Lumbini Constructions Limited, Hyderabad, Hyderabad V. ITO, Ward-16(1), Hyderabad, Hyderabad

ITA 1436/HYD/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2534 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 24-10-2016
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Keywords: Reasonable cause
• Section: 273B; 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1436/HYD/2016 ASSESSMENT YEAR: 2012-13 M/S. LUMBINI CONSTRUCTIONS LTD., HYDERABAD [PAN: AAACL6610J] VS ADDL. COMMISSIONER OF INCOME TAX, RANGE-16, HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.C. DEVDAS, AR FOR REVENUE : SHRI K.J. RAO, DR DATE OF HEARING : 08-03-2017 DATE OF PRONOUNCEMENT : 03-05-2017 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-4, HYDERABAD, DATED 30-08-2016 FOR THE AY. 2012-13. 2. BRIEFLY STATED, ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND FILED ITS RETURN OF INCOME FOR THE AY. 2012-13 ON 27-09-2012 ADMITTING CURRENT YEAR LOSS AT RS. 1,67,516/- UNDER NORMAL PROVISIONS AND BOOK PROFITS AT RS. 66,878/- U/S. 115JB OF THE INCOME TAX ACT [ACT]. THE SCRUTINY ASSESSMENT U/S. 143(3) OF THE ACT WAS COMPLETED ON 25-03-2015 BY MAKING AN ADDITION OF RS. 56,180/- TOWARDS DISALLOWANCE U/S. 40(A)(IA) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) OBSERVED THAT ASSESSEE HAD RECEIVED LOANS FROM I.T.A. NO. 1436/HYD/2016 M/S. LUMBINI CONSTRUCTIONS LTD., :- 2 - : VARIOUS INDIVIDUAL- DIRECTORS IN CASH IN EXCESS OF THE LIMITS PRESCRIBED U/S. 269SS. HOWEVER, TO VERIFY THE SAME, AO ISSUED NOTICE U/S. 271D OF THE ACT. IN RESPONSE TO THE NOTICE, THE AR OF THE ASSESSEE APPEARED AND MADE EXPLANATION AS TO WHY CASH PAYMENTS WERE ACCEPTED. REJECTING THE CONTENTIONS, ADDL.CIT COMPLETED THE PENALTY PROCEEDINGS U/S. 271D BY LEVYING PENALTY OF RS. 18,95,024/-. 3. DURING THE COURSE OF APPEAL PROCEEDINGS BEFORE THE LD. CIT(A), ASSESSEE SUBMITTED AS UNDER: OUT OF THE TOTAL AMOUNT OF RS. 18,95,024/- BROUGHT IN BY THE DIRECTORS AN AMOUNT OF RS. 11,25,000/- DIRECTLY PAID TO A CREDITOR BASED ON THE COURT ORDERS OF THE XIV ADDL.GMM AT MAYO HALL, BANGALORE IN CC NO.26367/2011. THE AFORESAID AMOUNT OF RS. 11,25,000/- WAS DIRECTED DEPOSITED INTO THE BANK ACCOUNT OF THE COMPANY WITH ANDHRA BANK, BANGALORE AND A DEMAND DRAFT WAS TAKEN AND PAID TO THE CREDITOR AS PER THE DIRECTIONS' OF THE COURT. THUS IT CANNOT BE SAID THE TRANSACTION IS IN THE NATURE OF A CASH TRANSACTION CONTRAVENING THE PROVISIONS OF SECTION 269SS OF THE I.T.ACT, 1961. SIMILARLY AN AMOUNT OF RS. 80,024/- WAS DIRECTLY PAID TO ICICI BANK TOWARDS CARE INSTALLMENTS BY THE DIRECTOR. THE BALANCE OF RS. 6,90,000/- WAS CASH BROUGHT IN SMALL AMOUNTS TO MEET THE OFFICE RUNNING EXPENSES AS STATED ABOVE. IT IS SUBMITTED THAT IN SO FAR AS DEPOSITS OF RS. 11,25,000/- AND RS. 80,024/- WERE DIRECTLY DEPOSITED IN THE BANK ACCOUNT. THE INFLOW OF FUNDS IN CASH COULD BE ASCRIBED TO ITS BONAFIDE SUBMISSION THAT THE AMOUNT BEING DEPOSITED INTO BANK WOULD NOT ATTRACT THE PROVISIONS OF SECTION 269SS OF THE ACT, GIVEN THE NATURE OF TRANSACTIONS AND THE CIRCUMSTANCES OF THE CASE WHEN PARTICULARLY THE TRANSACTIONS ARE BETWEEN THE COMPANY INTER-SE AND THE DIRECTORS AS STATED ABOVE. THE AO FAILED TO APPRECIATE THAT THE DIRECTORS OF THE COMPANY HAVE RUNNING CURRENT ACCOUNT WITH THE COMPANY. ON ACCOUNT OF THE FACT THAT THE FINANCIAL STATUS OF THE I.T.A. NO. 1436/HYD/2016 M/S. LUMBINI CONSTRUCTIONS LTD., :- 3 - : COMPANY WAS WEAK AND THE COMPANY WAS RUNNING IN LOSSES, THE DIRECTORS HAVE BROUGHT IN CASH TO TIDE OVER THE TEMPORARY CRISIS CREATED ON ACCOUNT OF SHORTAGE OF FUNDS. DETAILS OF MONEY BROUGHT IN BY THE DIRECTORS HAVE BEEN FILED AND THE DIRECTORS HAVE PROVED THEIR SOURCES OF THE MONIES BROUGHT IN BY THEM. THE TRANSACTIONS APPEARING IN BOOKS OF ACCOUNTS OF THE APPELLANT COULD NOT BE TERMS AS DEPOSITS OR LOANS AS UNDERSTOOD IN COMMON PARLANCE. THE POSITION OF THE DIRECTORS IN A COMPANY IS A FIDUCIARY ONE EVEN THOUGH THE COMPANY IS SUPPOSED TO BE IN ENTITY BY ITSELF BY DIRECTORS ARE THE TRUSTEES. THE WORDS 'ANY OTHER PERSON' IN TERMS OF SEC. 269SS DOES NOT DENOTE THE DIRECTOR OF THE COMPANY. IT DENOTES A PERSON OR PERSONS WHO ARE NOT VERY INTIMATELY OR CLOSELY CONNECTED TO THE APPELLANT COMPANY. THE FINANCIAL POSITION OF THE COMPANY WAS WEAK AND THE MONIES WERE BROUGHT IN EMERGENCY SITUATIONS TO MEET EXPENDITURE IN THE NATURE OF SALARIES AND OTHER OFFICE EXPENSES LIKE PAYING FOR ELECTRICITY BILL, PROVIDENT FUND, TELEPHONES, CONVEYANCE ETC. DURING THE ASSESSMENT PROCEEDINGS, THE AO HAD OCCASION TO EXAMINE THE BOOKS OF ACCOUNTS AND EXAMINE ALL THE AMOUNTS BROUGHT IN BY THE DIRECTORS. THEIR GENUINENESS AND SOURCES WERE ALREADY PROVED. THE GENUINENESS AND SOURCES AND TO MEET THE EXIGENCIES OF THE BUSINESS WERE PROVED TO THE SATISFACTION OF THE AO. IT IS FURTHER SUBMITTED THAT THE BONAFIDE SUBMISSIONS COUPLED WITH THE GENUINENESS OF THE TRANSACTIONS WILL CONSTITUTE REASONABLE CAUSE FOR NOT INVOKING THE PROVISIONS OF SECTION 271D OF THE ACT. RELIANCE IS PLACED ON THE CASE LAWS VIZ., MUTHOOT M. GEORGE BROTHERS VS. ACIT, ITAT COACHIN BENCH 74, TAXMAN PAGE 290(MAG.), ITAT, HYDERABAD IN THE CASE OF INDUSTRIAL ENTERPRISES VS. DCIT, 73 ITO 252(HYD.), ITAT AHMEDABAD BENCH IN THE CASE OF SHREPAK ENTERPRISES VS. DCIT, ETC. 4. LD.CIT(A) AFTER EXAMINING THE FACTS, CONFIRMED THE PENALTY ORDER BY STATING AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE PENALTY ORDER AND SUBMISSIONS OF THE APPELLANT. ON PERUSAL OF THE SUBMISSIONS I.T.A. NO. 1436/HYD/2016 M/S. LUMBINI CONSTRUCTIONS LTD., :- 4 - : IT IS FOUND THAT THE APPELLANT HAS FILED THE SAME SUBMISSIONS WHICH WERE FILED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF PENALTY PROCEEDINGS AND ALSO THE CASE LAWS SUBMITTED BY THE APPELLANT ARE NOT RELEVANT TO THIS CASE. IN SOME OF THE CASE LAWS SUBMITTED ARE OF FIRM CASES WHERE CASH WAS RECEIVED FROM THE PARTNERS AND OTHER CASE LAWS SUBMITTED ARE OF COMPANY CASES, WHERE THE DIRECTORS HAD PAID THE AMOUNT TOWARDS SHARE APPLICATION MONEY AND THE APPELLANT HAS NOT SUBMITTED ANY CASE LAWS RELEVANT TO HIS PRESENT CASE. THEREFORE, THE APPELLANT FAILED TO SUBSTANTIATE THE GROUNDS AND HENCE I AM IN AGREEMENT WITH THE ASSESSING OFFICER AND THE PENALTY LEVIED CONFIRMED. 5. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE FILED AN APPEAL BEFORE THE HON'BLE ITAT RAISING THE FOLLOWING GROUNDS: 1. THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-4, HYDERABAD CIT(A) IN CONFIRMING THE LEVY OF PENALTY IMPOSED U/S.271-D AT RS.18,95,024 IS WHOLLY UNSUSTAINABLE BOTH ON FACTS AND IN LAW. 2. THE LEARNED CIT (A) FAILED TO NOTE THAT THE APPELLANT WAS PREVENTED BY REASONABLE AND SUFFICIENT CAUSE IN ACCEPTING THE AMOUNTS IN CASH AS THERE WERE IMPENDING BUSINESS EXIGENCIES. 3. THE LEARNED CIT (A) HAVING FOUND AS A MATTER OF FACT THAT ALL THE LOANS TAKEN IN CASH WERE ACCEPTED BY THE ASSESSING OFFICER ON GROUNDS OF IDENTITY, GENUINENESS AND CREDIT WORTHINESS OUGHT TO HAVE CANCELLED THE PENALTY LEVIED AT RS.18,95,024/- U/S.271-D OF THE I.T. ACT, 1961 AS THERE WAS NO INTENTION TO AVOID OR EVADE ANY TAX LIABILITY. 4. THE LEARNED CIT (A) FAILED TO NOTE THAT ALL THE LOANS TAKEN WERE UTILIZED FOR BUSINESS EXIGENCIES WHICH FACT WAS NOT DISPUTED BY EITHER THE ADDL. CIT, RANGE-16, HYDERABAD OR THE CIT(A) AND THEREFORE ERRED IN SUSTAINING THE LEVY OF PENALTY. 5. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS SEEN FROM THE FACTS OF THE CASE, THE COMPANY HAS ACCEPTED AMOUNTS FROM THE DIRECTORS AND THE EXPLANATIONS FROM THE DIRECTORS WAS CONSIDERED IN THE ASSESSMENT PROCEEDINGS AND ACCEPTED. I.T.A. NO. 1436/HYD/2016 M/S. LUMBINI CONSTRUCTIONS LTD., :- 5 - : THERE IS TRUTH IN THE CONTENTION OF THE ASSESSEE THAT ON THE SAME EXPLANATION GIVEN IN THE ASSESSMENT PROCEEDING, THE PENALTY PROCEEDINGS CANNOT BE INITIATED. FURTHER, ASSESSEE HAS GIVEN A REASONABLE EXPLANATION THAT THE AMOUNTS WERE TAKEN IN CASH FOR I) FOR PAYMENT TO THE COURT IN LIEU OF DIRECTIONS GIVEN BY THE COURT TO PAY THE AMOUNT IN BENGALURU. ASSESSEE IN FACT HAS PURCHASED A DD IN ANDHRA BANK BENGALURU AND PAID TO THE CREDITOR AS PER THE DIRECTIONS OF THE COURT, II) AN AMOUNT OF RS. 80,024/- WAS PAID TO ICICI BANK FOR CAR INSTALMENTS IN SMALL AMOUNTS, III) AN AMOUNT OF RS. 6,90,000/- WAS SPENT FOR DAY TO DAY RUNNING EXPENSES OF THE OFFICE AS THE COMPANY IS HAVING FINANCIAL DIFFICULTIES. FURTHER SUBSTANTIAL AMOUNT WAS DEPOSIT IN BANK ACCOUNT DIRECTLY. EXPLANATION GIVEN WAS ACCEPTED IN ASSESSMENT PROCEEDINGS, SO THE SAME CAN BE CONSIDERED AS REASONABLE FOR ACCEPTING CASH FOR THE PURPOSE OF SECTION 271D READ WITH SECTION 273B. ASSESSEE HAS RELIED ON VARIOUS CASE LAW NOT ONLY BEFORE THE CIT(A) BUT ALSO BEFORE ME. IN THE CASE OF CIT VS. DIMPLE YADAV IN ITA NO. 174 OF 2015, THE HONBLE ALLAHABAD HIGH COURT HAS ACCEPTED THE EXPLANATION GIVEN BY THE ASSESSEE AND DELETED THE PENALTY. LIKEWISE, THE COORDINATE BENCH OF HYDERABAD IN THE CASE OF CITIZEN COOPERATIVE SOCIETY LTD. VS. ADDL. CIT IN ITA NO. 1156/HYD/2009 HAS ALSO ACCEPTED THAT IMPOSITION OF PENALTY IS NOT MANDATORY AND IF THE PERSON CONCERNED PROVES THAT THERE IS REASONABLE CAUSE AS PER THE PROVISIONS OF SECTION 273B THERE CAN BE NO PENALTY U/S 271D. FURTHER, IN THE CASE OF MS LOKAIAH VS. ADDL. CIT, HYD. IN ITA NO. 1272/HYD/2015, DATED I.T.A. NO. 1436/HYD/2016 M/S. LUMBINI CONSTRUCTIONS LTD., :- 6 - : 03/08/2016 THE REASONABLE CAUSE HAS ACCEPTED. IN THE LIGHT OF THE ABOVE, I AM OF THE VIEW THAT THE ASSESSEE HAS SHOWN REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273B, THEREFORE, THE PENALTY ORDER IS TO BE SET ASIDE. ACCORDINGLY, THE ORDER OF THE ADDL. CIT AND CIT ARE HEREBY SET ASIDE AND GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 03 RD MAY, 2017. SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED: 03 RD MAY, 2017. 1 M/S. LUMBINI CONSTRUCTIONS LTD., 6-3-666/A, LUMBANI TOWERS, PUNJAGUTTA, HYDERABAD 2 ACIT, RANGE-16, HYDERABAD. 3 CIT (A)-4, HYDERABAD. 4 PR. CIT 4, HYDERABAD. 5 THE DR, ITAT HYDERABAD 6 GUARD FILE