ACIT -14 (2) , MUMBAI V. REDWOOD I.T. SERVICES P.LTD, MUMBAI

ITA 1643/MUM/2021

• Counselvise Citation: [2022] 107 COUNSELVISE.COM (IT) 0405 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2013-2014
• Appeal Filed On: 19-09-2021
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Gift; Reasonable cause; Set aside
• Section: 273B; 143(3); 271D; 271E

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H” MUMBAI BEFORE SHRI ABY T VARKEY (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA No. 1643/MUM/2021 Assessment Year: 2013-14 ACIT, Circle-14(1)(2), Room No. 455, 4 th floor, Aayakar Bhavan, M.K. Road, Mumbai-400020. Vs. M/s Redwood I.T. Services Pvt. Ltd., D-211, Ghatkopar Industrial Estate, Behind R-City Mall Off LBS Marg, Ghatkopar-West, Mumbai-400086. PAN No. AADCR 7296 K Appellant Respondent Revenue by : Mr. K.C. Kanojiya, CIT-DR Assessee by : Mr. J.D. Mistri, AR Date of Hearing : 08/06/2022 Date of pronouncement : 05/07/2022 ORDER PER OM PRAKASH KANT, AM This appeal by the Revenue is directed against order dated 13/02/2020 passed by the Ld. Commissioner of Income-tax (Appeals)-22, Mumbai [in short ‘the Ld. CIT(A)’] in relation to penalty levied by the Joint Commissioner of Income-Tax-Range 143), Mumbai (in short the assessee otherwise then by accou raised by the Assessing Officer under: 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Penalty imposed u/s 271D & 271E merely on the fac leading to reassignment of debt, ignoring the fact that the Assessing Officer had levied the same on the grounds that the loans had been repaid and received by modes other than by account payee or any other mode prov 269T. 2. The Appellant prays that the order of the CIT(Appeals) on the above ground be set aside and that of the AO be restored. 2. At the outset, we may like to mention that filing appeal has been that in view of the order of the Hon’ble Supreme Court in Miscellaneous Application No. 21 of 2022 in (C) No. 3 of 2020 & others, the appeal is within the extended period. In view of the order of Hon’ble Supreme Court (supra), the period M/s Redwood I.T. Services Pvt. Ltd. in short ‘the JCIT’) for repayment/accepting loan otherwise then by account payee cheque. The grounds Assessing Officer in the appeal are reproduced as Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Penalty imposed u/s 271D & 271E merely on the fact that the entries were journal entries leading to reassignment of debt, ignoring the fact that the Assessing Officer had levied the same on the grounds that the loans had been repaid and received by modes other than by account payee or any other mode provided in section 269SS & The Appellant prays that the order of the CIT(Appeals) on the above ground be set aside and that of the AO be restored. , we may like to mention that delay of 520 days filing appeal has been pointed by the Registry. The Ld. DR submitted that in view of the order of the Hon’ble Supreme Court in Miscellaneous Application No. 21 of 2022 in suo motu No. 3 of 2020 & others, the appeal is within the extended period. order of Hon’ble Supreme Court (supra), the period M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 2 /accepting loan by nt payee cheque. The grounds in the appeal are reproduced as Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Penalty imposed u/s 271D t that the entries were journal entries leading to reassignment of debt, ignoring the fact that the Assessing Officer had levied the same on the grounds that the loans had been repaid and received by modes other than by ided in section 269SS & The Appellant prays that the order of the CIT(Appeals) on the above ground be set aside and that of the AO be restored. delay of 520 days in The Ld. DR submitted that in view of the order of the Hon’ble Supreme Court in suo motu Writ Petition No. 3 of 2020 & others, the appeal is within the extended period. order of Hon’ble Supreme Court (supra), the period from 15.03.2020 till 28.02.2022 stand limitation prescribed under any all judicial or quasi judicial proceedings. In the case, order of L CIT(A) was received by the respective CIT on 18.02.2020. The appeal was due for filing on or before 19.04.2020 whereas appeal has been filed on 20.09.2021. Supreme Court (supra), t period, it is admitted for adjudication. 3. Briefly stated facts of the case under section 143(3) of the for assessment year 2013 said assessment orde initiation and imposition of the penalty in terms of sections 271D and 271E of the Income contravention of the provisions of section 269 respectively. The Ld. M/s Redwood I.T. Services Pvt. Ltd. from 15.03.2020 till 28.02.2022 stands excluded for the purposes of limitation prescribed under any general or special laws in respect of all judicial or quasi judicial proceedings. In the case, order of L CIT(A) was received by the respective CIT on 18.02.2020. The appeal was due for filing on or before 19.04.2020 whereas appeal has been filed on 20.09.2021. In view of the order of Hon’ble Supreme Court (supra), the appeal being within the extended admitted for adjudication. stated facts of the case are that scrutiny assessment under section 143(3) of the Income-tax Act, 1961 (in short for assessment year 2013-14 was completed on 15/03/2016. In the said assessment order, the Ld. Assessing Officer made out a case for initiation and imposition of the penalty in terms of sections 271D Income-tax Act, 1961 (in short ‘the f the provisions of section 269 Ld. Assessing Officer observed that a loan of M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 3 excluded for the purposes of or special laws in respect of all judicial or quasi judicial proceedings. In the case, order of Ld. CIT(A) was received by the respective CIT on 18.02.2020. The appeal was due for filing on or before 19.04.2020 whereas appeal In view of the order of Hon’ble he appeal being within the extended that scrutiny assessment in short ‘the Act’) 14 was completed on 15/03/2016. In the made out a case for initiation and imposition of the penalty in terms of sections 271D tax Act, 1961 (in short ‘the Act’) for f the provisions of section 269SS and 269T observed that a loan of ₹ 5 crore was outstanding from Mr the financial year, out of which general entry dated 31/03/2013 was accepted from ‘Smt 31/03/2013. The Ld. to the JCIT, who initiated the proceeding by way of issue of penalty show cause notice considering submission of the assessee found the case fit for le penalty under section 271D and 271 finding of the Ld. JCIT in impugned order are reproduced as under: “At the outset, it is pertinent to note that the gifting o ₹3,40,00,000/- in its normal course of business. The said transaction of passing of entries in its books of account to enable the promoter to gift the amount of loan due to him by the company has no nexus with the actual business of the Assessee and hence cannot be termed as a business transaction. 1. The Assessee has contended that it had no control in the loan advanced to the Company by the Promoter, Sh. Chandah Asrani. It is enough to state that a company is a juridical' person completely "distinct from the promoter and takes Its own decisions. It is unclear M/s Redwood I.T. Services Pvt. Ltd. crore was outstanding from Mr. Chandan Asrani at the beginning of the financial year, out of which ₹3,44,43,885/- was paid by way of dated 31/03/2013 and fresh loan of Smt. Daya Asrani’ by way of general entry Ld. Assessing Officer forwarded this information , who initiated the proceeding by way of issue of penalty show cause notice dated 15/03/2016. The Ld. JCIT considering submission of the assessee found the case fit for le penalty under section 271D and 271E of the Act JCIT in impugned order are reproduced as under: At the outset, it is pertinent to note that the gifting of the said amount of - is not a transaction entered into by the Assessee in its normal course of business. The said transaction of passing of entries in its books of account to enable the promoter to gift the amount of loan by the company has no nexus with the actual business of the Assessee and hence cannot be termed as a business transaction. The Assessee has contended that it had no control in the loan advanced to the Company by the Promoter, Sh. Chandah Asrani. It is gh to state that a company is a juridical' person completely "distinct from the promoter and takes Its own decisions. It is unclear M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 4 Chandan Asrani at the beginning of was paid by way of and fresh loan of ₹3,44,43,885/- by way of general entry dated forwarded this information , who initiated the proceeding by way of issue of penalty dated 15/03/2016. The Ld. JCIT, after considering submission of the assessee found the case fit for levy of Act. The relevant JCIT in impugned order are reproduced as under: f the said amount of is not a transaction entered into by the Assessee-company in its normal course of business. The said transaction of passing of entries in its books of account to enable the promoter to gift the amount of loan by the company has no nexus with the actual business of the Assessee and hence cannot be termed as a business transaction. The Assessee has contended that it had no control in the loan advanced to the Company by the Promoter, Sh. Chandah Asrani. It is gh to state that a company is a juridical' person completely "distinct from the promoter and takes Its own decisions. It is unclear as to how the Assessee in respect of the loans advanced to it by its promoter? that the existence and day completely subservient to the decisions of the promoter, and that being so would the Assessee promoter wants it to even if the same is contra statute? 2. The Assessee books of account knowing well that, what It was about to do would tantamount and/or result in violations of the provisions of sections 271D & 271E of 3. The Assessee to oblige to fulfil the desire of the promoter to give a gift his sister one Which fell within the personal realm of the promoter and had nothing to do with the company or its b 4. Neither the assessee nor the promoter has brought anything on record to anything on record to suggest as to why the passing of journal entries was the only mode available to it for repaying and accepting the loans otherwise than by in account pa 5. Also it has not been pointed out with any evidence as to why the Assessee-company could the promoter, when it had in fact done in past, as It clear from the entries dated 27 90 lakhs and Rs. 70 lakhs was in fact paid to the promoter? Why couldn't the same be done with the remaining amount of Rs. 3.4 cr? At this juncture, It is Important to take note of the fact that the Assessee has a team of accounting only to take decisions to conduct its business but also to maintain M/s Redwood I.T. Services Pvt. Ltd. as to how the Assessee-company had no control over its own decisions in respect of the loans advanced to it by its promoter? that the existence and day-to-day functioning of the company are completely subservient to the decisions of the promoter, and that being so would the Assessee-company take any decision which the promoter wants it to even if the same is contrary to the provisions of a The Assessee-company could have refused to pass journal entries in Its books of account knowing well that, what It was about to do would tantamount and/or result in violations of the provisions of sections 271D & 271E of the Act. The Assessee-company was-well within its statutory powers to refuse to oblige to fulfil the desire of the promoter to give a gift his sister one Which fell within the personal realm of the promoter and had nothing to do with the company or its business. Neither the assessee nor the promoter has brought anything on record to anything on record to suggest as to why the passing of journal entries was the only mode available to it for repaying and accepting the loans otherwise than by in account payee cheque? Also it has not been pointed out with any evidence as to why the company could paid the loan by an account payee cheque to the promoter, when it had in fact done in past, as It clear from the entries dated 27-10-2012 and 01-12-2012 vide which an amount of 90 lakhs and Rs. 70 lakhs was in fact paid to the promoter? Why couldn't the same be done with the remaining amount of Rs. 3.4 cr? At this juncture, It is Important to take note of the fact that the Assessee has a team of accounting professionals at its disposal not only to take decisions to conduct its business but also to maintain M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 5 company had no control over its own decisions in respect of the loans advanced to it by its promoter? Does it mean day functioning of the company are completely subservient to the decisions of the promoter, and that company take any decision which the ry to the provisions of a company could have refused to pass journal entries in Its books of account knowing well that, what It was about to do would tantamount and/or result in violations of the provisions of sections well within its statutory powers to refuse to oblige to fulfil the desire of the promoter to give a gift his sister - one Which fell within the personal realm of the promoter and had Neither the assessee nor the promoter has brought anything on record to anything on record to suggest as to why the passing of journal entries was the only mode available to it for repaying and yee cheque? Also it has not been pointed out with any evidence as to why the paid the loan by an account payee cheque to the promoter, when it had in fact done in past, as It clear from the e which an amount of ₹ 90 lakhs and Rs. 70 lakhs was in fact paid to the promoter? Why couldn't the same be done with the remaining amount of Rs. 3.4 cr? At this juncture, It is Important to take note of the fact that the professionals at its disposal not only to take decisions to conduct its business but also to maintain its day-to-day business, record business transactions and finalize its annual books of accounts as 1951 and as 4. Further the Ld. JCIT also examined the plea of reasonabl in terms of section 27 that the decision of the Hon’ble Bombay High Court in the case of Triumph International Finance India Ltd 345 ITR 270 that acceptance or repayment of the loan through general entries has been held liable for penalty under section 27 But the Hon’ble High Court further exists for contravention of section 269 may not be levied. The Ld. JCIT further the Tribunal in the case of (supra) and concluded that in expenses being incurred on behalf of the assessee by the sister concern, owing to the fact that all operations of the assessee were halted due to attachment of bank accounts. In such circumstances M/s Redwood I.T. Services Pvt. Ltd. day business, record business transactions and finalize its annual books of accounts as per the rules laid out in the Company Act, 1951 and as allowable under the Income-tax Act, 1961. the Ld. JCIT also examined the plea of reasonabl in terms of section 273B for not levying penalty. The Ld. JCIT the decision of the Hon’ble Bombay High Court in the case of ernational Finance India Ltd 345 ITR 270 acceptance or repayment of the loan through general entries le for penalty under section 271D/271E of the But the Hon’ble High Court further observed that if reason or contravention of section 269SS and 269T, then penalty may not be levied. The Ld. JCIT further referred to the in the case of VN Parekh securities Private Limited concluded that in said case issue was related expenses being incurred on behalf of the assessee by the sister owing to the fact that all operations of the assessee were halted due to attachment of bank accounts. In such circumstances M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 6 day business, record business transactions and finalize its d out in the Company Act, tax Act, 1961.” the Ld. JCIT also examined the plea of reasonable cause 3B for not levying penalty. The Ld. JCIT noted the decision of the Hon’ble Bombay High Court in the case of ernational Finance India Ltd 345 ITR 270, it is held acceptance or repayment of the loan through general entries 1D/271E of the Act. observed that if reasonable cause 269T, then penalty to the decision of VN Parekh securities Private Limited case issue was related to expenses being incurred on behalf of the assessee by the sister owing to the fact that all operations of the assessee were halted due to attachment of bank accounts. In such circumstances, the Tribunal found it to be provision of section 269 the assessee of reasonable cause observing as under: “However, in spite of opportunity being so given, the Assessee company has not established that to which the provisions of section. 269SS and 269T were In fact, the documents furnished by the Assessee letter of Sh. Chandan Asrani 2013 as well as the exercise to create self the Assessee Asrani with a view to make an alibi to provisions of section 269SS and 269T. Moreover, there is no evidence furnished wh Asrani and the resolution of the Indeed writt have been written and/or passed else bearing the date and establish the dates of their By doing what the Assessee contravened the provisions of s. but also has: failed under section 273 transactions. M/s Redwood I.T. Services Pvt. Ltd. found it to be a reasonable cause for violation provision of section 269SS/ 269T. The Ld. JCIT rejected the plea of the assessee of reasonable cause observing as under: However, in spite of opportunity being so given, the Assessee company has not established that there was a 'reasonable cause' due to which the provisions of section. 269SS and 269T were In fact, the documents furnished by the Assessee-company such as the letter of Sh. Chandan Asrani to the Board of Directors' dated 01 2013 as well as the resolution of the Assessee-company exercise to create self-serving documents to rationalize the action of the Assessee-company and the said Sh. Chandan Asrani and Ms. Daya Asrani with a view to make an alibi to escape the riogours of the ovisions of section 269SS and 269T. Moreover, there is no evidence furnished which could establish that the said letters of Sh. Chandan and the resolution of the Board of Director actually Indeed written and/or passed on the dates on which they written and/or passed not even a postal stamp or anything else bearing the date and time (from a third party) which could establish the dates of their writing and/or passing. By doing what the Assessee-company has done, it has not o contravened the provisions of s. 2695S as well as S: 269T of the Act, but also has: failed- to establish any reasonable cause under section 273B which led it to engage or undertake the impugned transactions.” M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 7 reasonable cause for violation of the JCIT rejected the plea of the assessee of reasonable cause observing as under: However, in spite of opportunity being so given, the Assessee- here was a 'reasonable cause' due to which the provisions of section. 269SS and 269T were violated. company such as the to the Board of Directors' dated 01-03- company seems to be an serving documents to rationalize the action of d Sh. Chandan Asrani and Ms. Daya scape the riogours of the ovisions of section 269SS and 269T. Moreover, there is no evidence d letters of Sh. Chandan Board of Director actually were n and/or passed on the dates on which they purport to not even a postal stamp or anything time (from a third party) which could company has done, it has not only 2695S as well as S: 269T of the Act, to establish any reasonable cause mandated which led it to engage or undertake the impugned 5. The Ld. JCIT finally levi 27 E of the Act of observing as under: On the basis of the discussion in the preceding there was no business entries in books of account and the same was done personal transaction of the promoter of the Assessee Chandan Asrani vis transactions was done with a mal generating Interest income in the hands of the promoter's sister, instead of his profit and consequently reducing the tax company. Moreover, I also hold that the act of passing books of account in respect of the loans acce cannot be said to be a bona fide transaction where a reasonable sections 269SS and 269T of the Act. Thus I hold that the assessee of section 269SS and section 269T and has also failed to establish a reasonable cause for its failure to comply with the provisions of the said sections as required under section 273B. I therefore levy penalty u 100% of the relevant Chandan Asrani 271B of the Act of fresh loans brought into books of account by way of loan from Ms. M/s Redwood I.T. Services Pvt. Ltd. finally levied the penalty under section 27 of observing as under: On the basis of the discussion in the preceding paragraphs, there was no business exigency or business connection for passing of in books of account and the same was done personal transaction of the promoter of the Assessee Chandan Asrani vis-a-vis his sister, Ms. Daya Asrant. Also, the said transactions was done with a malafide intention of diverting and/o generating Interest income in the hands of the promoter's sister, instead of his own hands, and claiming the same as deductions from profit and consequently reducing the tax liability of the Asse company. Moreover, I also hold that the act of passing account in respect of the loans accepted end/or repaid cannot be said to be a bona fide transaction of the Assessee reasonable cause existed for contravening the provisions of sections 269SS and 269T of the Act. I hold that the assessee-company has contravened the provisions of section 269SS and section 269T and has also failed to establish a reasonable cause for its failure to comply with the provisions of the said sections as required under section 273B. refore levy penalty u/s 271D of the Act of ₹3,10,00,000/ 100% of the relevant amount) in respect of the loan repaid to Sh. Chandan Asrani (for an amount of ₹3,40,00,000/-) and penalty u/s 271B of the Act of ₹3,44,885/- being 100% of the relevant am fresh loans brought into books of account by way of loan from Ms. M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 8 e penalty under section 271D and paragraphs, I hold that exigency or business connection for passing of in books of account and the same was done to execute a personal transaction of the promoter of the Assessee-company Sh. vis his sister, Ms. Daya Asrant. Also, the said diverting and/or generating Interest income in the hands of the promoter's sister, own hands, and claiming the same as deductions from liability of the Assessee- company. Moreover, I also hold that the act of passing of entries in pted end/or repaid of the Assessee-company existed for contravening the provisions of company has contravened the provisions of section 269SS and section 269T and has also failed to establish a reasonable cause for its failure to comply with the provisions of the 10,00,000/- (being oan repaid to Sh. and penalty u/s being 100% of the relevant amount) in fresh loans brought into books of account by way of loan from Ms. Daya Asrani (amounting to penalty levied in the Assessee’s case is as under : Penalty u/s 271D of the Income Penalty u/s 271E of the Income Tax Act, 1961 Total Penalty Amount 6. On further appeal, the Ld. CIT(A) deleted the penalty holding that general entries leading to assignment of debt does not at penalty under section 271 deleted the penalty. The relevant finding of the Ld. CIT(A) is reproduced as under: “Plain reading of the definition of the terms "loan or deposit makes it clear that there applicable. In the instant on 31.03.2013 and the transactions imposed by the JCIT are undisputedly journal entries reassignment of debt from Mr Chandan Asrani t my considered view, therefore the provisions of Section 269SS & 269T are not applicable and the penalty of Rs.6,65,51,401/ JCIT U/s 271D & 7. Though the Ld. CIT(A) in Para submission of the assessee M/s Redwood I.T. Services Pvt. Ltd. Daya Asrani (amounting to ₹3,44,43,885/-. Thus, the aggregate penalty levied in the Assessee’s case is as under : Penalty u/s 271D of the Income-tax Act, 1961 Penalty u/s 271E of the Income Tax Act, 1961 Total Penalty Amount further appeal, the Ld. CIT(A) deleted the penalty holding that general entries leading to assignment of debt does not at penalty under section 271D and 271E of the Act and therefore he deleted the penalty. The relevant finding of the Ld. CIT(A) is reproduced as under: Plain reading of the definition of the terms "loan or deposit makes it clear that there must be an exchange of money for these applicable. In the instant case there has been no exchange of money as on 31.03.2013 and the transactions on which penalty has been imposed by the JCIT are undisputedly journal entries reassignment of debt from Mr Chandan Asrani to Mrs Daya Asrani. In considered view, therefore the provisions of Section 269SS & 269T applicable and the penalty of Rs.6,65,51,401/- JCIT U/s 271D & 271E of the Income Tax Act is deleted. the Ld. CIT(A) in Paras 3.3.2 to 3.3.4 has discussed the submission of the assessee related to existence of reasonable cause M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 9 . Thus, the aggregate ₹3,40,00,000/- ₹3,44,43,885/- ₹6,84,43,885/- further appeal, the Ld. CIT(A) deleted the penalty holding that general entries leading to assignment of debt does not attract and therefore he deleted the penalty. The relevant finding of the Ld. CIT(A) is Plain reading of the definition of the terms "loan or deposit makes it must be an exchange of money for these sections to be case there has been no exchange of money as on which penalty has been imposed by the JCIT are undisputedly journal entries leading to o Mrs Daya Asrani. In considered view, therefore the provisions of Section 269SS & 269T - imposed by the 271E of the Income Tax Act is deleted.” s 3.3.2 to 3.3.4 has discussed the reasonable cause for not levying penalty, however conclusive finding whether the case of the assessee falls under the reasonable cause so provisions. 8. Aggrieved with the finding of the Ld. CIT(A), the appeal before the Tribunal 9. Before us, the Court in the case of (supra) has held that loan/deposit paid by way of debiting account through general entries falls under the contravention of provision of section 269T. According contrary to the finding of the Hon’ble High Court and therefore need to be reversed. 10. On the contrary, the Ld. the assessee, submitted that no loan has been repaid and it has been M/s Redwood I.T. Services Pvt. Ltd. for not levying penalty, however the Ld. CIT(A) has not given any conclusive finding whether the case of the assessee falls under the reasonable cause so as to come out of the rigors Aggrieved with the finding of the Ld. CIT(A), the Tribunal raising the grounds as reproduced above. Before us, the Ld. DR submitted that Hon’ble Bombay High urt in the case of Triumph international Finance India Ltd. has held that loan/deposit paid by way of debiting account through general entries falls under the contravention of provision of section 269T. According to the ld DR, the finding of the Ld. CIT(A) is contrary to the finding of the Hon’ble High Court and therefore On the contrary, the Ld. Sr. Counsel, who appeared on behalf of submitted that no loan has been repaid and it has been M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 10 has not given any conclusive finding whether the case of the assessee falls under the rigors of the penalty Aggrieved with the finding of the Ld. CIT(A), the Revenue is in reproduced above. DR submitted that Hon’ble Bombay High rnational Finance India Ltd. has held that loan/deposit paid by way of debiting account through general entries falls under the contravention of provision of finding of the Ld. CIT(A) is contrary to the finding of the Hon’ble High Court and therefore same , who appeared on behalf of submitted that no loan has been repaid and it has been only assigned from one person to another person and therefore it does not meet requirement of section penalty is leviable when the person repays any loan or deposit otherwise than in manner provided in section 269T of the submitted that the Ld. CIT(A) emphasiz penalty under section 271E of the submitted that irrespective of the finding of the Hon’ble Bombay High Court in the case of (supra) that repayment by way of general entries also falls under the contravention of section 269T, there exist a reasonable cause in not complying the said provision and therefore no penalty should be levied. The Ld. Senior decision of the Hon’ble High Court to substantiate that in the case of the assessee, instead of withdrawing money by from the company’s account and then giving to Daya Asrani deposit the money with M/s Redwood I.T. Services Pvt. Ltd. only assigned from one person to another person and therefore it does not meet requirement of section 271E, which prescribe that when the person repays any loan or deposit otherwise than in manner provided in section 269T of the Ld. CIT(A) emphasized of no loan repaid, penalty under section 271E of the Act attracted. submitted that irrespective of the finding of the Hon’ble Bombay High Court in the case of Triumph International Finance India (supra) that repayment by way of general entries also falls under the contravention of section 269T, there exist a reasonable cause in not complying the said provision and therefore no penalty should be Senior Counsel referred to para 23 and 24 of the decision of the Hon’ble High Court to substantiate that in the case of instead of withdrawing money by Mr. Chandan Asrani account and then giving to Smt. Daya Asrani deposit the money with the company, those M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 11 only assigned from one person to another person and therefore it , which prescribe that when the person repays any loan or deposit otherwise than in manner provided in section 269T of the Act. He loan repaid, thus no attracted. He further submitted that irrespective of the finding of the Hon’ble Bombay Finance India Ltd. (supra) that repayment by way of general entries also falls under the contravention of section 269T, there exist a reasonable cause in not complying the said provision and therefore no penalty should be 23 and 24 of the decision of the Hon’ble High Court to substantiate that in the case of Mr. Chandan Asrani Smt. Daya Asrani and the company, those transactions have been carried by way of general entries, which is being one of the reasonable cause for not com section 269SS and 269T of the decision of the Tribunal in ITA No. 3038/Mu decision of the Hon’ble High Court of Delhi in the case of Township Project Ltd 367 ITR 433(Delhi) 11. We have heard rival submissions of the parties on the issue in dispute and perused the relevant material on record. As far as facts of the case are concerned, the before us that for financing purchase of a property in the f year 2008-09, the assessee Ltd. and promoters of the company namely Shri Chandan Asrani and Mr. Rajesh Chhabria. Both the promoters provided a loan of each to the company. Subsequently assessee company took further loan from bank M/s Redwood I.T. Services Pvt. Ltd. transactions have been carried by way of general entries, which is being one of the reasonable cause for not complying provision of SS and 269T of the Act. The Ld. counsel also relied on the Tribunal in the case of Macrotech Developers Ltd No. 3038/Mum/2019 and ITA No. 3046/Mum/2015 decision of the Hon’ble High Court of Delhi in the case of Township Project Ltd 367 ITR 433(Delhi). We have heard rival submissions of the parties on the issue in dispute and perused the relevant material on record. As far as facts of the case are concerned, the Ld. senior counsel has submitted before us that for financing purchase of a property in the f 09, the assessee took loans from Kotak Mahindra Bank and promoters of the company namely Shri Chandan Asrani and Rajesh Chhabria. Both the promoters provided a loan of ch to the company. Subsequently, in financial yea assessee company took further loan from bank and on 08/08/2012 M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 12 transactions have been carried by way of general entries, which is plying provision of counsel also relied on the Macrotech Developers Ltd. ITA No. 3046/Mum/2015 and decision of the Hon’ble High Court of Delhi in the case of Worldwide We have heard rival submissions of the parties on the issue in dispute and perused the relevant material on record. As far as facts senior counsel has submitted before us that for financing purchase of a property in the financial from Kotak Mahindra Bank and promoters of the company namely Shri Chandan Asrani and Rajesh Chhabria. Both the promoters provided a loan of ₹5 crore in financial year 2012-13, the and on 08/08/2012 repaid ₹2.5 crores to Mr Thus, loan of ₹3.4 crores Thereafter letter dated 01/03/2013, Mr assessee company to assign the outstanding loan of his sister Ms. Daya Asrani company passed a board resolution on 05/03/2013 liability of ₹ 3.4 crores towards Ms Daya Asrani by way of passing general entries in its books of accounts on 31/03/2013 assigned interest accrued of 11.1 In the above facts and circumstances, the repayment of loan by Mr Ms. daya Asrani through general entries provision of section 269T and 269 therefore held liable for penalty under section 271E Act respectively, each am crores. The Ld. CIT(A) however has deleted the penalty on the M/s Redwood I.T. Services Pvt. Ltd. 2.5 crores to Mr. Chhabria and ₹1.6 crores to Mr crores was outstanding in the name of Mr Thereafter letter dated 01/03/2013, Mr. Asrani informed the assessee company to assign the outstanding loan of . Daya Asrani, out of natural love and affection. The company passed a board resolution on 05/03/2013 3.4 crores towards Ms Daya Asrani by way of passing general entries in its books of accounts on 31/03/2013 assigned interest accrued of ₹4,43,885/-. In the above facts and circumstances, the Ld. loan by Mr. Chandan Asrani and acceptance of loan by daya Asrani through general entries have contravened the ovision of section 269T and 269SS of the Act respectively, for penalty under section 271E , each amounting to ₹3.4 crore, totalling to . The Ld. CIT(A) however has deleted the penalty on the M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 13 1.6 crores to Mr. Asrani. was outstanding in the name of Mr. Asrani. ani informed the assessee company to assign the outstanding loan of ₹3.40 crores to , out of natural love and affection. The company passed a board resolution on 05/03/2013 recognizing the 3.4 crores towards Ms Daya Asrani by way of passing general entries in its books of accounts on 31/03/2013 and also Ld. JCIT held that an Asrani and acceptance of loan by contravened the respectively, and and 271D of the 3.4 crore, totalling to ₹6.8 . The Ld. CIT(A) however has deleted the penalty on the reasoning that repayment or acceptance of the loan by way of general entries are not in contra of the Act respectively. We find that Hon’ble Bombay High Court in the case of Triumph International Finance (supra) has held that entries is in contravention of section 269T of the finding of the Hon’ble High Court is reproduced as under “17. Section 269T in the year 1981 provides that none of the entities specified therein (which includes a Company like the assessee) shall repay any deposit made with it otherwise than by an account payee cheque / bank dr drawn in the name of the person who had made the deposit, if the amount of the deposit together with the interest, if any, payable thereon, exceeds the amount specified therein. The obligation to repay the deposit by account payee cheque / bank draft f specified in view of the negative language used in the Section. provides that none of the entities specified therein shall repay deposit otherwise than by the modes set out therein. In other words, the Section provides that irrespective of the fact that there are several modes for repaying the deposit, the entities specif shall repay the deposit only by the modes set out therein. The mandatory requirement of M/s Redwood I.T. Services Pvt. Ltd. reasoning that repayment or acceptance of the loan by way of general entries are not in contravention of section 269T and 269 respectively. We find that Hon’ble Bombay High Court in Triumph International Finance India Private Limited held that repayment of loan/deposit through general is in contravention of section 269T of the Act nding of the Hon’ble High Court is reproduced as under Section 269T in Chapter XXB of the Act, as introduced originally in the year 1981 provides that none of the entities specified therein (which includes a Company like the assessee) shall repay any deposit made with it otherwise than by an account payee cheque / bank dr drawn in the name of the person who had made the deposit, if the amount of the deposit together with the interest, if any, payable thereon, exceeds the amount specified therein. The obligation to repay the deposit by account payee cheque / bank draft f specified in Section 269T would have to be construed as mandatory in view of the negative language used in the Section. vides that none of the entities specified therein shall repay deposit otherwise than by the modes set out therein. In other words, the Section provides that irrespective of the fact that there are several modes for repaying the deposit, the entities specified in shall repay the deposit only by the modes set out therein. The mandatory requirement of Section 269T is further fortified by M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 14 reasoning that repayment or acceptance of the loan by way of vention of section 269T and 269SS respectively. We find that Hon’ble Bombay High Court in India Private Limited repayment of loan/deposit through general Act. The relevant nding of the Hon’ble High Court is reproduced as under : in Chapter XXB of the Act, as introduced originally in the year 1981 provides that none of the entities specified therein (which includes a Company like the assessee) shall repay any deposit made with it otherwise than by an account payee cheque / bank draft drawn in the name of the person who had made the deposit, if the amount of the deposit together with the interest, if any, payable thereon, exceeds the amount specified therein. The obligation to repay the deposit by account payee cheque / bank draft for the entities would have to be construed as mandatory in view of the negative language used in the Section. Section 269T vides that none of the entities specified therein shall repay deposit otherwise than by the modes set out therein. In other words, the Section provides that irrespective of the fact that there are several ied in Section 269T shall repay the deposit only by the modes set out therein. The is further fortified by Section 276E inserted along with provides that if a person referred to in any deposit in contravention of agk 11/19 itxa5746 269T then such person shall be punishable with imprisonment for a period upto two years and also liab deposit. Thus, the negative language used in penal consequences provided in the procedure prescribed under doubt that repayment of deposit in the manner prescribed under Section 269T 18. With effect from 1st April 1989, consequences on failure to comply with omitted and for failure to comply with been substituted by wherein the provision relating to repayment of deposit exceeding the prescribed limit by account payee cheq repayment of loans as well. Thus, with effect from 1st June 2002, it is mandatory under therein to repay any loan / deposi exceeding the limits prescribed therein, by account payee cheque / bank draft and failure to do so is made liable for penalty under Section 271E 19. In the present case, it is not in dispute that the assessee has repaid loan / deposit by debiting the account through journal entries. The agk 12/19 itxa5746 loan / deposit is in contravention of the mode Section 269T M/s Redwood I.T. Services Pvt. Ltd. inserted along with Section 269T on 11th July 1981 which provides that if a person referred to in Section 269T of the Act repays any deposit in contravention of agk 11/19 itxa5746- then such person shall be punishable with imprisonment for a period upto two years and also liable to fine equal to the amount of deposit. Thus, the negative language used in Section 269T penal consequences provided in Section 276E for non the procedure prescribed under Section 269T leave no manner of doubt that repayment of deposit in the manner prescribed under 269T is mandatory. 18. With effect from 1st April 1989, Section 276E dealing with the consequences on failure to comply with Section 269T ted and Section 271E has been inserted which provides penalty for failure to comply with Section 269T of the Act. Section 269T been substituted by Finance Act 2002 with effect from 1st June 2002 wherein the provision relating to repayment of deposit exceeding the prescribed limit by account payee cheque / draft has been extended to repayment of loans as well. Thus, with effect from 1st June 2002, it is mandatory under Section 269T of the Act for the persons specified therein to repay any loan / deposit together with interest, if any, exceeding the limits prescribed therein, by account payee cheque / bank draft and failure to do so is made liable for penalty under Section 271E of the Act. 19. In the present case, it is not in dispute that the assessee has repaid loan / deposit by debiting the account through journal entries. The agk 12/19 itxa5746-10-final question is, whether such repayment of loan / deposit is in contravention of the modes of repayment set out in Section 269T ? The argument advanced by the counsel for the assessee M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 15 on 11th July 1981 which of the Act repays -10-final Section then such person shall be punishable with imprisonment for a le to fine equal to the amount of Section 269T as also the non-compliance of leave no manner of doubt that repayment of deposit in the manner prescribed under dealing with the Section 269T has been has been inserted which provides penalty Section 269T has 2002 with effect from 1st June 2002 wherein the provision relating to repayment of deposit exceeding the ue / draft has been extended to repayment of loans as well. Thus, with effect from 1st June 2002, it is of the Act for the persons specified t together with interest, if any, exceeding the limits prescribed therein, by account payee cheque / bank draft and failure to do so is made liable for penalty under 19. In the present case, it is not in dispute that the assessee has repaid loan / deposit by debiting the account through journal entries. The final question is, whether such repayment of s of repayment set out in ? The argument advanced by the counsel for the assessee that the bonafide transaction of repayment of loan / deposit by way of adjustment through book entries carrie business would not come within the mischief of be accepted, because, the section does not make any distinction between the bonafide and non entities specified therein not to make repayment of any loan / deposit together with the interest, if any otherwise than by an account payee cheque / bank draft if the amount of loan / deposit with interest if any exceeds the lim only in cases where any loan or deposit is repaid by an outflow of funds, Section 269T cheque / draft cannot refers to the repayment of loan / deposit by outflow of funds nor refers any of other permissible modes of repayment of loan / deposit, but merely puts an embargo the modes specified therein. Therefore, in the present case, where loan / deposit has been repaid by debiting the account through journal entries, it must be held that the assessee has contravened the provisions of 11.2 Hon’ble High Court assessee proved the reasonable cause for such failure, and therefore no penalty could be levied in terms of M/s Redwood I.T. Services Pvt. Ltd. that the bonafide transaction of repayment of loan / deposit by way of adjustment through book entries carried out in the ordinary course of business would not come within the mischief of Section 269T be accepted, because, the section does not make any distinction between the bonafide and non-bonafide transactions and requires the entities specified therein not to make repayment of any loan / deposit together with the interest, if any otherwise than by an account payee cheque / bank draft if the amount of loan / deposit with interest if any exceeds the limits prescribed therein. Similarly, the argument that only in cases where any loan or deposit is repaid by an outflow of Section 269T provides for repayment by an account payee cheque / draft cannot be accepted because Section 269T refers to the repayment of loan / deposit by outflow of funds nor refers any of other permissible modes of repayment of loan / deposit, but merely puts an embargo on repayment of loan / deposit except by the modes specified therein. Therefore, in the present case, where loan / deposit has been repaid by debiting the account through journal entries, it must be held that the assessee has contravened the provisions of Section 269T of the Act.” Hon’ble High Court in the above case, however finally held that reasonable cause for such failure, and therefore e levied in terms of section 273B of the M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 16 that the bonafide transaction of repayment of loan / deposit by way of d out in the ordinary course of Section 269T cannot be accepted, because, the section does not make any distinction nsactions and requires the entities specified therein not to make repayment of any loan / deposit together with the interest, if any otherwise than by an account payee cheque / bank draft if the amount of loan / deposit with interest if any its prescribed therein. Similarly, the argument that only in cases where any loan or deposit is repaid by an outflow of provides for repayment by an account payee Section 269T neither refers to the repayment of loan / deposit by outflow of funds nor refers any of other permissible modes of repayment of loan / deposit, on repayment of loan / deposit except by the modes specified therein. Therefore, in the present case, where loan / deposit has been repaid by debiting the account through journal entries, it must be held that the assessee has contravened the , however finally held that reasonable cause for such failure, and therefore 3B of the Act. 11.3 In the instant case, w has not concluded on the issue whether a reasonable cause exist in the case of the assessee. 11.4 In the case of Tribunal has considered the decision of the Hon’ble Bombay High Court in the case of (supra) and decision of the Hon’ble Delhi High Court in the case of World township Project Ltd (supra) 3.3 of said order has observed reliance placed by the assessee on series of decision of 269SS and 269 Hon’ble Bombay High Court in the case of the International Finance of general entries for received/payment does not amount contravention of section 269 constituted a reasonable cause relevant observation of the M/s Redwood I.T. Services Pvt. Ltd. In the instant case, we have already observed that Ld. CIT(A) has not concluded on the issue whether a reasonable cause exist in the case of the assessee. In the case of Macrotech Developers Ltd has considered the decision of the Hon’ble Bombay High Court in the case of Triumph International Finance (supra) and decision of the Hon’ble Delhi High Court in the case of World township Project Ltd (supra). The Tribunal said order has observed reliance placed by the assessee on s of decision of 269SS and 269T prior to the decision of the Hon’ble Bombay High Court in the case of the International Finance India Private Limited (supra) of general entries for received/payment does not amount contravention of section 269SS and 269T and therefore same constituted a reasonable cause for passing such general entries. The relevant observation of the Tribunal (supra) is reprodu M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 17 e have already observed that Ld. CIT(A) has not concluded on the issue whether a reasonable cause exist in Ltd. (supra), the has considered the decision of the Hon’ble Bombay High Triumph International Finance India Ltd. (supra) and decision of the Hon’ble Delhi High Court in the case of Tribunal (supra) in para said order has observed reliance placed by the assessee on to the decision of the Hon’ble Bombay High Court in the case of the Triumph India Private Limited (supra) that passing of general entries for received/payment does not amount to SS and 269T and therefore same for passing such general entries. The is reproduced as under: “3.3. The ld. CIT(A) placed reliance on the decision of the Hon Jurisdictional High Court in the case of CIT vs. Triumph International (I) Finance Ltd., reported in 345 ITR 270 wherein it was held that the transactions through journal ent 269SS and 269T of the Act. The decision of the Hon Court rendered on 12/06/2012 is significant and prior to this judgment, and 269T of not amount to cheques or draft of provisions of penalty u/s.271D and respectively. The Hon reliance placed on these series of 269T of the Act constituted reasonable that though journal entries fall within the 269SS and 269Tof the Act, still in view of series of rendered on the said subject, the Hon held that the same would constitute reasonable cause meaning of Section 273B of the Act as assessee was made to believe by way of series of decisions rendered on the subject. The ld. CIT(A) also placed reliance on the Mumbai Tribunal decision in the case of Lodha Builders Pvt. Ltd.,(Group company issue) wherein this Tribunal had given seven instances of journal entries which meaning of Section a. Alternate mode of raising b. Assignment of receivables M/s Redwood I.T. Services Pvt. Ltd. 3.3. The ld. CIT(A) placed reliance on the decision of the Hon Jurisdictional High Court in the case of CIT vs. Triumph International Finance Ltd., reported in 345 ITR 270 wherein it was held that the transactions through journal entries are also hit by the provisions of 269SS and 269T of the Act. The decision of the Hon‟ble Bombay High Court rendered on 12/06/2012 is significant and prior to this there were series of consistent decisions on Sections 269SS and 269T of the Act holding that mere passing of journal entries will not amount to receipts / payments otherwise done by account payee cheques or draft and accordingly, the same were not in contravention of provisions of 269SS and 269T of the Act and consequently no y u/s.271D and 271E of the Act could be levied for the same respectively. The Hon‟ble Jurisdictional High Court held that the reliance placed on these series of consistent decisions of 269SS and 269T of the Act constituted reasonable cause and accordingly, that though journal entries fall within the ambit of provisions of 269SS and 269Tof the Act, still in view of series of consistent decisions rendered on the said subject, the Hon‟ble High Court held that the same would constitute reasonable cause of Section 273B of the Act as assessee was made to believe by series of decisions rendered on the subject. The ld. CIT(A) also reliance on the Mumbai Tribunal decision in the case of Lodha Pvt. Ltd.,(Group company of the assessee on the very same wherein this Tribunal had given seven instances of journal entries which could be considered as a reasonable cause within the meaning of Section 273B of the Act. The same are as under: Alternate mode of raising funds Assignment of receivables M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 18 3.3. The ld. CIT(A) placed reliance on the decision of the Hon‟ble Jurisdictional High Court in the case of CIT vs. Triumph International Finance Ltd., reported in 345 ITR 270 wherein it was held that the ries are also hit by the provisions of ‟ble Bombay High Court rendered on 12/06/2012 is significant and prior to this there were series of consistent decisions on Sections 269SS t holding that mere passing of journal entries will receipts / payments otherwise done by account payee and accordingly, the same were not in contravention 269SS and 269T of the Act and consequently no 271E of the Act could be levied for the same Jurisdictional High Court held that the consistent decisions of 269SS and cause and accordingly, it held ambit of provisions of consistent decisions ‟ble High Court held that the same would constitute reasonable cause within the of Section 273B of the Act as assessee was made to believe by series of decisions rendered on the subject. The ld. CIT(A) also reliance on the Mumbai Tribunal decision in the case of Lodha of the assessee on the very same wherein this Tribunal had given seven instances of journal could be considered as a reasonable cause within the as under:- c. Squaring up of transactions d. Operational efficiencies/MIS purpose e. Consolidation of family member debts f. Correction of errors g. Loans taken in cash 11.5 But we find that in the instant case Bombay High Court has been pronounced on 12/06/2012 whereas general entries have been passed on 31/03/2013 , which are much after the pronouncement of the decision of the Hon’ble Bombay High Court and therefore assessee cannot tak instant case. 11.6 In the case, we find that assessee is neither before us by way of appeal or cross-objection or even under Rule 27 of the ITAT Rules to support existence of reasonable cause. The Department has challenged the finding o receipt/payment of loan by way of general entry is not in contravention of 269SS or 269T provisions. Therefore, we are restricted to decide the ground of the Department only. The finding M/s Redwood I.T. Services Pvt. Ltd. Squaring up of transactions Operational efficiencies/MIS purpose Consolidation of family member debts Correction of errors Loans taken in cash e find that in the instant case, decision of the Hon’ble Bombay High Court has been pronounced on 12/06/2012 whereas general entries have been passed on 31/03/2013 , which are much after the pronouncement of the decision of the Hon’ble Bombay High Court and therefore assessee cannot take said plea in the In the case, we find that assessee is neither before us by way of objection or even under Rule 27 of the ITAT Rules to support existence of reasonable cause. The Department has challenged the finding of the Ld. CIT(A) wherein it is held that receipt/payment of loan by way of general entry is not in contravention of 269SS or 269T provisions. Therefore, we are tricted to decide the ground of the Department only. The finding M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 19 , decision of the Hon’ble Bombay High Court has been pronounced on 12/06/2012 whereas general entries have been passed on 31/03/2013 , which are much after the pronouncement of the decision of the Hon’ble Bombay e said plea in the In the case, we find that assessee is neither before us by way of objection or even under Rule 27 of the ITAT Rules to support existence of reasonable cause. The Department has f the Ld. CIT(A) wherein it is held that receipt/payment of loan by way of general entry is not in contravention of 269SS or 269T provisions. Therefore, we are tricted to decide the ground of the Department only. The finding of the Ld. CIT(A) is contrar Jurisdictional High Court and therefore liable to set aside. accordingly. 12. The ground of appeal of the Revenue is accordingly allowed. Order pronounced in the Court on Sd/- (ABY T VARKEY JUDICIAL MEMBER Mumbai; Dated: 05/07/2022 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// M/s Redwood I.T. Services Pvt. Ltd. of the Ld. CIT(A) is contrary to the decision of the Hon’ble Jurisdictional High Court and therefore liable to set aside. The ground of appeal of the Revenue is accordingly allowed. ounced in the Court on 05/07/2022. Sd/- ABY T VARKEY) (OM PRAKASH KANT MEMBER ACCOUNTANT Copy of the Order forwarded to : BY ORDER, (Sr. Private Secretary ITAT, Mumbai M/s Redwood I.T. Services Pvt. Ltd. ITA No. 1643/M/2021 20 y to the decision of the Hon’ble Jurisdictional High Court and therefore liable to set aside. We order The ground of appeal of the Revenue is accordingly allowed. OM PRAKASH KANT) MEMBER Sr. Private Secretary) ITAT, Mumbai