M/s. Srishti Life Needs Pvt..Ltd., Hyderabad V. Addl C,I.T, Range-3, Hyderabad

ITA 1968/HYD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7702 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 25-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Reasonable cause
• Section: 273B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.1968/HYD/2011 ASSESSMENT YEAR 2007-2008 M/S. SRISHTI LIFE NEEDS P. LTD., HYDERABAD. PANAAICS5531P VS. ADDL. CIT, RANGE-3 HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. P. MURALIMOHAN RAO FOR REVENUE : MR. RAJAT MITRA DATE OF HEARING : 08.12.2014 DATE OF PRONOUNCEMENT : 29.12.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-IV, HYDERABAD DATED 30.09.2 011 CONFIRMING PENALTY UNDER SECTION 271D OF RS.14,93,0 00. 2. BRIEFLY STATED, ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF FAMILY SERVICES, EDUCATION SERVICES, GE NERAL TRADING AND ALLIED ACTIVITIES. DURING THE COURSE OF ASSESSM ENT PROCEEDINGS, FOR A.Y. 2007-08 A.O. NOTICED THAT ASS ESSEE HAS ACCEPTED LOANS WHICH WERE QUANTIFIED AT RS.14,93,00 0 IN CASH FROM MR. K.V. SREERAMA MURTHY, MANAGING DIRECTOR OF THE COMPANY. A.O. OPINED THAT ASSESSEE HAS ACCEPTED THE LOANS EXCEEDING RS.20,000 OTHERWISE THAN ACCOUNT PAYEE CH EQUE OR DEMAND DRAFT, THEREFORE, THERE WAS VIOLATION OF PRO VISIONS OF SECTION 269SS OF THE I.T. ACT. PROPOSALS WERE SENT TO ADDL. 2 ITA.NO.1968/HYD/2011 M/S. SRISHTI LIFE NEEDS P. LTD., HYDERABAD. COMMISSIONER WHO ISSUED NOTICE UNDER SECTION 274 RE AD WITH SECTION 271 OF THE I.T. ACT ON 29.12.2009. 2.1. IN REPLY TO THE NOTICE, ASSESSEE VIDE ITS LET TER DATED 12.06.2010 SUBMITTED THAT ASSESSEE WAS INCURRING LO SSES SINCE ITS INCORPORATION DUE TO LACK OF BUSINESS AND THERE FORE, MR. K.V. SREERAMA MURTHY, MANAGING DIRECTOR OF THE COMP ANY, A SOFTWARE PROFESSIONAL ADVANCED FUNDS RECEIVED IN HI S PROFESSIONAL CAPACITY AND UTILIZED SUCH ADVANCE FOR MEETING BUSINESS NEEDS OF THE COMPANY. IT WAS FURTHER SUBMI TTED THAT THE AMOUNTS SPENT BY MR. K.V. SREERAMA MURTHY WERE TRANSFERRED BY A BOOK ENTRY TO THE SHARE APPLICATIO N MONEY ACCOUNT AT THE END OF THE YEAR AS THE APPELLANT WAS NOT IN A POSITION TO PAY BACK THE AMOUNT TO MR. K.V. SREERAM A MURTHY. ASSESSEE REQUESTED THAT MR. K.V. SREERAMA MURTHY BE TREATED AS CREDITOR AND NOT AS A LENDER AND AS THE ASSESSEE HAS NOT ACCEPTED ANY LOANS FROM THE SAID PERSON, IT WAS ONL Y BOOK ENTRY FROM CREDITS TO SHARE APPLICATION MONEY. THER EFORE, PROVISIONS OF SECTION 269SS CANNOT BE INVOKED. ASSE SSEE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF BOMBAY STEAM NAVIGATION CO. P. LTD., VS. CIT 56 ITR 52 FOR THE PROPOSITION THAT EVERY CREDITOR WHO IS ENTITLED TO RECEIVE DEBT CANNOT BE REGARDED AS A LENDER. FURTHER, ASSESSEE R ELIED ON THE COORDINATE BENCH DECISION OF ITAT, ALLAHABAD BENCH IN THE CASE OF BOMBAY CONDUCTORS AND ELECTRICAL LTD., TO S UBMIT THAT BOOK ENTRIES ARE OUT OF THE PURVIEW OF SECTION 269S S. A.O. HOWEVER, DID NOT CONSIDER THE ABOVE EXPLANATION AND CONSIDERED THE AMOUNT ADVANCED AS LOAN TO THE ASSES SEE IN CASH IN VIOLATION OF PROVISIONS OF SECTION 269SS, T HEREBY, ATTRACTING PENALTY UNDER SECTION 271D AT RS.14,93,0 00 WHICH WAS LEVIED. 3 ITA.NO.1968/HYD/2011 M/S. SRISHTI LIFE NEEDS P. LTD., HYDERABAD. 3. ASSESSING OFFICER RELIED ON THE COORDINATE BENC H DECISION IN THE CASE OF HEMA TRADE LINKS, NELLORE V S. ADDL. CIT, NELLORE IN ITA.NO.456/HYD/2004 DATED 31.05.2005 WHE REIN IT WAS OBSERVED THAT ASSESSEE HAD NOT BEEN ABLE TO EST ABLISH THAT THE LOANS TAKEN IN CASH ARE FOR URGENT BUSINESS NEE DS INASMUCH AS THERE WAS SUFFICIENT CASH BALANCE ON TH E DATES WHEN THE LOANS WERE TAKEN. 4. LD. CIT(A) CONSIDERED ASSESSEES SUBMISSIONS T HAT THE AMOUNTS ARE TRANSFERRED BY WAY OF BOOK ENTRIES TO SHARE APPLICATION MONEY ACCOUNT AND THERE WAS BUSINESS EX IGENCIES. HOWEVER, HE DID NOT ACCEPT THE SAME AND CONFIRMED T HE PENALTY BY STATING AS UNDER : 6. I HAVE GONE THROUGH THE FACTS OF THE CASE AND T HE SUBMISSIONS OF THE APPELLANT. ADMITTEDLY, THE APPEL LANT HAD RECEIVED THE TOTAL AMOUNT OF RS. 14,93,000/- IN CASH FROM ITS MD, SRI K. V. SRIRAMARNURTHY. IT IS ALSO A N UNDISPUTED THAT THE TOTAL CASH SO RECEIVED WAS TRANSFERRED TO SHARE APPLICATION MONEY ACCOUNT ONLY AT THE CLOSE OF THE YEAR, AS THE APPELLANT WAS NOT IN A POSITION TO PAY BACK THE SAID AMOUNT. FROM THE ABOVE, IT IS CLEAR THAT THE CASH HAD BEEN RECEIVED WITH AN UNDERSTANDING TO REPAY THE SAME BY THE END OF THE RELEVANT YEAR. ONCE, AT THE YEAR END, THE APPELLANT, WHICH IS INDEED AN INDEPENDENT AND DIFFERENT PERSON, WAS UNDER AN OBLIGATION TO PAY BACK SUCH AMOUNTS. THE AMOUNT SO RECEIVED THEREFORE WAS FOR A SPECIFIC PERIOD, I .E., TILL THE DATE OF THE RELEVANT FINANCIAL YEAR. UNDER THE CIRCUMSTANCES, I AM OF THE VIEW THAT EVEN IF THERE WERE NO EXPLICIT OR WRITTEN CONDITIONS FOR TAKING T HE SAID AMOUNTS, IT CANNOT BE DENIED THAT THERE WAS AT LEAST AN ORAL CONTRACT OR UNDERSTANDING BETWEEN THE APPELLANT AND THE MD THEREOF REGARDING THE NATURE OF THE AMOUNTS SO RECEIVED IN CASH BY THE APPELLANT. THEREFORE, I AM OF THE CONSIDERED VIEW THAT THE AMOUNT OF RS.14,93,000/- WAS INDEED IN THE NATURE OF LOAN OR DEPOSIT. SINCE THE SAME WAS RECEIVED IN CASH AND WAS NOT RECEIVED IN MODES DULY SPECIFIED IN SEC. 4 ITA.NO.1968/HYD/2011 M/S. SRISHTI LIFE NEEDS P. LTD., HYDERABAD. 269SS OF THE ACT, IN VIEW OF THE DECISIONS CITED BY THE ASSESSING OFFICER, THE PROVISIONS OF SEC.271D O F THE ACT WERE INDEED ATTRACTED. 6.1. ONCE THE PROVISIONS OF SEC. 271D OF THE ACT WERE HELD AS ATTRACTED, THE ONLY RECOURSE AVAILABLE WITH THE APPELLANT TO ESCAPE SUCH PE NALTY WAS TO FURNISH ANY REASONABLE CAUSE FOR THE RECEIPT OF LOAN / DEPOSIT IN CASH. THOUGH IT HAS BEEN CONTENDED BY THE APPELLANT THAT THE CASH HAD BEEN TAKEN FOR MEETING THE URGENT NEEDS OF THE APPELLANT COMPANY, WHICH WAS IN A BAD FINANCIAL SHAPE, THE APPELLANT HAS NEVER BEEN ABLE TO SUBSTANTIATE ITS CONTENTION BY SPECIFYING AND ESTABLISHING SUCH EXIGENCIES. BESIDES, IT IS NOT THE CASE THAT THE CASH LOAN/DE POSIT IN T HE APPELLANT'S CASE WAS A SOLITARY TRANSACTION. ADMITTEDLY, THE AMOUNTS HAD BEEN TAKEN ON A REGULAR BASIS. THEREFORE, I DO NOT FIND ANY MERIT IN THE CONTENTION REGARDING EXIGENCIES OF THE BUSINESS OF THE APPELLANT COMPANY. 6.2. MOREOVER, IN THE INSTANT CASE, THE LOAN/ DEPOSIT HAS BEEN TAKEN FROM THE MD OF THE APPELLANT COMPANY ITSELF. IT CANNOT BE SAID THAT THE MD HIMSELF WAS NOT AWARE OF THE FINANCIAL REQUIREMENTS OF THE APPELLANT FROM TIME TO TIME. THEREFORE, I FIND CONSIDERABLE M ERIT IN THE OBSERVATION OF THE ASSESSING OFFICER THAT EVEN IF THE AMOUNTS WERE PAID BY THE MD OUT OF HIS OWN RESOURCES, HE COULD HAVE ADVANCED SUCH AMOUNTS BY WAY OF ACCOUNT PAYEE CHEQUES OR ACCOUNT PAYEE BANK DRAFTS, AND NOT IN CASH. HOWEVER, IN THE INSTANT CASE, THE AMOUNTS WERE TAKEN BY THE APPELLANT FROM THE MD ITSELF OVER A LONG PERIOD OF TIME, IN CASH, IN CONSCIOUS DISREGARD OF THE PROVISIONS OF SEC.269SS OF THE I.T. ACT. I, THEREFORE, FIND THAT THERE WAS A F IT CASE FOR IMPOSITION OF THE PENALTY U/S.271D FOR SUCH CONSCIOUS AND CONTINUOUS DEFAULT. THE PENALTY OF RS.14,93,000/- IS ACCORDINGLY UPHELD. 5. LD. COUNSEL REITERATED THE FACTS AS STATED BEFO RE THE AUTHORITIES AND RELIED ON THE COORDINATE BENCH DECISION IN THE CASE OF DILLU CINI ENTERPRISES P. LTD., VS. ADD L. CIT 80 ITD 484 FOR THE PROPOSITION THAT FUNDING OF THE ASSESSE E COMPANY BY ONE OF ITS DIRECTORS TO ENABLE IT TO MEET ITS BU SINESS 5 ITA.NO.1968/HYD/2011 M/S. SRISHTI LIFE NEEDS P. LTD., HYDERABAD. EXIGENCIES AND WITHDRAWAL OF MONEY AS AND WHEN REQU IRED BY HIM DID NOT ATTRACT PROVISIONS OF SECTION 269SS AND 271D AS THE TRANSACTIONS WERE UNDISPUTEDLY GENUINE. LD. COU NSEL ALSO RELIED ON THE COORDINATE BENCH DECISION IN THE CASE OF MAGNA TECHNOLOGIES LTD., VS. ACIT ITA.NO.242/HYD/2008 DAT ED 20 TH NOVEMBER, 2009 FOR THE PROPOSITION THAT THERE WAS R EASONABLE CAUSE ON THE PART OF ASSESSEE FOR OBTAINING THE LOA NS IN CASH. THEREFORE, IN VIEW OF THE PROVISIONS OF SECTION 273 B OF THE I.T. ACT, THERE MAY NOT BE LEVY OF PENALTY UNDER SECTION 271D. 6. LEARNED D.R. HOWEVER, RELIED ON THE ORDERS OF A .O. 7. AT OUR INSTANCE, LD. COUNSEL PLACED ON RECORD T HE LEDGER ACCOUNT COPY OF MR. MR. K.V. SREERAMA MURTHY FROM 1 ST APRIL, 2006 TO 31 ST MARCH, 2007 WHICH INDICATED THE ENTRIES ON THE BASIS OF WHICH A.O. CONSIDERED THE AMOUNTS AS L OANS IN CASH. AS FAR AS LEGAL PRINCIPLES ARE CONCERNED, THE RE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT EVEN THOUGH LOANS ARE GENUINE, IF THEY ARE ACCEPTED IN CASH. PROVISIONS O F SECTION 269SS ARE ATTRACTED, THEREBY, ATTRACTING PENALTY UN DER SECTION 271D. PROVISIONS OF SECTION 273B HOWEVER, GIVES AN OPPORTUNITY TO ASSESSEE TO EXPLAIN THE REASONABLE C AUSE SO AS TO AVOID THE PENALTY. IT WAS ASSESSEES EXPLANATION THAT MANAGING DIRECTOR HAS DISCHARGED THE SALARY PAYMENT S EVERY MONTH TO ITS EMPLOYEES BECAUSE OF CASH FLOW PROBLEM S AND ENTRIES WERE MADE BY WAY OF JOURNAL ENTRIES. THIS A SPECT OF THE EXPLANATION WAS NEITHER EXAMINED BY A.O. NOR BY LD. CIT(A). AS SEEN FROM THE LEDGER ACCOUNT COPY PLACED ON RECO RD, EVERY MONTH FROM APRIL 2006 TO JANUARY, 2007, ASSESSEE HA S PAID SALARIES AND BENEFITS. FOR EXAMPLE, ON 30.04.2006 A N AMOUNT OF RS.1,33,350 WAS PAID AS SALARY AND BENEFITS FOR THE MONTH OF APRIL AND THIS ENTRY WAS PASSED BY WAY OF JOURNA L ENTRY AS A 6 ITA.NO.1968/HYD/2011 M/S. SRISHTI LIFE NEEDS P. LTD., HYDERABAD. CREDIT TO MR. K.V. SREERAMA MURTHY ACCOUNT. LIKEWIS E, THE TOTAL CREDITS INTO THE ACCOUNT BY WAY OF SALARY AMO UNTS ARE TO THE TUNE OF RS.12,95,490 ONLY. WE ARE NOT ABLE TO V ERIFY HOW THE A.O. ARRIVED AT RS.14,93,000 AS AMOUNT ADVANCED TOWARDS SALARIES. 8. IN ADDITION TO THE ABOVE, ASSESSEE HAS ADVANCED DIRECT SHARE APPLICATION MONEY ON 25.06.2006 TO AN EXTENT OF RS. 2 LAKHS AND ON 01.12.2006 TO AN EXTENT OF RS. 2 LAKHS. THUS, THE FINDING OF A.O. AND LD. CIT(A) THAT SHARE APPLICATION MONEY WAS TRANSFERRED AT THE END OF THE YEAR BY WAY OF JOURNAL ENTRIES ARE NOT CORRECT TO FULL EXTENT. NOT ONLY TH E ABOVE, MR. K.V. SREERAMA MURTHY HAS ADVANCED AN AMOUNT OF RS.4 0,000 BY WAY OF ELECTRICITY DEPOSIT AND THE ENTRY WAS MAD E BY A JOURNAL ENTRY ON 15.04.2006 AND ANOTHER AMOUNT OF RS.3,01,000 TOWARDS ORCHESTRA EQUIPMENT ON 18.11.20 06. THESE AMOUNTS, AS CAN BE SEEN, ARE ALSO SPECIFIC DE POSITS OR PAYMENTS MADE BY MR. K.V. SREERAMA MURTHY FOR ASSES SEE. THERE IS ONLY ONE CASH PAYMENT OF RS.25,000 RECEIVE D ON 19.02.2007 PERTAINING TO THE EXPENSES. THUS, AS SEE N FROM THE LEDGER ACCOUNT, ASSESSEE WAS RECEIVING FUNDS FROM M R. K.V. SREERAMA MURTHY AS AND WHEN IT HAS NECESSARY AND MO STLY BY WAY OF JOURNAL ENTRIES, HAVING SPENT BY MR. K.V. SR EERAMA MURTHY TOWARDS DEPOSITS OR PAYMENTS FOR SALARIES OR EXPENDITURE. IN THESE CIRCUMSTANCES, IT CANNOT BE S TATED THAT THERE IS NO BUSINESS EXIGENCY IN ADVANCING THE FUND S. AS SEEN FROM THE BALANCE SHEET ALSO ASSESSEE HAS ACCUMULATE D LOSSES TO AN EXTENT OF RS.28,92,742. 9. THE SO-CALLED SHARE APPLICATION MONEY TRA NSFERRED TO SHARE APPLICATION MONEY ACCOUNT IS A NET AMOUNT AFT ER REPAYING CERTAIN AMOUNTS TO THE SAID MR. K.V. SREER AMA 7 ITA.NO.1968/HYD/2011 M/S. SRISHTI LIFE NEEDS P. LTD., HYDERABAD. MURTHY ON 02.03.2007, 03.03.2007, 05.03.2007 AND 06.03.2007 TO AN EXTENT OF RS. 7 LAKHS. THE TOTAL O F CREDITS INTO THE ACCOUNT WAS TO AN EXTENT OF RS.21,92,165, OUT O F WHICH ONLY AN AMOUNT OF RS.14,92,665 WAS TRANSFERRED TO S HARE APPLICATION MONEY. HOW THE A.O. ARRIVED AT RS.14,93 ,000 IS NOT EXPLAINED. THE NET AMOUNT DEBITED TO SHARE APPLICAT ION MONEY ACCOUNT CANNOT BE CONSIDERED AS A LOAN GIVEN BY THE SAID PERSON. SINCE LEDGER ACCOUNT IS NOT EXAMINED BY A.O . AT ALL BEFORE CONSIDERING THE PENALTY, WE ARE OF THE OPINI ON THAT THE PENALTY WAS LEVIED WITHOUT ANY APPLICATION OF MIND. AS SEEN FROM THE TRANSACTIONS BASED ON THE LEDGER ACCOUNT, AN AMOUNT OF RS.12,95,490 WAS PAID FOR THE PURPOSE OF SALARI ES AND BENEFITS EVERY MONTH AND AN AMOUNT OF RS.3,41,000 W AS PAID TOWARDS DEPOSIT AND ORCHESTRA EQUIPMENT. HENCE, TO THAT EXTENT, IT CAN BE CONCLUDED THAT THE AMOUNTS ARE AD VANCED FOR BUSINESS EXIGENCIES OF ASSESSEE COMPANY. AMOUNTS TO WARDS SHARE APPLICATION MONEY DURING THE YEAR WERE SOME T IMES RETURNED TO THE SAID PERSON AND ONLY NET AMOUNT OF OUTSTANDING AMOUNT AT THE END OF THE YEAR WAS TRAN SFERRED BY A JOURNAL ENTRY. 10. CONSIDERING THE NATURE OF THE TRANSACTIO NS, WE ARE OF THE OPINION THAT THERE WAS A REASONABLE CAUSE ON TH E PART OF ASSESSEE FOR OBTAINING AMOUNTS FROM MR. K.V. SREERA MA MURTHY WHICH ARE SUBSEQUENTLY CONSIDERED AS SHARE APPLICATION MONEY. IN VIEW OF THE PROVISIONS OF SEC TION 273B OF THE I.T. ACT, THERE NO SCOPE FOR LEVY OF PENALTY UN DER SECTION 271D. FOLLOWING THE PRINCIPLES LAID DOWN BY THE COO RDINATE BENCH AS RELIED UPON BY ASSESSEE IN ITS SUBMISSIONS , WE UPHOLD ASSESSEES CONTENTIONS AND CANCEL THE PENALT Y. 8 ITA.NO.1968/HYD/2011 M/S. SRISHTI LIFE NEEDS P. LTD., HYDERABAD. 11. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.12.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 29 TH DECEMBER, 2014 VBP/- COPY TO 1. M/S. SRISHTI LIFE NEEDS P. LTD., HYDERABAD. C/O. MR . P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 82. 2. ADDL. COMMISSIONER OF INCOME TAX, RANGE-3, HYDERABA D. 3. CIT(A)-IV, HYDERABAD 4. CIT-III, HYDERABAD 5. D.R. ITAT B BENCH, HYDERABAD.