ANKITA KNITWEAR LTD, MUMBAI V. ACIT - 12(1)(1), MUMBAI

ITA 6670/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3881 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 22-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATISH CHANDRA RAJORE
• Keywords: Reasonable cause
• Section: 40A(3); 273B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI JOGINDER SINGH (VICE PRESIDENT) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 6670/MUM/2017 ASSESSMENT YEAR: 2011 - 12 M/S ANKITA KNIT WEAR LIMITED, 301, AMAZON CHSL, JAI RAJ NAGAR, OFF LINK ROAD BORIVALI EAST MUMBAI - 400091. VS. ACIT - 12(1)(1) 2 ND FLOOR, AAYAKARBHAVAN, MUMBAI - 400020. PAN NO. AABCA3859P APPELLANT RESPONDENT ASSESSEE BY : MR. MAHESH SABOO, AR REVENUE BY : M R. SATISH CHANDRA RAJORE , DR DATE OF HEARING : 08 /01/2019 DATE OF PRONOUNCEMENT : 30/01/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE . THE RELEVANT ASSESSMENT YEAR IS 2011 - 1 2 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF IN COME TAX (APPEALS) - 20 , MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF PENALTY LEVIED U/S 271 E OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE GROUND OF APPEAL FILED BY THE ASSESSEE READ S AS UNDER: ON THE FACTS AND CIRCUMSTANCE S OF THE CASE AND IN LAW, THE AUTHORITIES BELOW HAVE ERRED IN CONFIRMING/LEVYING THE PENALTY US/ 271E R.W.S. 274 AND 273B OF THE IT ACT AMOUNTING TO RS.1,12,500/ - AND THE REASONS ASSIGNED FOR DOING SO, M/S ANKITA KANITWEAR ITA NO. 6670/MUM/2017 2 WERE WHOLLY AND NOT IN ACCORDANCE WITH THE FACTS OF TH E CASE AND PROVISIONS OF INCOME TAX ACT, 1961 AND THE RULES MADE THERE UNDER. 3. BRIEFLY STATED, THE FACTS ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE HAD REPAID LOAN OF RS.1,12,500/ - IN CASH TO ONE OF ITS DIRECTORS SMT. JAYANTI JHAWAR IN VIOLATION OF PROVISIONS OF SECTION 269T OF THE ACT. IN RESPONSE TO A QUERY RAISED BY THE AO, THE ASSESSEE SUBMITTED THAT IT HAD MADE THE PAYMENT IN CASH TOWARDS THE SALARY/REMUNERATION WHICH ITS DIRECTOR MRS. JAYANTI JHAWAR WAS ENTITLED TO RECEIVE. IT WAS STATED THAT HOWEVER, INSTEAD OF DEBITING THE SAME TO THE DIRECTORS REMUNERATION PAYABLE, THE SAME WAS DEBITED TO HER UNSECURED LOAN ACCOUNT. ACCORDINGLY, THE THREE ENTRIES (RS.12,500/ - AND RS.30,000/ - DATED 2 9.09.2010 AND RS.70,000/ - DATED 03.10.2010 ) AGGREGATING TO RS.1,12,500/ - WERE REFLECTED IN HER LOAN ACCOUNT INSTEAD OF SALARY ACCOUNT. THE SAID TWO ACCOUNTS WERE SUBSEQUENTLY REGULARIZED. THUS IT WAS STATED THAT THERE IS NO VIOLATION O F ANY COMPLIANCE OF S ECTION 269T AS ALLEGED. FURTHER IT WAS SUBMITTED THAT THE COMPANY CAN MAKE THE PAYMENT OF SALARY IN CASH TO THE DIRECTOR AND BY MISTAKE THE TWO ACCOUNTS WERE OPENED AND THE ENTRIES WERE MADE IN ONE ACCOUNT INSTEAD OF ANOTHER ACCOUNT. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE FOR THE REASON THAT THE DIRECTOR OF THE COMPANY SMT. JAYANTI JHAWAR HAD LENT MONIES TO THE COMPANY WHICH WAS SUBSEQUENTLY REPAID BY IT IN CASH IN TWO TRENCHES WITHIN A SHORT PERIOD OF 4 DAYS I.E. FRO M 29.09.2010 TO 03.10.2010 RESPECTIVELY. THERE WAS NO EVIDENCE ON RECORD TO SHOW THAT THIS WAS NOT A REPAYMENT OF LOAN IN CASH. THE AO M/S ANKITA KANITWEAR ITA NO. 6670/MUM/2017 3 FURTHER OBSERVED THAT THE STORY OF PAYMENT OF REMUNERATION IN CASH IS DISPROVED BY THE FACT THAT AN AMOUNT OF RS.12,500/ - AND RS.30,000/ - WAS PAID ON THE SAME DATE ON 29.09.2010. FURTHER, ON 03.10.2010 A SUM OF RS.70,000/ WAS PAID TO THE DIRECTOR MRS. JAYANTI JHAWAR. THE AO SPECIFICALLY OBSERVED THAT THE DIRECTORS REMUNERATION PAYABLE TO MRS. JAYANTI JHAWAR DURING THE FY 20 10 - 11 HAS BEEN REPORTED BY THE ASSESSEE AT RS.1,20,000/ - . THEREFORE, THE PAYMENT OF RS.1,12,500/ - BETWEEN 29.09.2010 TO 03.10.2010 CANNOT TAKE SHAPE OF DIRECTORS REMUNERATION BY ANY STRETCH OF IMAGINATION. THE AO FURTHER OBSERVED THAT GIVEN THE FACTUAL MA TRIX, DISALLOWANCE U/S 40A(3) FOR MAKING CASH EXPENSES ABOVE RS.20,000/ - OTHER THAN ACCOUNT PAYEE CHEQUE OR OTHER THAN ACCOUNT PAYEE DEMAND DRAFT, WOULD HAVE BEEN MADE IN THE ASSESSEES CASE. WITH THE ABOVE REASONS, THE AO LEVIED A PENALTY OF RS.1,12,500 / - U/S 271E OF THE ACT. 4. IN APPEAL, THE LD. CIT(A) HELD AS UNDER: 4.7 I HAVE GONE THROUGH THE PENALTY ORDER AND SUBMISSIONS MADE IN THIS REGARD. IT IS NOTED THAT THE ENTIRE MATTER PERTAINS TO REPAYMENT OR UNSECURED LOANS OF RS.1,12,500/ - TO MRS. JAYANTI JHAWAR DIRECTOR OF THE COMPANY IN VIOLATION OF PROVISIONS OF SECTION 269T . THE AUDITOR HAS HIGHLIGHTED THIS VIOLATION IN THE AUDIT REPORT WHICH BECAME THE BASIS OF LEVY OF PENALTY BY THE AO. THE AR HAS OPPOSED THE PENALTY AND SUBMITTED THAT THE APPELLANT COMPANY HAD MADE THE PAYMENT IN CASH TOWARDS THE SALARY/REMUNERATION TO THE DIRECTOR MRS. JAYANTI JHAWAR. IT IS CLAIMED THAT THE SAID SALARY WAS BEING REGULARLY AND CONSISTENTLY BEING PAID TO HER AS AND WHEN DESIRED BY HER. THAT A SUM OF RS.1,20 ,000/ - WAS THE SALARY/DIRECTORS REMUNERATION WAS PAID/PAYABLE TO HER AND OUT OF WHICH SHE HAS WITHDRAWN A SUM OF M/S ANKITA KANITWEAR ITA NO. 6670/MUM/2017 4 RS.1,12,500/ - . IN ADDITION TO THE ABOVE SHE HAD ALSO LENT SOME MONIES TO THE COMPANY AS UNSECURED LOAN. AN OPENING BALANCE OF RS.2,77,988/ - WAS LYING CREDITED IN HER LOAN ACCOUNT WITH THE COMPANY AND A FURTHER SUM OF RS.2,45,000/ - WAS LENT BY HER. NOW AS AGAINST THE SALARY PAYABLE OF RS.1,20,000/ - TO HER, THE AFORESAID PAYMENT OF RS.1,12,500/ - OUGHT TO HAVE BEEN DEBITED IN THAT ACCOUNT BUT INSTEA D OF THAT, IT WAS WRONGLY DEBITED TO HER UNSECURED LOAN ACCOUNT. THE DIRECTORS REMUNERATION REMAINED FULLY CREDITED AT RS.1,20,000/ - AND WAS SHOWN AS CURRENT LIABILITY. IT IS NOTED THAT THE COMPANY IS A SEPARATE LEGAL ENTITY AND THERE WAS NO EXEMPTION PRO VIDED IN THE SECTION 269T FOR LOANS TAKEN FROM OR REPAID TO A DIRECTOR / SHAREHOLDER OF A COMPANY. IN THE PRESENT CASE THERE IS AN APPARENT REPAYMENT OF UNSECURED LOANS OF RS.1,12,500/ - IN CASH TO MRS. JAYANTI JHAWAR DIRECTOR OF THE COMPANY AS EVIDENCED BY THE ACCOUNT BOOKS AND THE AUDITOR'S REPORT, WHICH IS IN CLEAR VIOLATION OF PROVISIONS OF SECTION 269T WHICH LEADS TO LEVY OF PENALTY U/S 271E. IT IS NOTED THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THAT THE AMOUNTS PAID IN CASH WERE NOT REPAYMENT OF LOANS AS POINTED BY THE AUDITOR BUT WERE RATHER PAYMENTS OF OUTSTANDING REMUNERATION AS CLAIMED BY THE AR. IT IS ALSO NOT A CASE WHERE THE LOAN WAS REPAID IN CASH TO THE DIRECTOR FOR ANY REASONABLE CAUSE BY THE COMPANY WHICH WILL SAVE THE APPELLANT THE RI GOUR OF SECTION 271E. IN VIEW OF THIS DISCUSSION AND HAVING REGARDS TO THE FACTS OF THE CASE THE LEVY OF PENALTY U/S 271E BY THE AO OF RS.1,12,500/ - FOR VIOLATION OF PROVISIONS OF SECTION 269T IS FOUND TO BE IN ORDER AND IS UPHELD IN APPEAL. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE FILES A COPY OF LEDGER ACCOUNT OF DIRECTOR REMUNERATION PAYABLE (JAYANTI JHAWAR) AND A COPY OF THE FORM NO. 3CA. THE LD. COUNSEL FURTHER SUBMITS THAT A SUM OF RS.1,20,000/ - WAS THE SALARY/DIRECTORS REMUNERATION PAID/PAYA BLE TO MRS. JHAWAR AND OUT OF WHICH SHE HAD WITHDRAWN A SUM OF RS.1,12,500/ - . IN ADDITION TO THE M/S ANKITA KANITWEAR ITA NO. 6670/MUM/2017 5 ABOVE, SHE HAD ALSO LENT SOME MONIES TO THE COMPANY AS UNSECURED LOAN. AN OPENING BALANCE OF RS.2,77,988/ - WAS LYING CREDITED IN HER LOAN ACCOUNT WITH THE COMP ANY AND A FURTHER SUM OF RS.2,45,000/ - WAS LENT BY HER. THUS IT IS STATED BY THE LD. COUNSEL THAT AS AGAINST THE SALARY PAYABLE OF RS.1,20,000/ - TO HER, THE AFORESAID PAYMENT OF RS.1,12,500/ - OUGHT TO HAVE BEEN DEBITED IN THAT ACCOUNT BUT INSTEAD OF THAT, IT WAS WRONGLY DEBITED TO HER UNSECURED LOAN ACCOUNT. IT IS STATED THAT THE DIRECTORS REMUNERATION REMAINED FULLY CREDITED AT RS.1,20,000/ - AND WAS SHOWN AS CURRENT LIABILITY. THUS IS STATED THAT EFFECTIVELY THE ASSESSEE HAS NOT VIOLATED ANY PROVISION OF SECTION 269T OF THE ACT AND THEREFORE, THE PENALTY OF RS.1,12,500/ - BE DELETED. 6. ON THE OTHER HAND, THE LD. DR REFERS TO PARA 4.7 OF THE ORDER OF THE LD. CIT(A) AND SUBMITS THAT THE ORDER MAY BE CONFIRMED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MA TERIALS ON RECORD. A PERUSAL OF THE ACCOUNTS INDICATE THAT AS AGAINST THE SALARY PAYABLE OF RS.1,20,000/ - TO MRS. JHAWAR, THE PAYMENT OF RS.1,12,500/ - OUGHT TO HAVE BEEN DEBITED IN THAT ACCOUNT BUT INSTEAD OF THAT, IT WAS WRONGLY DEB ITED TO HER UNSECURED LOAN ACCOUNT. THE SAME MAY BE SEEN IN THE BACKDROP OF THE ENTRIES THAT INDICATE AN OPENING BALANCE OF RS.2,77,988/ - WAS LYING CREDITED IN HER LOAN ACCOUNT WITH THE COMPANY AND A FURTHER SUM OF RS.2,45,000/ - WAS LENT BY HER. ALSO IT IS SEEN THAT THE DIRECTORS REMUNERATION REMAINED FULLY CREDITED AT RS.1,20,000/ - AND WAS SHOWN AS A CURRENT LIABILITY. THE CONFUSION AROSE DUE TO WRONG ENTRY IN TWO DIFFERENT ACCOUNTS. WE ARE OF THE CONSIDERED VIEW THAT IT IS A CASE OF REASONABLE CAUSE AND THEREFORE, THE PENALTY U/S M/S ANKITA KANITWEAR ITA NO. 6670/MUM/2017 6 271E IS NOT LEVIABLE. SUCH BEING THE CASE, WE DELETE THE PENALTY OF RS.1,12,500/ - LEVIED BY THE AO U/S 271E OF THE ACT. 8. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/01/2019. SD/ - SD/ - (JOGINDER SINGH) (N.K. PRADHAN) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI ; DATED: 30/01/2019 RAHUL SHARMA, SR. P.S. 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// ( SR. PRIVATE SECRETARY ) ITAT, MUMBAI