ADDL CIT PALGHAR CIR PALGHAR, THANE V. CHETAN M KAKARIA, THANE

ITA 4961/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75413 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 23-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVI PRAKASH FUKKZFJRH DH LS
• Keywords: Reasonable cause
• Section: 273B

Judgement Text

- 1 - VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI JH JH JH JH ,U ,U,U ,U- -- - DS DSDS DS- -- - LSUH LSUH LSUH LSUH] YS[KK LNL; ,OA ] YS[KK LNL; ,OA ] YS[KK LNL; ,OA ] YS[KK LNL; ,OA JH LAT; XXZ JH LAT; XXZ JH LAT; XXZ JH LAT; XXZ] U;KF;D LNL; DS ] U;KF;D LNL; DS ] U;KF;D LNL; DS ] U;KF;D LNL; DS LE{K LE{K LE{K LE{K BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO. 4961/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR 2006-07 DY. CIT, PALGHAR CIRCLE PALGHAR. BIDCO ROAD, PALGHAR PALGHAR DIST. THANE. CUKE@ VS. CHETAN M. KAKARIA, 101/102 VASUPUJYA APARTMENT, OPP. JALARAM MANDIR, IRANI ROAD, DAHANU ROAD, DIST. THANE. PAN: - AIDPK 9485 C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY SHRI RAVI PRAKASH FU/KKZFJRH DH VKSJ LS @ ASSESSEE BY SHRI FIROZ ANDHYARUJINA VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER N.K. SAINI, AM. THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORD ER DATED 28.02.2011 OF CIT(A)-II, THANE. THE ONLY GRIEVANCE OF THE DEPARTMENT RELATES TO DELETION OF PENALTY OF RS. 33,26,960/- L EVIED BY AO U/S 271E OF THE INCOME TAX ACT. ( HEREINAFTER REFERRED AS THE A CT). 2. FACTS OF THE CASE IN BRIEF ARE THAT THE AO DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSE HAD REPAID THE LOANS IN CASH AS UNDER:- LQUOKBZ DH RKJH[K@ DATE OF HEARING 03 - 02 - 2014 ?KKS'K.KK DH RKJH[K@ DATE OF PRONOUNCEMENT 03 - 02 - 2014 - 2 - NAME OF THE PARTY DATE OF LOAN REPAID MODE OF PAYMENT AMOUNT (RS.) M/S CHETAN GRASS TRADING COMPANY 31.03.2006 CASH 2,00,000/- M/S ABC GRASS COMPANY 31.03.2006 CASH 31,26,960/ - TOTAL 33,26,960/ - THE AO BY CONSIDERING THE ABOVE PAYMENTS IN VIOLATI ON OF SECTION 269T OF THE ACT, INITIATED THE PENALTY PROCEEDINGS U/S 274 R.W.S 271E OF THE ACT. 3. THE ASSESSEE SUBMITTED TO THE AO AS UNDER:- IT IS SUBMITTED THAT IN THE GIVEN FACTS OF THE CA SE, NATURE OF CAPITAL A/C WITH THE PARTNERSHIP FIRM WILL NOT CHANGE IRRESPECTIVE OF IT S PRESENTATION IN THE BALANCE SHEET AND IRRESPECTIVE OF ITS NOMENCLATURE. IT IS SUBMITTED THAT THE PROVISIONS OF SECTION 269S S/269 T ARE NOT APPLICABLE IN RESPECT OF CAPITAL INTRODUCED/WITHDRAWN IN CASH WIT H/FROM THE PARTNERSHIP FIRMS IN WHICH THE ASSESSEE IS A PARTNER. IT IS SUBMITTED THAT THE ASSESSEE WAS UNDER THE HON EST BELIEF THAT THE PROVISIONS OF SECTION 269SS AND 269T ARE NOT APPLICABLE IN RES PECT OF TRANSACTION ENTERED WITH THE PARTNERSHIP FIRM AS THE PARTNER AND THE PARTNER SHIP FIRM ARE ONE AND THE SAME. IT IS SUBMITTED THAT AS PER SECTION 194A(3)(IV) OF THE IT ACT, 1961 NO TAX IS REQUIRED TO BE DEDUCTED FROM INTEREST CREDITED OR P AID BY THE FIRM TO ITS PARTNERS. THIS FACT ALSO CONFIRMS THAT FOR INCOME-TAX PURPOSE PARTNERSHIP FIRMS AND PARTNERS ARE ONE AND THE SAME. IT IS SUBMITTED THAT IF ONE INTRODUCES HIS CAPITAL IN PARTNERSHIP FIRM IT CANNOT BE SAID THAT HE HAS GIVEN A LOAN/ADVANCE TO THE FIRM O R CONVERSELY IT CANNOT BE SAID THAT THE FIRM HAS TAKEN/ACCEPTED LOAN/DEPOSIT FROM ITS PARTNERS. IN THE SAME WAY IT IS SUBMITTED THAT WHEN THE PARTNER WITHDRAW FROM TH E FIRM IT CANNOT BE SAID THAT THE FIRM HAS ADVANCED LOAN/DEPOSIT TO ITS PARTNERS. FURTHER IT IS SUBMITTED THAT NATURE OF TRANSACTION BETWEEN THE PARTNERS AND THE PARTNERSHIP FIRM IS NOT GUIDED BY THE MANNER IN WHICH IT IS ACCOUNTED FOR BY THE P ARTNERSHIP FIRM OR ITS PARTNERS. IT IS SUBMITTED THAT AFTER PURSUING THE ASSESSEES WRITTEN SUBMISSION AND THE ASSESSEES EXPLANATION LEARNED AO WAS SATISFIED THA T PROVISIONS OF SECTION 269SS AND 269T ARE NOT APPLICABLE TO THE TRANSACTION OF T HE ASSESSEE WITH THESE PARTNERSHIP FIRMS. THEREFORE LEARNED AO HAS ALLOWED THE CASH TRANSACTION IN THE CAPITAL ACCOUNT WITH THE ABOVE REFERRED PARTNERSHIP FIRM. 4. AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESSE E BY OBSERVING THAT THE CASH PAYMENT OF RS. 33,26,960/- TO THE FIRMS M/ S CHETAN GRASS - 3 - TRADING COMPANY AND M/S ABC GRASS COMPANY WERE NOT REFLECTED IN THE CAPITAL ACCOUNT OF THE ASSESSEE AND AS PER THE AUDI T REPORT SUBMITTED BY THE ASSSESSEE CASH PAYMENTS WERE TREATED AS REPAYME NT OF LOANS. HE ALSO OBSERVED THAT THE ASSESSEE HAD NOT PUT FORWARD THE EXISTENCE OF ANY COMPELLING CIRCUMSTANCES FOR THE TRANSACTIONS IN CA SH. THEREFORE, THE PROVISIONS OF SECTION 269 WERE CLEARLY APPLICABLE I N THIS CASE AND THE CLAIM OF THE ASSESSEE THAT TRANSACTION WITH HIS FIRM WAS IN THE NATURE OF WITHDRAWAL AND DEPOSIT OF CAPITAL CANNOT BE ACCEPTE D. ACCORDINGLY THE AO LEVIED PENALTY OF RS. 33,26,960/- U/S 271E OF THE I T ACT. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO LD. CIT(A) AND T HE SUBMISSIONS MADE BEFORE HIM AS INCOROPORATED IN PARA 4.1 TO 4.7 READ AS UNDER:- 4.1 THE ASSESSEE IS AN INDIVIDUAL AND PARTNER IN TWO FIRMS NAMELY M/S. ABC GRASS SUPPLIERS AND M/.S CHETAN GRASS TRADING CO. AND IS TRADER/CONTRACT SUPPLIER IN GRASS / PADDY STRAW BUSINESS. IN THIS LINE OF TRADING IN GRASS, PAYMENTS FOR PURCHASES OF GRASS, WHICH IS MOSTLY FROM TRIBALS (ADIVASI) FARME RS IS IN CASH AND THE RECEIPTS OF PAYMENTS ON ACCOUNT OF SALE OF GRASS ARE ALSO MOSTL Y IN CASH. THE ENTIRE PURCHASES OF GRASS FROM THE TRIBAL FARMER BELONGING TO REMOTE AREAS HAS TO BE IN CASH AS THESE FARMERS DO NOT ACCEPT CHEQUE PAYMENTS AS THERE ARE NO BANKING FACILITIES IN THOSE AREAS. HENCE, THE ASSESSEE HAS TO INTRODUCE OR WITH DRAW AMOUNT FROM HIS CAPITAL ACCOUNT / BANKS IN CASH LOOKING INTO THE BUSINESS E XIGENCIES AND ALSO REPAY THE AMOUNTS IN CASH TO FIRM AS AND WHEN NEEDED. 4.2. FOR CARRYING OF THESE TRANSACTIONS, THE ASSE SSEE HAS MAINTAINS TWO SEPARATE ACCOUNTS WITH THE FIRM, ONE CAPITAL ACCOUNT AND THE OTHER LOAN/CURRENT ACCOUNT. IN THE LOAN / CURRENT ACCOUNT, THE ASSESSEE INTRODUCED CAP ITAL IN CASH AND ALSO MAKES WITHDRAWALS IN CASH. IN THE CAPITAL ACCOUNT, THE AS SESSEE HAS SHOWN ENTRIES OF OTHER THAN BANK / CASH ACCOUNT NAMELY FIRM, TDS, ADVANCE TAX AND SHARE OF PROFIT / LOSS. 4.3. AS A PARTNER, THE ASSESSEE HAS REPAID THE FOL LOWING CASH AMOUNTS TO THE FIRM:- M/S. CHETAN GRASS TRADING CO. RS. 2,00,000/- M/S. ABC GRASS COMPANY RS. 31,26,960/- THE ABOVE AMOUNTS WERE EARLIER TAKEN FROM THE FIRM FOR BUSINESS EXIGENCIES I.E. PURCHASE OF GRASS ETC. 4.4. FURTHER, AS A PARTNER, THE ASSESSEE HAS WITH DRAWN CAPITAL IN CASH FROM M/S. CHETAN GRASS TRADING CO. AMOUNTING TO RS. 2,00,000/ -. 4.5. THE APPELLANT HAS CONTENDED THAT THE TRANSAC TIONS OF THE ASSESSES WITH THE FIRM ARE THAT OF INTRODUCTION OF AND/OR WITHDRAWALS OF CAPITAL. NATURE OF CAPITAL ACCOUNT WITH THE PARTNERSHIP FIRN WILL NOT CHANGE IRRESPECTIVE O F ITS PRESENTATION IN THE BALANCE SHEET AND THE BOOKS OF ACCOUNTS AND IRRESPECTIVE OF ITS NOMENCLATURE NO DOUBT THE AMOUNT WAS SHOWN UNDER THE HEAD UNSECURED LOANS I N THE ASSESEE'S BALANCE SHEET, BUT THE NOMENCLATURE GIVEN BY THE PARTIES TO A TRANSACTION IS NOT CONCLUSIVE OF - 4 - ITS NATURE. THE NATURE OF THE TRANSACTION HAS TO BE ASCERTAINED IN ACCORDANCE WITH THE INTENTION OF THE PARTIES AND SURROUNDING CIRCUMSTAN CES 4.6. THE APPELLANT FURTHER CONTENDED THAT PARTNER S AND FIRM ARE NOT INDEPENDENT OF EACH OTHER AND THE FIRM IS NOT JURISTIC PERSON THES E TRANSACTIONS CANNOT BE CONSIDERED AS INTER-PERSON BUT WERE ONLY FOR THE PURPOSE OF CA RRYING ON THE PARTNERS OWN BUSINESS. THE PARTNERSHIP FIRM UNDER THE INDIAN PAR TNERSHIP ACT, 1932 IS NOT A DISTINCT LEGAL ENTITY APART FROM THE PARTNERS CONST ITUTING IT. IN LAW, THE FIRM AS SUCH HAS NO SEPARATE RIGHTS OF ITS OWN IN THE PARTNERSHIP AS SETS BUT IT IS THE PARTNERS, WHO OWN IT JOINTLY. THE PROFITS OF THE FIRM ARE THE PROFITS EARNED BY ALL THE PARTNERS IN CARRYING ON THE BUSINESS PAYMENT BY PARTNER TO A FIRM OR REPAYM ENT OF CAPITAL AMOUNT BY A FIRM TO PARTNER, TEMPORARY ADVANCES AND WITHDRAWALS FROM JO INT ACCOUNT DO NOT RESULT IN LOAN/ DEPOSITS AND ARE, THEREFORE OUTSIDE THE PURVIEW OF THE AFORESAID PROVISIONS THE AFORESAID PENALTIES ARE NEITHER AUTOMATIC NOR MANDA TORY, BUT ARE DIRECTORY IN NATURE I.E. THE SAID PENALTIES WOULD NOT BE LEVIABLE IF TH ERE EXISTS REASONABLE CAUSE FOR THE DEFAULT IN VIEW OF THE PROVISIONS OF SECTION 273B. IN VIEW OF THE ABOVE, THE PAYMENTS BY PARTNER TO FIRM IS A PAYMENT TO SELF AND NOT THE LOAN OR DEPOSIT AND AS SUCH IT WOULD NOT ATTRACT PENALTY UNDER SECTION 271 D / 271 E OF THE IT ACT, 1961. 4.7. IN SUPPORT OF THE ABOVE CONTENTIONS, THE ASS ESSEE RELIES ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS._ 1. SHEPAK ENTERPRISES VS. DY. CIT ( 1998) 60TTJ (AHD.) 199 2. CIT VS. MAHESHWARI NIRMAN UDYOG (2008) 302 I TR 201 3. CIT VS. IDHAYAM PUBLICATIONS (2006) 285 ITR 2 21 (MAD) 4. CIT VS. SUNIL KUMAR GOEL (2009) 315 ITR 163 (P&H) 5. JAY BUILDERS VS ACIT (2002) 77 TTJ (MUM) 383 6. MUSLIM URBAN CO-OPERATIVE CREDIT SOCIETY LTD VS JCIT (2005) 97 TTJ (PUNE) 928 7. CIT VS LAKSHMI TRUST CO. (2008) 303 ITR 99 ( MAD) 8. CANARA HOUSING DEVELOPMENT CO. VS. ADLL. CIT (2010 ) 127 TTJ (BANG.) 446 5. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT LEGALLY SPEAKING, THERE IS NO INDEPENDENT LEGA L ENTITY OR THE SEPARATE RIGHTS OF THE FIRM APART FROM THE RIGHTS AND LIABIL ITIES OF THE PARTNERS CONSTITUTING IT. THEREFORE, ANY TRANSACTION OF MONE Y BETWEEN THE PARTNER AND THE FIRM, WAS NOT A BORROWING OR REPAYMENT OF L OAN AND IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 269T OF THE ACT, A PERSON MUST REPAY TO ANOTHER PERSON A LOAN TRANSACTION IN CASH BUT THERE IS NO SUCH TRANSACTION IN THE INSTANT CASE. HE FURTHER OBSERVED THAT THE AO H AD NOT GIVEN ANY FINDING REGARDING THE TRANSACTION BEING FROM ANY UNEXPLAINE D SOURCES AND THE SOURCE OF MONEY WAS NOT IN DOUBT, THEREFORE, THOSE REPAYMENTS CANNOT BE CONSIDERED THE ATTEMPT ON THE PART OF ASSESSEE TO E VADE TAX. HE FURTHER - 5 - OBSERVED THAT THE TRANSACTION BEING RECORDED IN THE BOOKS OF ACCOUNTS AND FOR GENUINE BUSINESS PURPOSES, SHOULD BE BEYOND THE PURVIEW OF PENAL PROVISIONS AND THAT FOR THE ACCOUNTING PURPOSES THE SE ENTRIES OF LENDING MONEY TO THE FIRM WAS SHOWN AS UNSECURED LOAN IRRES PECTIVE OF THE NOMENCLATURE GIVEN TO SUCH TRANSACTIONS IN THE BOOK S OF ACCOUNTS. THE LD. CIT(A) OPINED THAT IN THE PRESENT CASE, THE FACT RE MAINED THAT THESE TRANSACTIONS WERE NOT THE LOANING TRANSACTIONS IN THE TRUE SENSE BUT BUSINESS TRANSACTIONS AND THE FUNDS HAD BEEN TRANSF ERRED IN CASH FROM THE CAPITAL ACCOUNT OF THE PARTNER TO THE FIRM LOOKING TO THE BUSINESS EXIGENCIES AND THAT THE GIVING MONEY FOR BUSINESS PURPOSE BY T HE PARTNER TO THE FIRM, IN NO WAY, CAN BE TERMED AS GIVING LOAN BY THE PART NER TO THE FIRM OR VICE VERSA. THEREFORE, PENALTY U/S 271E WAS NOT LEVIABLE . RELIANCE WAS PLACED ON THE FOLLOWING CASES. 1. ACIT VS. D. SUDHAKAR & ANR. ( 2009) 19 DTR (BANG ) (TRIB) 276. 2. OMEC ENGINEERS VS. CIT (2007) 294 ITR 599 (JHAR KHAND) 3. CIT VS. BOMBAY CONDUCTORS & LECTRICALS LTD. ( 20 08) 301 ITR 328 (GUJ) 4. CIT VS. LOKHPAT FILM EXCHANGE (CINEMA) (2007) 21 2 CTR (RAJ) 371. 5. CIT VS. MAHESHWARI NIRMAN UDYOG (2007) 211 CTR ( RAJ) 579; 6. CIT VS. RAJKUMAR SHARMA ( 2007) 294 ITR 131 (RAJ ). 7. HINDUSTAN STELL LTD. VS. STATE OF ORISSA ( 1972 ) 83 ITR 26 (SC) AGGRIEVED BY THE DECISION OF CIT(A) THE REVENUE IS IN APPEAL BEFORE TRIBUNAL. 6. THE LD. DR STRONGLY SUPPORTED THE ORDER OF AO A ND REITERATED THE OBSERVATIONS MADE IN THE PENALTY ORDER. IN HIS RIVA L SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE CAREFULLY GONE THROUGH THE MATERIAL PLACED ON RECOR D. IN THE PRESENT CASE, IT - 6 - IS AN ADMITTED FACT THAT ASSESSEE IS A PARTNER IN T HE FIRMS M/S CHETAN GRASS TRADING COMPANY AND M/S ABC GRASS COMPANY FROM WHOM HE RECEIVED A SUM OF RS. 2,00,000/- AND RS. 31,26,960/- RESPECTIV ELY. THESE TRANSACTIONS WERE TREATED BY THE AO AS REPAYMENT OF LOAN IN CASH . IN OUR OPINION THERE IS NO INDEPENDENT LEGAL ENTITY OF THE FIRM APART FROM THE RIGHTS AND LIABILITY OF THE PARTNERS CONSTITUTING IT AND IF ANY AMOUNT IS G IVEN OR TAKEN FROM THE FIRM BY THE PARTNERS THAT CANNOT BE TREATED AS GIVING OR TAKING OF THE LOAN. IN THE INSTANT CASE, THE ASSESSEE BEING A PARTNER GAVE THE MONEY TO THE PARTNERSHIP FIRM WHEN IT WAS IN NEED OF BUSINESS EX IGENCIES, LATER ON THE AMOUNT WAS RECEIVED BACK IF THE SAID AMOUNT HAD BEE N ROUTED THROUGH THE CAPITAL ACCOUNT, THERE COULD HAVE BEEN NO DISALLOWA NCE BY THE DEPARTMENT BECAUSE A PARTNER CAN DEPOSIT CASH IN HIS CAPITAL A CCOUNT AND ALSO HE HAS A RIGHT TO RECEIVE IT IN CASH. THEREFORE, IN OUR OPIN ION PENALTY LEVIED BY AO U/S 271E WAS NOT JUSTIFIED AND THE LD. CIT(A) HAS RIGHT LY DELETED THE SAME. 8. ON A SIMILAR ISSUE THE HONBLE HIGH COURT OF M ADRAS IN THE CASE OF CIT VS. V. SIVAKUMAR [2013] 354 ITR 9 (MAD) HELD AS UNDER :- THAT THERE WAS NO SEPARATE IDENTITY FOR THE FIRM A ND THE PARTNER IS ENTITLED TO USE THE FUNDS OF THE FIRM. THE ASSESSEE ACTED BONA FIDE AND THERE WAS A REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273B . PENALTY COULD NOT BE IMPOSED. 9. SIMILARLY THE HONBLE HIGH COURT OF RAJASTHAN IN THE CASE OF CIT VS. LOKHPAT FILM EXCHANGE (CINEMA) [2008] 304 ITR 172 ( RAJ) HELD THAT:- THE ASSESSEE HAD ACTED BONA FIDE AND ITS PLEA THAT INTER SE TRANSACTIONS BETWEEN THE PARTNERS AND THE FIRM WERE NOT GOVERNE D BY THE PROVISIONS OF SECTIONS 269SS AND 269T WAS A REASONABLE EXPLANATIO N. PENALTY COULD NOT BE IMPOSED. 10. SO KEEPING IN VIEW THE RATIO LAID DOWN IN THE AFORESAID REFERRED CASES VIS A VIS THE FACTS OF THE ASSESSEES CASE, WE ARE OF THE VIEW THAT THE PENALTY - 7 - LEVIED BY AO U/S 271E IS NOT JUSTIFIED AND THE SAME HAS RIGHTLY BEEN DELETED BY THE LD. CIT(A). 11. IN THE RESULT APPEAL OF THE DEPARTMENT IS DISM ISSED. ORDER PRONOUNCED ON 3/02/2014 SD/- SD/- (SANJAY GARG) (N.K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED 03 /02/2014 SKS SR. P.S COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI