M/s NJP Hospitality Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 4062/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65422 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 18-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 06-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Keywords: Reasonable cause; Difference of opinion
• Section: 40A(3); 273B; 143(3); 2

Judgement Text

ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER ITA NO. 4062/DEL/2011 ASSESSMENT Y EAR: 2007-08 NJP HOSPITALITY PVT. LTD., VS INCOME T AX OFFICER, SF 202, 2 ND FLOOR, WARD 13(1), V3S MALL, LAXMI NAGAR C.R. BUI LDING, DISTRICT CENTRE, NEW DELHI. NEW DEL HI. (PAN: AACCN4544K) (APPELLANT) (RESPONDENT) APPELLANT BY: NONE RESPONDENT BY: SHRI R.S. NEGI, SR.DR O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST THE ORDER OF THE CIT(A)-XVI, NEW DELHI DATED 28.04.2011 FOR AY 2007- 08 CONFIRMING THE LEVY OF PENALTY BY THE AO U/S 271E OF THE INCOME TA X ACT(HEREINAFTER REFERRED TO AS THE ACT). 2. THE GROUNDS OF APPEAL READ AS UNDER:- 1. THE LD. ACIT ERRED IN CONFIRMING ORDER OF THE LD. ITO IMPOSING A PENALTY OF RS.2,00,000/- UNDER SECTI ON 271E OF THE INCOME TAX ACT AND THEREBY DISMISSING T HE APPEAL OF THE APPELLANT. ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 2 2. THAT THE PENALTY OF RS.2,00,000/- IMPOSED UNDER SEC . 271E OF THE ACT IS WHOLLY ILLEGAL, UNJUSTIFIED AND BAD IN THE EYES OF LAW AND LIABLE TO BE DELETED. 3. BRIEFLY STATED THE FACTS OF THE CASE GIVING RISE TO THIS APPEAL ARE THAT THE ASSESSEE FILED A RETURN DECLARING LOSS OF RS.3, 95,706/- AND HIS ASSESSMENT WAS FINALIZED U/S 143(3) OF THE ACT AT AN INCOME OF RS.3,84,698. DURING THE ASSESSMENT, THE AO OBSERVED THAT THE ASSESSEE COMPA NY HAS MADE A REPAYMENT OF LOAN OF RS.2 LAKH IN CASH TO ONE OF TH E DIRECTORS OF ASSESSEE COMPANY SHRI VARUN AGARWAL, IN CONTRAVENTION OF THE PROVISIONS OF SECTION 269T OF THE ACT. CONSEQUENTLY, THE AO INITIATED PE NALTY PROCEEDINGS U/S 271E OF THE ACT. A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE BY THE AO TO FURNISH EXPLANATION REGARDING CASH PAYMENT OF RS .2 LAKH AND THE ASSESSEE FURNISHED ITS REPLY AND SUBMITTED THAT: THERE IS NO LOAN GIVEN BY THE COMPANY TO VARUN SAR UP AGARWAL. DURING THE YEAR REPAYMENT OF UNSECURED LOA N TO SH. VARUN AGARWAL FOR RS.2 LACS IN CASH. THERE I S CURRENT A/C IN THE NAME OF SHRI VARUN AGARWAL WHO F ROM TIME TO TIME MADE PAYMENT FOR AND BEHALF OF THE ASS ESSEE COMPANY AS THE ASSESSEE DID NOT HAVE ITS BANK ALC W HICH WAS OPENED ON FEBRUARY 2007. PAYMENT OF RS.2 LACS W AS PART REIMBURSEMENT OF EXPENSES INCURRED BY SHRI VAR UN AGARWAL FOR AND ON BEHALF OF THE COMPANY. IT WAS SUBMITTED THAT THE SAME CANNOT BE TREATED AS LOAN W ITH THE MEANING OF SECTION 269SS AND 269T. THE ASSESSIN G OFFICER ERRED IN TREATING REIMBURSEMENT OF EXPENSES INCURRED BY THE DIRECTOR OF THE COMPANY FOR AND ON BEHALF OF THE COMPANY PAID IN CASH AS REPAYMENT OF LOAN ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 3 IN CONTRAVENTION OF THE PROVISION OF SECTION 269T O F THE INCOME TAX ACT 1961.' 4. AFTER CONSIDERATION OF SUBMISSIONS AND EXPLA NATION OFFERED BY THE ASSESSEE, THE AO NOTED THAT THE ASSESSEE COMPANY WA S HAVING SUBSTANTIAL FUNDS IN THE FORM OF SALES OF APPROXIMATELY RS. 10 LAKH RIGHT FROM OCTOBER 2006 TO JANUARY 2007 AND THE SAME COULD BE DEPOSITED IN ITS BANK ACCOUNT, THEN REPAYMENT/REIMBURSEMENT COULD BE MADE BY CHEQUE OF SHRI VARUN SARUP AGARWAL. THE AO FURTHER NOTED THAT ANY AMOUNT SPENT BY ANY DIRECTOR ON BEHALF OF THE ASSESSEE COM PANY IS AN UNSECURED LOAN IN THE HANDS OF ASSESSEE COMPANY AND ITS REPAY MENT IN CASH IS A CLEAR VIOLATION OF THE PROVISIONS OF SECTION 269T O F THE ACT. THE AO HELD THAT MERELY BECAUSE A TRANSACTION IS GENUINE ( AS CONTENDED BY THE ASSESSEE), IT CANNOT BE TAKEN OUT OF THE AMBIT OF S ECTION 271E. THE AO RELYING ON THE JUDGMENT OF ITAT, VISAK IN THE CASE OF ACIT VS VINMAN FINANCE & LEASING LTD. (ITAT,VISAK-TM) 115 I TD 115 HELD THAT THE ASSESSEE COMPANY VIOLATED SECTION 269T OF THE ACT AND IMPOSED A PENALTY OF RS. 2 LAKH ON THE ASSESSEE U/S 271E OF THE ACT. 5. THE AGGRIEVED ASSESSEE FILED AN APPEAL BEFO RE THE CIT(A) WHICH WAS DISMISSED THROUGH IMPUGNED ORDER. THE OPERATIV E PART OF IMPUGNED ORDER IS BEING REPRODUCED BELOW:- ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 4 IN VIEW OF ABOVE FACTS AND JUDICIAL PRONOUNCEMENTS , THE AR OF THE APPELLANT COMPANY PRAYED THAT NO PENALTY U/S 271E IS LEVIABLE AND THE PENALTY OF RS. 2 LACS LEVI ED U/S 271E OF THE ACT DESERVES TO BE DELETED. 2.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE SUBMISSIONS OF THE AR OF THE APPELLANT. IT IS AN AD MITTED FACT THAT RS.2,00,000/- PAID BY THE APPELLANT TO IT S DIRECTOR IN CASH IN FEBRUARY,2007 REPRESENTED RETUR N OF THE AMOUNT PAID BY THE DIRECTOR ON BEHALF OF THE APPELLANT COMPANY TOWARDS ITS EXPENSES. CLEARLY, AN Y AMOUNT PAID BY ONE PERSON ON BEHALF OF ANOTHER PERS ON WOULD BE A LOAN FROM THE FORMER TO THE LATTER BECAU SE A LOAN OR DEPOSIT HAS BEEN DEFINED IN EXPLANATION TO SECTION 269T TO MEAN ANY LOAN OR DEPOSIT OF MONEY WHICH IS REPAYABLE AFTER NOTICE OR REPAYABLE AFTER A PERIOD AND THE EXPENSES INCURRED BY THE DIRECTOR ON BEHALF OF THE APPELLANT COMPANY WERE REPAYABLE/HAD TO BE REIMBURS ED BY THE APPELLANT. WHEN THE APPELLANT COMPANY RETURN ED THIS AMOUNT TO ITS DIRECTOR, THE RETURN WOULD CONST ITUTE RETURN OF LOAN GIVEN BY THE DIRECTOR TO THE APPELLA NT COMPANY. THE EXPENSES INCURRED BY THE DIRECTOR ON BEHALF OF THE APPELLANT CANNOT BE TERMED AS TRANSAC TIONS IN THE CURRENT ACCOUNT OF THE APPELLANT WITH THE DI RECTOR, AS CONTENDED. IT IS ALSO OBSERVED THAT THE APPELLAN T COMPANY WAS INCORPORATED IN SEPTEMBER,2006 AND IT TOOK FIVE MONTHS TO OPEN ITS BANK ACCOUNT IN FEBRUARY,2007. NOT ONLY THIS, IT HAS BEEN SUBMITTED THAT THE BANK ACCOUNT WAS OPENED ON FEBRUARY,2007 WITH HDFC BANK WHILE CASH WAS DEPOSITED IN THE BANK ACCOUNT OF SHRI YARUN AGARWAL, DIRECTOR ON 9TH FEBRUARY,2007 TO ENABLE CHEQUE TOWARDS RENT PAYABLE BY THE APPELLANT COMPANY TO BE CLEARED ON L0TH FEBRUARY,2007. IT IS NOT CLEAR AS TO WHY, ONCE THE ACCOUNT OF THE COMPANY WAS OPENED ON 7TH FEBURARY,2007, CASH WAS NOT DEPOSITED IN THIS ACCOU NT AND CHEQUE FOR RENT ISSUED FROM THE ACCOUNT OF THE COMPANY, INSTEAD OF GIVING CASH TO THE DIRECTOR WHO THEN MADE PAYMENT ON BEHALF OF THE APPELLANT COMPANY. ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 5 THEREFORE, IT WOULD NOT BE CORRECT TO SAY THAT THE PAYMENT OF CASH OF RS.2,00,000/- BY THE APPELLANT COMPANY T O ITS DIRECTOR WAS NECESSITATED BY ANY URGENT REQUIREMENT . THE CASE LAWS RELIED UPON BY THE AR OF THE APPELLANT AR E NOT APPLICABLE TO THE FACTS OF THE APPELLANT'S CASE. FO R INSTANCE IN THE CASES OF CANARA HOUSING DEVELOPMENT COMPANY VS. ADDL. CIT, CIT VS. IDHAYAM PUBLICATIONS LTD., CIT VS. SHRI AMBICA FLOUR MILLS CORPORATION & CIT VS. SRINIWAS JOSHI (SUPRA), THE ISSUE WAS WHETHER C URRENT ACCOUNT TRANSACTIONS WITH SISTER CONCERNS/URGENT PAYMENTS TO SISTER CONCERNS WOULD FALL WITHIN THE MEANING OF LOANS OR ADVANCES FOR THE PURPOSE OF SEC TION 269SS/269T. AS ALREADY DISCUSSED ABOVE, IN THE CASE OF THE APPELLANT THE EXPENSES INCURRED BY THE DIRECTOR ON BEHALF OF THE APPELLANT COMPANY WERE LOAN BY THE DIRECTOR TO THE APPELLANT AND NOT CURRENT ACCOUNT TRANSACTIONS. NEITHER WAS THERE ANY URGENCY TO RETU RN THE AMOUNT IN CASH TO THE DIRECTOR. IN THE CASE OF NARA YAN RAM CHHABA VS. ITO (SUPRA), THE ASSESSEE WAS AN AGRICULTURIST WHO TOOK CASH LOANS FROM HIS WIFE AND HUF AND IN THE CASE OF CIT VS KASI CORPORATION & ANR.(SUPRA), THE ASSESSEE WAS IN THE BUSINESS OF ACCEPTING DEPOSITS FROM THE PUBLIC AND IN SOME OF T HE CASES REPAID THEM IN CASH ON ACCOUNT OF CLOSURE OF BANKING HOURS, PAYMENTS TO LADY MEMBERS WHO DID NOT HAVE BANK ACCOUNTS, ETC. THE APPELLANT IS NOT AN AGRICULTURIST AND HAS NOT MADE THE REPAYMENT OF LOA N IN CASH FOR ANY SUCH URGENT REASONS AND SO THE FACTS O F THE APPELLANT'S CASE ARE TOTALLY DIFFERENT. AS PER THE OTHER JUDICIAL PRONOUNCEMENTS RELIED UPON THE APPELLANT, PENALTY U/S 2710/271 E IS NOT ATTRACTED WHEN THERE IS REASONABLE CAUSE FOR GIVING OR RETURNING LOANS IN C ASH OR THE APPELLANT HOLDS A BONA-FIDE BELIEF THAT SUCH PA YMENTS CAN BE MADE. IN THE CASE OF THE APPELLANT IT CANNOT BE SAID THAT THERE WAS ANY REASONABLE CAUSE FOR RETURN OF THE LOAN IN CASH, SINCE AS DISCUSSED EARLIER, THE B ANK ACCOUNT OF THE APPELLANT HAD ALREADY OPENED BY THE TIME THE RETURN OF LOAN WAS MADE. THE ADDL. CIT HAS DISCUSSED IN THE PENALTY ORDER THAT MERELY BECAUSE A TRANSACTION IS GENUINE (AS CONTENDED BY AN ASSESSEE ) IT ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 6 CANNOT BE TAKEN OUT OF THE AMBIT OF SECTION 271 E A S HELD IN ACIT VS. VINMAN FINANCE & LEASING LTD. (IT AT, VISAK - JM) 115 ITD 115. I AM, THEREFORE, OF THE VI EW THAT THERE WAS NO REASONABLE CAUSE FOR THE APPELLANT TO RETURN THE LOAN OF RS.2,OO,OOO/- TAKEN BY IT FROM ITS DIRE CTOR IN CASH AND ACCORDINGLY THE PENALTY OFRS.2,OO,OOO/- LEVIED BY THE ADDL. CIT U/S 271E IS UPHELD. GROUNDS NOS. 1 TO 3 OF THE APPEAL ARE DISMISSED. HENCE, THIS SECOND APPEAL BY THE ASSESSEE BEFORE TH IS TRIBUNAL. 6. WE HAVE HEARD RIVAL SUBMISSIONS OF BOTH THE PART IES IN THE LIGHT OF MATERIAL ON RECORD BEFORE US AND CAREFULLY CONSIDER ED THE SAME. 7. THE ASSESSEES REPRESENTATIVE SUBMITTED THAT THE COMPANY DID NOT HAVE A BANK ACCOUNT TILL 7.2.2007 AND ON 1.2.2007 THE DI RECTOR OF THE COMPANY SHRI VARUN SARUP AGARWAL ISSUED CHEQUE OF RS.1,50,0 00 FOR PAYMENT OF RENT TO M/S GAHOI BUILDWELL ON BEHALF OF ASSESSEE COMPAN Y FROM HIS BANK ACCOUNT WITH ICICI BANK BUT THERE WAS NOT SUFFICIEN T BALANCE IN THE ACCOUNT, THEREFORE, THE APPELLANT COMPANY WITHDREW CASH OF R S.2 LAKH OUT OF CASH IN HAND AND DEPOSITED IN THE BANK ACCOUNT OF SHRI VARU N SARUP AGARWAL ON 9.2.2007. AFTER THAT, THE CHEQUE OF RS.1,50,000 DA TED 1.2.2007 ISSUED FOR PAYMENT OF RENT TO M/S GAHOI BUILDWELL LTD. WAS CLE ARED ON 1.2.2007 AND THEN THE REMAINING AMOUNT OF RS.50,000 WAS TRANSFER RED TO COMPANYS BANK ACCOUNT ON 10.2.2007. HE FURTHER SUBMITTED THAT TH E PAYMENT OF RENT WAS MADE BY SHRI VARUN SARUP AGARWAL (DIRECTOR OF THE A SSESSEE COMPANY) BY ISSUING A CHEQUE FROM HIS BANK ACCOUNT AND IF CASH AMOUNT COULD NOT BE ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 7 DEPOSITED, THE CHEQUE COULD BE DISHONORED. THEREFO RE, IN THESE CIRCUMSTANCES, CASH PAYMENT OF RS. 2 LAKH WAS MADE TO SHRI VARUN SARUP AGARWAL ENABLING HIM TO ENSURE CLEARANCE OF CHEQUE PERTAINING TO PAYMENT OF RENT TO THE LANDLORD M/S M/S GAHOI BUILDWELL LTD . 8. THE ASESSEES REPRESENTATIVE RELYING ON THE JUDG MENT OF HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN STEEL LTD. V S STATE OF ORISSA REPORTED AS (1972) 83 ITR 26(SC) SUBMITTED THAT THE PENALTY WILL NOT BE IMPOSED MERELY BECAUSE IT IS LAWFUL TO DO SO BECAUS E AN ORDER OF IMPOSING PENALTY FOR FAILURE TO CARRY OUT STATUTORY OBLIGATI ON IS THE RESULT OF A QUASI- CRIMINAL PROCEEDING AND PENALTY SHOULD NOT BE IMPOS ED UNLESS THE PARTY UNDER OBLIGATION ACTED DELIBERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CONDUCT OR ACTED DISHONESTLY, OR ACTED IN CONSCIOUS DISREGARD OF ITS OBLIGATION. RELYING ON THE SUBMISSIONS MADE BEFORE THE CIT(A), THE AR CONTENDED THAT THE AUTHORITIES BELOW DECIDED THE IS SUE IN A MECHANICAL MANNER WITHOUT CONSIDERING THE FACT THAT THE CASH P AYMENT WAS MADE BY THE ASSESSEE COMPANY TO ITS DIRECTOR WHO USED HIS PERSO NAL RESOURCES TO SAVE THE GOODWILL OF THE ASSESSEE COMPANY. THE AUTHORITIES BELOW ALSO IGNORED THE FACT THAT THE ASSESSEE COMPANY AND ITS DIRECTOR SHR I VARUN SARUP AGARWAL ACTED IN GOOD CONSCIENCE, HONESTLY AND WITHOUT ANY INTENTION TO VIOLATE THE STATUTORY PROVISIONS OF THE ACT. ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 8 9. THE LD. DR SUPPORTED THE IMPUGNED ORDER, INTER A LIA THE ORDER OF THE AO PASSED U/S 271E OF THE ACT AND SUBMITTED THAT TH E ASSESSEE COMPANY MADE PAYMENT OF RS.2 LAKH ON 9 TH FEBRUARY, 2007 AS REPAYMENT/REIMBURSEMENT OF RENT AND OTHER EXPENSES INCURRED BY THE DIRECTOR SHRI VARUN SARUP AGARWAL ON BEHALF OF THE ASSESSEE COMPANY. AS THE ASSESSEE COMPANY OPENED ITS BANK ACCOUNT ON 7.2 .2007, THERE IS NO REASONABLE CAUSE TO MAKE CASH PAYMENT OF RS. 2 LAKH TO ITS DIRECTOR ON 9.2.2007. THEREFORE, THE ASSESSEE COMPANY CLEARLY VIOLATED THE PROVISIONS OF SECTION 269 OF THE ACT. ACCORDINGLY, PENALTY LEVIE D U/S 271E OF THE ACT WAS PROPER AND JUSTIFIED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 10. ON PERUSAL OF PAPER BOOK AND CITATIONS RELI ED BY THE AUTHORITIES BELOW, WE OBSERVE THAT IN THE CASE OF HINDUSTAN STEEL LTD. VS STATE OF ORISSA REPORTED AS 83 ITR 26, THE HONBLE APEX COURT PROVIDED A GUIDELINE TO THE COURTS AND QUASI-JUDICIAL AUTHORIT IES WHICH IS BEING REPRODUCED AS UNDER:- AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A STATUTORY OBLIGATION IS THE RESULT OF A QUASI-CRI MINAL PROCEEDING, AND PENALTY WILL NOT ORDINARILY BE IMPO SED UNLESS THE PARTY OBLIGED, EITHER ACTED DELIBERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CONDUCT CONTUMACIO US OR DISHONEST, OR ACTED IN CONSCIOUS DISREGARD OF ITS OBLIGATION. PENALTY WILL NOT ALSO BE IMPOSED MEREL Y BECAUSE IT IS LAWFUL TO DO SO. WHETHER PENALTY SHO ULD BE IMPOSED FOR FAILURE TO PERFORM A STATUTORY OBLIGATI ON IS A MATTER OF DISCRETION OF THE AUTHORITY TO BE EXERCIS ED ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 9 JUDICIALLY AND ON A CONSIDERATION OF ALL THE RELEVA NT CIRCUMSTANCES. EVEN IF A MINIMUM PENALTY IS PRESCR IBED, THE AUTHORITY COMPETENT TO IMPOSE THE PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE PENALTY, WHEN THERE IS A TECHNICAL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT OR WHERE THE BREACH FLOWS FROM A BONA FIDE BELIEF THAT THE OFFENDER IS NOT LIABLE TO ACT IN THE MANNER PRESCRI BED BY THE STATUTE. 11. IN THE CASE IN HAND, IT IS NOT IN DISPUTE THAT SHRI VARUN SARUP AGARWAL IS A DIRECTOR OF ASSESSEE COMPANY WHO MADE PAYMENT OF RENT THROUGH CHEQUE FROM HIS BANK ACCOUNT WITH ICICI BAN K. HIS BANK STATEMENT FROM 1.10.2006 TO 1.3.2007 AVAILABLE ON P APER BOOK PAGE NOS. 23 AND 24 REVEALS THAT CASH OF RS. 2 LAKH WAS DEPOS ITED ON 9.2.2007 AND A CHEQUE OF RS.1,50,000 WAS CLEARED TO GAHOI BUILDWEL L LTD. ON 10.2.2007 AND REMAINING AMOUNT OF RS.50,000 WAS RETURNED BACK TO THE ASSESSEE COMPANY THROUGH CHEQUE NO. 217337 WHICH WAS CREDITE D TO THE ASSESSEES ACCOUNT ON 17.2.2007. 12. IN VIEW OF ABOVE, WE OBSERVE THAT IT WAS N ECESSARY TO WITHDRAW CASH FROM SALES PROCEEDS AND TO DEPOSIT IT IN THE B ANK ACCOUNT OF SHRI VARUN SARUP AGARWAL AS THE TRANSFER OF MONEY BY CHE QUE COULD TAKE TIME AND IF CHEQUE WAS ISSUED TO SHRI VARUN SARUP AGARWA L IN THIS REGARD, DEFINITELY SOME TIME MAY BE CONSUMED FOR BANKING TR ANSACTION FOR ROUTING MONEY FROM THE ASSESSEES BANK ACCOUNT TO S HRI VARUN SARUP ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 10 AGARWALS BANK ACCOUNT AND THIS WOULD HAVE RESULTED IN DISHONORING OF CHEQUE ISSUED BY SHRI VARUN SARUP AGARWAL ON BEHALF OF THE ASSESSEE COMPANY FOR PAYMENT OF RENT. 13. WE HAVE OBSERVED THAT THE ASSESSING OFFICER RELIED ON THE JUDGMENT OF ITAT, VISAC, THIRD MEMBER BENCH IN THE CASE OF V INMAN FINANCE (SUPRA) WHEREIN IT WAS HELD THAT:- 10. HOWEVER, CANCELLATION OF PENALTY ON TECHNICAL GROUNDS IS NOT JUSTIFIED. IN MY CONSIDERED OPINION , PENALTY PROCEEDINGS UNDER SECTION 271E OF THE ACT N EED NOT BE INITIATED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS COULD BE SEEN FROM THE PLAIN LANGUAG E OF THE PROVISIONS OF SECTION 275(1)( C) OF THE ACT. S IMILAR VIEW TAKEN IN THE CASE OF DR. D. SIVA SANKARA RAO (SUPRA). SIMILARLY, BY TAKING ANALOGY FROM THE OBSERVATIONS OF THE APEX COURT IN THE CASE OF SIMI LARLY, BY TAKING ANALOGY FROM THE OBSERVATIONS OF THE APEX COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS. ITO (1991) 97 CTR (SC) 251 : (1991) 191 ITR 667 (SC), T HE PROVISIONS OF SS. 269SS AND 269T OF THE ACT HAVING BEEN INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO P REVENT THE USE OF UNACCOUNTED MONIES OR TO REDUCE CHANCES OF USE OF BLACK MONEY FOR BUSINESS TRANSACTIONS, EVEN GENUINE TRANSACTIONS CANNOT BE TAKEN OUT OF THE SWE EP OF THE PROVISIONS OF THE ACT IF THE PAYMENTS ARE NOT R OUTED THROUGH THE SPECIFIED CHANNELS UNLESS AND UNTIL EXCEPTIONAL CIRCUMSTANCES ARE PROVED. WHILE CONSIDE RING THE PROVISIONS OF S. 40A(3), THE COURT OBSERVED AS UNDER : '...THE TERMS OF S. 40A(3) ARE NOT ABSOLUTE. CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER REL EVANT FACTORS ARE NOT EXCLUDED. GENUINE AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISF ACTION OF THE AO THE CIRCUMSTANCES UNDER WHICH THE PAYMENT IN THE ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 11 MANNER PRESCRIBED IN S. 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GENUINE DIFFICULTY TO THE PAYEE.' (EMPHASIS, ITALICIZED IN PRINT, SUPPLIED) IN THE LIGHT OF THE PRINCIPLE LAID DOWN BY THE APEX COURT SUPRA, MERELY BECAUSE THE TRANSACTION IS GENUINE, I T CANNOT BE TAKEN OUT OF THE SWEEP OF S. 269T/271E OF THE ACT. 14. IN THE CASE OF VINMAN FINANCE (SUPRA), THE FAC TS WERE THAT THE ASSESSEE WAS A FINANCIAL LEASING COMPANY. DURING T HE RELEVANT ASSESSMENT YEAR, IT ACCEPTED CERTAIN DEPOSITS IN CA SH AND ALSO REPAID CERTAIN AMOUNTS IN CASH IN EXCESS OF RS.20,000. TH E ASSESSING OFFICER OPINED THAT OUT OF TOTAL REPAYMENTS, A PART OF AMOU NT COULD BE SAID TO HAVE BEEN PAID IN CASH DUE TO EXCEPTIONAL CIRCUMSTA NCES WITH BUT REGARD TO THE BALANCE AMOUNT, THE ASSESSING OFFICER VIEWED THAT THE DEPOSITORS RESIDED IN URBAN AREAS WHERE BANKING FACILITIES WER E AVAILABLE AND THEREFORE THERE WAS NO REASONABLE CAUSE FOR VIOLATI ON OF THE PROVISIONS OF SECTION 269T OF THE ACT. ACCORDINGLY, THE ASSESSIN G OFFICER LEVIED PENALTY U/S 271E OF THE ACT. 15. IN THIS CASE, ON APPEAL, THE COMMISSIONER OF INCOME TAX(A) OBSERVED THAT ALL THE DEPOSITORS WERE WITH VILLAGE AND AGRICULTURAL BACKGROUND, WHO LACKED BANKING FACILITY AND, THUS, ASSESSEE, COULD NOT FORCIBLY REPAY THE AMOUNT BY CHEQUES ACCORDINGLY, THE COMMISSIONER OF ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 12 INCOME TAX(A) TAKING THE VIEW THAT PAYMENTS MADE BY CASH WERE SUPPORTED BY REASONABLE CAUSE, CANCELLED THE PENALT Y LEVIED BY THE ASSESSING OFFICER. ON REVENUES APPEAL BEFORE ITAT , VIZAC IN VIEW OF DIFFERENCE OF OPINION BETWEEN THE JUDICIAL MEMBER A ND THE ACCOUNTANT MEMBER, THE MATTER WAS REFERRED TO THE THIRD MEMBER , WHO DECIDED THE ISSUED IN FAVOUR OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS:- 'UNDER THE CIRCUMSTANCES, I AGREE WITH THE CONCLUSIONS OF THE LEARNED JUDICIAL MEMBER THAT IN VIEW OF THE CLAIM OF IGNORANCE OF PROVISIONS OF LAW COUP LED WITH THE BONA FIDE REASONS FOR MAKING PAYMENT IN CA SH, NO CASE WAS MADE OUT FOR LEVY OF PENALTY SINCE THE EXPLANATION CONSTITUTES A REASONABLE CAUSE WITHIN T HE MEANING OF S. 273B OF THE ACT. IN OTHER WORDS, THE PENALTY IMPOSED UNDER S. 271E IS NOT JUSTIFIED AND THE CROS S- OBJECTIONS FILED BY THE ASSESSEE DESERVE TO BE ALLO WED. 16. THE FACTS AND CIRCUMSTANCES OF THIS CASE ARE NOT IDENTICAL WITH THE PRESENT CASE AS THE APPEAL IN HAND IS RELATED TO TH E CASH TRANSACTION OF A COMPANY WITH ITS DIRECTOR. 17. THE ASSESSEES REPRESENTATIVE RELIED ON THE JU DGMENT OF ITAT BANGALORE BENCH IN THE CASE OF CANARA HOUSING DEVEL OPMENT CO. VS ACIT (2010) 127 TTJ (BANG) 446 WHEREIN IT WAS HELD AS UNDER:- 13. MUCH OF THE ARGUMENTS ADVANCED BEFORE WERE ON THE QUESTION WHETHER TRANSACTIONS BETWEEN SISTER CONCERNS IN CASH ARE HIT BY S. 269T. THE SECTION D OES NOT EXPRESSLY CONFER ANY EXEMPTION FOR TRANSACTIONS BET WEEN CONNECTED PARTIES OR SISTER CONCERNS. A PERUSAL OF THE ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 13 DECIDED CASES ON THIS POINT SHOWS THAT THERE IS A C LEAVAGE OF JUDICIAL OPINION. THE ASSESSEE HAS RELIED ON TH E ORDER OF THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF MUTHOOT M. GEORGE BROTHERS (SUPRA) IN WHICH IT WAS HELD THAT CASH TRANSACTIONS BETWEEN SISTER CONCERNS ARE NOT AFFECTED BY THE SECTION. HOWEVER, THE MUMBAI B ENCH OF THE TRIBUNAL IN THE CASE OF KARNATAKA GINNING & PRESSING FACTORY VS JT.D COMMISSIONER OF INCOME TAX(2001) 72 TTJ (MUMBAI) 307: (2001) 77 ITD 478 (MUMBAI) TO WHICH ONE OF US WAS PARTY (THE VICE PRESIDENT), HAS HELD THAT THERE IS NO EXEMPTION FRO M S. 269T EVEN IF THE PARTIES ARE CONNECTED WITH EACH OT HER OR THEY ARE SISTER CONCERNS. IN THE CASE OF SUPREME INVESTMENTS VS JT.CIT IN ITA NO.76/BANG/2006 DT. 3 RD AUG. 2007, FOR THE ASSTT.YR. 2001-02, THE BANGALORE BENCH DID NOT RECORD A DEFINITE CONCLUSION THAT TRANSACTIONS BETWEEN SISTER CONCERNS ARE NOT HIT BY S. 269T, THOUGH THE PENALTY WAS CANCELLED ON OTHER GROUNDS. FOR THE LIMITED PURPOSE OF IMPOSING PENAL TY UNDER S. 271E, IT IS PERHAPS ENOUGH TO SEE WHETHER THE ASSESSEE COULD HAVE BONA FIDE BELIEF THAT TRANSACTI ONS WITH SISTER CONCERNS INVOLVING CASH WERE NOT HIT BY S. 269T. SINCE THERE IS A DIFFERENCE OF OPINION ON TH IS POINT BETWEEN TWO ORDERS OF THE TRIBUNAL, THE ASSESSEE WA S PERHAPS JUSTIFIED IN BELIEVING THAT IT IS STATED TH AT THE ASSESSEES BONA FIDE BELIEF CONSTITUTES REASONABLE CAUSE FOR THE VIOLATION OF S. 269T R/W S. 273B. SIMILARL Y, IF THE ASSESSEE HAD BONA FIDE BELIEF THAT CASH TRANSACTION S IN A CURRENT ACCOUNT ARE NOT HIT BY S. 269T, WHICH BELIE F IS VINDICATED BY THE JUDGMENT OF THE MADRAS HIGH COURT , CITED SUPRA, EVEN THAT CAN BE CONSIDERED AS REASONA BLE CAUSE UNDER S. 273B AND ON THAT GROUND ALSO THE PEN ALTY IS LIABLE TO BE CANCELLED. THE JUDGMENT OF THE HON BLE KARNATAKA HIGH COURT IN H.S. ANANTHASUBBARAYA (SUPRA) ALSO SUPPORTS THE PLEA OF THE ASSESSEE. IN THIS CONNECTION, WE MAY REFER TO THE JUDGMENT OF THE ALLAHABAD HIGH COURT IN CHAUBEY OVERSEAS CORPN. VS COMMISSIONER OF INCOME TAX (2008) 218 CTR (ALL) 494 : (2008) 303 ITR 9(ALL), IN WHICH IT WAS HELD THAT EV EN A TRADE DEPOSIT WAS INCLUDED WITHIN THE PURVIEW OF TH E ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 14 DEFINITION OF THE DEPOSIT IN S. 269T. THIS DECISIO N WAS CITED BY THE LD. COMMISSIONER OF INCOME TAX-DR. IN THE PRESENT CASE, HOWEVER, WE HAVE ALREADY REFERRED TO THE TERM IN THE MOU DT. 5 TH OCT. 2004 THAT THE ARRANGEMENT ENTERED INTO BETWEEN THE ASSESSEE AND ASSESSING OFF ICER SHALL NOT BE CONSTRUED AS RESULTING IN ANY BUSINESS ARRANGEMENT BETWEEN THEM. THUS, THE MONIES CANNOT BE SAID TO REPRESENT ANY BUSINESS OR TRADE DEPOSITS SO THAT THEY CAN BE INCLUDED IN THE DEFINITION OF LOANS OR DEPOSITS IN THE SECTION. THUS, THIS JUDGMENT IS O F NO ASSISTANCE TO THE DEPARTMENT ON THE FACTS OF THE PR ESENT CASE. 14. SO FAR AS AE IS CONCERNED, SATISH PAI WHO IS A PARTNER IN THE ASSESSEE FIRM IS ALSO A PARTNER IN A E. IN THE ASSESSEES REPLY DT. 23 RD MAY 2008 TO THE ACIT, IT WAS EXPLAINED THAT THE AMOUNT OF RS. 12 LAKH WAS DRAWN BY SATISH PAI IN CASH FOR MAKING INVESTMENT IN A PROPE RTY IN THE NAME OF AE AND THUS IT WAS NOTHING BUT DRAWINGS BY A PARTNER. THE LEDGER ACCOUNT OF AE IN THE ASSESSE ES BOOKS IS AT P. 85 OF THE PAPER BOOK. THE ASSESSEE S CLAIM HAS NOT BEEN SPECIFICALLY REFUTED IN THE ORDERS OF THE DEPARTMENTAL AUTHORITIES. IN FACT, IT APPEARS TO U S THAT THE CASH REPAYMENT RELATING TO AE HAS NOT BEEN SPECIFICALLY CONSIDERED AT ALL IN THEIR ORDERS. SI NCE THE ASSESSEES CLAIM THAT IT REPRESENTS DRAWINGS BY A P ARTNER. THE LEDGER ACCOUNT OF AE IN THE ASSESSEES BOOKS IS AT P. 85 OF THE PAPER BOOK. THE ASSESSEES CLAIM HAS NOT BEEN SPECIFICALLY REFUTED IN THE ORDERS OF THE DEPARTMEN TAL AUTHORITIES. IN FACT, IT APPEARS TO US THAT THE CA SH REPAYMENT RELATING TO AE HAS NOT BEEN SPECIFICALLY CONSIDERED AT ALL IN THEIR ORDERS. SINCE THE ASSES SEES CLAIM THAT IT REPRESENTS DRAWINGS BY A PARTNER FOR MAKING INVESTMENT IN A PROPERTY IN THE NAME OF AE HAS NOT BEEN FOUND INCORRECT, THERE IS NO JUSTIFICATION FOR LEVY OF ANY PENALTY FOR VIOLATION OF S. 269T. ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 15 IN VIEW OF ABOVE, WE HOLD THAT THE DIRECTOR OF ASSE SSEE COMPANY MR. VARUN SARUP AGARWAL ISSUED A CHEQUE ON 1.2.2007 ON BEHALF OF THE ASSESSEE COMPANY FOR PAYMENT OF RENT AND ASSESSEE COMPANY OP ENED ITS ACCOUNT AFTER ISSUANCE OF THIS CHEQUE. THE AMOUNT OF RS. 2 LAKH WAS DEPOSITED IN THE BANK ACCOUNT OF MR. VARUN SARUP AGARWAL WITH A BONA FIDE INTENTION TO PREVENT DISHONORING OF THE CHEQUE ISSUED TO THE LANDLORD OF THE ASSESSEE COMPANY AND THE REMAINING AMOUNT WAS RETURNED BACK TO THE A SSESSEE COMPANYS BANK ACCOUNT. IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, IT IS DOUBTFUL WHETHER THE AMOUNT RECEIVED BY DIRECTOR WITH AN INT ENTION TO DEPOSIT IT TO THE BANK ACCOUNT WITH A BONA FIDE BELIEF THAT THIS WOUL D SAVE THE PRESTIGE OF THE COMPANY CAN BE CHARACTERIZED AS A LOAN OR A DEPOSIT WITHIN THE MEANING OF SECTION 269T OF THE ACT. ALTHOUGH SECTION 269T OF THE ACT DOES NOT EXPRESSLY CONFER ANY EXEMPTION FROM TRANSACTION BET WEEN CONNECTED PARTIES OR SISTER CONCERN BUT A PERUSAL OF THE DECIDED CASE S ON THIS POINT SHOWS THAT THERE IS A CLEAVAGE OF JUDICIAL OPINION. FOR THE L IMITED PURPOSE OF IMPOSING PENALTY U/S 271E OF THE ACT, IT IS PERHAPS ENOUGH T O SEE WHETHER THE ASSESSEE COULD HAVE BONA FIDE BELIEF THAT THE TRANSACTION WI TH CONNECTED PARTIES OR SISTER CONCERNS INVOLVING CASH OF MORE THAN RS.20,0 00 WOULD NOT HIT BY SECTION 269T OF THE ACT. THE ASSESSEE COMPANY WAS PERHAPS JUSTIFIED IN BELIEVING THAT IT IS ENTITLED TO RELY ON THE POSITI ON WHICH WAS IN ITS FAVOUR. ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 16 THUS, IT MAY BE STATED THAT THE ASSESSEE COMPANY GA VE RS. 2 LAKH TO ITS DIRECTOR WITH A BONA FIDE BELIEF THAT AN URGENCY TO ENSURE HONORING OF THE CHEQUE ISSUED TO THE LANDLORD CONSTITUTES A REASONA BLE CAUSE U/S 273B OF THE ACT WHERE NO PENALTY SHALL BE IMPOSABLE ON THE ASSE SSEE FOR ANY FAILURE REFERRED TO IN THE SAID PROVISIONS INTER ALIA SECTI ON 269T OF THE ACT. 18. IN THE CASE OF COMMISSIONER OF INCOME TAX VS IDHAYAM PUBLICATIONS LTD. (2006) 285 ITR 221 (MADRAS) , THEIR LORDSHIPS DISMISSING THE APPEAL OF THE REVENUE HELD THAT THE TRANSACTION BETWEEN THE ASSESSEE AND THE DIRECTOR WAS NOT A LOAN OR DEPOSIT AND IT WAS ONLY A CURRENT ACCOUNT IN NATURE AND NO INTEREST WAS BEING CHARGED FOR THE TRANSACTIONS MADE UNDER THE ACCOUNT, THE HONBLE HIGH COURT CONF IRMED THE ORDER OF THE TRIBUNAL WHICH DELETED THE PENALTY. 19. IN VIEW OF ABOVE CASE, IF WE EVALUATE THE IMPUG NED TRANSACTION IN THIS CASE, THEN FROM THE LEDGER ACCOUNT OF SHRI VARUN SA RUP AGARWAL WITH THE ASSESSEE COMPANY AVAILABLE AT PAGE 17 OF THE PAPER BOOK, IT REVEALS THAT THERE WAS A CURRENT ACCOUNT BETWEEN THE ASSESSEE CO MPANY AND ITS DIRECTOR AND NO INTEREST WAS BEING CHARGED FOR THE TRANSACTI ONS AND THE SAME COULD NOT BE TERMED EITHER AS A LOAN OR A DEPOSIT WITH TH E ASSESSEE COMPANY. 20. ACCORDINGLY, WE FINALLY HOLD THAT THE PENALTY L EVIED BY THE ASSESSING OFFICER AND CONFIRMED BY THE COMMISSIONER OF INCOME TAX(A) WAS NOT ITA NO.4062/DEL/2011 ASSTT.YEAR: 2007-08 17 BASED ON JUSTIFIED AND REASONABLE GROUNDS. THE ASS ESSING OFFICER MISINTERPRETED THE RATIO OF THE JUDGMENT OF THE ITA T, VISAC IN THE CASE OF VINMAN FINANCE (SUPRA) AND IN THE PECULIAR FACTS AN D CIRCUMSTANCES OF THE CASE WHEREIN THE IMPUGNED CASH PAYMENT WAS MADE TO THE DIRECTOR WAS UNDER BONA FIDE BELIEF THAT IT WAS A TRANSACTION UN DER A CURRENT ACCOUNT BETWEEN THE COMPANY AND ITS DIRECTOR WHICH WAS BEAR ING NO INTEREST ON THE TRANSACTIONS. THEREFORE, THE PENALTY LEVIED U/S 26 9T R/W SECTION 271E OF THE ACT CANNOT BE SUSTAINED AND IMPUGNED ORDER IN THIS REGARD DESERVES TO BE SET ASIDE AND WE SET ASIDE THE SAME. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.9.2012. SD/- SD/- (J.SUDHAKAR REDDY) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 19TH SEPTEMBER, 2012 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. COMMISSIONER OF INCOME TAX(A) 4. CIT. 5. DR BY ORDER ASSTT. REGISTRAR