M/s Neeraj Shoes Industries Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 5942/DEL/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74032 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 19-12-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 27-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KEYUR PATAL
• Keywords: Question of law; Reasonable cause

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : E NEW DELHI BEFORE SHRI A.D. J AIN, JM AND SHRI J.SUDHAKAR REDDY, AM ITA NO. 5942/DEL/2010 ASSESSMENT YEA R : 2006-07 M/S NEERAJ SHOES INDUSTRIES P.LTD. VS. ACIT, RANGE 13 E 124/125, MADIPUR COLONY NEW DELHI NEW DELHI 110 063 PAN: AABCN 8945 G (APPELLANT) (RESPONDENT) APPELLANT BY:- SH.PIYUSH KAUSHIK, ADV. RESPONDENT BY:- SH. KEYUR PATAL, SR . D.R O R D E R PER J.SUDHAKAR REDDY, AM THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX (APPEALS)-XVI, NEW DE LHI DATED 23.9.2010 PERTAINING TO THE A.Y. 2006-07 ON THE FOLLOWING GROUNDS. 2. FACTS IN BRIEF:- THE ASSESSEE IS A COMPANY AND IT FILED ITS RETURN OF INCOME ON 29.11.2006 DECLARING NIL INCOME. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE COMPAN Y HAS TAKEN AMOUNTS FROM ITS DIRECTOR SHRI VIJAY SINGH RANA AND MRS.MANJU RA NA. AMOUNTS WERE WITHDRAWN FROM THE CAPITAL ACCOUNT OF THE PROPRIETA RY CONCERN OF SHRI VIJAY SINGH RANA AND REMITTED INTO THE ACCOUNT OF THE ASS ESSEE TO THE TUNE OF RS.10,75,800/-. SIMILARLY SMT.MANJU RANA, THE OTHE R DIRECTOR, WITHDREW 2 AMOUNTS FROM HER CAPITAL ACCOUNT IN HER PROPRIETARY CONCERN M/S. M.V.N.T.R.INDUSTRIES AND REMITTED THE SAME TO THE ASSESSEE COMPANY TO THE TUNE OF RS.4,12,500/-. THE AO WAS OF THE VIEW THAT THE ASSESSEE VIOLATED S.269(SS) OF THE ACT. THE ASSESSEE WAS ASKED FOR T HE EXPLANATION. THE ASSESSEE SUBMITTED THAT THE AMOUNT WAS GIVEN AS SHARE APPLIC ATION MONEY AND HENCE NOT A LOAN OR DEPOSIT. IT WAS ALSO SUBMITTED THAT THE TRANSACTIONS ARE BONAFIDE AND GENUINE ONES AND ALL THE CASH WAS WITHDRAWN BY THE DIRECTORS FROM THEIR RESPECTIVE PROPRIETARY CONCERNS AND THAT THE AMOUNT S WERE RECEIVED IN CASH OWING TO EXIGENCIES OF THE BUSINESS. NOT CONVINCED THE AO REJECTED THE EXPLANATION OF THE ASSESSEE AND REFERRED THE MATTER TO THE ADDL.CIT, RANGE 13, NEW DELHI FOR CONSIDERING INITIATION OF PENALTY PRO CEEDINGS U/S 271D OF THE ACT. THE ADDL.COMMISSIONER PASSED AN ORDER U/S 271 D ON 21.6.2009 LEVYING PENALTY U/S 271D FOR VIOLATION OF S.269 (SS) OF THE ACT. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE THE LD.COMMISSIONER OF INCOM E TAX (APPEALS) WITHOUT SUCCESS. FURTHER AGGRIEVED THE ASSESSEE IS IN APPE AL BEFORE US. . 3. THE LD.COUNSEL FOR THE ASSESSE MR.PIYUSH KAUSHIK SUBMITTED THAT: (A) CONTRIBUTION RECEIVED BY PRIVATE COMPANY FROM A DIR ECTOR CANNOT BE TREATED AS A LOAN OR DEPOSIT FOR THE PURPOSE OF S.2 69 SS. HE RELIED ON THE FOLLOWING CASE LAWS: LIPCAM MARKETING P.LTD. VS. ACIT IN ITA 3629/DEL/20 10 DT. 14.11.2011; CIT VS. IDHAYAM PUBLICATIONS LTD. (2006) 285 ITR 2 21 (MADRAS); DILLU CINE ENTERPRISES (P) LTD. VS. ACIT (2002), 80 ITD 484 (HYD.TRIB.) 3 (B) THAT SEC. 269 SS WILL NOT APPLY WHERE CONTRIBUTIONS RECEIVED HAVE BEEN CONVERTED INTO SHARE CAPITAL BY WAY OF ALLOTMENT OF SHARES. HE RELIED ON THE FOLLOWING CASE LAWS: CIT VS. M/S SRI SIDHDATA ISPAT P.LTD. 2012-TIOL-786 -HC-DEL. CIT VS. IP INDIA P.LTD. 2011-TIOL-811-HC-DEL. (C) THAT S.269SS WILL NOT APPLY IN CASE OF BONAFIDE DIS CLOSED TRANSACTIONS FOR BONAFIDE PURPOSE IN VIEW OF BUSINESS EXIGENCIES AND NOT INVOLVING ANY TAX EVASION; CIT VS. M/S LAKSHMI TRUST CO. 2007-TIOL-HC-MAD-IT DIT VS. ALL INDIA DEAF AND DUMB SOCIETY 2005-TIOL-1 03-HC-DEL CIT VS. BOMBAY CONTRACTORS AND ELECTRICALS LTD. 301 ITR 328 (GUJ.) 4. THE LD.D.R. ON THE OTHER HAND RELIED ON THE ORD ER OF THE FIRST APPELLATE AUTHORITY AND SUBMITTED THAT THE PENALTY WAS RIGHTL Y CONFIRMED BY THE LD.CIT(A). HE SUBMITTED THAT THE ASSESSEE HAS NOT DEMONSTRATED REASONABLE CAUSE AND THE COMPANY DIVERTED ITS OWN FUNDS AS LOA NS AND ADVANCES TO OTHER PERSONS, WHILE CLAIMING THAT IT WAS IN DIRE NECESS ITY OF FUNDS. 5. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERA TION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD AND ORDERS OF THE AUTHORITIES BELOW, CASE LAWS CITED, WE HOLD AS FOLLOWS. 6. THE LD.CIT(A) HAS RECORDED THAT THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CA SE OF CIT VS. IDHAYAM PUBLICATIONS LTD. (2006) 285 ITR 221 (MADRAS). W ITHOUT GIVING ANY REASON AS 4 TO WHY HE IS NOT FOLLOWING THIS JUDGEMENT, THE FI RST APPELLATE AUTHORITY WENT ON TO CONFIRM THE PENALTY. IN OUR VIEW THIS IS WRO NG. 6.1. THE HONBLE MADRAS HIGH COURT IN THE CASE OF I DHAYAM PUBLICATIONS LTD. (SUPRA) HELD AS FOLLOWS. THE ASSESSEE IS RUNNING A COMPANY IN THE NAME OF M/ S. IDHAYAM PUBLICATIONS PRIVATE LIMITED FOR PUBLICATION OF BOOKS. THE RELEV ANT ASSESSMENT YEAR IS 1992- 93. IN THE ASSESSMENT PROCEEDING, THE ASSESSING OFF ICER NOTED THAT THE ASSESSEE HAD ACCEPTED A CASH LOAN OF RS. 2,94,000 FROM M/S. MANIAN CREATIONS, A SISTER CONCERN, IN VIOLATION OF THE PROVISIONS OF SECTION 269SS OF THE ACT. WITH THE ABOVE INFORMATION, THE DEPUTY COMMISSIONER OF INCOME-TAX INITIATED PENAL PROCEEDINGS UNDER SECTION 271D AND ISSUED A SHOW-CAUSE NOTICE D ATED SEPTEMBER 19, 1997, TO THE ASSESSEE. IN RESPONSE, THE ASSESSEE FILED A LETTER DATED SEPTEMBER 27, 1997, STATING THAT THE TRANSACTION BETWEEN THE ASSE SSEE AND MR. S. V. S. MANIAN, PROPRIETOR OF MANIAN CREATION, WAS CURRENT ACCOUNT IN NATURE AND WAS NOT A LOAN OR DEPOSIT. THE DEPUTY COMMISSIONER OF INCOME-TAX R EJECTED THE CONTENTION AND WAS OF THE VIEW THAT THERE WAS A CLEAR VIOLATION OF THE PROVISIONS OF SECTION 271D AND LEVIED A PENALTY OF RS. 2,94,000 UNDER SECTION 271D OF THE ACT. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPE AL TO THE COMMISSIONER OF INCOME-TAX (APPEALS). THE COMMISSIONER OF INCOME -TAX (APPEALS) HELD THAT EVEN THOUGH THERE WAS REASONABLE CAUSE TO HOLD THAT THERE WAS A VIOLATION OF THE PROVISION UNDER SECTION 269SS WHICH ATTRACTED PENAL TY UNDER SECTION 271D, HE HAS REFERRED THE MADRAS HIGH COURT JUDGMENT IN THE CASE OF KUMARI A. B. SHANTHI (ALIAS) VENNIRA ADAI NIRMALA V. ASSISTANT D IRECTOR OF INSPECTION, INVESTIGATION REPORTED IN [1992] 197 ITR 330, WHICH DECLARED THAT SECTION 269SS IS UNCONSTITUTIONAL. AGGRIEVED BY THAT ORDER, THE R EVENUE FILED AN APPEAL BEFORE THE INCOME-TAX APPELLATE TRIBUNAL AND CONTENDED THA T THE SUPREME COURT (ASST. DIRECTOR OF INSPECTION (INVESTIGATION) V. KUM. A. B . SHANTHI [2002] 255 ITR 258 (SC)) HAS REVERSED THE DECISION OF THE MADRAS HIGH COURT JUDGMENT IN [1992] 197 ITR 330 AND HELD THAT SECTION 269SS IS CONSTITUTION ALLY VALID AND THEREFORE THE PENALTY LEVIED BY THE ASSESSING OFFICER OUGHT TO BE CONSIDERED. THE TRIBUNAL, ON HEARING THE ARGUMENTS, HELD THAT, ON THE MERITS, TH E TRANSACTION DOES NOT FALL WITHIN THE MEANING OF LOAN OR ADVANCE AND HENCE THE RE IS NO VIOLATION OF SECTION 269SS. WE HEARD THE ARGUMENTS OF LEARNED COUNSEL FOR THE REVENUE. WE HAVE 5 PERUSED THE MATERIALS AVAILABLE IN RECORD. ADMITTED LY MR. S. V. S. MANIAN WAS ONE OF THE DIRECTORS. THEREFORE THE ORDER OF THE LO WER AUTHORITY CLEARLY SHOWS THAT THERE WAS A RUNNING CURRENT ACCOUNT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IN THE NAME OF MR. S. V. S. MANIAN. MR. S. V. S. MANIA N USED TO PAY THE MONEY IN THE CURRENT ACCOUNT AND USED TO WITHDRAW THE MONEY ALSO FROM THE CURRENT ACCOUNT. THE REVENUE SHOULD ESTABLISH THAT WHAT WAS RECEIVED BY THE ASSESSEE IS A LOAN OR DEPOSIT WITHIN THE MEANING OF SECTION 269SS. THE DEPOSIT AND THE WITHDRAWAL OF THE MONEY FROM THE CURRENT ACCOUNT CO ULD NOT BE CONSIDERED AS A LOAN OR ADVANCE. FURTHER IT WAS ALSO FOUND THAT THE ASSESSEE FILED A LETTER DATED SEPTEMBER 29, 1997, AND IN THAT LETTER HE EXPLAINED THAT THE AMOUNT RECEIVED FROM MR. S. V. S. MANIAN HAD BEEN SHOWN AS UNSECUR ED LOAN FROM DIRECTORS IN THE BALANCE-SHEET. AS PER THE COMPANIES ACT, UNDER THE COMPANIES (ACCEPTANCE OF DEPOSITS) RULES, 1975, UNDER RULE 2(B)(IX), DEPO SIT DOES NOT INCLUDE ANY AMOUNT RECEIVED FROM A DIRECTOR OR A SHAREHOLDER OF A PRIV ATE LIMITED COMPANY. THEREFORE THE TRANSACTION BETWEEN THE APPELLANT AND THE DIREC TOR CUM SHAREHOLDER IS NOT A LOAN OR DEPOSIT AND IT IS ONLY A CURRENT ACCOUNT IN NATURE AND NO INTEREST IS BEING CHARGED FOR THE ABOVE TRANSACTION. IN THE FOREGOING CONCLUSIONS, WE ARE OF THE VIEW T HAT SINCE THE SAID TRANSACTION DOES NOT FALL WITHIN THE MEANING OF LOA N OR ADVANCE, THERE IS NO VIOLATION OF SECTION 269SS OF THE INCOME-TAX ACT. W E FIND NO ERROR IN THE ORDER OF THE TRIBUNAL AND THE SAME REQUIRES NO INTERFERENCE. HENCE, NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION OF THIS CO URT. ACCORDINGLY, WE DISMISS THE ABOVE TAX CASE. NO COSTS. 6.1.1. THIS DECISION WAS FOLLOWED BY THE DELHI D BENCH OF THE TRIBUNAL IN THE CASE OF LIPCAM MARKETING P.LTD. AS IT IS NO T DISPUTED THAT THE PROMOTER DIRECTOR OF THE ASSESSEE COMPANY HAVE CONTRIBUTED T HESE AMOUNTS BY WITHDRAWING FROM THE CAPITAL ACCOUNT IN THEIR RESPE CTIVE PROPRIETARY CONCERNS FOR THE PURPOSE OF CONSTRUCTION OF BUILDING AND PUR CHASE OF MACHINERY OF THE NEW COMPANY, IT CANNOT BE TREATED AS A LOAN OR DEPO SIT AS CONTEMPLATED U/S 269 SS. HENCE ON THIS SOLE GROUND THIS PENALTY HAS TO BE DELETED. 6 6.2. IN ANY EVENT SHARES WERE ALLOCATED BY THE COMP ANY TO THE PROMOTER DIRECTORS FOR THE AMOUNTS CONTRIBUTED. IN SUCH A S ITUATION THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. SRI SIDH DATA ISPAT P.LTD. AND CIT VS. IP INDIA P.LTD. ARE APPLICABLE A ND NO PENALTY CAN BE LEVIED. BY APPLYING THE PROPOSITIONS LAID DOWN IN THE ABOVE CASE LAWS TO THE FACTS OF THE CASE ON HAND, WE DELETE THE PENALTY LEVIED U/S 269 SS AND ALLOW THE APPEAL OF THE ASSESSEE. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JANUARY, 2014. SD/- SD/- (A.D. JAIN) (J.SUDH AKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED: THE 23 RD JANUARY, 2014 *MANGA 7 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT (A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR