ADDL CIT RG 1(3), MUMBAI V. RADIANT (INTERNATIONAL ) P.LTD, MUMBAI

ITA 2513/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48970 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 11-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 31-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SPENTHIL KUMAR
• Assessee Lawyers: H S PARIKH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SMT. ASHA VIJAYRAGHAVAN, JUDICIAL MEMBER. I.T.A. NO. 2513 & 2514/MUM/2010. A SSESSMENT YEAR : 2004-05. ADDL. COMMISSIONER OF RADIANT (INTERNATIONAL) P. LTD., INCOME-TAX-1(3), VS. KASTURI BUILDING, 2 ND FLOOR, MUMBAI. 171/12, J. TATA ROAD, CHURCHGATE, MUMBAI 400 020. PAN AAACR2477F. APPELLANT. RESPONDENT. APPELLANT BY : SHR I SPENTHIL KUMAR. RESPONDENT BY : SHRI H.S. PARIKH. O R D E R PER P.M. JAGTAP, A.M. : THESE TWO APPEALS ARE PREFERRED BY THE REVENUE AGA INST TWO SEPARATE ORDERS PASSED BY THE LEARNED CIT(APPEALS)-2, MUMBAI DATED 19-01-2010 WHEREBY HE CANCELLED THE PENALTIES OF RS.96,10,693/- AND RS.6, 79,19,959/- IMPOSED BY THE AO U/S 271D AND 271E RESPECTIVELY. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY. D URING THE YEAR UNDER CONSIDERATION, IT SOLD SHARES THROUGH M/S KOTAK SEC URITIES AMOUNTING TO RS.5,69,79,265/-. IN ADDITION TO THE SAID AMOUNT, T WO MORE AMOUNTS OF RS.13 LAKHS AND RS.1,30,000/- WERE RECEIVABLE TO THE ASSESSEE F ROM M/S KOTAK SECURITIES MAKING THE TOTAL RECEIVABLE TO THE EXTENT OF RS.5,8 4,09,265/-. ONE MR. RAVINDRA J. 2 GOKAL HAD ALSO SOLD SHARES AMOUNTING TO RS.96,10,6 93/- THROUGH M/S KOTAK SECURITIES AND THE SAID AMOUNT WAS RECEIVABLE TO MR . RAVINDRA GOKAL FROM M/S KOTAK SECURITIES. AT THE RELEVANT TIME, A SUBSTANTI AL AMOUNT WAS PAYABLE BY THE ASSESSEE TO M/S KOTAK MAHINDRA INVESTMENTS LTD. THE ASSESSEE AS WELL AS RAVINDRA GOKAL INSTRUCTED M/S KOTAK SECURITIES TO P AY THE AMOUNTS RECEIVABLE TO THEM AGGREGATING TO RS.6,79,19,959/- DIRECTLY TO M/ S KOTAK MAHINDRA INVESTMENTS TOWARDS THE REPAYMENT OF AMOUNT PAYABLE BY THE ASSE SSEE TO THE SAID COMPANY. ACCORDINGLY ACCOUNTING ENTRIES WERE PASSED IN THE B OOKS OF ACCOUNT OF THE ASSESSEE DEBITING THE ACCOUNT OF M/S KOTAK MAHINDRA INVESTME NT LTD. BY A SUM OF RS.6,79,19,959/- ON ACCOUNT OF AMOUNT REPAID TO THE M AND CREDITING A SUM OF RS.96,10,693/- TO THE ACCOUNT OF M/S RAVINDRA GOKAL AS LOAN TAKEN FROM THE SAID PARTY. THE REMAINING AMOUNT WAS CREDITED TO THE ACC OUNT OF M/S KOTAK SECURITIES THEREBY SQUARING OF THE AMOUNT RECEIVABLE BY THE AS SESSEE FROM THE SAID PARTY. ON THE BASIS OF THESE BOOK ENTRIES PASSED BY THE ASSES SEE SHOWING THE REPAYMENT OF RS.6,79,19,959/- TO M/S KOTAK MAHINDRA INVESTMENTS LTD. AND RECEIPT OF LOAN OF RS.96,10,693/- FROM RAVINDRA GOKAL, THE AO CAME TO THE CONCLUSION THAT THESE TRANSACTIONS INVOLVING REPAYMENT OF LOAN AND ACCEPT ANCE OF LOAN WERE OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFTS AND THERE WAS THUS A VIOLATION OF THE PROVISIONS OF SECTION 269SS AND 26 9T. HE, THEREFORE, IMPOSED PENALTIES U/S 271D AND 271E AMOUNTING TO RS.96,10,6 93/- AND RS.6,79,19,959/- RESPECTIVELY BEING THE SUMS EQUAL TO LOAN TAKEN BY THE ASSESSEE IN CONTRAVENTION OF PROVISIONS OF SECTION 269SS AND REPAYMENT OF LOAN M ADE BY THE ASSESSEE IN CONTRAVENTION OF THE PROVISIONS OF SECTION 269T. 3. THE PENALTIES IMPOSED BY THE AO U/S 271D AND 271 E WERE CHALLENGED BY THE ASSESSEE IN THE APPEALS FILED BEFORE THE LEARNED CI T(APPEALS) AND AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AS W ELL AS THE MATERIAL AVAILABLE ON 3 RECORD, THE LEARNED CIT(APPEALS) CANCELLED THE PENA LTY IMPOSED BY THE AO U/S 271D FOR THE FOLLOWING REASONS GIVEN IN PARA 5 OF H IS IMPUGNED ORDER : I HAVE PERUSED THE FACTS OF THE CASE. THERE IS NO DISPUTE ON THE FACT THAT WHAT IS UNDER CONSIDERATION IS A RESULT OF BOO K ENTRIES ALONE. THERE IS NEITHER ANY TRANSFER OF FUNDS INVOLVED NOR ANY INTR ODUCTION OF CASH INVOLVED. ALSO NO COLOURABLE DEVICE HAS BEEN IDENTIFIED IN TH E TRANSACTION UNDER CONSIDERATION. IT IS A SIMPLE CASE OF APPELLANT HAV ING PURCHASED SHARES FROM A SHARE BROKER FOR WHICH PAYMENT HAD BEEN MADE BY A N INDIVIDUAL, ONE OF THE DIRECTORS OF APPELLANT COMPANY. AND, ENTRIES HA VE NOW BEEN PASSED TO NULLIFY THE TRANSACTIONS OF APPELLANT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT OF THE INDIVIDUAL DIRECTOR. TO MY MIND, NO MORE MEANIN G CAN BE ATTRIBUTED TO THE BOOK ENTRY UNDER CONSIDERATION. IT IS A MERE AD JUSTMENT TO STREAMLINE THE ACCOUNTS BECAUSE, IF THIS WAS NOT DONE, APPELLANT W OULD MAKE PAYMENT TO THE INDIVIDUAL DIRECTOR WHO IN TURN WOULD HAVE MADE THE PAYMENT TO THE BROKER. NOW, AFTER THE ENTRIES BEING PASSED IN THE BOOKS OF ACCOUNT, APPELLANT SHALL BE ABLE TO MAKE PAYMENT TO THE BROKER. TO MY MIND T HERE IS NOTHING WRONG IN ADJUSTING ACCOUNTS IN THE FASHION THAT HAS BEEN DONE BY APPELLANT. IN THE PROCESS, NEITHER ANY LOAN HAS BEEN CREATED NOR ANY DEPOSIT BEEN ACCEPTED. THERE IS NO CASH TRANSACTION INVOLVED EITHER. TO MY MIND SUCH AN ACCOUNTING ADJUSTMENT ENTRY IS BEYOND THE SCOPE OF SECTION 269 SS. THE VARIOUS DECISIONS RELIED UPON BY LEARNED COUNSEL OF APPELLA NT GIVE A CLEAR IMPRESSION THAT IN A SITUATION OF ONLY ACCOUNTING E NTRIES BEING MADE, WITHOUT ANY CASH TRANSACTION, THE PROVISIONS OF SECTION 269 SS CANNOT BE INVOKED. CONSEQUENTLY THE PENALTY IMPOSED BY ASSESSING OFFIC ER IS NOT JUSTIFIED AND IS CANCELLED. FOR THE SIMILAR REASONS AS GIVEN ABOVE, THE LEARNED CIT(APPEALS) ALSO CANCELLED THE PENALTY IMPOSED BY THE AO U/S 271E HOLDING THAT THE PRINCIPLES EMANATING FROM THE DECISIONS RENDERED IN THE CONTEXT OF SECTI ON 269SS WERE EQUALLY APPLICABLE TO PENALTY LEVIABLE FOR VIOLATION OF SEC TION 269T. AGGRIEVED BY THE ORDERS OF THE LEARNED CIT(APPEALS) CANCELLING THE P ENALTIES IMPOSED BY THE AO U/S 271D AND 271E, THE REVENUE HAS PREFERRED THESE APPE ALS BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ACCEPTA NCE OF LOAN AS WELL AS REPAYMENT 4 OF LOAN OR DEPOSIT IN QUESTION WAS MADE BY THE ASSE SSEE BY WAY OF ADJUSTMENT ENTRY PASSED IN THE BOOKS OF ACCOUNT AND IT WAS NOT A CAS E OF INVOLVEMENT OF ANY MONEY IN THE TRANSACTIONS OF ACCEPTANCE OF LOAN AND REPAY MENT OF LOAN/DEPOSIT. THERE WAS THUS NO TRANSFER OF MONEY INVOLVED IN THE TRANSACT IONS OF ACCEPTING THE LOAN AND REPAYMENT OF LOAN/DEPOSIT AND THERE IS NO DISPUTE ABOUT THIS POSITION. IN THE CASE OF SUNFLOWER BUILDERS P. LTD. VS. DCIT 61 ITD 227 ( PUNE), A SIMILAR ISSUE HAD COME UP IN THE CONTEXT OF THE PROVISIONS OF SECTION 269SS. THE ASSESSEE IN THAT CASE HAD ACKNOWLEDGED DEBT INCURRED IN CONNECTION W ITH INVESTMENT MADE IN PURCHASE OF PLOT BY WAY OF JOURNAL ENTRY MADE IN IT S BOOKS OF ACCOUNT AND TREATING THE SAID TRANSACTIONS BEING VIOLATIVE OF THE PROVIS IONS OF SECTION 269SS, PENALTY WAS IMPOSED BY THE AO U/S 271D. THE SAID PENALTY, H OWEVER, WAS CANCELLED BY THE TRIBUNAL AFTER TAKING INTO CONSIDERATION THE PROVIS IONS OF SECTION 269SS AS WELL AS THE LEGISLATIVE INTENTION TO INTRODUCE THE SAID PR OVISION IN THE STATUTE. THE RELEVANT OBSERVATIONS RECORDED BY THE TRIBUNAL IN THIS REGAR D ARE REPRODUCED HEREUNDER : THE BARE READING OF SECTION 269SS SHOWS THAT THE W ORDS TAKE OR ACCEPT HAVE BEEN USED WITH REFERENCE TO THE WORDS LOAN OR DEPOSIT, RESPECTIVELY. THE REASON IS OBVIOUS. IN THE CASE OF THE LOAN, IT IS THE BORROWER WHO GOES TO THE LENDER OBTAINING THE LOAN AND IN THE CASE OF DE POSIT, IT IS THE DEPOSITOR WHO GOES TO THE PERSON WITH WHOM WANTS TO DEPOSIT T HE MONEY. THIS IS THE REASON THAT THE LEGISLATURE HAS USED THE WORD TAKE WITH REFERENCE TO THE WORD LOAN AND USED THE WORD ACCEPT WITH REFEREN CE TO THE WORD DEPOSIT AS LOAN OR DEPOSIT OF ON-MONEY. THIS CLEARLY SHOW S THAT THIS SECTION CAN BE APPLIED ONLY WHERE MONEY WAS PASSED FROM ONE PERSON TO ANOTHER BY WAY OF LOAN OR DEPOSIT. THIS PROVISION CANNOT, THEREFORE, BE APPLIED WHERE THE DEBT IS ACKNOWLEDGED BY PASSING ENTRY IN THE BOOKS OF AC COUNT, DEPENDING UPON THE FACTS OF THE CASE. HENCE, THE ACKNOWLEDGEMENT O F THE DEBT BY THE ASSESSEE-COMPANY BY PASSING A JOURNAL ENTRY IN ITS BOOKS OF ACCOUNT WOULD NOT COME WITHIN THE AMBIT OF THE WORDS LOAN OR DEP OSIT AS MENTIONED IN SECTION 269SS. THEREFORE, EVEN ON THIS GROUND THE L EVY OF PENALTY COULD NOT BE SUSTAINED. 5 6. IT IS OBSERVED THAT A SIMILAR VIEW HAS BEEN TAK EN BY AHMEDABAD BENCH OF ITAT IN THE CASE OF GUJARAT AMBUJA PROTEINS LTD. 183 TAX MAN 21 WHEREIN IT WAS HELD THAT IN THE CASE OF TRANSACTIONS EFFECTED THROUGH J OURNAL ENTRIES WITHOUT INVOLVING ANY TRANSFER OF MONEY, THE PROVISIONS OF SECTION 26 9SS CANNOT BE INVOKED. IN OUR OPINION, BOTH THESE DECISIONS OF THE COORDINATE BEN CHES OF THIS TRIBUNAL IN THE CASE OF SUNFLOWER BUILDERS P. LTD. VS. DCIT (SUPRA) AND GUJARAT AMBUJA PROTEINS LTD. 183 TAXMAN (SUPRA) ARE SQUARELY APPLICABLE TO THE F ACTS OF THE PRESENT CASE AND RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE L EARNED CIT(APPEALS) WAS FULLY JUSTIFIED IN CANCELLING THE PENALTY IMPOSED BY THE AO U/S 271D HOLDING THAT THE PROVISIONS OF SECTION 269SS WERE NOT ATTRACTED IN T HE CASE OF ACCEPTANCE OF LOAN BY THE ASSESSEE BY WAY OF JOURNAL ENTRY. WE ALSO FIND OURSELVES IN AGREEMENT WITH THE LEARNED CIT(APPEALS) THAT GOING BY THE PROVISIONS O F SECTION 269T AND THE LEGISLATIVE INTENTION TO INTRODUCE THE SAID PROVIS IONS IN THE STATUTE, THE ANALOGY OF THE DECISIONS OF THE TRIBUNAL IN THE CASE OF SUNFLO WER BUILDERS P. LTD. VS. DCIT (SUPRA) AND GUJARAT AMBUJA PROTEINS LTD. 183 (SUPR A) IN THE CONTEXT OF SECTION 269SS IS EQUALLY APPLICABLE IN THE CONTEXT OF THE P ROVISIONS OF SECTION 269T AND RELYING ON THE SAID DECISIONS, WE UPHOLD THE IMPUGN ED ORDER OF THE LEARNED CIT(APPEALS) CANCELLING THE PENALTY IMPOSED BY THE AO U/S 271E HOLDING THAT THE PROVISIONS OF SECTION 269T WERE NOT ATTRACTED IN CA SE OF REPAYMENT OF LOAN/DEPOSIT BY THE ASSESSEE BY WAY OF JOURNAL ENTRY. 6 6. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DI SMISSED. ORDER PRONOUNCED ON THIS 27 TH DAY OF MAY, 2011. SD/- SD/- (ASHA VIJAYRAGHAVAN) (P.M. JAG TAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: 27 TH MAY, 2011. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, D-BENCH. (TRUE COPY) BY ORDE R ASSTT. REGI STRAR, ITAT, MUMBAI BEN CHES