TO COME BACK TO THAT ASSESSEE TOWARDS THE SALE PRICE OF THE SHARES. THEREFORE , ON THE GROUND OF REASONABLE CASE, AS ENVISAGED IN THE PROVISIONS OF SECT ION 273B OF THE ACT, WE ARE OF THE OPINION THAT THE LEVY OF PENALTY IS NOT SUSTAINABLE. ACCORDINGLY GROUND NO.8 RAISED BY THE ASSESSEE IS ALLOWED. 18. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF SEPTEMBER, 2018. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 25 TH SEPTEMBER, 2018 GCVSR / SATISH / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// SENIOR PRIVA TE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A)-6, PUNE 4. THE PR. CIT-5, PUNE 5. , , BENCH A PUNE; 6. / GUARD FILE.