OMEGA SECURITIES AND TRADING COMPANY PRIVATE LIMITED , MUMBAI V. JOINT COMMISSIONER OF INCOME TAX, RANGE 13(1), MUMBAI

ITA 4958/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4284 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 18-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARTIKEYAN
• Keywords: Reasonable cause; Reason to believe; Set aside
• Section: 271D; 271E

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO. 4958/MUM/2017 ASSESSMENT YEAR : 2012-13 OMEGA SECURITIES & TRADING CO. PVT. LTD., 15, ANJU SHOPPING CENTRE, TILAK ROAD, SANTACRUZ WEST, MUMBAI [PAN : AAACO0714G] VS. JCIT, RANGE-13(1), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JITENDRA JAIN, AR RESPONDENT BY : SHRI ABIRAMA KARTIKEYAN, DR DATE OF HEARING : 07-03-2019 DATE OF PRONOUNCEMENT :- 13-03-2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-21 , MUMBAI, DATED 19-05-2017. ITA NO. 4958/MUM/2017 : 2 : 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IS AGAINST UPHOLDING THE ORDER OF AO BY THE CIT(A), CONFIRMING PENALTY OF RS. 1,18,00,000/- AS LEVIED BY THE AO U/S. 271D OF TH E INCOME TAX ACT (ACT). 3. THE FACTS IN BRIEF ARE THAT THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND DURING THE COURSE OF ASSESS MENT PROCEEDINGS, THE AO OBSERVED THAT ASSESSEE HAS ACCEPTE D UNSECURED LOANS FROM SHAREHOLDERS AND THEIR FAMILY M EMBERS IN VIOLATION OF THE PROVISIONS OF SECTION 269SS AND 26 9TT OF THE ACT AND ACCORDINGLY, INITIATED PENALTY PROCEEDINGS U/S. 271D AND 271E OF THE ACT FOR VIOLATION OF SECTION 269S S AND 269TT OF THE ACT. THE AO INTIMATED THE JOINT COMMISSION ER OF INCOME TAX VIDE LETTER DT. 07-04-2015 REGARDING VIOLA TION OF SECTION 269SS OF THE ACT, WHICH ATTRACTS PENALTY U/S. 271D OF THE ACT. ACCORDINGLY, THE ADDL. CIT ISSUED NOTICE U/S. 271D OF THE ACT ON 15-09-2015, CALLING UPON THE ASSESSEE TO SHO W CAUSE AS TO WHY THE PENALTY SHOULD NOT BE IMPOSED FOR VIOLATION OF THE PROVISIONS OF SECTION 269SS OF THE ACT, WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DT. 25-09-2015 FILED IN TAPAL DT. 28-09-2015 BY SUBMITTING THEREIN THAT THE ASSESS EE HAS NOT ACCEPTED ANY LOANS IN CASH FROM THE SHAREHOLD ERS OR ITA NO. 4958/MUM/2017 : 3 : THEIR RELATIVES. THE ASSESSEE ALSO SUBMITTED THAT IT HAS ONLY PASSED JOURNAL ENTRIES TO AVOID THE DELAY IN PROCEDURA L HASSLES OF PREPARING CHEQUES AND OBTAINING SIGNATURE OF AUTHO RIZED PERSON WHICH NORMALLY TAKES 4 TO 5 DAYS. BESIDES IT W AS STATED BY THE ASSESSEE THAT JOURNAL ENTRIES WERE ALSO PAS SED FOR SQUARING OFF AND CONSOLIDATION OF RECEIVABLES AN D PAYABLES FOR THE PURPOSE OF OPERATIONAL EFFICIENCIES AND EASE OF MIS ETC. 4. THE LD. AR SUBMITTED THAT IN THE COURSE OF REGULAR ASSESSMENT PROCEEDINGS, CONFIRMATION OF ACCOUNTS DULY REFLECTING ALL THE TRANSACTIONS HAVE BEEN CONSIDERED B Y THE AO AND NO ADVERSE INFERENCE WAS DRAWN. LD. AR SUBMITTED THAT THESE JOURNAL ENTRIES WERE PASSED FOR BUSINESS EXIGEN CY TO EXPEDITE THE TRANSACTIONS, WITHOUT ANY DELAY. LD. AR ALSO SUBMITTED THAT THESE JOURNAL ENTRIES PASSED WERE GENUINE AND THERE WERE CORRESPONDING JOURNAL ENTRIES IN THE BOOKS OF DIRECTORS, SHAREHOLDERS AND THEIR RELATIVES. AT NO POIN T OF TIME, ANY CASH TRANSACTION WAS MADE WITH DIRECTORS, SHAREHOLDERS AND THEIR RELATIVES AND ULTIMATELY ALL THES E ACCOUNTS WERE SETTLED THROUGH BANKING CHANNELS AS HAS BEEN EXPLAINED BEFORE THE AO. THE ASSESSEE ALSO SUBMITTED THAT WHILE MAKING THESE ENTRIES, THE REVENUE HAS NOT SUFFERE D ANY ITA NO. 4958/MUM/2017 : 4 : LOSS AND THERE IS A REASONABLE CAUSE AND BUSINESS EX IGENCY FOR MAKING SUCH ENTRIES IN THE BOOKS OF ACCOUNT. HOWEVER, REPLY OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO, WHO U LTIMATELY IMPOSED A PENALTY OF RS. 1,33,66,000/- U/S. 271D OF THE ACT. 5. IN THE APPELLATE PROCEEDINGS, LD. CIT(A) PARTLY AL LOWED THE APPEAL OF THE ASSESSEE, BY DELETING THE PENALTY TO TH E EXTENT OF RS. 15,66,000/-, SUSTAINING RS. 1,18,00,000 /-. THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THE DETAILS OF TRANSACTIONS OF RS. 1,33,66,000/- AS UNDER: I. RS. 15,66,000/- FOR THE JOURNAL ENTRIES PASSED FOR RECORDING LIABILITIES WHICH ARE INCURRED FOR RUNNIN G BUSINESS; II. RS. 90,00,000/- BEING JOURNAL ENTRIES PASSED FOR RECORDING THE TRANSACTIONS OF PAYMENT MADE BY THE DIRECTORS ON BEHALF OF THE ASSESSEE FOR ACQUIRING PROPERTY AND III. JOURNAL ENTRIES FOR RS. 28,00,000/- WITH MR. SUNIL HURKAT : THE SUMMARIZED BREAK UP WAS ALSO SUBMITTED: ITA NO. 4958/MUM/2017 : 5 : SR NO NAME OF THE PARTY CREDITS (RS) NATURE OF TRANSACTIONS LIABILITY J/V FOR PROPERTY JV 1 YASHHURKAT 2,40,000 SALARY CREDITED 2 VINITA HURKAT 2,40,000 DIRECTORS REMUNERATION 2,000 BOARD MEETING FEES 1,80,000 RENT 3 SUNITAHURKAT 45,00,000 - PAYMENT MADE BY SUNITAHURKAT FOR BUYING THE PROPERTY WHICH IS RECORDED IN BOOKS OF ASSESSEE 2,40,000 SALARY CREDITED SUNIL HURKAT 2,40,000 SALARY CREDITED 2,000 28,00,000* JOURNAL ENTRY 4 ANIL HURKAT HUF 1,80,000 RENT 5 ANIL HURKAT 45,00,000 -- PAYMENT MADE BY ANIL HURKAT FOR BUYING THE PROPERTY WHICH IS RECORDED IN BOOKS OF ASSESSEE 2,40,000 SALARY CREDITED 2,000 BOARD MEETING FEES TOTAL 15,66,000 90,00,000 28,00,000 ITA NO. 4958/MUM/2017 : 6 : 5.1. FINALLY, THE LD. CIT(A) OBSERVED AND HELD AS UN DER: 10. I HAVE CONSIDERED THE SUBMISSIONS CAREFULLY. AS REGARDS THE AMOUNT OF RS 15,66,000 I FIND MERIT IN THE ARGUMENT OF THE APPELLANT THAT SUCH AMOUNTS ARE IN THE NATURE OF LIABILITY IN CURRED FOR DAY TO DAY RUNNING OF BUSINESS AND COMPRISES OF REMUNERATI ON AND RENTS. THEY ARE NOT IN THE NATURE OF LOAN ADVANCED. HENCE THE PENALTY CORRESPONDING TO THIS AMOUNT IS DELETED. 11. AS REGARDS THE CONTENTION THAT PAYMENTS OF RS 9 0 LAKHS WERE MADE BY THE DIRECTORS AND THE LIABILITY WAS RECORDE D BY THE APPELLANT BY WAY OF JOURNAL ENTRIES, THE SAME IS NOT ACCEPTAB LE. THE APPELLANT COULD HAVE TAKEN LOANS FROM THE DIRECTORS BY WAY OF CROSSED CHEQUES AND THEN USED THE MONEY FOR ITS USE SUCH AS PAYMENT FOR PROPERTY. AS REGARDS SAVING OF TIME, AGAIN THERE ARE FACILITI ES SUCH RTGS AND NEFT WHICH ARE INSTANTANEOUS TRANSFER OF MONEY. HEN CE THE EXPLANATION IS ALSO NOT FOUND REASONABLE. 12. AS REGARDS THE AMOUNT OF RS 28,00,000/- IF INDE ED THE AMOUNT WAS RECEIVABLE FOR PROPERTY SOLD, THE LIABILITY WOU LD HAVE BEEN BOOKED IN THE NAME OF THE PURCHASER OF THE PROPERTY . WHY WOULD THE LIABILITY BE CREATED IN THE NAME OF SHRI ANIL HARKA T? HENCE THIS EXPLANATION IS ALSO NOT FOUND TO BE REASONABLE. 13. IN THE CASE OF CIT VS TRIUMPH INTERNATIONAL FIN ANCE (I) LTD. 345 ITR 270(BOM), THE HON'BLE HIGH COURT HELD THAT THE CONTENTION THAT TRANSACTION OF REPAYMENT OF LOAN/DEPOSIT BY WAY OF ADJUSTMENT THROUGH BOOK ENTRIES CARRIED OUT IN THE ORDINARY CO URSE OF BUSINESS WOULD NOT COME WITHIN THE MISCHIEF OF S. 269T CANNO T BE ACCEPTED. 14. THE LD AR RELIED UPON THE APEX COURT DECISION I N THE CASE OF CIT VS DINESH JAIN SLP NO. 6488/2016/SC. THE LD AR WAS ASKED TO FILE A COPY. PERUSAL OF THE ORDER SHOWS THAT IT MERELY S TATES THAT SLP IS DISMISSED. NO RATIO DECIDENDI CAN BE DECIPHERED FRO M THIS REJECTION. 15. THE APPELLANT HAS ALSO CONTENDED ON WITHOUT PRE JUDICE BASIS THAT THERE WAS BONA FIDE AND REASONABLE CAUSE FOR RECORD ING THE LOAN LIABILITY BY WAY OF JOURNAL ENTRY. I AM UNABLE TO S EEN ANY SUCH COMPELLING REASON. AS ALREADY MENTIONED EARLIER, TH E LOANS COULD HAVE BEEN TAKEN FROM DIRECTORS BY WAY OF CHEQUES/RT GS INSTANTLY. THE METHOD ADOPTED IS TO CIRCUMVENT THE REQUIREMENT OF LAW. THERE IS NO BONAFIDE REASONABLE CAUSE. THIS CONTENTION IS RE JECTED. ACCORDINGLY LEVY OF PENALTY IS UPHELD IN RESPECT OF LOAN TRANSACTIONS OF RS 118,00,000/- ITA NO. 4958/MUM/2017 : 7 : 6. LD. AR VEHEMENTLY SUBMITTED BEFORE US THAT THE ASSES SEE HAS NOT ACCEPTED ANY LOANS IN VIOLATION OF PROVISIONS OF SECTION 269SS OF THE ACT AS THESE WERE ONLY ACCOUNTING JOURNAL ENTRIES PASSED EITHER TO ACCOUNT FOR THE EXPENSES OR TO SETTLE THE ACCOUNT MUTUALLY BETWEEN THE ASSESSEE AND SHAREHOLDERS/RELATIVES OF THE SHAREHOLDERS AND ULTIMA TELY THE ACCOUNTS WERE SQUARED UP BY MAKING PAYMENTS BY ACCOUN T PAYEE CHEQUES. LD. AR DREW THE ATTENTION OF THE BENCH TO THE TABLE AS RE-PRODUCED ABOVE, WHICH CLEARLY STATES THAT THE NATURE OF TRANSACTIONS, WHICH WERE ACCOUNTED FOR BY WAY OF THESE ENTRIES, WERE ON ACCOUNT OF STAFF SALARY, DIRECTOR S REMUNERATIONS, BOARD MEETING FEE, RENT PAYMENT BY MS. SUNITA HURKAT, BUYING THE PROPERTY WHICH IS RECORDED IN THE BOOKS OF ACCOUNT AND PAYMENT MADE TO SHRI ANIL HURKAT F OR BUYING THE PROPERTY WHICH IS RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. LD. AR SUBMITTED THAT THE CONCLUSION OF BOTH THE AUTHORITIES BELOW ARE BASED UPON THE PRESUMPTIONS AND ASSUMPTIONS AND GUESS WORK AS THERE IS NO MOVEMENT OF CASH BETWEEN ASSESSEE AND ITS SHAREHOLDERS/ RELATIVES PERS E. MOREOVER, AS IS CLEAR FROM THE ABOVE, THERE IS NO EVA SION OF TAX ITA NO. 4958/MUM/2017 : 8 : OR ANY LOSS TO THE REVENUE BY WAY OF THESE JOURNAL EN TRIES. LD. AR IN DEFENSE OF HIS ARGUMENT RELIED ON THE SERIES O F DECISIONS: I. CIT VS. BOMBAY CONDUCTORS & ELECTRICALS LTD., [301 ITR 328] (GUJ), DT. 11-02-2008; II. CIT VS. NATVARLAL PURSHOTTAMDAS PAREKH [303 ITR 0005] (GUJ), DT. 25-02-2008; III. CIT VS. WORLDWIDE TOWNSHIP PROJECTS LTD., [367 ITR 433] (DEL), DT. 21-05-2014; IV. CIT VS. NATIONAL CLOTHING COMPANY [91 CCH 09] (DEL HC), DT. 12-12-2014; 6.1. THEREAFTER, LD. AR POINTED OUT THAT CIT VS. TRIUM PH INTERNATIONAL FINANCE (I) LTD., [345 ITR 270] (BOM), D T. 12-06- 2012 IS AGAINST THE ASSESSEE. LD. AR ALSO SUBMITTED TH AT ON THE DATE WHEN THE TRANSACTIONAL ENTRIES WERE MADE IN THE BOOKS OF ACCOUNT, THE DECISIONS WERE ONLY IN FAVOUR OF ASSESSEE AND THERE WAS ONLY ONE DECISION AGAINST THE ASSESSEE DATED 12-06-2012, WHICH WAS PASSED BY THE HON'BLE HIGH COU RT AFTER THE FINANCIAL YEAR IN WHICH THESE JOURNAL ENTRI ES WERE POSTED BY THE ASSESSEE. THEREFORE, ASSESSEE HAS EVERY REASON TO BELIEVE THAT THE TRANSACTION MADE BY THE ASSESSEE BY WA Y OF ITA NO. 4958/MUM/2017 : 9 : JOURNAL ENTRIES ARE NOT IN VIOLATION OF ANY PROVISIONS AS THERE EXISTED TWO FAVOURABLE DECISIONS ONLY ONE OF HON 'BLE BOMBAY HIGH COURT AND ANOTHER ONE IS OF HON'BLE GUJA RAT HIGH COURT PRIOR TO ACCOUNTING IN WHICH THESE ENTRIES WERE PASSED. LD. AR ALSO SUBMITTED BEFORE US THAT THE CASE OF THE ASSESSEE IS ALSO COVERED BY THE RELEVANT DECISIONS OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. AJITN ATH HI- TECH BUILDERS PVT. LTD., AND OTHERS IN INCOME TAX APPE AL NO. 171 OF 2015 AND OTHERS, DT. 06-02-2018, WHEREIN THE HO N'BLE COURT HAS HELD THAT ANY JOURNAL ENTRIES MADE BY THE ASSESSEE IN THE BOOKS OF ACCOUNT IS NOT IN VIOLATIO N OF THE PROVISIONS OF SECTION 269SS AS THESE ENTRIES WERE E NTERED INTO OUT OF BUSINESS EXIGENCIES IN ORDER TO SAVE THE TIM E IN MAKING THE PAYMENT. SIMILARLY IN THE CASE OF THE ASSESSEE, THE ASSESSEE HAS SHOWN AND PROVED THAT ALL THESE TRANSACTION S WERE CARRIED OUT IN ORDER TO RUN THE BUSINESS IN EFFIC ACIOUS MANNER WHICH IS 3 TO 4 DAYS, WHEREAS IN MAKING THE EN TRIES THROUGH CHEQUES FROM AMONGST VARIOUS PARTIES WOULD INV OLVE TIME OF 4 TO 5 DAYS. THE AFORESAID DECISION IS AFFIRM ED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. LODHA PROPERTIES DEVELOPMENT PVT. LTD., BY DISMISSING SPECIA L LEAVE ITA NO. 4958/MUM/2017 : 10 : PETITION (CIVIL), DT. 10-12-2018 FILED BY THE REVENUE. FINALLY LD. AR PRAYED BEFORE THE BENCH THAT THE ISSUE IS SQUARE LY COVERED IN FAVOUR OF THE ASSESSEE AND THEREFORE THE PE NALTY LEVIED U/S. 271D OF THE ACT SHOULD BE DELETED AS THERE EXISTS REASONABLE CAUSE FOR DOING THESE TRANSACTIONS. 7. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAS CIRCUMVENTED VARIOUS PROVISIONS OF LAW BY MAKING JO URNAL ENTRIES. THE ACTUAL BACKGROUND IS THAT THERE IS A MOVE MENT OF CASH AS THERE CANNOT BE ANY JOURNAL ENTRY WITHOUT INVOL VING MOVEMENT OF CASH. THEREFORE, THE ORDER OF CIT(A) MAY KINDLY BE UPHELD. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD, INCLUDING THE DECISIONS CITED. W E FIND THAT IN THIS CASE, THE ASSESSEE HAS ENTERED INTO VARIOUS TRANSACTIONS THROUGH JOURNAL ENTRIES WHICH ARE MADE EIT HER TO SQUARE UP ACCOUNTS BETWEEN THE ASSESSEE AND THE SHAREHOLDERS AND THEIR RELATIVES. ULTIMATELY THE TRANSAC TIONS WERE SQUARED UP BY WAY OF THE ACCOUNT PAYEE CHEQUES I N THE FINAL STAGES. IN THIS CASE, WE FIND THAT ALL THESE ENTRI ES WERE ITA NO. 4958/MUM/2017 : 11 : MADE EITHER TO ACCOUNT FOR THE EXPENSES IN THE BOOKS OF THE ASSESSEE BY WAY OF SALARY , MEETING AND OTHER EXPENS ES OR TO BUY PROPERTIES FOR WHICH THE PAYMENT DIRECTLY MADE BY TH E SHAREHOLDERS/THEIR RELATIVES ON BEHALF OF THE COMPANY OR BY THE COMPANY ON BEHALF BY THOSE PERSONS. THEREFORE, W E DO NOT FIND ANY EVIDENCE ON RECORD WHICH PROVES THAT THERE IS AN ACCEPTANCE OF CASH LOANS BY THE ASSESSEE FROM THE SHAREHOLDERS OR THEIR RELATIVES. THESE ARE ONLY JOUR NAL ENTRIES INTENDED TO CARRY OUT BUSINESS EFFICIENTLY AND IN ORDER TO SAVE THE TIME WASTED IN ROUTING THROUGH VARIOUS PARTIES THROUGHCHEQUES. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. AJITNATH HI-TECH BUILDERS PVT. LTD., AND O THERS (SUPRA) AGAINST WHICH SLP FILED BY THE REVENUE IN THE HON'BLE SUPREME COURT HAS BEEN DISMISSED BY THE HON'BLE COURT VIDE ORDER DT. 10-12-2018. MOREOVER, ASSESSEE HAS REASONS TO BELIEVE THAT ALL THESE TRANSACTIONS WERE PERMISSIBLE UND ER THE ACT DURING THE YEAR WHEN THESE JOURNAL ENTRIES WERE MA DE, AS THERE WERE TWO FAVOURABLE DECISIONS VIZ., CIT VS. B OMBAY CONDUCTORS & ELECTRICALS LTD.,(SUPRA)AND CIT VS. NATVAR LAL PURSHOTTAMDAS PAREKH (SUPRA) AND NONE AGAINST. THUS, THE ITA NO. 4958/MUM/2017 : 12 : ASSESSEE HAS EVERY REASON TO BELIEVE THAT THE JOURNAL ENTRIES ARE NOT IN VIOLATION OF PROVISIONS OF THE ACT AND THE ONLY DECISION WHICH IS AGAINST THE ASSESSEE IS DATED 12-06- 2012, IS POST TO THIS FINANCIAL YEAR. THEREFORE, ON THIS AC COUNT ALSO, NO FAULT CAN BE ATTRIBUTED TO THE ASSESSEE. THEREFORE, RESP ECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE BOMBAY HI GH COURT IN THE ABOVE SAID CASE, WE SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO DELETE THE PENALTY. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH DAY OF MARCH, 2019 SD/- SD/- (AMARJIT SINGH) (RAJESH KUMAR) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /MUMBAI; /DATED : 13 TH MARCH, 2019 TNMM ITA NO. 4958/MUM/2017 : 13 : / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. #!' / THE RESPONDENT 3. $ % ( ) / THE CIT(A), MUMBAI 4. $ % / CIT, MUMBAI 5. ()* +, , $ .+,$/ , / DR, ITAT, MUMBAI 6. *012 / GUARD FILE $ / BY ORDER, # //TRUE COPY// / $ (DY./ASST. REGISTRAR) $ .+,$/, / ITAT, MUMBAI