ITO, New Delhi V. M/s. V.M. Forging Pvt. Ltd., New Delhi

ITA 638/DEL/2010

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 6998 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 15-04-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 11-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Reasonable cause
• Section: 273B; 271D; 271E

Judgement Text

ITA NOS.638&639/DEL/2010 A.Y. 2006-07 1 IN THE INCOMETAX APPELATE TRIBUNAL DELHI BENCH H: NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER & SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NOS. 638&639/DEL/2010 A.Y. : 2006-07 ITO, WARD 17(1), VS. M/S V.M. FORGING PVT. LTD. ROOM NO 225-A, CR BUILDING, 50, RAMA ROAD, NEW D ELHI I.P. ESTATE, NEW DELHI (PAN: AAACV 0349 Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SALIL AGGARWAL, ADV. & SH. GAUTAM JAIN, CA DEPARTMENT BY : SHRI N.K. CHAND, DR O R D E R PER SHAMIM YAHYA, AM : THESE APPEALS BY THE REVENUE EMANATE OUT OF RESPEC TIVE ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) DELETING THE LEVY OF PENALTY U/S 271D AND 271E RESPECTIVELY. THE ISSUES ARE CONNECTED AND THE APPEALS WERE HEARD TOGETHER. TH ESE ARE BEING CONSOLIDATED AND DISPOSED OF TOGETHER FOR THE SAKE OF CONVENIENCE. ITA NO. 638 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INC OME TAX (APPEALS) ERRED IN DELETING THE PENALTY AMOUNTING TO RS. 29,81,015/- IMPOSED U/S 271D OF THE IT ACT. ITA NOS.638&639/DEL/2010 A.Y. 2006-07 2 3. IN THIS CASE DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THERE W AS CONTRAVENTION OF THE PROVISIONS LAID DOWN IN SECTION 269SS OF T HE INCOME TAX ACT, 1961. DETAILS OF LOANS OR DEPOSITS ACCEPTED BY THE ASSESSEE DURING THE F.Y. 2005-06 AS PER ANNEXURE-C OF THE TA X AUDIT REPORT ARE AS UNDER:- I) M/S VM METAL CORPN BY TRANSFER FROM RS. 3,11,2 45/- M/S SOKHI BROS. II) SH. RAJINDER KUMAR / BY CASH RS. 70,000/ - III) SH. KAPIAL GUPTA. SH. GUPTAS A/C WAS CREDITED BY DEBITING THE FOLLOWING A/CS BY THE ASSESSEE A) NARESH KUMAR (HUF) RS. 6,05,834/- B) DULI CHAND (HUF) RS. 6,66,086/- C) VINOD GUPTA RS. 1,77,719/- D) SUBHASH CHANDER (HUF) RS.11,10,131/- RS. 25,59,770/- IV) M/S CHANDRA INDUS./ BY CASH RS. 40,000/ - RS.29,81,015/- 3.1 ASSESSING OFFICER WAS OF THE OPINION THAT THER E WAS VIOLATION OF SECTION 269SS AS THE TAX AUDIT REPORT SHOWS THA T THE ABOVE AMOUNTS WERE LOANS AND DEPOSITS WHICH WERE PAID OTH ERWISE THAN BY ACCOUNT PAYEE CHEQUE OR BANK DRAFT. THE ASSESSEE S EXPLANATION THAT THE AMOUNTS RECEIVED WERE PRIMARILY BOOK ENTR IES THROUGH JOURNAL, WAS NOT ACCEPTED BY THE ASSESSING OFFICER. HE PROCEEDED TO LEVY THE PENALTY OF RS. 29,81,015/- U/S 271D OF THE IT ACT. 3.2 THE LD. COMMISSIONER OF INCOME TAX (APPEALS), U PON ASSESSEES APPEAL, AS REGARDS THE AMOUNT RECEIVED B Y BOOK ENTRIES HELD THAT THAT THE TRANSACTIONS WERE BY WAY OF JOUR NAL/ BOOK ENTRIES ITA NOS.638&639/DEL/2010 A.Y. 2006-07 3 AND THAT THE TRANSACTIONS WERE WITH SISTER CONCERN . HE REFERRED TO SEVERAL CASE LAWS FOR THE PROPOSITION THAT THE PEN ALTY U/S 271D READ WITH SECTION 269SS AND SECTION 271E READ WITH SECTION 269T CANNOT BE LEVIED ONCE THE TRANSACTIONS ARE BY WAY O F BOOK ENTRIES. HE PLACED RELIANCE UPON THE SEVERAL CASE LAWS IN T HIS REGARD. - ACIT VS. LALA MURARI LAL AND SONS (2004) 2 SIT 5 43 (LUCK) - CIT VS. NATVARLAL PURSHOTTAMDAS PAREKH (203 ITR 5 ) - CIT VS. NOIDA TOLL BRIDGE CO. LIMITED (2562 ITR 2 60) - BOMBAY CONDUCTORS & ELECTRICALS LIMITED VS. DCIT 56 TTJ (AHD) 580 - CIT VS. GOVIND KUMAR 119 TAXMAN 110 (RAJ) - SUNFLOWER BUILDERS (P) LTD. VS. DCIT 61 ITD 227 ( PUNE) - ITO VS. AMAR NATH SHIVRAJ (HUF) ;1 SOT 346 (AGRA) - ACIT VS. GUJARAT AMBUJA PROTEINS LTD. 3 SOT 811 ( AHD.) ACCORDINGLY, THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) HELD THAT THE TRANSACTIONS OF RS. 28,71,015/- IN TH E NATURE OF JOURNAL ENTRIES/ BOOK ENTRIES CANNOT BE CONSIDERED FOR LEVY OF PENALTY U/S 271D. 3.3 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FU RTHER HELD AS UNDER:- CASH TRANSACTION OF RS.40,000/- : I HAVE VERIFIED T HE ACCOUNTS MAINTAINED IN THIS REGARD AND FOUND THAT THE TRANSA CTIONS WITH M/S CHANDRA INDUSTRIES ARE BUSINESS TRANSACTIO NS. HENCE, CASH ACCEPTANCE OF RS.40,000/- IS OUTSIDE TH E SCOPE OF RESTRICTIVE PROVISIONS OF S.269SS. CASH TRANSACTION OF RS.70,000/- : THE LD. AUTHORIS ED REPRESENTATIVE EXPLAINED THE REASONS FOR ACCEPTING THE AMOUNT IN CASH AND ALSO STATED THAT THE TRANSACTION S ARE WITH THE RELATED PERSON. AFTER CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THIS AMOUNT CANNOT BE TA KEN INTO ACCOUNT FOR LEVY OF PENALTY. ITA NOS.638&639/DEL/2010 A.Y. 2006-07 4 3.4 AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEF ORE US. 3.5 LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE MANDATE OF SECTION 269SS IS VERY CLEAR AND AMOUNT OF ANY LO AN AND DEPOSITS RECEIVED OTHERWISE THAN BY WAY OF ACCOUNT PAYEE CHE QUE OR ACCOUNT PAYEE DRAFT, COME UNDER THE SWEEP OF SECTION 269 SS. HE FURTHER ARGUED AND REFERRED TO CASE LAWS THAT GENUINENESS O F THE TRANSACTIONS CANNOT BE A GROUND FOR VIOLATION OF S ECTION 269SS. 3.6 LD. COUNSEL OF THE ASSESSEE ON THE OTHER HAND C ONTENDED THAT THERE IS NO VIOLATION OF SECTION 269SS WHERE THE AM OUNT HAS BEEN RECEIVED THROUGH MERE JOURNAL ENTRY WITH CORRESPOND ING DEBITS TO OTHER PARTIES. IN THIS REGARD, HE PLACED RELIANCE UPON THIS TRIBUNAL DECISION IN ITA NO. 4758/DEL/ 2004 IN THE CASE OF M/S SHOR SHOT INDIA PVT. LTD. VS. ITO DATED 29.8.2008. HE HOWEVE R FURTHER CLAIMED THAT THERE WAS REASONABLE CAUSE FOR THE ASS ESSEE TO BELIEVE THAT MERE BOOK ENTRIES CANNOT LEAD TO VIOLATION OF PROVISIONS OF SECTION 269SS & 269T. HE FURTHER REFERRED TO THE AMOUNT OF RS. 70,000/- RECEIVED FROM THE DIRECTOR OF THE COMPANY. HE CLAIMED THAT SUCH AMOUNT RECEIVED FROM THE DIRECTOR OF THE COMPANY WOULD NOT FALL UNDER THE AMBIT OF SECTION 269SS. FOR TH IS PURPOSE, HE PLACED RELIANCE UPON HONBLE MADRAS HIGH COURT DECI SION REPORTED IN 285 ITR 221, LD. COMMISSIONER OF INCOME TAX (APP EALS) VS. IDHAYAM PUBLICATION LTD. AS REGARDS THE RECEIPT OF RS.40,000/-, HE ARGUED THAT THE SAME WAS RECEIVED DUE TO BUSINESS R EQUIREMENT. 3.7 WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT A SUM OF RS. 28,71,015/- RECEIVED AS LOANS, ARE ITA NOS.638&639/DEL/2010 A.Y. 2006-07 5 ACTUALLY IN THE NATURE OF JOURNAL BOOK ENTRIES WITH CORRESPONDING DEBITS TO OTHER PARTIES ACCOUNT. WE FIND THAT THIS TRIBUNAL IN ITA NO. 4758 CITED ABOVE HAS CONSIDERED ANALOGICAL ISS UE AND HELD AS UNDER:- BE THAT AS IT MAY BE, WE ARE, HOWEVER, CONCERNED, IN THIS APPEAL, ABOUT THE ISSUE WHETHER THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 269SS OF THE ACT , WHICH, IN OUR CONSIDERED OPINION, IS NOT THE CASE H EREIN- AS-MUCH AS THE ASSESSEE HAD NOT ACCEPTED ANY LOAN O R DEPOSIT OR MONEY OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT. THE PRIMARY AND ESSENTIAL CONDITION TO INVOKE SECTION 269SS OF THE ACT IS THAT THE ASSESEE SHOULD HAVE ACCEPTED LOAN OR DEPOS IT OF MONEY FROM ANY OTHER PERSON OTHERWISE THAN BY ACCOU NT PAYEE CHEQUE OR BANK DRAFT FROM ANY OTHER PERSON OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR BANK DRAF T. 3.8 MOREOVER, ANOTHER ASPECT BE CONSIDERED IN THIS CASE IS WHETHER THE ASSESSEE CAN BE EXONERATED FROM THE RIG OURS OF THE PENALTY IN THIS CASE ON THE ANVIL OF SECTION 273B OF THE IT ACT. SECTION 273B OF THE IT ACT INTER-ALIA PROVIDES THAT PENALTY U/S 271D NEED NOT BE IMPOSED, IF THERE WAS REASONABLE CAUSE FOR THE SAID FAILURE. HERE WE FIND THAT ASSESSEES BELIEF TH AT PASSING OF JOURNAL ENTRIES WITH CORRESPONDING DEBITS AND CREDITS TO PA RTIES ACCOUNT WILL NOT COME UNDER THE RIGOURS OF PROVISION OF SECTION 269SS CAN BE CONSIDERED TO BE A REASONABLE CAUSE AND ASSESSEE I S ENTITLED TO RELIEF ON THIS ACCOUNT ALSO. ITA NOS.638&639/DEL/2010 A.Y. 2006-07 6 3.9 AS REGARDS THE CASH TRANSACTIONS OF RS. 40,000/ -, WE FIND OURSELVES IN AGREEMENT WITH THE LD. COMMISSIONER O F INCOME TAX (APPEALS) FINDINGS THAT AMOUNT WAS RECEIVED FROM M/ S CHANDRA INDUSTRIES FOR BUSINESS EXIGENCIES AND IN THAT VIEW OF THE MATTER ALSO 273B WILL COME INTO THE PLAY AND PENALTY U/S 2 71D CANNOT BE SUSTAINED ON THAT ACCOUNT. 3.10 AS REGARDS THE RECEIPT OF CASH OF RS. 70,000/- FROM DIRECTOR OF THE COMPANY, WE FIND THAT HONBLE MADRAS HIGH COURT IN THE CASE OF LD. COMMISSIONER OF INCOME TAX (APPEALS) VS. IDHAYA M PUBLICATION LTD., 285 ITR 221. CITED ABOVE HAS HELD THAT THE AM OUNT RECEIVED BY PRIVATE COMPANY FROM DIRECTOR IS NOT HIT BY PROVISI ON OF SECTION 269SS OF THE I.T. ACT. 3.11 IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENT, WE AFFIRM THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) DELETING THE LEVY OF PENALTY IN THIS CAS E. ITA NO. 639 4. THE ISSUE RAISED IS THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE PENALTY AMOUNTING TO RS. 29,99,345/- IMPOSED UNDER SECTION 271E OF THE IT ACT. 4.1 IN THIS CASE DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THERE WAS CONTRAVENTION OF THE PROVISIONS LAID DOWN IN SECTI ON 269T OF THE INCOME TAX ACT, 1961. DETAILS OF LOANS OR DEPOSITS REPAID BY THE ASSESSEE DURING THE F.Y. 2005-06 AS PER ANNEXURE-D OF THE TAX AUDIT REPORT ARE AS UNDER:- ITA NOS.638&639/DEL/2010 A.Y. 2006-07 7 I) M/S SOKHI BROS. /BY TAKING TO RS. 4,25,000/- M/S. V.M. METAL CORPN. II) NARESH KUMAR (HUF) RS. 6,10,980/- * III) SUBHASH CHAND (HUF) RS. 11,19,560/-* IV) VINOD GUPTA RS. 1,77,719/-* V) DULI CHAND (HUF) RS. 6,66,086/-* RS. 29,99,345/- *REPAID BY TRANSFER OF AMOUNT TO THE CREDIT OF SHRI KAPIL GUPTAS ACCOUNT. 4.2 ASSESSEES EXPLANATION THAT THE ABOVE WERE MER E BOOK ENTRIES AND DID NOT INVOLVE ANY PAYMENT IN CASH WAS NOT ACCEPTE D BY THE ASSESSING OFFICER. THE ASSESSING OFFICER RELIED UPON THE AU DITORS REPORT IN FORM 3CD THAT THE REPAYMENT HAS BEEN MADE OTHERWISE TH AN BY WAY OF ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE DRAFT. ASSES SING OFFICER PROCEEDED TO LEVY OF PENALTY OF RS. 29,99,345/- FOR VIOLATION OF PROVISION OF SECTION 269T. 4.3 UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCO ME TAX (APPEALS) ACCEPTED THE CONTENTION OF THE ASSESSEE THAT NO PE NALTY NEED BE LEVIED U/S 271E OF THE IT ACT WHEN THE AMOUNT INVOLVED IS REFLECTED ONLY BY WAY OF JOURNAL ENTRY/ BOOK ENTRY. HENCE THE LD. COMMIS SIONER OF INCOME TAX (APPEALS) DELETED THE PENALTY. HE PLACED RELIANCE UPON THE CASE LAWS REFERRED IN PARA 3.2 ABOVE. 4.4 WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND AS WE HAVE ALREADY HELD WHILE DELETING THE PENALTY U/S 271D IN THIS CASE THAT MERE BOOK ENTRY/ JOURNAL ENTRY WITH CORRESPOND ING DEBIT AND CREDIT TO PARTY ACCOUNT CANNOT MAKE THE ASSESSEE LIABLE FO R VIOLATION OF PROVISION OF SECTION 269SS OR 269T AS THERE IS NO R ECEIPT OF AMOUNT IN CASH BY THE ASSESSEE OR THE PAYMENT THEREOF. MOR EOVER, AS ALREADY ITA NOS.638&639/DEL/2010 A.Y. 2006-07 8 DISCUSSED BY US THAT SECTION 273B WILL ALSO COME TO THE RESCUE OF THE ASSESSEE AS THE ASSESSEE CAN BE SAID TO BE UNDER BO NA FIDE BELIEF THAT PAYMENT BY WAY OF ONLY DEBIT AND CREDIT IN JOURNAL ENTRY CAN NOT LEAD TO VIOLATION OF SECTIONS 269SS & 269T. MOREOVER ON T HE SAME REASONING AS IN PARA 3.7 AND 3.8 ABOVE, WE FIND THAT LEVY OF PEN ALTY IN THIS CASE IS NOT JUSTIFIED. 4.5 IN THIS REGARD, WE PLACE RELIANCE OF THE HONBL E APEX COURT DECISION IN THE CASE OF HINDUSTAN STEEL VS. STATE OF ORISSA IN 83 ITR 26 W HEREIN IT WAS HELD THAT AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A STATUTORY OBLIGATION IS THE RESULT OF A QUASI-CRIMINAL PROCEEDINGS, AND PEN ALTY WILL NOT ORDINARILY BE IMPOSED UNLESS THE PARTY OBLIGED EITHER ACTED DELIB ERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR DISHONEST, OR ACTED IN CONSCIOUS DISREGARD OF ITS OBLIGATION. PENALTY WILL NOT ALSO BE IMPOSED MERELY BECAUSE IT IS LAWFUL TO DO SO. WHETHER PENALTY SHOULD BE I MPOSED FOR FAILURE TO PERFORM A STATUTORY OBLIGATION IS A MATTER OF DISCR ETION OF THE AUTHORITY TO BE EXERCISED JUDICIALLY AND ON A CONSIDERATION OF AL L THE RELEVANT 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 BONAFIDE BELI EF THAT THE OFFENDER IS NOT LIABLE TO ACT IN THE MANNER PRESCRIBED BY THE S TATUTE. 5. IN THE BACKGROUND OF AFORESAID DISCUSSION AND PR ECEDENT, WE AFFIRM THE ORDER OF LD.CIT(A) DELETING THE LEVY OF PENALTY. 6. I N THE RESULT, BOTH THE REVENUES APPEALS ARE DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23/04/2010 SD/- SD/- [C.L. SETHI] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23/04/2010 SRB ITA NOS.638&639/DEL/2010 A.Y. 2006-07 9 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A)5. DR, ITAT TRUE COPY DEPUTY REGISTRAR, ITAT, DELHI BENCHES