The DCIT, Baroda Circle-4(1), Baroda V. Pan Drugs Limited,

ITA 2754/AHD/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2005 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-12-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 11-12-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MATHIRAMAN
• Assessee Lawyers: M K PATEL
• Keywords: Search and seizure; Reasonable cause
• Section: 273B; 271D; 271E; 192

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM) ITA NO.2754, 2755 AND 2756/AHD/2006 A. Y.: 2002-03, 2002-03 AND 2003-04 THE D. C. I. T. , BARODA, CIRCLE-4(1) , 4 TH FLOOR, AAYAKAR BHAVAN, RACE COURSE CIRCLE, BARODA 390 007 VS PAN DRUGS LIMITED, 167, GIDC, NANDESARI, DIST. BARODA, PA NO. AABCP 1997 K (APPELLANT) (RESPONDENT) APPELLANT BY SHRI MATHIRAMAN, DR RESPONDENT BY SHRI M. K. PATEL, AR O R D E R PER BHAVNESH SAINI: ALL THESE THREE DEPARTMENTAL APPEALS ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-III, BAROD A DATED 28-09-2006 FOR THE ASSESSMENT YEAR 2002-03 AND 2003-04, CHALLENGIN G THE CANCELLATION OF PENALTY U/S 271E AND 271D OF THE INCOME TAX ACT . 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF AUTHORITIES BELOW AND CONSI DERED THE MATERIAL AVAILABLE ON RECORD. 3. BRIEFLY, THE FACTS OF ALL THE APPEALS ARE THAT T HE AO FOUND THAT LOANS WERE REPAID BY THE ASSESSEE OTHERWISE THAN ACCOUNT PAYEE CHEQUES OR ACCOUNT PAYEE DRAFTS IN THE ASSESSMENT YEARS IN QUE STION THROUGH BOOK ENTRIES TO M/S. CENCO SCIENTIFIC SUPPLY, M/S. PACIF IC POLYMERS, M/S. PARADISE ENTERPRISES AND M/S. SHYAM MERCANTILE PVT. LTD. FURTHER, THE LOANS WERE ACCEPTED OTHERWISE THAN BY ACCOUNT PAYEE CHEQUES OR ACCOUNT PAYEE DRAFTS FROM THE SAME PARTIES THROUGH BOOK ENTRIES. ITA NOS.2754, 2755 AND 2756/AHD/2006 PAN DRUGS LIMITED 2 PENALTY PROCEEDINGS WERE INITIATED FOR CONTRAVENTIO N OF THE PROVISIONS OF SECTION 269SS AND 269T OF THE INCOME TAX ACT. THE A SSESSEES EXPLANATION THAT THE AMOUNTS IN QUESTION WERE BOTH TAKEN AND REPAID BY BOOK ENTRIES ONLY AND DID NOT INVOLVE ANY MOVEMENT OF MONEY AS SUCH WAS NOT ACCEPTED BY THE AO. IT WAS HELD THAT EVEN P ASSING OF BOOK ENTRIES WOULD AMOUNT TO CONSTRUCTIVE RECEIPT/PAYMENT AND WO ULD INVOLVE RECEIPT OF MONEY OR DEPOSIT. VIDE SEPARATE ORDERS PENALT IES U/S 271E AND 271D OF THE INCOME TAX ACT WAS IMPOSED. 4. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) INTER ALIA THAT ASSESSEE- COMPANY IS A MANUFACTURER OF PARACETAMOL POWDER AN D WAS SUFFERING FINANCIAL DIFFICULTIES. IT HAD AVAILED OF WORKING C APITAL FINANCE FROM IDBI BANK LTD. AND STATE BANK OF HYDERABAD OVER A PERIOD , INCLUDING THE YEAR UNDER CONSIDERATION. THE INTERNATIONAL PRICES OF PA RACETAMOL PLUNGED BECAUSE OF DUMPING OF THE PRODUCT IN THE INTERNATIO NAL MARKET BY CHINA. OTHER INDIAN MANUFACTURER OF PARACETAMOL ALSO SUFFE RED. THE ASSESSEE- COMPANY WAS NOT ABLE TO SERVICE ITS WORKING CAPITAL FACILITIES AND AS A RESULT, BANK PUT RESTRICTION IN THE OPERATION OF TH E BANK ACCOUNT TO PREVENT IT FROM BECOMING OF NON PERFORMING ASSETS. IN ORDER TO GET HIGHER WORKING CAPITAL AND TO SAVE ITSELF FROM BRIN K OF COLLAPSE, THE ASSESSEE-COMPANY HAD TO FILE THE BALANCE SHEET WHIC H SHOWED A TREND HEALTHIER THAN EARLIER YEARS. HOWEVER, IN VIEWS OF REDUCED RECOVERIES FROM THE CUSTOMERS THE ASSESSEE-COMPANY WAS NOT ABLE TO PAY ITS CREDITORS. THE RESULT WAS THAT THE WORKING CAPITAL RATIO OF TH E COMPANY WAS BADLY AFFECTED. THE COMPANY HAD SUFFERED LOSSES WHICH RES ULTED IN EROSION OF CAPITAL. MORE LOANS HAD TO BE TAKEN AND AS A RESULT THE DEBIT EQUITY RATIO WAS BAD. THESE TWO RATIOS FORM THE BACKBONE FOR FIN ANCING OF A BORROWER BY THE FINANCIAL INSTITUTIONS. THE BALANCE SHEET PO SITION OF THE ASSESSEE- COMPANY HAD BECOME SUCH THAT BANKERS WOULD HAVE DE CLINED FURTHER FINANCING OF THE WORKING CAPITAL FOR THE OPERATION OF THE COMPANY. THEREFORE, WITH A VIEW TO WINDOW DRESS THE BALANCE SHEET, THE ASSESSEE ITA NOS.2754, 2755 AND 2756/AHD/2006 PAN DRUGS LIMITED 3 COMPANY REQUESTED ONE OF ITS PRINCIPAL SHAREHOLDER M/S. SHYAM MERCANTILE PVT. LTD. TO ACT AS A CONDUIT FOR IMPRO VING THE BALANCE SHEER POSITION. THE METHOD ADOPTED WAS THAT ON 31 ST MARCH OF EACH OF THE ACCOUNTING YEAR, M/S. SHYAM MERCANTILE PVT. LTD. UN DERTOOK TO PAY OUTSTANDING AMOUNT DUE BY THE COMPANY TO SOME OF IT S CREDITORS. THE PARTICULARS OF THE CREDITORS WHOSE ACCOUNTS WERE TA KEN OVER AND TRANSFERRED TO M/S. SHYAM MERCANTILE PVT. LTD. HAVE BEEN GIVEN IN A LETTER DATED 16 TH MAY 2005 TOGETHER WITH COPIES OF THE RELEVANT ACCO UNTS. THE AMOUNTS DUE TO THESE CREDITORS WERE TRANSFERRED AT THE END OF EACH YEAR TO THE ACCOUNT OF M/S. SHYAM MERCANTILE PVT. L TD. AND THE SAME WAS SHOWN IN THE BALANCE SHEET AS UNSECURED LOAN TO THE EXTENT OF THE AMOUNT TRANSFERRED FROM VARIOUS CREDITORS. THESE EN TRIES WERE REVERSED ON THE FIRST DAY OF APRIL IN THE SUBSEQUENT YEAR. T HIS WAS ONLY A DEVICE TO IMPROVE THE BALANCE SHEET POSITION. THIS TRANSACTIO N WAS LEGITIMATE AND WAS CARRIED OUT WITH THE CONSENT OF THE PARTIES. TH ERE WAS NO GIVING OR TAKING OF ANY FUNDS AND WERE MERELY BOOK ENTRIES. T HE CASE, THEREFORE, WOULD NOT FALL U/S 269SS/269T OF THE INCOME TAX ACT . SIMILAR IS THE POSITION WITH REGARD TO REPAYMENTS. IT WAS ALSO SUB MITTED THAT THE OBJECT OF THE ABOVE PROVISIONS WAS TO COUNTER THE DEVICE A DOPTED BY PEOPLE TO EXPLAIN THEIR OWN UNACCOUNTED MONEY FOUND DURING SE ARCH PROCEEDINGS AS CASH LOAN OR DEPOSITS FROM VARIOUS PERSONS. SINC E IN THIS CASE THERE WAS NO GIVING OR TAKING OF LOAN OR DEPOSIT OR REPAY MENT OF LOAN OR DEPOSIT, THEREFORE, THESE PROVISIONS WOULD NOT APPL Y TO THE CASE OF THE ASSESSEE. THE DECISIONS OF OTHER BENCHES OF THE TRI BUNAL WERE RELIED UPON BY THE ASSESSEE WERE QUOTED BY THE LEARNED CIT (A) IN THE IMPUGNED ORDER. 5. THE LEARNED CIT(A) CONSIDERING THE FACTS AND CIR CUMSTANCES OF THE CASE IN THE LIGHT OF SEVERAL DECISION AND SUBMISSIO NS CANCELED THE PENALTIES. THE FINDINGS OF THE LEARNED CIT(A) IN PA RA 3.5 TO 3.5.4 ARE REPRODUCED BELOW: ITA NOS.2754, 2755 AND 2756/AHD/2006 PAN DRUGS LIMITED 4 3.4.3 ON THE QUESTION OF WHETHER THE ASSESSEE VIO LATED THE PROVISIONS OF SECTION 269SS & 269T, RELIANCE WA S PLACED ON THE DECISION IN THE CASE OF SUNFLOWER BUILDERS ( P) LTD. V. DCIT, 61 ITD 227, ITAT, PUNE, WHEREIN IT WAS HELD T HAT SECTION 269SS CANNOT BE APPLIED WHERE MONEY DOES NO T PAS FROM ONE PERSON TO ANOTHER BUT THE DEBT IS ACKNOWLE DGED BY PASSING ENTRY IN THE BOOKS OF ACCOUNT, DEPENDING UP ON THE FACTS OF THE CASE. FURTHER RELIANCE WAS PLACED ON T HE DECISION OF ITAT IN JAGVIJAY AUTO FINANCE (P) LTD. V. ACIT, 52 ITD 504, AND BOMBAY CONDUCTORS AND ELECTRICALS LTD. V. DCIT 56 TTJ 580 (AHD). 3.5 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. A. R AND THE FACTS OF THE EASE. ON A STRICT UND PURELY TCCHNICN. 1 VIEW OF THE MATTER, IT MAY BE TRUE TO SAY THAT IN THE INSTANT C ASE, THE ASSESSES HAD RECEIVED AND REPAID MONIES CONSTRUCTIV ELY, AND THAT BY NOT ACCEPTING AND REPAYING !HE AMOUNT BY WA Y OF ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT IT HAD CONTRAVENED THE PROVISIONS CONTAINED IN SECTIONS 26 9SS AND 269T. SECTION 269SS EXPRESSLY PROHIBITS THE ACCEPTI NG OF ANY LOAN (IN EXCESS OF THE SPECIFIED LIMITS) AND SECTIO N 269T EXPRESSLY PROHIBITS THE REPAYMENT O F ANY LOAN OR DEPOSIT' OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR BANK DRAF T. HOWEVER, WHAT IS MATERIAL WITH REGARD TO THE INTERP RETATION OF THE WORDING OF THE SECTION IS TO PROPERLY APPRECIAT E THE MEANING AND SCOPE OF THE TERM 'LOAN OR DEPOSIT'. TH IS HAS BEEN CLARIFIED IN THE EXPLANATION, WHERE IT HAS BEEN PRO VIDED THAT LOAN OR DEPOSIT MEANS ANY LOAN OR DEPOSIT OF MONEY, WHICH IS REPAYABLE AFTER NOTICE OR REPAYABLE AFTER A PERI OD. HENCE, ONE OF THE ESSENTIAL INGREDIENTS IS THAT THERE SHOU LD BE A LOAN OR DEPOSIT OF MONEY. IN SUNFLOWER BUILDERS, THE TRI BUNAL HAS CLEARLY HELD THAT SECTION 269SS CAN BE APPLIED ONLY WHERE MONEY PASSES FROM ON PERSON TO ANOTHER BY WAY OF LOAN OR DEPOSIT. THIS PROVISION CANNOT, THEREFORE, BE APPL IED WHERE THE MONEY DOCS NOT PASS FROM ONE PERSON TO ANOTHER BUT THE DEBT IS ACKNOWLEDGED BY PASSING ENTRY IN THE BOOKS OF ACCOUNTS. ON PARITY OF REASONING, THE SAME TEST WOU LD HOLD TRUE FOR THE PROVISIONS OF SECTION 269T AS WELL. TH E DELHI HIGH COURT HAS HELD, IN CIT V. NOIDA TOLL BRIDGE CO. LTD ., 262 ITR 260, THAT THE PROVISIONS OF SECTION 269SS WERE NOT ATTRACTED IN CASES WHERE THE PAYMENT WAS NOT MADE THROUGH CASH. IN JAGVIJAY AUTO FINANCE (SUPRA), THE JAIPUR BENCH OF THE ITAT HELD THAT IF THE BASIC CHARACTER OF A RECEIPT OF MO NEY DOES NOI HAVE THE CHARACTER OF' LOAN' OR 'DEPOSIT' AT THE T IME OF TAKING OR ACCEPTING THE LOAN OF RECEIPT BY A COMPANY, THE PRO VISIONS OF ITA NOS.2754, 2755 AND 2756/AHD/2006 PAN DRUGS LIMITED 5 SECTION 269SS WOULD NOT STAND ATTRACTED. THE TRIBUN AL DERIVED SUPPORT FOR THIS VIEW FROM THE DECISION OF THE SUPREME COURT IN CIT V. BAZPUR CO-OPERATIVE SUGAR FACTORY L TD. 172 ITR 321, WHERE THE ESSENCE OF 'DEPOSIT 1 WAS EXPLAINED TO BE THAT THERE MUST BE A LIABILITY TO RETURN IT TO THE PARTY BY WHOM AND ON WHOSE BEHALF IT IS MADE, ON THE FULFILLMENT OF CERTAIN CONDITIONS. SIMILARLY, IN BOMBAY CONDUCTORS & ELECT RICALS LTD. T THE BOMBAY BENCH OF THE TRIBUNAL HELD THAT THE TRAN SFER OF LIABILITY STANDING IN THE GOODS ACCOUNT TO THE SARA FI ACCOUNT BY PASSING JOURNAL ENTRY WOULD NOT CONSTITUTE VIOLATIO N OF SECTION 269SS. THE HONBLE ITAT OBSERVED THAT BY SIMPLY TRA NSFERRING THE LIABILITY FROM ONE ACCOUNT TO ANOTHER BY WAY OF BOOK ADJUSTMENT, SUCH TRANSFER COULD, BY NO STRETCH OF I MAGINATION, BE SAID TO BE A 'DEPOSIT' OR 'LOAN 1 SINCE THE ALLEGED DEPOSIT OR LOAN WAS NOT CREATED BY PAYMENT OF MONEY. NOTING TH AT THE PROVISIONS OF SECTION 269SS AND 269T HAD BEEN BROUG HT INTO THE STATUTE AS A MEASURE TO DISCOURAGE TAX AVOIDANC E OR TAX EVASION, IT WAS HELD THAT IN ORDER TO BRING THE TRA NSACTION OF BOOK ENTRY WITHIN THE MISCHIEF OF THE SECTION, SOME EVIDENCE OR MATERIAL MUST BE BROUGHT OUT BY THE REVENUE TO SHOW THAT THE TRANSACTIONS WERE IN PURSUANCE TO ANY LAX PLANNING OR COLOURABLE DEVICE ADOPTED BY THE ASSESSEE. 3.5.1 THUS, JUDICIAL OPINION ON THE ISSUE APPEARS TO VEER TO THE POSITION THAT MERELY THE MAKING OF HOOK ENTRIES WOULD NOT INVITE PENALTY PROCEEDINGS II/S 271E AND 271D, UNLE SS IT CAN BE SHOWN THAT THE MAKING OF SUCH ENTRY WAS A COLOUR ABLE DEVICE IN FURTHERANCE OF AN ATTEMPT TOWARDS TAX AVO IDANCE OR EVASION. IN THE INSTANT CASE, THE ASSESSE HAS RESOR TED TO WINDOW DRESSING ITS ACCOUNTS FOR PRESENTATION TO TH E BANKING AUTHORITIES, SO THAT IT COULD CONTINUE TO AVAIL THE WORKING CAPITAL FACILITIES. IN ORDER TO DO THIS, ONE OF THE MEMBER SHAREHOLDERS IN THE APPELLANT COMPANY, VIZ. SMPL. U NDERTOOK TO DISCHARGE THE OUTSTANDING AMOUNT DUE BY THE COMP ANY TO SOME OF ITS CREDITORS. IN TURN, THE APPELLANT COMPA NY UNDERTOOK TO RE-COMPENSATE SMPL FOR THE LIKE AMOUNT . THUS, THE QUANTUM OF CREDITORS APPEARING IN THE BOOKS REM AINED THE SAME. IN THIS WAY, THE DEBTS OF THE APPELLANT COMPA NY WERE APPARENTLY TRANSFERRED TO SMPL. SINCE SMPL WAS A SHAREHOLDER IN THE COMPANY, THIS INSPIRED BETTER CO NFIDENCE IN THE BANKING CIRCLES. IN THE SUBSEQUENT YEAR, THE EN TRY WAS REVERSED. 3.5.2 IT IS WELL SETTLED THAT THE PENAL PROVISIONS ARE TO BE CONSTRUED STRICTLY AND NO PERSON CAN BE PENALIZED U NLESS THE ITA NOS.2754, 2755 AND 2756/AHD/2006 PAN DRUGS LIMITED 6 DEFAULT LIES WITHIN THE FOUR COMERS OF THE PENAL PR OVISIONS. IT IS ALSO A SETTLED PROVISION OF LAW THAT IF THE PENAL P ROVISIONS ARE SUSCEPTIBLE OF TWO INTERPRETATIONS, THE INTERPRETAT ION WHICH IS FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED CIT V. VEGETABLE PRODUCTS LTD. 58 ITR 192 (SC). THE SUPREM E COURT HAS LAID DOWN AN IMPORTANT PRINCIPLE IN DIRECTOR OF ENFORCEMENT V DEEPAK MAHAJAN AND ANOTHER, AIR 1994 SC 1775. IN THAT CASE, THE APEX COURT Y CONSIDERED THE ISSUE OF RELEVANCE OF INTENTION OF THE LEGISLATURE IN THE INTERPRETATION OF STATUTES. THE COURT HELD THAT WHILE IN THE NORMAL C OURSE, THE PLAIN ORDINARY GRAMMATICAL MEANING OF THE WORDS WOU LD AFFORD THE BEST GUIDE, BUT 'TO WINCH UP THE LEGISLA TIVE INTENT, IT IS PERMISSIBLE FOR THE COURTS TO TAKE INTO ACCOUNT THE OSTENSIBLE PURPOSE AND OBJECT AND THE REAL LEGISLAT IVE INTENT. OTHERWISE, THE BARE MECHANICAL INTERPRETATION OF TH E WORDS AND APPLICATION OF THE LEGISLATIVE INTENT DEVOID OF CONCEPT OR PURPOSE AND OBJECT WILL RENDER THE LEGISLATURE INAN E' IN ANOTHER CASE, DIRECTLY DEALING WITH THE ISSUE OF PE NALTY U/S.271D, THE SUPREME COURT HELD AS UNDER: 'THE OBJECT OF INTRODUCING SECTION 269SS IS TO ENSURE THAT A TAXPAYER IS NOT ALLOWED TO GIVE FALSE EXPLANATION FOR HIS UNACCOUNTED MONEY, O R IF HE MAKES SOME FALSE ENTRIES, HE SHALL NOT ESCAPE BY GI VING FALSE EXPLANATION FOR THE SAME. DURING SEARCH AND SEIZURES, UNACCOUNTED MONEY IS UNEARTHED AND THE TAXPAYER WOULD USUALLY GIVE THE EXPLANATION THAT HE HAD BORROWED OR RECEIVED DEPOSITS FROM HIS RELATIVE S OR FRIENDS AND IT IS EASY FOR THE SO-CALLED LENDER ALS O TO MANIPULATE HIS RECORDS TO SUIT THE PLEA OF THE TAXP AYER. THE MAIN OBJECT OF SECTION 269SS WAS TO CURB THIS MENACE OF MAKING FALSE ENTRIES IN THE ACCOUNT BOOKS AND LATER GIVING AN EXPLANATION FAR THE SAME. THE UNDUE HARDSHIP OF THE PROVISIONS OF SECTION 27ID. WHICH REPLACED SECTION 276DD PROVIDING FAT- A PENALTY, IS SUBSTANTIALLY MITIGATED BY THE INCLUSIO N OF SECTION 273B PROVIDING THAT IF THERE WAS A GENUINE AND BONAFIDE TRANSACTION AND THE TAX PAYER COULD NOT GE T A LOAN OR DEPOSIT BY ACCOUNT-PAYEE CHEQUE OR DEMAND DRAFT FAR SOME BONA FIDE REASON, THE AUTHORITY VEST ED WITH THE POWER TO IMPOSE PENALTY HAS A DISCRETIONAR Y POWER NOT TO LEVY THE PENALTY. [ADIT(INVESTIGATION) V. KUMARI A.B.SHANTHI, 255 ITR258]. ITA NOS.2754, 2755 AND 2756/AHD/2006 PAN DRUGS LIMITED 7 3.5.3 THE SCOPE AND EFFECT OF SECTION 269T HAVE BE EN ELABORATED IN CBDT CIRCULAR NO,345 DATED 28-6-1982 WHICH STALES AS UNDER: '2.2 THE PROLIFERATION OF BLACK MONEY POSES A SERIOUS THREAT TO THE NATIONAL ECONOMY AND IT WAS CONSIDERED NECESSARY TO TAKE EFFECTIVE STEPS TO CON TAIN AND COUNTER THIS MAJOR ECONOMIC EVIL THE GOVERNMENT HAVE, IN RECENT PAST, TAKEN SEVERAL LEGISLATIVE AND ADMINISTRATIVE MEASURES TO UNEARTH BLACK MONEY. THE INCOME-TAX (SECOND AMENDMENT) ACT, 198! (HEREINAFTE R REFERRED TO AS THE AMENDING ACT), REPRESENTS ANOTHE R STEP IN THE SAME DIRECTION. 2,2 IT CAME TO GOVERNMENT'S NOTICE THAT A SUBSTANTIAL AMOUNT OF BLACK MONEY WAS DEPOSITED BY TAX EVADERS WITH BANKS, COMPANIES, CO-OPERATIVE SOCIETIES AND PARTNERSHIP FIRMS EITHER IN THEIR OWN NAMES OR IN BNAMI NAMES. THE INCOME-TAX (SECOND AMENDMENT) ACT, 1981, SEEKS TO COUNTER ATTEMPTS TO CIRCULATE BLACK MONEY IN THIS MANNER.' 3.5.4 FROM THE FOREGOING, IT IS EVIDENT THAT PRIMA RILY WITH A VIEW TO COUNTER ATTEMPTS AT TAX EVASION, IT WAS PRO VIDED IN SECTIONS 269SS & 269T THAT ACCEPTANCE AND REPAYMENT S OF ANY LOAN OR DEPOSIT BY MODES OTHER THAN BY ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT WOULD INVITE PEN ALTY. THE OVER-ARCHING OBJECTIVE WAS THE PREVENTION OF FURTHE R GENERATION OF BLACK MONEY AND THE MECHANISM ADOPTED WAS TO ENS URE THAT BLACK MONIES INVESTED WOULD LEAVE AN AUDIT TRA IL, WHICH COULD BE DETECTED BY THE TAX AUTHORITIES. IN THE IN STANT CASE, THERE DOES NOT APPEAR TO BE ANY EVIDENCE OF TAX PLA NNING OR TAX EVASION BY RESORTING TO THE IMPUGNED TRANSACTIO NS. SINCE THE TRANSACTIONS ARE REPORTED IN THE BALANCE SHEET OF THE COMPANY WHICH HAS TO BE FILED BEFORE THE REGISTRAR OF THE COMPANIES, INCOME TAX DEPARTMENT, BANK ETC., THERE WAS SUFFICIENT AUDIT TRAIL SO THAT THE TRANSACTION COUL D NOT ESCAPE UNNOTICED. THE COMPANY, FINDING ITSELF IN DARE FINA NCIAL STATE, RESORTED TO WINDOW DRESSING OF ITS ACCOUNTS. SUCH W INDOW DRESSING DID NOT HAVE THE RESULT OF EITHER UNDERSTA TING ITS TAXABLE INCOME OR GENERATING OR AIDING OR ABETTING THE GENERATION OF BLACK MONEY. SECTION 273B SPECIFICALL Y STATES THAT NO PENALTY SHALL BE IMPOSABLE ON THE PERSON OR THE ASSESSEE, AS THE CASE MAY BE, FOR ANY FAILURE REFER RED TO IN, INTER ALIA, SECTION 27ID AND SECTION 271E, IF HE PR OVES THAT ITA NOS.2754, 2755 AND 2756/AHD/2006 PAN DRUGS LIMITED 8 THERE WAS REASONABLE CAUSE FOR THE SAID FAILURE. IN VIEW OF THE CIRCUMSTANCES AS ABOVE, I AM OF THE OPINION THAT FI RSTLY, THE PROVISIONS OF SECTIONS 269SS & 269T AND PENAL PROVI SIONS OF SECTIONS 271D & 27IE WOULD NOT BE APPLICABLE IN THE CASE OF TRANSFER BY WAY OF BOOK ENTRIES; AND SECONDLY THAT THERE WAS REASONABLE CAUSE ON THE PART OF THE ASSESSEE FOR TH E ACCEPTING AND REPAYING THE MONIES OTHERWISE THAN BY WAY OF AC COUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT. ACCORDING LY, IT IS HELD THAT THE PENALTY WAS NOT JUSTIFIED AND IS, THE REFORE, CANCELLED. 6. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED ON THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND RELIED UPON T HE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS BO MBAY CONDUCTORS AND ELECTRICALS LTD. 301 ITR 328 (GUJ) AND THE DECI SION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS NATVARLAL PUROSHOTTAMDAS PAREKH 303 ITR 5 (GUJ). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT THERE IS NO GIVING AND TAKING OF ANY LOANS OR DEPOSITS IN CASH AND THERE IS NO RE PAYMENT IN CASH. THE MODE OF THE REPAYMENT AND MODE OF ACCEPTANCE ARE ON LY BOOK ENTRIES FROM THE PARTIES CONNECTED WITH THE ASSESSEE. THE H ONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS BOMBAY CONDUCTORS AND E LECTRICALS LTD. 301 ITR 328 (GUJ) HAS HELD AS UNDER: WHILE INTRODUCING SECTION 269SS OF THE INCOME-TAX ACT, 1961, SECTION 273 WAS ALSO INCORPORATED IN THE STAT UTE WHICH PROVIDES THAT NO PENALTY SHALL BE IMPOSABLE ON A PE RSON OR AN ASSESSEE, AS THE CASE MAY BE, FOR ANY FAILURE REFER RED TO IN THE SAID PROVISION IF THE ASSESSEE PROVES THAT THERE WA S REASONABLE CAUSE FOR SUCH FAILURE. IN OTHER WORDS P ENALTY IS NOT AUTOMATIC UNDER SECTION 271D OF THE ACT ON MERE VIOLATION OF THE PROVISIONS OF SECTION 269SS. THE ASSESSEE WAS A SUBSIDIARY OF L. THE ASSESSEE PURCHASED GOODS FROM TIME TO TIME FROM L. AS THE AS SESSEE WAS NOT IN A POSITION TO MAKE PAYMENT OF THE OUTSTA NDING ITA NOS.2754, 2755 AND 2756/AHD/2006 PAN DRUGS LIMITED 9 PURCHASE PRICE IMMEDIATELY THE PARTIES ARRIVED AT A N UNDERSTANDING WHEREUNDER THE OUTSTANDING PURCHASE P RICE WAS TO BE TREATED AS A LOAN ON SARAFI ACCOUNT AFTER MAKING PART PAYMENT OF THE OUTSTANDING DUES. AS PER THE TE RMS AGREED UPON, ON MAY 31, 1989, A SUM OF RS.24,908 WA S PAID BY ACCOUNT PAYEE CHEQUE OUT OF TOTAL OF RS.9,24,908 AND THE BALANCE OF RS.9 LAKHS WAS SIMULTANEOUSLY TRANSFERRE D TO THE L ACCOUNT. THE BALANCE OUTSTANDING LIABILITY IN THE G OODS ACCOUNT WAS ADJUSTED BY WAY OF JOURNAL ENTRIES. SIM ILARLY, OUT OF TOTAL OUTSTANDING DUES OF RS.14,08,165 A SUM OF RS.8,165 WAS PAID BY ACCOUNT PAYEE CHEQUES AND THE BALANCE A MOUNT OF RS.14 LAKHS WAS IDENTICALLY TREATED AS A LOAN OU TSTANDING IN THE SARAFI ACCOUNT WITH REQUISITE JOURNAL ENTRIE S IN SUPPORT THEREOF. DURING THE COURSE OF ASSESSMENT PROCEEDING S THE ASSESSING OFFICER TREATED THE OUTSTANDING AMOUNTS O F RS.9 LAKHS AND 14 LAKHS RESPECTIVELY AS ACCEPTANCE OF DE POSITS IN VIOLATION OF THE PROVISIONS OF SECTION 269SS OF THE ACT AND REFERRED THE MATTER FOR LEVY OF PENALTY TO THE DEPU TY COMMISSIONER. AFTER ISSUING SHOW-CAUSE NOTICE AND CONSIDERING THE WRITTEN EXPLANATION TENDERED BY THE ASSESSEE AND AFTER HEARING THE ASSESSEE THE DEPUTY COMMISSIO NER CAME TO THE CONCLUSION THAT HE CONVERSION OF THE OU TSTANDING BALANCE FROM GOODS PURCHASE ACCOUNT TO THE SARAFI A CCOUNT BY TRANSFER ENTRIES WAS A DEPOSIT IN VIOLATION OF THE PROVISIONS OF SECTION 269SS. PENALTY WAS LEVIED BUT IT WAS CANCEL LED BY THE TRIBUNAL ON A REFERENCE: HELD, THAT THE TRIBUNAL HAD FOUND THAT THERE WAS N O EVIDENCE TO SHOW THAT INFRACTION OF THE PROVISIONS WAS WITH KNOWLEDGE OR IN DEFIANCE OF THE PROVISIONS. IT HAD FURTHER BEEN HELD THAT THERE WAS NOTHING ON RECORD TO INDICATE T HAT THE ASSESSEE HAD INDULGED IN ANY TAX PLANNING OR TAX EV ASION. NOT ONLY WAS THERE A REASONABLE CAUSE, AS FOUND BY THE TRIBUNAL, BUT IN THE LIGHT OF THE FINDING OF THE TRIBUNAL THA T THE BREACH, IF ANY, WAS MERELY A TECHNICAL OR VENIAL BREACH NO PEN ALTY WAS LEVIABLE. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V S NATVARLAL PUROSHOTTAMDAS PAREKH 303 ITR 5 (GUJ) HELD AS UNDER : THE ASSESSEE CARRIED ON THE BUSINESS OF MONEY-LEND ING AND TRADING IN JEWELLERY. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 1991-92 THE ASS ESSING OFFICER NOTICED THAT THE ASSESSEE HAD ACCEPTED LOAN S/DEPOSITS FROM DIFFERENT PARTIES AND REPAID SUCH LOANS/DEPOSI TS TO THE PARTIES IN CONTRAVENTION OF THE PROVISIONS OF SECTI ONS 269SS ITA NOS.2754, 2755 AND 2756/AHD/2006 PAN DRUGS LIMITED 10 AND 269T OF THE INCOME-TAX ACT, 1961. REJECTING THE EXPLANATION OFFERED BY THE ASSESSEE HE IMPOSED PENA LTY. THE TRIBUNAL FOUND THAT MOST OF THE AMOUNTS REPRESENTED BOOK ENTRIES EXCEPT AMOUNTS OF NSCS OF FAMILY MEMBERS WH ICH HAD MATURED AND WHICH WERE REINVESTED. THE TRIBUNAL HAD ALSO FOUND THAT THE ASSESSEE WAS PREVENTED BY REASONABLE CAUSE IN THE LIGHT OF THE AFFIDAVIT OF AN ADVOCATE AND IN COME-TAX PRACTITIONER HAVING STANDING OF 33 YEARS WHO HAD OP INED THAT THE ASSESSEE WOULD NOT VIOLATE THE PROVISIONS OF SE CTIONS 269SS AND 269T OF THE ACT IF THE ASSESSEE RECEIVES AMOUNTS FROM THE FAMILY MEMBERS AND REPAYS TO DIFFERENT FAM ILY MEMBERS. IT CANCELLED THE PENALTY. ON A REFERENCE: HELD, THAT THE TRIBUNAL HAD FOUND THAT ON THE FACTS AND IN THE LIGHT OF THE EVIDENCE ON RECORD THERE WAS NO VIOLATION OF EITHER THE PROVISIONS OF SECTION 269SS OR SECTION 2 69T OF THE ACT. THE TRIBUNAL HAD FURTHER FOUND THAT THERE WAS REASONABLE CAUSE, ASSUMING THAT THERE WAS NAY VIOLATION BY THE ASSESSEE. HENCE, THE TRIBUNAL HAD RIGHTLY DELETED T HE PENALTIES LEVIED UNDER SECTIONS 271D AND 271E THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS SUNIL KUMAR GOEL 315 ITR 263 (P & H) HAS HELD AS UNDER: HELD, THAT THERE WAS NO DISPUTE ABOUT THE FACT THA T THE CASH TRANSACTIONS OF THE ASSESSEE WERE WITH THE SIS TER CONCERN AND THESE TRANSACTIONS WERE WITHIN THE FAMILY AND D UE TO BUSINESS EXIGENCY. A FAMILY TRANSACTION, BETWEEN TW O INDEPENDENT ASSESSEES, BASED ON AN ACT OF CASUALNES S, SPECIALLY IN A CASE WHERE THE DISCLOSURE THEREOF WA S CONTAINED IN THE COMPILATION OF ACCOUNTS, AND WHICH HAD NO TA X EFFECT, ESTABLISHED REASONABLE CAUSE UNDER SECTION 273B O F THE ACT. SINCE THE ASSESSEE HAD SATISFACTORILY ESTABLISHED REASONABLE CAUSE UNDER SECTION 273B OF THE ACT, HE MUST BE DE EMED TO HAVE ESTABLISHED SUFFICIENT CAUSE FOR NOT INVOKING THE PENAL PROVISIONS OF SECTIONS 271D AND 271E OF THE ACT AGA INST HIM. THE DELETION OF PENALTY BY THE TRIBUNAL WAS VALID. 8. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT O F THE FINDINGS GIVEN BY THE LEARNED CIT(A) AND THE DECISIONS NOTED ABOVE , WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF THE LEARNED CIT(A) IN CA NCELING THE PENALTIES. SINCE ONLY BOOK ENTRIES WERE ENTERED INTO BETWEEN T HE PARTIES CONNECTED WITH EACH OTHER FOR BUSINESS PURPOSE TO IMPROVE THE BALANCE SHEET OF THE ITA NOS.2754, 2755 AND 2756/AHD/2006 PAN DRUGS LIMITED 11 ASSESSEE, THEREFORE, THE LEARNED CIT(A) WAS JUSTIFI ED IN CANCELING THE PENALTIES. MORE PARTICULARLY, THE FACTS AND CIRCUMS TANCES EXPLAINED ABOVE CLEARLY SHOW THAT THERE EXISTS SUFFICIENT CAU SE FOR TAKING THE BOOK ENTRIES. THEREFORE, THE LEARNED CIT(A) WAS JUSTIFIE D IN ACCEPTING THE ALTERNATIVE CONTENTION OF THE ASSESSEE THAT THERE W AS REASONABLE CAUSE ON THE PART OF THE ASSESSEE IN ACCEPTING AND REPAYING THE LOANS THROUGH BOOK ENTRIES OTHERWISE THAN BY WAY OF ACCOUNT PAYEE CHEQUES OR ACCOUNT PAYEE BANK DRAFTS. WE, ACCORDINGLY DO NOT FIND ANY ERROR IN THE ORDERS OF THE LEARNED CIT(A). WE CONFIRM HIS FINDINGS AND DIS MISS THE DEPARTMENTAL APPEALS. 9. AS A RESULT, ALL THE DEPARTMENTAL APPEALS ARE DI SMISSED. . ORDER PRONOUNCED ON 23 RD DECEMBER 2009 SD/- SD/- (A. N. PAHUJA) ACOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 23-12-2009 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD