ITO-9(1)(3), MUMBAI V. M/S. EMIL PHARMACEUTICAL INDUSTRIES P LTD., MUMBAI

ITA 6590/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1637 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2004-2005
• Appeal Filed On: 12-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS VANDANA SAGAR
• Assessee Lawyers: S S PHADKAR
• Keywords: Set aside
• Section: 271E

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH: MUMBAI BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI V D RAO, JUDICIAL MEMBER ITA NO 6590/MUM/2008 (ASSESSMENT YEAR: 2004-05) ITO -9(1)(3) , ROOM NO.224, AAYAKAR BHAVAN, M K ROAD, MUMBAI -400 020 VS EMIL PHARMACEUTICAL INDUSTRIES P LTD , 101, SHREE MANGALM, KULUPWADI, NEAR NATIONAL PARK, BORIVLI (E), MUMBAI -400 066 PAN: AAACE 0922A APPELLANT RESPONDENT APPELLANT BY: MRS VANDANA SAGAR RESPONDENT BY: SHRI S S PHADKAR ORDER PER PRAMOD KUMAR 1. BY WAY OF THIS APPEAL, THE REVENUE HAS CALLED IN TO QUESTION CORRECTNESS OF CIT (A)S ORDER DATED 10TH SEPTEMBER 2008 FOR THE ASSES SMENT YEAR 2004-05, ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CTI (A) ERRED IN DELETING THE PENALTY OF RS 14,96,573/- U/S 271E IMPOSED BY THE ADDL CIT RANGE 9(1), MUMBAI FOR REPAYMENT OF LOAN O R DEPOSIT OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT IN VIOLATION OF SECTION 269T OF THE INCOME TAX ACT, 1961 WERE NOT VIOLATED AS THE REPAYMENTS WERE MADE BY BOOK ENTRIES WHICH DID NOT INVOLVE CASH PAY MENTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CTI (A) FAILED TO APPRECIATE THAT SECTION 269T OF THE I NCOME TAX ACT, 1961 VERY CLEARLY REQUIRES THE REPAYMENT OF LOANS AND DEPOSIT S THROUGH THE PRESCRIBED MODES ONLY I.E. BY AN ACCOUNT PAYEE CHEQUE OR ACCOU NT PAYEE BANK DRAFT DRAWN IN THE NAME OF THE PERSON WHO HAS MADE THE LO AN OR DEPOSIT IF THE AMOUNT OF LOAN OR DEPOSIT SO REPAID IS RS 20,000/- OR MORE. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A ) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A ) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . ITA 6590/M/2008 EMIL PHARMACEUTICAL INDUSTRIES P LTD 2 2. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIA L FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSEE HAD RECEIVED SOME LOANS AND DEPOS ITS FROM CERTAIN PERSONS IN PRECEDING YEARS, AND, IN THE RELEVANT PREVIOUS YEAR , THESE LOANS AND DEPOSITS WERE SQUARED UP BY TRANSFER TO SHARE APPLICATION MONEY. THIS TRANSFER ENTRY WAS SO DONE BECAUSE THESE DEPOSITORS AND / OR LENDERS WERE ALLO TTED SHARES IN SATISFACTION OF DUES TO THEM. ON THESE FACTS, PENALTY PROCEEDINGS UNDER SECTION 269T WERE INITIATED AGAINST THE ASSESSEE ON THE GROUND LOANS AND DEPOS ITS HAVE BEEN REPAID OTHERWISE THAN BY WAY OF AN ACCOUNT PAYEE CHEQUE OR ACCOUNT P AYEE DRAFT. THE ASSESSEES SUBMISSION THAT THE ENTRIES EFFECTED IN THE BOOKS O F ACCOUNTS OF THE ASSESSEE DO NOT COME WITHIN PURVIEW OF PAYMENTS OTHERWISE THAN BY WAY OF ACCOUNT PAYEE CHEQUE OR DRAFT WAS BRUSHED ASIDE. THE PENALTY WAS, ACCORDI NGLY, IMPOSED ON THE ASSESSEE FOR ALLEGED VIOLATION OF SECTION 269T. WHILE DOING SO, LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX OBSERVED AS FOLLOWS:- 5. THE REPLY FURNISHED BY THE ASSESSEE HAS BEEN C ONSIDERED. SEC 269T OF THE INCOME-TAX ACT, 1961 CLEARLY STIPULATES THAT NO LOAN OR DEPOSIT SHALL BE REPAID OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT. THE ASSESSEE HAS NOT BEEN ABLE TO CONTROVER T THIS BASIC FACT. THE ASSESSEE HAS TRIED TO DISGUISE THE REPAYMENT OF LOA N UNDER THE GARB OF SELF SERVING EXPLANATIONS SUCH AS THE TRANSACTIONS WERE ENTERED INTO BY TRANSFER ENTRIES FROM ONE ACCOUNT TO OTHER ACCOUNT IN THE BO OKS OF THE COMPANY. IN THIS REGARD, IT IS WORTHWHILE TO MENTION THAT SEC 2 69T HOLDS THAT ON LOAN OR DEPOSIT SHALL BE REPAID OTHERWISE THAN BY AN ACCOUN T PAYEE CHEQUE OR AN ACCOUNT PAYEE BANK DRAFT AND THE ASSESSEE IS INCOR RECT IN TRYING TO OVER SIMPLIFY THE MATTER BY IMPLYING THAT NO REPAYMENT H AS BEEN EFFECTED IN CASH. SEC 269T VERY CLEARLY AND EMPHATICALLY REQUIRES REP AYMENT OF LOANS OR DEPOSITS ONLY IN THE PRESCRIBED MANNER. THE ASSESSEE HAS RELIED ON THE DECISION OF THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT VS KASI CREDIT CORPORATION AND ANOT HER (280 ITR 0AGE 129). HOWEVER, THIS DECISION IS DISTINGUISHABLE ON FACTS FROM THE ASSESSEES CASE BECAUSE THE REPAYMENTS WERE DONE BY CHEQUE. 6. FROM THE ABOVE, IT IS OBSERVED THAT THE ASSESSEE HAS MADE THE REPAYMENT OF LOAN OTHERWISE THAN BY ACCOUNT PAYEE C HEQUE / DRAFT IN CASH TO THE ABOVE MENTIONED PERSONS. IN THE CIRCUMSTANCES, IT IS CONCLUDED THAT THE ASSESSEE COMPANY DID NOT HAVE ANY GENUINE REASON TO MAKE THE REPAYMENT WITHOUT AN ACCOUNT PAYEE CHEQUE OR AN ACCOUNT PAYEE BANK DRAFT. HENCE, I AM SATISFIED THAT IT IS A FIT CASE TO IMPOSE PENALT Y OF RS 14,96,573/- (ECCLUDING RS 3,016/- REPAID TO DIXIT JAYANT, RS 19,000/- REPA ID TO GOLE CHANDRASHEKHAR, RS 15,825/- REPAID TO FATEHSINGH GOLE, RS 8,000/- R EPAID TO KORDE EMIL AND RS ITA 6590/M/2008 EMIL PHARMACEUTICAL INDUSTRIES P LTD 3 9,308/- TO T.A. KORDE) U/S 271E OF THE INCOME-TAX A CT, WHICH IS EQUAL TO THE AMOUNT OF REPAYMENT IN CONTRAVENTION TO THE PROVISI ONS OF SECTION 269T OF THE INCOME-TAX ACT, 1961. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT (A) DELETED THE PENALTY BY OBSERVING AS FOLLOWS:- 5. I HAVE CAREFULLY CONSIDERED THE ABOVE FACT OF T HE CASE, ADDL CITS CONTENTION AND THE APPELLANTS SUBMISSION AS WELL. IT MAY BE NOTED HERE THAT THE PROVISIONS OF SECTION 269SS AND 269T WERE INTRO DUCED IN THE STATUTE TO PREVENT PROLIFERATION OF UNACCOUNTED MONEY WITH THE BANKS AND OTHER PERSONS BY INTRODUCING THE SYSTEM OF REPAYMENT THROUGH ACCO UNT PAYEE CHEQUES AND DRAFTS AND THUS TO ENSURE THAT THE IDENTITY OF PAYE E IS ESTABLISHED. IN THE APPELLANTS CASE UNDER CONSIDERATION, THERE WERE NO CASH TRANSACTION BETWEEN THE PERSONS WHOSE NAMES ARE APPEARING IN THE ASSESS MENT ORDER AND THE APPELLANT COMPANY. THE TRANSACTIONS WERE ENTERED I NTO BY TRANSFER ENTRIES FROM ONE ACCOUNT TO OTHER ACCOUNT IN THE BOOKS OF T HE COMPANY AS SUCH THERE WAS NO VIOLATION OF SECTION 269T OF THE I.T. ACT. THE AO IS THEREFORE DIRECTED TO DELETE THE PENALTY. 4. REVENUE IS AGGRIEVED OF THE RELIEF SO GIVEN TO T HE ASSESSEE AND IS IN APPEAL BEFORE US. 5. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE RECORD, WE ARE NOT INCLINED TO DISTURB WELL REASONED FINDINGS OF THE L EARNED CIT (A). THE QUESTION OF MAKING PAYMENT BY ACCOUNT PAYEE CHEQUE OR DRAFT CAN ONLY ARISE WHEN PAYMENT IS BEING MADE. IN THE CASE OF TRANSFER ENTRIES, AS MA DE IN THE PRESENT CASE, NO SUCH REQUIREMENTS CAN COME INTO PLAY. THERE IS NO PAYM ENT INVOLVED IN THE PRESENT SITUATION, IT IS MERELY CONVERSION OF DEBT INTO EQU ITY. WHEN THERE IS NO REPAYMENT, THE MODE OF REPAYMENT DOES NOT COME INTO PLAY AT AL L. THE CIT (A) WAS THUS QUITE JUSTIFIED IN DELETING THE IMPUGNED PENALTY. WE APP ROVED AND CONFIRM HIS ORDER. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT TODAY ON THE 29TH OCT OBER 2009. SD/- (V D RAO) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATE: 29TH OCTOBER 2009 ITA 6590/M/2008 EMIL PHARMACEUTICAL INDUSTRIES P LTD 4 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-XXXII, MUMBAI. 4) THE CIT -3, MUMBAI. 5) THE D.R. E BENCH, ITAT, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR CHAVAN* I.T.A.T., MUMBAI ITA 6590/M/2008 EMIL PHARMACEUTICAL INDUSTRIES P LTD 5 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 27.10.09 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 29.10.09 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER