DEPUTY COMMISSIONER OF INCOME TAX,CC-7(3), MUMBAI V. M/S MAHAVIR BUILD ESTATE PVT LTD , MUMBAI

ITA 1407/MUM/2022

AI Insights

The case involves M/s. Mahavir Build Estate Pvt. Ltd., which faced a penalty under section 271E of the Income Tax Act for allegedly violating section 269T by repaying loans through journal entries instead of account payee cheques or drafts. The Assessing Officer (AO) initially levied the penalty, which was later contested and deleted by the CIT(A). The Revenue appealed against this decision, arguing that the CIT(A) erred in deleting the penalty without a transaction-by-transaction analysis. The Tribunal, referencing similar cases and the principles laid down by the jurisdictional High Court, upheld the CIT(A)'s decision, emphasizing that the transactions were genuine business operations and thus fell under the reasonable cause exception.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 136463 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-09-2022
• Assessment Year: misc
• Appeal Filed On: 26-08-2013
• Other Referred Cases: Macrotech Developers Limited (Successor to Macrotech Construction Pvt Ltd), Palava Dwellers Pvt Ltd., Bellissimo Crown Pvt ltd. and others, M/s Sanathnagar Enterprise Limited & Others
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reasonable cause; Set aside
• Section: 273B; 143(3); 271D; 271E; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “B” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO. 1407/MUM/2022 (A.Y: 2009-10) DCIT – Central Circle – 7(3) Room No. 655, 6 th Floor Aayakar Bhavan, M.K. Road Mumbai - 400020 v. M/s. Mahavir Build Estate Pvt. Ltd., 216, Shah & Nahar Industrial Estate Off Dr. E. Moses Road, Worli Mumbai - 400018 PAN: AAFCM0474Q (Appellant) (Respondent) Assessee by : Shri Niraj Sheth Department by : Dr. Mahesh Akhade Date of Hearing : 13.09.2022 Date of Pronouncement : 30.11.2022 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the revenue against order of the Learned Commissioner of Income Tax (Appeals)-49, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 29.11.2021 for the A.Y. 2009-10. 2. Brief facts of the case are, assessee is engaged in the business of land development and construction of real estate properties. The 2 ITA NO. 1407/MUM/2022 (A.Y: 2009-10) M/s. Mahavir Build Estate Pvt. Ltd., assessment u/s. 143(3) was completed on 30.03.2015. The present penalty order u/s. 271D was passed by ACIT – Central Range-7 on reference from the Assessing Officer through letter dated 25.06.2015 intimating that assessee has repaid loans/ deposits from various sister concerns through journal entries, i.e., otherwise than account payee cheques/draft, thereby violating the provisions of section 269T of Income- tax Act, 1961 (in short “Act”). The show cause notice was issued to the assessee and the Ld. AR of the assessee attended and filed the relevant information as called for. The assessee has filed written submissions before ACIT – 7 and the same is reproduced from Page No. 2 to 13 of the penalty order u/s. 271E of the Act, for the sake of brevity, it is not reproduced below. After considering the detailed submissions, Ld. ACIT rejected the submissions made by the assessee and he levied the penalty u/s. 271E of the Act. 3. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and Ld.CIT(A) after considering the submissions of the assessee deleted the penalty levied by the Assessing Officer. Aggrieved revenue is in appeal before us rising following grounds in its appeal: - “1 "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified in deleting the penalty levied u/s. 271E of the Act since the assessee has not shown the reasonable cause 3 ITA NO. 1407/MUM/2022 (A.Y: 2009-10) M/s. Mahavir Build Estate Pvt. Ltd., u/s. 273B of the Act for entering into such transactions through journal entries? 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) is erred in deleting the penalty without giving a finding on transaction to transaction basis in the given case for existence of reasonable cause w/s. 273B which led to the exigency of contravention of provisions of 269T as the fact of each transaction need independent verification?". 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in merely relying upon the various case laws without examining the cause behind each instance of default which, therefore, rendered the impugned order perverse, and thereby rendered the applicability of any judicial precedent as otiose? 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified in giving the benefit of reasonable cause to a series of transactions, without appreciating that the such benefit is available as an exception rather than a rule, unlawfully granting perpetual legitimacy to transactions otherwise held to be illegal?'” 4. Ld. DR relied on the order of the Assessing Officer and prayed to set aside the order of the Ld.CIT(A). 5. At the time of hearing, Ld. AR of the assessee submitted that the present penalty has been levied by the Additional CIT u/s. 271D of the Act on the alleged ground that the assessee has violated provisions of section 269T of the Act and Ld.CIT(A) has examined the nature of transactions and has found that the transactions are journal entries passed in the ordinary course of business, are in the nature of assigning of receivables or extinguishment of mutual liability of paying/ receiving the amounts by the assessee and its sister concerns. It is not a 4 ITA NO. 1407/MUM/2022 (A.Y: 2009-10) M/s. Mahavir Build Estate Pvt. Ltd., transaction of receiving/ paying loans. Further, Ld. AR submitted that, even if it is assumed that transactions are in the nature of loans or advances, no penalty u/s. 271D can be levied as the assessee had a reasonable cause within the meaning of section 273B of the Act. It is submitted that the ITAT has consistently held in cases of group concerns that passing of journal entries in the ordinary course of business constitutes a reasonable cause and, on that ground, Ld.CIT(A) deleted the penalties. In this regard, Ld.AR placed reliance on the following decisions: a) Macrotech Developers Limited (Successor to Macrotech Construction Pvt Ltd) (ITA No. 1415/Mum/2019 & 1416/ Mum/ 2018) dated 8th April 2021. b) Palava Dwellers Pvt Ltd. (ITA No. 3050 & 3051/ Mum/ 2019) dated 11th October 2021. c) Bellissimo Crown Pvt ltd. and others (ITA No. 3038 & 3046/ Mum/ 2019 and others) dated 25th November, 2021 d) M/s Sanathnagar Enterprise Limited & Others [ITA No 3143/ Mum/ 2017 and ITA No 3144/Mum/ 2017 & Others] 6. In view of the above submissions, it is prayed that the penalty levied by the assessing officer may be deleted as held by the Ld. CIT(A) and appeal of the revenue may be dismissed. 7. Considered the rival submissions and material placed on record, we observed that the issue under consideration is relating to penalty order 5 ITA NO. 1407/MUM/2022 (A.Y: 2009-10) M/s. Mahavir Build Estate Pvt. Ltd., u/s. 271E of the Act passed by ACIT-7, Mumbai. After considering the submissions of both the counsel, we observed that the Coordinate Bench in assessee’s group company i.e. Lodha Builder Pvt. Ltd., held on the similar issue of levy of penalty as under: - “32. From above extracts from the judgment of jurisdictional High Court, it is clear that the journal entries are hit by the relevant provisions of s. 269SS of the Act. However, it is the finding of the Hon'ble High Court that completing the “empty formalities" of payments and repayments by issuing/receiving cheque to swap/square, tip the transactions, is not the intention of the provisions of s. 269SS of the Act, when the transactions are otherwise bona fide or genuine. Such reasons, of the assessee constitute ‘reasonable cause’ within the meaning of s. 273B of the Act. In the light of the above ratio of judgment, we analyse the facts of the present case hereasunder. 33. We find that there is no finding of AO in the order of the AO during the assessment proceedings that impugned transactions constitute ‘unaccounted money and are not bona fide or not genuine. As such, there is no information or material before the AO to suggest or demonstrate the same. In the language of the -Hon'ble High Court, ‘neither the genuineness of the receipt of loan/deposit nor the 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’. Admittedly, the transactions by way of journal entries are aimed at the extinguishment of the mutual liabilities between the assessee and the sister concerns of the group and such reasons constitute a reasonable cause. 34. In the present case, the causes shown by the assessee for receiving Nor /repayment of the loan/deposit otherwise than by account-payee cheque/bank draft, was on account of the following, namely: alternate mode of raising funds; assignment of receivables; squaring up transactions; operational efficiencies/MIS purpose; consolidation of family member debts; correction of errors; and loans taken in case. In our opinion, all these reasons are, prima facie, commercial in nature and they cannot be described as non-business 6 ITA NO. 1407/MUM/2022 (A.Y: 2009-10) M/s. Mahavir Build Estate Pvt. Ltd., by any means. Further, we asked: ourselves as to why should the assessee under consideration take up issuing number of account payee cheques/bank drafts which can be accounted by the journal entries. This being the Spirit of Hon'ble High Court of Bombay, we adopt the same to the present issue. As such, the same is binding on us. What is the" point in issuing hundreds of account payee cheques/account payee bank drafts between the sister concerns of the group, when transactions can be accounted in books using journal entries, which is also an accepted mode of accounting in our opinion, on the factual matrix of these cases under consideration, journal entries should enjoy equal immunity on par with account payee cheques or bank drafts. Of course, the above conclusion apply so long as the transactions are for business purposes and do not involve unaccounted money and they are genuine. In fact, such journal entries shall save large number of cheque books for the banks. 35. Further, there is no dispute that the impugned journal entries in the respective books were done with the view to raise funds from the sister concerns, to assign the receivable among the sister concerns, to adjust or transfer the balances, of consolidate the debts, to correct the clerical errors etc. In the language of the -Hon'ble High Court, the said journal entries’ constitute one of the recognized modes of recording the loan/deposit. The commercial nature and occurrence of these transactions by way of journal entries is in the normal course of business operation of the group concerns. In this regard, there is no adverse finding by the AO in the regular assessment. AO has not made out in the -assessment that any of the impugned transactions is aimed at non commercial reasons and outside the normal business’ operations? As such, the provisions of ss. 269SS and 269T of the Act shall not be attracted where there is no involvement of the ‘money’ as held by the Hon'ble High Court of Delhi in-the above cited cases, supra. Therefore, in the fact of the present case, in our opinion, though the assessee has violated the provisions of ss. 269SS/269T of the Act in respect of journal entries, the assessee has shown reasonable cause and, therefore, the penalty imposed under s. 271D/271E of the Act are not sustainable. Regarding an amount of 'money' said to have been paid in violation of the said provisions, the same needs to be deleted in view of our decision on the legal issue discussed in paras 16 to 22 of the this order. Accordingly, the grounds raised in this regard are allowed.” 7 ITA NO. 1407/MUM/2022 (A.Y: 2009-10) M/s. Mahavir Build Estate Pvt. Ltd., 8. Respectfully following the above decision and issue under consideration is already settled in favour of the assessee. The issue discussed in the above decision of the Coordinate Bench is on section 271D and the ground raised by the revenue is on section 271E, which is similar to the issue of section 271D. Therefore, the ratio is squarely applicable to section 271E of the Act. Accordingly, we are inclined to dismiss the grounds of appeal raised by the revenue. 9. In the result, appeal filed by the Revenue is dismissed. Order pronounced in the open court on 30 th November, 2022. Sd/- Sd/- (AMIT SHUKLA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 30.11.2022 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum