DCIT CEN CIR 7(3), MUMBAI V. SHANTINATH DESIGNER CONSTRUCTION P. LTD, MUMBAI

ITA 599/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5556 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 27-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: IN CIRCUMSTANCES OF CA SE; ITA NO M
• Keywords: Search and seizure; Bonafide belief; Reasonable cause; Commercial expediency; Reassessment proceedings
• Section: 273B; 143(3); 132; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI RAJENDRA , AM AND SHRI AMARJIT SINGH , JM I.T.A. NO S . 599, 600, 606 & 615 /M/201 7 ( ASSESSMENT YEAR S : 20 09 - 10 & 2008 - 09) DCIT CENT. CIR - 7(3), ROOM NO.655 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. VS. M/S. SHANTINATH DESIGNER CONSTRUCTION P LTD. 216, SHAH AND NAHAR INDUSTRIAL ROAD, OFF. DR. E. MOSES ROAD, WORLI MUMBAI - 400018. ./ ./ PAN/GIR NO. : AAKCS 4534 N ( APPELLANT ) .. ( RESPONDENT ) DATE OF HEARING : 26.06 .201 8 DATE OF PRONOUNCEMENT : 09. 07 .2018 O R D E R PER AMARJIT SINGH, JM: THE REVENUE HAS FILED THE ABOVE MENTIONED APPEA LS AGAINST THE DIFFERENT ORDER PASSED BY THE COMMIS S IONER OF INCOME TAX (APPEALS) - 49 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEAR S 2008 - 09 & 2009 - 10 . ITA NO.606 /M/201 7 & 615/M/2017 : - 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW. THE LDC I T{A) ERRED IN DELETING THE PENALTY OF RS 2,14,69,391/ - LEVIED U/S. ASSESSEE BY: SHRI VIJAY MEHTA (AR) DEPARTMENT BY: SHRI AARJU GARARIYA (DR) ITA. NO S .599, 600, 6006 & 615 /M/1 7 A.Y S . 2008 - 09 & 2009 - 10 2 271 D OF THE INCO ME TAX ACT, 1961 ON THE GROUND THA T GENUINENESS OF THE TRANSACTION MADE THROUGH J OURNAL ENTRIES IS NOT IN DOUBT. ' 2. 'ON THE FAT - & ANT! IN THE CIRCUMSTANCES OF THE CASE AND IN LAW. THE LD. CI T(A) HELD THAT THE ASSESSEE HAD CONTRAVENED THE PROVISION OF SECTION 269SS OF THE INCOME TAX ACT. 1961, OUGHT TO HAVE UPHELD THE LEVY OF PENALTY U/S.271D AS THE ASSE SSEE FAILED TO ESTABLISH THE COMPELLING REASONS OR GENUINE BUSINESS CONSTRAINTS OR REASONABLE CAUSE FOR HAVING TRANSACTIONS IN RESPECT OF EACH AND EVERY JOURNAL ENTRY WITH ITS GROUP CONCERNS. THE APPELLANT PRAYS T HAT THE ORDER OF CIT(A) - 49, MUMBAI ON ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW. THE LDC I T{A) ERRED M DELETING THE PENALTY OF RS .1,96,38,939 / - LEVIED U/S. 271 D OF THE INCO ME TAX ACT, 1961 ON THE GROUND THA T GENUINENESS OF THE TRANSACTION MADE THROUGH J OURNAL ENTRIES IS NOT IN DOUBT. ' 2. 'ON THE FAT - & ANT! IN THE CIRCUMSTANCES OF THE CASE AND IN LAW. THE LD. CI T(A) HELD THAT THE ASSESSEE HAD CONTRAVENED THE PROVISION OF SECTION 269SS OF THE INCOME TAX ACT. 1961, OUGHT TO HAVE UPHELD THE LEVY OF PENALTY U/S.271D AS THE ASSESSEE FAILED TO ESTABLISH THE COMPELLING REASONS OR GENUINE BUSINESS CONSTRAINTS OR REASONABLE CAUSE FOR HAVING TRANSA CTIONS IN RESPECT OF EACH AND EVERY JOURNAL ENTRY WITH ITS GROUP CONCERNS. THE APPELLANT PRAYS T HAT THE ORDER OF CIT(A) - 49, MUMBAI ON ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LAND DEVELOPMENT AND CONSTRUCTION OF REAL ESTATE PROPERTIES. ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT BY DCIT, CC - 7(3), MUMBAI UNDER THE SEARCH AND SEIZURE ACTION WAS CONDUCTED U/S 132 OF THE ACT ON THE LODHA GR OUP ON 10.01.2011 AND AS A RESULT OF UNDISCLOSED TRANSACTIONS BY THE GROUP A D ISCLOSURE OF INCOME TO THE TUNE OF RS.200 CR WAS MADE BY THE GROUP. THE DISCLOSURE WAS MADE ON ACCOUNT OF UNDISCLOSED RECEIPTS ON SALE OF CAR PARKING IN HOUSING PROJECTS, CASH LO ANS/DEPOSITS, ON MONEY RECEIPTS ETC. ONE OF THE ITA. NO S .599, 600, 6006 & 615 /M/1 7 A.Y S . 2008 - 09 & 2009 - 10 3 ALLEGATIONS AGAINST THE GROUP IS OF RESORTING TO ROUND TRIPPING OF FUNDS TO EVADE TAXES. THE PEN ALTY WAS INITIATED U/S 271E OF THE I.T. ACT UPON THE INTIMATION THROUGH LETTER DATED 25.06.2015 INTIMATING THAT THE ASSESSEE HAS REPAID LOANS/DEPOSITS TO VARIOUS SISTER CONCERNS THROUGH JOURNAL ENTRIES I.E. OTHERWISE THAN ACCOUNT PAYEE CHEQUE/DRAFT, THEREBY FLOUTING THE PROVISION OF SECTION 269T OF THE I.T. ACT. THE ENTRIES ARE AS UNDER: - SR. NO. NAME OF THE SISTER CONCERNS DEBITS (RS.) 1 LODHA DEVELOPERS PVT. LTD. 2,07,34,391 2 VARDHVINAYAK BUILDERS PVT. LTD. 7,35,000 TOTAL 2,14,69,391 5. ON THE LETTER OF THE AO , THE NOTICE WAS ISSUED TO THE ASSESSEE ON 03.07.2015 IN WHICH THE ASSESSEE WAS ASKED TO EXPLA IN AS TO WHY THE PENALTY U/S 271E OF THE ACT SHOULD NOT BE LEVIED. THE ASSESSEE FILED THE REPLY TO THE NOTICE AND THEREAFTER CONSIDERING THE REPLY OF THE NOTICE, T HE ASSESSING OFFICER LEVIED THE PENALTY TO THE TUNE OF RS. 2,14,69,391/ - U/S 271E OF THE ACT. THE ASSESSEE ALSO RECEIVED THE LOAN TO THE TUNE OF RS.1,96,3 8,939/ - THROUGH JOURNAL ENTRIES, T HEREFORE, AFTER GIVING THE NOTICE TO THE ASSESSEE , THE PENALTY TO THE TUNE OF RS.1 ,96,38,939/ - WAS LEVIED U/S 271D OF THE ACT. FEELING AGGRIEVED , THE ASSESSEE FIL ED AN APPEAL AGAINST BOTH THE ORDERS AND THE CIT(A) HAS DELETED THE PENALTY LEVIED U/S 271D AND 271E O F THE ACT, THEREFORE, AGGRIEVED BY THIS ORDER, THE REVENUE HAS FILED THE ABOVE MENTIONED APPEAL S BEFORE US. ITA. NO S .599, 600, 6006 & 615 /M/1 7 A.Y S . 2008 - 09 & 2009 - 10 4 ISSUE NO S .1 & 2 : - 6 . UNDER THESE ISSUES THE REVENUE HAS CHALLENGED THE DELETION OF THE PENALTY LEVIED U/S 271D OF THE ACT, 1961 ON THE GROUND OF THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE COMPELLING REASONS OR GENUINE BUSINESS CONSTRAINTS OR REASONABLE CAUSE FOR HAVING TRANSACTIONS IN RESPECT OF EACH AND EVERY JOURNAL ENTRY WITH ITS GROUP CONCERNS. HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS PLACED RELIANCE UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION. BEFORE GOING FURTHER, WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD. : - 7.0. 1 HAVE CONSIDERED THE FACTS OF THE CASE, THE STAND TAKEN BY THE ADDL. C1T, CENTRAL RANGE - 7 IN THE PENALTY ORDER, THE GROUNDS OF APPEAL AND THE WRITTEN SUB MISSIONS FILED BY THE APPELLANT DURING THE APPEAL PROCEEDINGS. GROUND NO.2 IS GENERAL IN NATURE AND IS LINKED TO OTHER GROUNDS. 7.1. THE ASSESSMENT IN THIS CASE WAS COMPLETED U/S.143(3)R.W.S.147 OF THE ACT ON 30.3.201 & AT TOTAL INCOME OF RS.4,86,390/ - . IN THE ASSESSMENT ORDER IT WAS OBSERVED BY THE A.O. THAT THE ASSESSES HAS VIOLATED THE PROVISIONS OF SECTION 2G9SS/269T BY NOT ACCEPTING/NOT REPAYING THE LOANS THROUGH ACCOUNT PAYEE CHEQUE OR BANK DRAT AND ACCORDINGLY A REFERENCE WAS MADE TO THE ADDL.CLT., C ENTRAL RANGE - 7, MUMBAI. THE ADDL CLT HAS LEVIED THE PENALTY U/S.271D WITH RESPECT TO THE TOTAL OF CREDIT ENTRIES AMOUNTING TO RS.1,96,38,939A - , ARISING IN ITS BOOKS BY WAY OF JOURNAL ENTRIES IN THE ACCOUNT OF LODHA HI - RISE BUILDERS PVT LTD, LODHA DEVELOPER S PVT. LTD & VARDHINAYSK BUILDERS PVT LTD REFLECTED DURING THE FINANCIAL YEAR 2007 - 08 RELEVANT TO A.Y, 2006 - 09 THE ADDL.CIT HAS RELIED ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF TRIUMPH INTERNATIONAL FINANCE(L) LTD TO HOLD THAT THE TRANSAC TION OF LOAN/DEPOSIT BY WAY ADJUSTMENT THROUGH BOOK ENTRIES WILL RESULT IN CONTRAVENTION OF THE PROVISIONS OF SECTION 269SS OF THE ACT. FURTHER, IT WAS FOUND THAT THE APPELLANT COULD NOT PROVE ANY ITA. NO S .599, 600, 6006 & 615 /M/1 7 A.Y S . 2008 - 09 & 2009 - 10 5 REASONABLE OF ABOVE SAID PROVISION THE ADDL.CIT HAS TAKEN T HE VIEW THAT IN THE CASE OF TRIUMPH INTERNATIONAL (SUPRA) THE TRANSACTION WAS IN THE NATURE OF SQUARING UP WITH THE SAME PARTY AND ACCORDINGLY THE BENEFIT OF REASONABLE CAUSE WOULD BE AVAILABLE, IF THE TRANSACTIONS BY WAY OF PASSING JOURNAL ENTRIES WERE WI TH RESPECT SO THE SAME PARTY. THE ADDL.CIT HAS ALSO OBSERVED THAT IN VIEW OF THE DISCLOSURE MADE BY THE GROUP COMPANIES BEFORE THE INCOME TAX SETTLEMENT COMMISSION, MUMBAI, FOLLOWING SEARCH IN THE LODHA GROUP OF CASES ON 10.1 2011, IT COULD NOT BE RULED OU T THAT THE ENTITIES THROUGH WHOM SUCH REPAYMENT/ACCEPTANCES ARE DONE BY WAY OF JOURNAL ENTRIES ARE NOT PART OF A CHAIN OF ENTITIES INVOLVED IN TRANSACTION FOR THE PURPOSE OF TAX EVASION. 7.2. THE APPELLANT HAS SUBMITTED THAT THE JOURNAL ENTRIES PASSED FOR TRANSACTIONS ASSIGNING DEBTS AND LIABILITIES AMONG SISTER CONCERNS AND REIMBURSEMENT OF EXPENSES DO NOT CONSTITUTE ACCEPTANCE OF BAN OR DEPOSIT OF MONEY AS PER PROVISIONS OF SECTION 269SS OF THE ACT IT HAS BEEN SUBMITTED THAT OUT OF THE TOTAL CREDITS, AN A MOUNT OF RS.18168,679/ - HAS BEEN CREDITED IN THE ACCOUNT OF LODHA HI - RISE BUILDERS PVT LTD (LHRBPL) SINCE THE AMOUNT PAYABLE TO LDPL HAS BEEN TRANSFERRED/ASSIGNED TO LHRBPL. AN AMOUNT OF RS 735000/ -- HAS BEEN CREDITED IN THE ACCOUNT SHRI VARDHVINAYAK BUILD ERS PVT LTD, OUT OF WHICH THE AMOUNT OF RS 73,50000 - REPRESENTS ON BEHALF PAYMENT TO VENDORS AND AN AMOUNT OF RS.5000/ - HAS BEEN CREDITED IN CASH. THESE TRANSACTIONS HAS BEEN CATEGORIZED AS TRANSFER OF INTER - COMPANY BALANCE FOR OPERATIONAL EFFICIENCY. PENA LTY HAS BEEN LEVIED U/S.2710 WITH RESPECT TO THE ABOVE SAID AMOUNTS. OTHER CREDIT ENTRIES ARE STATED TO BE VARIOUS SMALL AMOUNTS OF SIMILAR NATURE, ON ACCOUNT PAYMENT ETC. IT HAS BEEN SUBMITTED THAT THE LEVY OF PENALTY WAS NOT JUSTIFIED SINCE THE TRANSACTI ONS MADE THROUGH JOURNAL ENTRIES WERE BONAFIDE AND OUT OF COMMERCIAL EXPEDIENCY AND SINCE THERE EXISTED REASONABLE CAUSE U/S 273B OF THE ACT. 7.3 FROM THE DETAILS FURNISHED AND SUBMISSIONS MADE IT IS NOTED THAT THE PENALTY HAS BEEN LEVIED WITH RESPECT TO J OURNAL ENTRIES WITH GROUP CONCERN, WHICH HAVE BEEN UNDERTAKEN TO ASSIGN RECEIVABLES, PAYMENT ON BEHALF OF GROUP CONCERN FOR SQUARING UP TRANSACTIONS AND FOR EASE IN CONSOLIDATION OF ACCOUNTS, RECTIFICATION ENTRIES ETC. EXCEPT FOR CASH ENTRY OF RS.5000/ - ON 26.3.2006 IN THE ACCOUNT OF SHRI VARDHVINAYAK BUILDERS PVT LTD. AS A RESULT OF THIS CASH ENTRY THE LOAN AMOUNT HAS INCREASED FROM RS.7,30,000/ - TO RS.7,35,000/ - . ITA. NO S .599, 600, 6006 & 615 /M/1 7 A.Y S . 2008 - 09 & 2009 - 10 6 NO EXPLANATION FOR TAKING THIS CASH LOAN OF RS.5000/ - IN CONTRAVENTION OF HAS BEEN FURNISHED. AS A RESULT OF THESE JOURNAL/CASH ENTRIES THE RECEIVABLES HAVE GONE UP OR DOWN RESULTING IN TAKING OF LOAN/ REPAYMENT OF LOAN. THE APPELLANT COMPANY HAS ALSO PAID INTEREST ON SUCH LOANS TAKEN. SINCE THE TRANSACTIONS ARE FOR MORE THAN THE AMOUNT OF RS 2Q.Q QQ/ - AND THE SAME ARE NOT THROUGH ACCOUNT PAYEE CHEQUE OR BANK DRAFT, THERE IS VIOLATION OF THE PROVISIONS OF SECTION 269SS/2G9T. 7 3.1. IN THIS REGARD RELIANCE IS PLACED ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GIT VS TRIUMPH INTERNA TIONAL FIANC(L) LTD DATED JUNE 12, 2012 (22 TAXMANN.COM 139 BOM) FOR A.Y. 2003 - 04 AND THE CASE OF CIT VS M/S. TRIUMPH INTERNATIONAL FINANCE(L) LTD 1TA NO.5745 OF 2010 DATED 17.B 2012 FOR AY.2000 - 01. THE DECISION FOR A Y.2003 - 04 IS WITH RESPECT TO CONTRAVE NTION OF PROVISIONS OF SECTION 269T, SINCE THERE WAS A REPAYMENT OF LOAN BY MAKING JOURNAL ENTRIES IN THE BOOKS OF ACCOUNT AND IT WAS HELD BY THE HON'BLE COURT THAT REPAYMENT OF LOAN. DEPOSIT, EXCEPT BY THE MODES SPECIFIED IN SECTION 269T, WOULD AMOUNT TO CONTRAVENTION OF THE SAID PROVISION. THE DECISION FOR THE A.Y.2000 - 01 IS WITH RESPECT LO CONTRAVENTION OF PROVISIONS OF SECTION 269SS WHEREIN THE APPELLANT COMPANY AND ITS SISTER CONCERN M/S. TRIUMPH SECURITIES LTD HAD TRANSACTIONS OF SALE AND PURCHASE WIT H COMMON CUSTOMERS AND THE CREDIT/DEBIT LIABILITIES WERE SETTLED THROUGH JOURNAL ENTRIES. THE HON'BLE COURT HELD, APPLYING THE RATIO LAID DOWN IN IT A NO.5746 OF 2010 DECIDED ON 12* JUNE 2012 (THE DECISION FOR A.Y 2003 - 04), THAT RECEIVING LOANS/DEPOSITS TH ROUGH JOURNAL ENTRIES WOULD BE IN VIOLATION O! SECTION 26SSSOFTHEACT 7.3.2 FURTHER, I FIND THAT THE ISSUE REGARDING LEVY OF PENALTY U/S.271D/271E OF THE I.T. ACT IN THE CASE OF VARIOUS OTHER COMPANIES OF LODHA GROUP (LADHA BUILDERS PVT LTD VS ACIT AND FIVE OTHER GROUP CONCERNS) FOR A.Y 2009 - 10 HAS BEEN DECIDED BY THE ITAT 'E 1 BENCH, MUMBAI VIDE ORDER DATED 27.6.2014. IN THE SAID ORDER, UNDER SIMILAR FACTS AND CIRCUMSTANCES, THE ITAT IS OF THE OPINION THAT THE ASSESSES HAS VIOLATED THE PROVISIONS OF SECTION 269SS/269T OF THE ACT IN RESPECT OF JOURNAL ENTRIES. ACCORDINGLY, FOLLOWING THE ABOVE SAID DECISION, IT IS HELD THAT THE APPELLANT HAS RECEIVED THE LOAN AMOUNT OF RS.1,96,36,939/ - BY WAY OF JOURNAL ENTRIES, AS NOTED IN THE PENALTY ORDER, IN CONTRAVENTION O F THE PROVISION OF SECTION 269SS AND GROUND NO.3 TAKEN BY THE APPELLANT ITA. NO S .599, 600, 6006 & 615 /M/1 7 A.Y S . 2008 - 09 & 2009 - 10 7 IN THIS REGARD 7.4. GROUND NO.4 TO 9 ARE AGAINST THE FINDING OF THE ADDL.CIT THAT PENALTY WAS LEVIABLE U/S.271D OF THE ACT SINCE NO REASONABLE CAUSE COULD BE FOUND IN THIS CASE. IN TH IS REGARD IT IS OBSERVED THAT THE WORDS 'REASONABLE CAUSE 1 HAVE NOT BEEN DEFINED UNDER THE I.T. ACT, THOUGH, IT HAS BEEN INTERPRETED BY VARIOUS COURTS. THE HON'BLE DELHI HIGH COURT HAS ENUNCIATED THE MEANING OF THE TERM 'REASONABLE CAUSE' IN THE CASE OF AZ ADI BACHAO ANDOLAN VS. UNION OF INDIA 252 ITR 471 TO BE A CAUSE WHICH PREVENTS A MAN OF AVERAGE INTELLIGENCE AND ORDINARY PRUDENCE, ACTING UNDER NORMAL CIRCUMSTANCES, WITHOUT NEGLIGENCE OR INACTION OR WANT OF BONAFIDES. IN WOODWARD GOVERNORS INDIA (P) LTD VS, C1T 118 TAXMAN 433 (DELHI), THE HON'BLE DELHI HIGH COURT CONSIDERED THE MEANING OF REASONABLE CAUSE AND HELD : 'REASONABLE CAUSE AS APPLIED TO HUMAN ACTION IS THAT WHICH WOULD CONSTRAIN A PERSON OF AVERAGE INTELLIGENCE AND ORDINARY PRUDENCE. IT CAN BE DESCRIBED AS A PROBABLE CAUSE. IT MEANS AN HONEST BELIEF FOUNDED UPON REASONABLE GROUNDS, OF THE EXISTENCE OF A STATE OF CIRCUMSTANCES, WHICH, ASSUMING THEM TO BE TRUE, WOULD REASONABLY LEAD ANY ORDINARY PRUDENT AND CAUTIOUS MAN, PLACED THE POSITION OF THE PERSON CONCERNED, TO COME TO THE CONCLUSION THAT THE SAME WAS THE RIGHT THING TO DO.' 1 IN THE CASE OF CIT VS. TRIUMPH INTERNATIONAL FINANCE (1) LTD, (SUPRA), THE HON'BLE BOMBAY HIGH COURT HAS HELD : (I) THAT THE TRIBUNAL WAS NOT JUSTIFIED AN HOLDING THE REPAYMENT OF LOAN OR DEPOSIT THROUGH JOURNAL ENTRIES DID NOT VIOLATE THE PROVISIONS OF SECTION 269T OF THE ACT. (N) THATWOULD HAVE BEEN AN EMPTY FORMALITY TO REPAY THE LOAN OR DEPOSIT AMOUNT BY ACCOUNT - PAYEE CHEQUE OR DRAFT AND RECEIVE BACK ALMOST THE SAME AMOUNT TOWARDS THE SAFE PRICE OF THE SHARES. NEITHER THE GENUINENESS OF THE RECEIPT OF LOAN OR DEPOSIT NOR THE TRANSACTION OF REPAYMENT OF LOAN BY WAY OF ADJUSTMENT THROUGH BOOK ENTRIES CARRIED OUT IN THE ORDINARY COURSE OF BU SINESS HAD BEEN DOUBLED IN THE REGULAR ASSESSMENT. THERE WAS NOTHING ON RECORD TO SUGGEST THAT THE AMOUNTS ADVANCED BY INVESTMENT TRUST OF INDIA IS THE ASSESSES REPRESENTED THE UNACCOUNTED MONEY OF THE INVESTMENT TRUST OF INDIA OR THE ASSESSES THE FACT THA T THE ASSESSEE - COMPANY BELONGED TO THE KETAN PAREKH GROUP INVOLVED IN THE SECURITIES SCAM COULD NOT BE A GROUND FOR SUSTAINING PENALTY IMPOSED UNDER SECTION 271E OF THE ACT IF REASONABLE CAUSE WAS SHOWN BY THE ASSESSES FOR FAILING TO COMPLY WITH THE PROVIS IONS OF ITA. NO S .599, 600, 6006 & 615 /M/1 7 A.Y S . 2008 - 09 & 2009 - 10 8 SECTION 269T. SETTLING CLAIMS BY MAKING JOURNAL ENTRIES IN THE RESPECTIVE BOOKS IS ALSO ONE OF THE RECOGNIZED MODES OF REPAYING LOAN OR DEPOSIT THEREFORE, ON THE FACTS, IN THE ABSENCE OF ANY FINDING ASSESSMENT ORDER THE PENALTY ORDER TO THE EFFECT THAT THE REPAYMENT OF LOAN OR DEPOSIT WAS NOT A BONAFIDE TRANSACTION AND WAS MADE WITH A VIEW TO EVADE TAX, THE CAUSE BY THE ASSESSES WAS A REASONABLE CAUSE AND IN VIEW OF SECTION 2736 OF THE ACT, PENALTY UNDER SECTION 271 E COULD FOR CONTRAVENED THE PROVISIONS OF SECTION 269T OF THE ACT. 1 5. IN THE APPELLANT'S CASE THE GENUINENESS OF THE TRANSACTION MADE THROUGH JOURNAL ENTRIES IS NOT IN DOUBT AND IT HAS NOT BEEN SHOWN EITHER IN THE ASSESSMENT PROCEEDINGS OR IN THE PENALTY PROCEEDINGS THAT UNACCOUNTE D INCOME OF THE LENDER OR THE BORROWER WAS INVOLVED. FROM THE ASSESSMENT ORDER PASSED U/S.143(3) DATED 30.3.2015, IT IS NOTED THAT THE TOTAL INCOME HAS BEEN ASSESSED ALTER MAKING THE FOLLOWING ADDITIONS I) LAND & BROKERAGE INCOME - RS . 5,00,000/ - ARID PENALT Y PROCEEDINGS U/S.271(1)(C) HAVE BEEN INITIALED. THIS ADDITIONAL INCOME REPRESENTS THE ADDITIONAL INCOME DISCLOSED BEFORE THE SETTLEMENT COMMISSION, WHICH WAS NOT ALLOWED TO BE PROCEEDED WITH VIDE ORDER U/S.245D(L) DATED 12.2.2013. HOWEVER, THERE IS NO FIN DING THAT THE TRANSACTIONS BY WAY OF JOURNAL ENTRIES WERE NOT BONAFIDE OR HAD BEEN UNDERTAKEN TO EVADE TAX. 7.5.1, FURTHER, THE APPELLANT HAS SUBMITTED THAT THERE WAS REASONABLE CAUSE FOR THE ABOVE SAID CONTRAVENTION OF SECTION 269SS SINCE (I) THE JOURNAL ENTRIES HAVE BEEN MADE WITH THE GROUP CONCERNS UNDER THE BONAFIDE BELIEF THAT SUCH TRANSACTIONS WOULD NOT BE HIT BY THE PROVISIONS OF SECTION 269SS IN VIEW OF VARIOUS JUDICIAL DECISIONS ON THIS ISSUE, INCLUDING THE DECISION OF HIGH COURT OF DELHI IN THE CA SE OF NOIDA TOLL BRIDGE 262 ITR 260 AND (II) SUCH LOANS BY WAY OF JOURNAL ENTRY TRANSACTIONS WERE UNDERTAKEN FOR VARIOUS COMMERCIAL REASONS LIKE ASSIGNING OF RECEIVABLES FOR OPERATIONAL EFFICIENCY, PAYMENT ON BEHALF OF GROUP CONCERN FOR SQUARING UP TRANSAC TIONS, FOR EASE IN CONSOLIDATION OF ACCOUNTS, RECTIFICATION ENTRIES ETC. IN THIS REGARD I FIND THAT THE DECISION DATED JUNE 12, 2012, OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TRIUMPH INTERNATIONAL FINANCE(I) LTD (SUPRA), HOLDING THAT REPAYME NT OF LOAN/DEPOSIT BY WAY OF JOURNAL ENTRIES WAS IN CONTRAVENTION OF PROVISION OF SECTION 269T HAS BEEN GIVEN AFTER THE CLOSE OF THE FINANCIAL YEAR 2011 - 12 RELEVANT TO AY.2012 - 13. IN MY CONSIDERED OPINION THE ABOVE SAID REASONS DO ITA. NO S .599, 600, 6006 & 615 /M/1 7 A.Y S . 2008 - 09 & 2009 - 10 9 CONSTITUTE REASONABLE CAU SE WITHIN THE MEANING OF SECTION 273B OF THE ACT, PARTICULARLY IN LIGHT OF THE FACT THAT THERE IS NO FINDING THAT SUCH TRANSACTIONS WERE UNDERTAKEN TO EVADE TAX. RELIANCE IS PLACED ON THE DECISION OF THE ITAT DATED 27.6.2014 IN THE CASE OF LODHA BUILDERS P VT LTD VS ACIT ITA N0.476/M/2014 AND ITA V2014 A.V.2009 - 10 AND FIVE OTHER GROUP CASES, WHEREIN UNDER SIMILAR FACTS AND CIRCUMSTANCES, IT HAS BEEN HELD THAT THE ASSESSES HAS SHOWN REASONABLE CAUSE AND THEREFORE, THE PENALTY IMPOSED U/S.2710 OF THE ACT ARE N OT SUSTAINABLE. HOWEVER, THERE IS A CONTRAVENTION OF SECTION 269SS IN RESPECT OF THE CASH LOAN OF RS.5000/ - TAKEN ON 26.3,2008 FROM SHRI VARDHVINAYAK BUILDERS PVT LTD WHEN THE CREDIT BALANCE WAS RS.7,30,000/ - I.E MORE THAN RS.20,000/ - . THEREFORE, LEVY OF P ENALTY UYS.2710 IN RESPECT OF RS 5000 - IS FOUND TO BE JUSTIFIED 7.5 2. IN THE PENALTY ORDER THE ADDL. CIT HAS OBSERVED THAT THE PLEA OF THE ASSESSEE TOR THE BENEFIT OF REASONABLE CAUSE CANNOT BE ACCEPTED AS THE SPIRIT OF THE BOMBAY HIGH COURT JUDGEMENT (IN THE CASE OF CIT VS TRIUMPH INTERNATIONAL FINANCE(L) LTD) IS ONLY THAT SUCH TRANSACTIONS WHICH ARE IN THE NATURE OF SQUARING UP WITH THE SAME PARTY CAN ONLY CLAIM THE BENEFIT OF REASONABLE CAUSE. THIS OBSERVATION IS FOUND TO BE WITHOUT MERIT PARTICULARLY I N LIGHT OF THE DECISION OF HIGH COURT OF BOMBAY IN THE CASE OF CIT VS M/S. TRIUMPH INTERNATIONAL FINANCE(L) LTD 1TA NO.5745 OF 2010 DATED 17.3.2012 FOR THE A.Y.2000 - 01,AS NOTED IN PARA 6 3 ABOVE, WHEREIN THE APPELLANT COMPANY AND ITS SISTER CONCERN M/S TRI UMPH SECURITIES LTD HAD TRANSACTIONS OF SALE AND PURCHASE WITH COMMON CUSTOMERS AND THE CREDIT/DEBIT LIABILITIES WERE SETTLED THROUGH JOURNAL ENTRIES AND IT WAS HELD 'THAT THE TRANSACTIONS IN QUESTION WERE UNDERTAKEN NOT WITH A VIEW TO RECEIVE LOANS/DEPOSI TS IN CONTRAVENTION OF SECTION 269SS, BUT IN A VIEW TO EXTINGUISH THE MUTUAL LIABILITY OF PAYING/RECEIVING THE AMOUNTS BY THE ASSESSES AND ITS SISTER CONCERN TO THE CUSTOMERS IN (HE ABSENCE OF ANY MATERIAL ON RECORD TO SUGGEST THAT THE TRANSACTIONS IN QUES TION WERE NOT REASONABLE OR BONAFIDE AND IN VIEW OF SECTION 273B OF THE ACT, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE TRIBUNAL IN DELETING THE PENALTY OF RS.22 99 CRORES.' 7.5 . 3. IT HAS ALSO BEEN OBSERVED BY THE ADDL.CIT THAT IT SHALL NOT BE OUT OF PLACE TO MENTION THAT THE ASSESSES GROUP HAS MADE A DISCLOSURE BEFORE THE HON'BLE INCOME TAX SETTLEMENT COMMISSION, MUMBAI, OF UNDISCLOSED INCOME ARISING OUT OF TRANSACTIONS WITH ITA. NO S .599, 600, 6006 & 615 /M/1 7 A.Y S . 2008 - 09 & 2009 - 10 10 AND BY VARIOUS GROUP ENTITIES WHICH ARE ALSO THE SUBJECT MATTER OF INVESTIGATION PURSUANT TO THE DIRECTION OF HONBLE ITSC. HENCE IT CANNOT BE RULED OUT THAT THE ENTITIES THROUGH WHOM SUCH REPAYMENT/ACCEPTANCES ARE DONE ARE NOT PART OF A CHAIN OF ENTITIES INVO LVED IN TRANSACTION FOR THE PURPOSE OF TAX EVASION. IN THIS REGARD THE APPELLANT HAS SUBMITTED THAT NO INVESTIGATION PURSUANT TO THE ORDER OF THE SETTLEMENT COMMISSION WAS PENDING ON THE DATE OF LEVY OF PENALTY SINCE THE ORDER OF THE SETTLEMENT COMMIS SION. U/S 245D(4) WAS PASSED ON 28.11.2014. THUS, THE ABOV SAID OBSERVATION IS FOUND TO BE BASED ON PRESUMPTIONS AND DO NOT JUSTIFY THE LEVY OF PENALTY U/S 271D OF THE ACT, IN RESPECT OF JOURNAL ENTRIES AMOUNTING TO RS.19,633,939/ - . 8.0 IN VIEW OF THE ABOVE DI SCUSSION, THE LEVY OF PENALTY OF RS.5000/ - US. 271D IS UPHELD. FURTHER, THE LEVY OF PENALTY U/S 271D OF RS,1,96,33,939/ - IS FOUND TO BENOT JUSTIFIED AND THE SAME IS HEREBY DELETED. GROUND NO. 4 TO 9 TAKEN BY THE APPELLANT ARE PARTLY ALLOWED. 7 . THE PENALTY HAS BEEN LEVIED BY AO ON THE BASIS OF THE NON - EXPLANATION OF JOURNAL ENTRY HAS BEEN DELETED BY THE CIT(A) ON THE BASIS OF THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TRIUMPH INTERNATIONAL FINANCE LTD. ITA. NO. 5745 OF 2010 DATED 17.08.2012 FOR THE A.Y. 2000 - 01 . AT THE TIME OF ARGUMENT, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ALSO PLACED RELIANCE UPON THE DECISION OF THE HONBLE ITAT IN ITA. NO. 6607/M/2016 DATED 06 .06.2018 IN WHICH THE PENALTY LEVIED IN THE SIMILAR CIRCUMSTANCES HAVE BEEN ORDERED TO BE DELETED ON THE BASIS OF DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TRIUMPH I NTERNATIONAL FINANCE LTD. 345 ITR 270 . THERE ARE NUMBER OF JUDGMENT S HAVE ALSO BEEN RELIED UPON BY THE LD. REPRESENTATIVE OF THE ASSESSEE IN WHICH IT IS SPECIFICALLY HELD THAT THE JOURNAL ENTRY WOULD ITA. NO S .599, 600, 6006 & 615 /M/1 7 A.Y S . 2008 - 09 & 2009 - 10 11 NOT FALL UNDER THE PURVIEW OF SECTION 269SS OF THE ACT. FURTHER, IT ALSO CAME INTO NOTICED THAT THE CASE OF THE ASSES SEE PERTAINS TO THE A.Y. OF 2008 - 09 , THEREFORE, THE RATIO OF DECISION IN CASE TITLE AS CIT VS TRUMP INTERNATIONAL (I) LTD DATED 12 JUNE 2012 (345 ITR 270)/ [22 TAXMANN.COM 138(BOM)] IS NOT APPLICABLE . IN THE SAID DISCUSSION, WE ARE OF THE VIEW THAT THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ITA NO. 615/M/2017: - 8 . IN THIS APPEAL, T HE CIT(A) HAS DELETED THE PENALTY LEVIED U/S271E OF THE ACT ON ACCOUNT OF REPAID OF LOANS TO VARIOUS CONCERNS ON THE BASIS OF JOURNAL ENTRIES OTHERWISE THEN THE ACCOUNT PAYEE CHEQUE, DRAFT WHICH WAS HELD TO BE IN VIOLATION OF PROVISION OF SECTION 269SS OF THE ACT BY THE AO . BEFORE GOING FURTHER, WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD .: - 10 THE GROUNDS TAKEN BY THE APPELLANT AND THE FACTS OF THE CASE ARE SIMILAR TO THOSE TAKEN IN APPEAL AGAINST LEVY OF PENALTY U/S 271D OF THE A CT FOR THE A.Y. 2008 - 09, DISCUSSED IN PARAS ABOVE. THE AO HAS LEVIED THE PENALTY OF RS.2,14,69,391/ - U/S 271E OF THE ACT, HOLDING THAT HE APPELLANT HAS CONTRAVENED THE PROVISIONS OF SECTION 269T OF THE ACT WITHOUT ANY REASONABLE CAUSE IN RESPECT OF THE TOT AL DEBITS OF RS.2,14,69,391/ - WHICH REPRESENT REPAYMENT OF LOANS BY WAY OF JOURNAL ENTRIES TO ITS SISTER CONCERNS AS UNDER: SR. NO. NAME OF THE SISTER CONCERNS DEBITS (RS.) 1 LODHA 2,07,34,391 ITA. NO S .599, 600, 6006 & 615 /M/1 7 A.Y S . 2008 - 09 & 2009 - 10 12 DEVELOPERS PVT. LTD. 2 VARDHVINAYAK BUILDERS PVT. LTD. 7,35,0 00 TOTAL 2,14,69,391 THE REASONS FOR LEVYING THE PENALTY U/S 271E IS ON THE SAME LINES AS STATED IN THE PENALTY ORDER US/ 271D OF THE ACT. THE SUBMISSIONS MADE BY THE APPELLANT ARE ON THE SAME LINES AS FOR THE APPEAL WITH RESPECT TO PENALTY U/S 271D OF THE ACT. FROM THE DETAILS FILED, IT IS OBSERVED THAT OUT OF THE AMOUNT OF RS.2,14,69,391/ - , THE DEBIT AMOUNT OF RS.19,565,190/ - REPRESENTS TRANSFER OF CREDIT BALANCE OF LDPL TO LHRBPL. SIMILARLY, THE DEBIT AMOUNT OF RS,272,931/ - REPRESENTS THE TRANSFER OF AMOUNT, PAYABLE TO LDPL TO NAMINATH BUILDERS & FARMS PVT. LTD. THE DEBIT AMOUNT OF RS.896,270/ - IN THE ACCOUNT OF LDPL REPRESENTS REDUCTION IN ITS CREDIT BALANCE BY WAY OF ALLOTMENT OF EQUITY SHARES OF THE SAID VALUE TO IT. THE DEBIT OF RS.7,35,000/ - IN TH E ACCOUNT OF SHRI VARDHVINAYAK BUILDERS PVT. LTD. IS ON ACCOUNT OF TRANSFER OF AMOUNT PAYABLE TO LHRBPL ON 31.03.2008. I FIND THAT PENALTY HAS BEEN LEVIED IN RESPECT OF JOURNAL ENTRIES WHICH HAVE BEEN UNDERTAKEN TO ASSIGN LOANS, PAYMENT ON BEHALF OF GROUP CONCERNS FOR SQUARING UP TRANSACTION AND FOR EASE IN CONSOLIDATION OF ACCOUNTS, RECTIFICATION ENTRIES ETC. FOLLOWING THE DECISION WITH RESPECT TO THE VARIOUS GROUNDS TAKEN AGAINST THE LEVY OF PENALTY U/S 271D AS DISCUSSED IN PARAS ABOVE, THE GROUNDS TAKEN IN THIS APPEAL ARE DECIDED AS UNDER : - 10.1. GROUND UO.1 IS AGAINST INITIATING PENALTY ON THE BASIS OF A FINDING \ N REASSESSMENT PROCEEDINGS. FOLLOWING THE DECISION ON THIS GROUND IN PARA 4.1.3 & A.1.4 ABOVE, THIS GROUND IS DISMISSED. 10.2. GROUND NO, 2 IS AGAINST LEVY OF PENALTY OF RS.2 L U L 69,3S'W - U/S.271E OF THE L.T. ACT, THIS GROUND IS GENERAL IN NATURE. 10.3. GROUND NOS3 IS DECIDED AGAINST THE APPELLANT FOLLOWING THE DECISION IN PARA 7.3, 7.3.1. & 7.3.2 ABOVE AND IT IS HELD THAT THE APPELLANT HAS MADE TH E REPAYMENT OF LOAN BY WAY OF JOURNAL ENTRIES, AS NOTED IN THE PENALTY ORDER, IN CONTRAVENTION OF THE PROVISION OF SECTION 269T. ACCORDINGLY, GROUND NO.3 TAKEN BY THE APPELLANT IS DISMISSED. 10.4. GROUND NO.4 TO 9 ARE AGAINST THE FINDING OF THE ADDL. CIT T HAT PENALTY WAS LEVIABLE U/S.271E OF THE ACT SINCE NO REASONABLE ITA. NO S .599, 600, 6006 & 615 /M/1 7 A.Y S . 2008 - 09 & 2009 - 10 13 CAUSE COULD TIE FOUND IN THIS CASE. FOLLOWING THE DECISION IN PARAS 7.4 TO 7.5 3 ABOVE, IT IS HELD THAT ALTHOUGH THE TRANSACTIONS BY WAY OF JOURNAL ENTRIES ARE IN CONTRAVENTION OF PROVISION O F SECTION 259T OF THE ACT. THE APPELLANT HAS SHOWN REASONABLE CAUSE VJ'S.273B OF THE ACT AND THE LEVY OF PENALTY WAS NOT JUSTIFIED. ACCORDINGLY, THE LEVY O1 PENALTY OF RS.2,14,65,391, 1 - IS HEREBY CANCELLED. GROUND NO.4 TO 9 ARE ALLOWED, 10.5. IN GROUND NO. L0 IT HAS BEEN CONTENDED THAT THE ADDL CLT ERRED IN NOT FOLLOWING THE DECISION OF THE ITAT, MUMBAI IN ITA NO.475 TO 481 OF 2014 IN RESPECT OF IDENTICAL PENALTIES LEVIED IN ASSESSEES OWN AND ASSOCIATE COMPANY CASES. FOLLOWING THE DECISION IN PARA 9 ABOVE, THIS GROUND IS ALLOWED. 9 . ON APPRAISAL OF THE ABOVE MENTIONED FINDING, WE NOTICED THAT THE LEVYING OF PENALTY U/S 271E OF THE ACT IS IN CONNECTION WITH REPAYMENT OF LOAN AND DEPOSIT TO VARIOUS SISTER CONCERNS ON THE BASIS OF JOURNAL ENTRIES OTHERWISE TH EN ACCOUNT PAYEE, CHEQUE AND DRAFT. THE FACTUAL POSITION IS NOT DISPUTE AND THE LEGAL POSITION HAS ALREADY BEEN DISCUSSED ABOVE. THE CIT(A) HAS RELIED UPON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. TRIUMPH INTERNATIONAL FINANCE LTD. ITA. NO. 5745 OF 2010 DATED 17.08.2012 AND AT THE TIME OF ARGUMENT THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ALSO PLACED RELIANCE UPON THE DECISION OF THE HONBLE ITAT IN THE CASE OF IN ITA. NO. 6607 & 6609/M/2016 DCIT VS. M/S. NATIONAL STANDARD INDIA LTD. & IN T HE CASE OF IN ITA. NO. 602/M/2017 DCIT VS. AASTHAVINAYAK ESTATE COMPANY LTD. SINCE THE FINDING OF THE CIT(A) IS BASED UPON THE DECISION OF THE JURISDICTIONAL HIGH COURT AND AT THE TIME OF THE ARGUMENT THE ASSESSEE ALSO PLACED RELIANCE UPON THE DECISION OF HONBLE ITAT IN THE CASE OF NATIONAL STANDARD INDIA ITA. NO S .599, 600, 6006 & 615 /M/1 7 A.Y S . 2008 - 09 & 2009 - 10 14 LTD. (SUPRA) AND AASTHAVINAYAK ESTATE COMPANY LTD. (SUPRA), THEREFORE, IN THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LEVY THE PENALTY U/S 271E OF THE ACT ON THE BASIS OF JOURNAL ENTRY NOWHERE VIOLATE THE PROVISION OF SECTION 269SS AND 269T OF THE ACT. . FURTHER, IT ALSO CAME INTO NOTICED THAT THE CASE OF THE ASSES SEE PERTAINS TO THE A.Y. OF 2008 - 09 , THEREFORE, THE RATIO OF DECISION IN CASE TITLE AS CIT VS TRUM P INTERNATIONAL (I) LTD DATED 12 JUNE 2012 (345 ITR 270)/ [22 TAXMANN.COM 138(BOM)] IS NOT APPLICABLE . ACCORDINGLY, WE ARE OF THE VIEW THAT THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, WE CONFIRMED FINDING OF THE CIT(A) ON THE ISSUE AND DISMISSED THE APPEAL OF THE REVENUE. ITA NO.599 /M/201 7 & 600 /M/2017: - 10 . THE REVENUE HAS FILED THE ABOVE MENTIONED APPEALS AGAINST THE DECISION OF THE CIT(A) IN WHICH THE PENALTY LEVIED BY U/S 271E & 271B OF THE ACT HAS BEEN ORDERED TO BE DELETED FOR THE A.Y. 2009 - 10. 11. THE FACTUAL POSITION IS THE SAME AND THE FINDING IN ITA. NO. 615 & 606/M/2017 IS QUITE APP LICABLE AS MUTATIS AND MUTANDIS, T HEREFORE, WE DISMISSED THE APPEAL OF THE REVENUE ON SIMILAR LINES. ITA. NO S .599, 600, 6006 & 615 /M/1 7 A.Y S . 2008 - 09 & 2009 - 10 15 12 . IN THE RESULT , ALL THE APPEALS FILED BY THE REVENUE ARE HEREBY ORDERED TO BE D ISMISSED . ORDER P RONOUNCED IN THE OPEN COURT ON 09.07. 2 018 . SD/ - SD/ - ( RAJENDRA ) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 09.07. 2018 . VIJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI