K.K.GOEL (HUF), MUMBAI V. ADDL.C.I.T. CENTRAL-RANGE 2, MUMBAI

ITA 6755/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2603 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-11-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 24-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA OZHA
• Assessee Lawyers: S C GUPTA
• Keywords: Initiation of penalty proceedings; Block assessment
• Section: 143(3); 2(22)(e); 69B; 271D; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, SR.VP AND SHRI R. K. PANDA, AM I.T.A. NO.6755/MUM/2008 (ASSESSMENT YEAR : 2003-04 ) K.K. GOEL (HUF), C/O.ROCHEM SEPARATION SYSTEMS (I) PVT. LTD., 101, DHEERAJ ARMA, ANANT KANEKAR MARG, MUMBAI-400 051. PAN:AAFHK6996Q VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX, CENT. RANGE-2, 8 TH FLOOR, CGO BLDG. ANNEXE, M.K.ROAD, MUMBAI-400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. S.C.GUPTA RESPONDENT BY : MR. VIRENDRA OZHA, DR O R D E R PER R.V.EASWAR, SENIOR VICE PRESIDENT: THIS IS AN APPEAL FILED BY THE ASSESSEE AND IT IS DIRECTED AGAINST THE LEVY OF PENALTY OF RS.46 LAKHS UNDER SECTION 271D OF THE INCOME TAX ACT. THE APPEAL RELATES TO THE ASSESSMENT YEAR 2003-04. 2. THE ASSESSEE IS A HUF . IT DERIVES INCOME FROM H OUSE PROPERTY AND OTHER SOURCES. WHILE COMPLETING THE A SSESSMENT UNDER SECTION 143(3) READ WITH SECTION 153A, THE AS SESSING OFFICER MADE AN ADDITION OF RS.46 LAKHS AS UNEXPLA INED CASH UNDER SECTION 69B. THE ADDITION CAME TO BE MADE IN THESE CIRCUMSTANCES. THE ASSESSEE PURCHASED A FLAT IN BAN DRA FOR RS.75 LAKHS. FROM THE MATERIALS SEIZED DURING THE S EARCH CARRIED OUT UNDER SECTION 132 IN THE ASSESSEES PRE MISES AS PART OF THE SEARCH ACTION IN THE ROCHEM GROUP, IT WAS FO UND THAT CASH OF RS.46 LAKHS HAD ALSO BEEN PAID FOR THE PURC HASE OF THE FLAT ON VARIOUS DATES IN JUNE AND JULY, 2002. WHEN CALLED UPON TO EXPLAIN AS TO WHY THE CASH PAYMENT SHOULD NOT BE ADDED AS ITA NO.6755/MUM/08 2 THE ASSESSEES INCOME, THE ASSESSEE STATED THAT IT PAID RS.75 LAKHS FOR 60% SHARE IN THE FLAT AND THE REMAINING 4 0% WAS ACQUIRED BY A COMPANY BY NAME M/S. ROCHEM SEPARATIO N SYSTEM (INDIA) P. LTD. FOR RS.46 LAKHS, THAT THE C ASH WAS PAID ONLY BY THE COMPANY AND NOT BY THE ASSESSEE, THAT I T WAS NOT ON MONEY PAYMENT BUT WAS PAID FOR ACQUIRING 40% SHARE IN THE FLAT AND SINCE THE SOURCE OF THE CASH OF RS.46 LAKHS CAN BE TRACED TO THE AFORESAID COMPANY THE PROVISIONS OF SECTION 69B CANNOT BE APPLIED IN THE ASSESSEES ASSESSMENT. THE ASSESSEE FURTHER STATED THAT THE CASH WAS PAID BY THE ABOVE COMPANY FOR INTERIOR WORK IN THE FLAT AND IT WAS NOT INTENDED TO BE A GI FT OR LOAN TO THE ASSESSEE. THE ASSESSING OFFICER WAS NOT INCLIN ED TO ACCEPT THE ASSESSEES EXPLANATION. HE NOTED THAT THE ASSES SEE HAD DECLARED THE ENTIRE RENTAL INCOME FROM THE PROPERTY IN ITS RETURN AND THAT THE PROPERTY WAS ALSO REGISTERED IN ITS NA ME. ON THESE FACTS, HE HELD THAT THE AMOUNT OF RS.46 LAKHS CAN O NLY BE TREATED AS A CASH LOAN TILL THE TIME WHEN THE APPRO PRIATE SHARE IN THE FLAT IS TRANSFERRED TO THE COMPANY. AS TAKI NG A CASH LOAN ABOVE RS.20,000/- INVOLVES A VIOLATION OF SECTION 2 69SS, THE ASSESSING OFFICER HELD THAT THE PENAL PROVISIONS OF SECTION 271D WERE ATTRACTED. HAVING SAID SO, HE NEVERTHELESS ADD ED THE AMOUNT OF RS.46 LAKHS UNDER SECTION 69B OF THE ACT AS UNEXPLAINED. TOWARDS THE END OF THE ASSESSMENT ORD ER, THE ASSESSING OFFICER DIRECTED THAT PENALTY NOTICE UNDE R SECTION 271D BE ISSUED TO THE ASSESSEE. 3. IN REPLY TO THE PENALTY NOTICE, THE ASSESSEE REI TERATED ITS SUBMISSIONS MADE DURING THE ASSESSMENT PROCEEDING N AMELY THAT CASH PAYMENT OF RS.46 LAKHS WAS MADE BY THE CO MPANY FOR ACQUIRING 40% SHARES IN THE FLAT AND THAT IT CAN NE VER BE CONSIDERED AS A CASH LOAN BY THE COMPANY TO THE ASS ESSEE. THE ASSESSING OFFICER REJECTED THE EXPLANATION, RELYING ON THE ORDER PASSED BY THE CIT(A) IN THE APPEAL FILED BY THE ASS ESSEE AGAINST ITA NO.6755/MUM/08 3 THE ASSESSMENT ORDER, IN WHICH THE CIT(A) HAD DELET ED THE ADDITION OF RS.46 LAKHS UNDER SECTION 69B. IT WA S THE VIEW OF THE ASSESSING OFFICER THAT THIS ORDER OF THE CIT(A) SUPPORTED HIS THEORY THAT THE AMOUNT OF RS.46 LAKHS REPRESENTED A LOAN GIVEN BY THE COMPANY TO THE ASSESSEE IN CASH. IN THIS VI EW OF THE MATTER, HE IMPOSED THE IMPUGNED PENALTY. 4. ON APPEAL, THE CIT(A) CONFIRMED THE LEVY OF PENA LTY AND HENCE THE PRESENT APPEAL BY THE ASSESSEE. 5. SECTION 269SS PROHIBITS ANY PERSON FROM TAKING O R ACCEPTING FROM ANY OTHER PERSON ANY LOAN OR DEPOSIT OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE DR AFT IF IT IS IN EXCESS OF RS.20,000/-. EXPLANATION (III) BELOW T HE SECTION DEFINES LOAN OR DEPOSIT AS MEANING A LOAN OR DEPOSI T OF MONEY. SECTION 271D PROVIDES THAT IF A PERSON TAKES OR ACC EPTS ANY LOAN OR DEPOSIT IN CONTRAVENTION OF SECTION 269SS, HE SH ALL BE LIABLE TO PAY A PENALTY OF A SUM EQUAL TO THE AMOUNT OF TH E LOAN OR DEPOSIT SO TAKEN OR ACCEPTED. THE FIRST CONTENTION ADVANCED BEFORE US ON BEHALF OF THE ASSESSEE IS THAT THE ASS ESSING OFFICER CANNOT AT THE SAME TIME ADD THE AMOUNT OF RS.46 LAK HS AS THE INCOME OF THE ASSESSEE UNDER SECTION 69B AND ALSO H OLD THAT THE AMOUNT REPRESENTS A CASH LOAN TAKEN BY THE ASSESSEE IN CONTRAVENTION OF SECTION 269SS. WE SEE FORCE IN THE CONTENTION. THE FINDING OF THE ASSESSING OFFICER IN THE ASSESSM ENT ORDER IS THAT THE AMOUNT REPRESENTS UNEXPLAINED INCOME OF TH E ASSESSEE. HOWEVER, HE HAS OBSERVED IN PARAGRAPH 5.6 OF THE AS SESSMENT ORDER THAT THE AMOUNT SHOULD BE TREATED AS A CASH L OAN TILL THE APPROPRIATE SHARE IN THE FLAT IS TRANSFERRED TO THE COMPANY. THERE IS A CONTRADICTION IN THE ASSESSMENT ORDER IN THE SENSE THAT THE AMOUNT OF RS.46 LAKHS CANNOT BE A LOAN AS WELL AS THE ASSESSEES INCOME AT THE SAME TIME. THIS CONTRADICT ION INVALIDATES THE SATISFACTION OR BELIEF OF THE ASSES SING OFFICER THAT ITA NO.6755/MUM/08 4 THE ASSESSEE COMMITTED A VIOLATION OF SECTION 269SS . THE VERY INITIATION OF PENALTY PROCEEDINGS ON SUCH CONTRADIC TORY FINDINGS IS INVALID. IN DIWAN ENTERPRISES VS. CIT, 246 ITR 571, THE DELHI HIGH COURT WAS DEALING WITH A SIMILAR SITUATION. IN THAT CASE, THE ASSESSEE HAD SURRENDERED AN AMOUNT AS INCOME WH ICH WAS ACCEPTED BY THE ASSESSING OFFICER. HE HOWEVER TREAT ED THE SAME AS A LOAN TAKEN BY THE ASSESSEE IN VIOLATION OF SEC TION 269SS AND INITIATED PENALTY PROCEEDINGS UNDER SECTION 271 D. THE DELHI HIGH COURT OBSERVED THAT WHEN THE ASSESSING OFFICER RECORDED A FINDING THAT THE AMOUNT WAS THE ASSESSEES INCOME, IMPLIEDLY HE HAD ALSO RECORDED A FINDING THAT IT WAS NEITHER A L OAN OR A DEPOSIT. IT WAS FURTHER HELD THAT THE ASSESSING O FFICER CANNOT BE PERMITTED TO TREAT THE AMOUNT OF LOAN AS INCOME FOR THE PURPOSE OF ASSESSING TAX THEREON WHILE FRAMING THE ASSESSMENT AND AT THE SAME TIME TO TREAT IT AS A LOAN FOR THE PURPOSE OF SECTION 269SS READ WITH SECTION 271D AND SUBJECT TH E TRANSACTIONS TO PENALTY. SUCH PROCEEDINGS WOULD BE SELF- CONTRADICTORY. IT WAS FURTHER HELD THAT THE VERY FOUNDATION FOR INITIATING THE PROCEEDINGS FOR AND LEVYING PENALTY UNDER SECTION 271D WAS LOST. A SIMILAR VIEW HAS BEEN TAKEN BY TH E MUMBAI BENCH OF THE TRIBUNAL IN DCIT VS. G.S. ENTERTAINMEN T (109 TTJ 54), WHERE IT WAS HELD THAT ONCE THE AMOUNT IN QUES TION IS ASSESSED AS THE UNDISCLOSED INCOME OF THE ASSESSEE IN THE BLOCK ASSESSMENT, THE PROVISIONS OF SECTION 269SS READ WI TH SECTION 271D CANNOT BE RESORTED TO. THE DELHI HIGH COURT RE ITERATED ITS EARLIER VIEW IN CIT VS. STANDARD BRANDS LTD., 285 I TR 295. 6. FURTHER, IT IS NOT POSSIBLE TO TREAT THE CASH PA YMENT BY THE COMPANY FOR PURCHASE OF THE PROPERTY AS A LOAN MADE TO THE ASSESSEE IN CASH EVEN BY IMPLICATION. GENERALLY, A LOAN OR DEPOSIT OF MONEY WOULD CARRY INTEREST BUT IN THE PR ESENT CASE THERE IS NO SUCH FINDING. ONE OF THE ESSENTIAL CHAR ACTERISTICS OF A LOAN IS ABSENT. EVEN ASSUMING THAT THE COMPANY MADE THE CASH ITA NO.6755/MUM/08 5 PAYMENT TO ENABLE THE ASSESSEE TO ACQUIRE THE FLAT IN ITS OWN NAME, STILL IT CANNOT BE SAID TO BE A LOAN SINCE IT WAS NEVER INTENDED TO BE REPAID. AN ESSENTIAL FEATURE OF A LO AN IS THAT THERE IS AN AGREEMENT TO REPAY THE SAME. THUS, THERE IS N O JUSTIFICATION FOR HOLDING THE SAME TO BE A LOAN GIV EN BY THE COMPANY TO THE ASSESSEE IN CONTRAVENTION OF SECTION 269SS. 7. OUR ATTENTION WAS HOWEVER DRAWN BY THE DEPARTMEN T TO THE ORDER OF THE TRIBUNAL DATED 14.9.2009 IN ITA NO.4390/MUM/2008 IN THE APPEAL FILED BY THE DEPARTM ENT AGAINST THE ORDER OF THE CIT(A) IN THE ASSESSMENT P ROCEEDINGS DELETING THE ADDITION OF RS.46 LAKHS. IT WOULD APPE AR THAT THE CIT(A) HAD NOT ONLY DELETED THE ADDITION MADE UNDER SECTION 69B, BUT HAD ALSO HELD THAT THE ADDITION CANNOT BE MADE EVEN UNDER SECTION 2(22)(E) OF THE ACT AS DEEMED DIVIDEN D. THE TRIBUNAL AFFIRMED THE FINDING OF THE CIT(A) TO THE EFFECT THAT SINCE THE ASSESSEE HUF WAS NOT A SHAREHOLDER IN M/ S.ROCHEM SEPARATION SYSTEM (INDIA) P. LTD., THE PROVISIONS O F THE AFORESAID SECTION ARE NOT ATTRACTED. THE TRIBUNAL HAD ALSO AF FIRMED THE DECISION OF THE CIT(A) TO DELETE THE ADDITION MADE UNDER SECTION 69B. HOWEVER, IN PARAGRAPH 5 THERE IS AN OBSERVATIO N MADE BY THE TRIBUNAL TO THE EFFECT THAT; TO THAT EXTENT, IN OUR OPINION, THE FINDINGS OF THE CIT(A) IS CORRECT THAT IT WAS AFTERTHOUGHT BY THE ASSESSEE COMPANY AS ADMITTEDLY SHRI K.K.GOEL IS ALSO CHAIRMAN OF M/S.RSSIPL AND JUST TO SKIP OFF THE PROVISIONS OF SECTION 269SS, THE ASSESSEE HAS TRIED TO SHOW THAT M/S. RSSIPL HAD PAID THE AMOUNT TO THE ASSESSEE AS THE SAID COMPANY WAS HAVING PARTIAL OWNERSHIP IN THE SAID FLAT. RELYING ON THESE OBSERVATIONS THE DEPARTMENT SOUGHT TO CONTEND THAT THE ASSESSEE ATTEMPTED TO CIRCUMVENT S ECTION 269SS. WE ARE, HOWEVER, NOT INCLINED TO ACCEPT THE CONTENTION. IT MUST BE REMEMBERED THAT THE TRIBUNAL WAS NOT SIT TING IN APPEAL AGAINST THE PENALTY LEVIED UNDER SECTION 271 D BUT WAS ITA NO.6755/MUM/08 6 SITTING IN APPEAL AGAINST THE ASSESSMENT PROCEEDING S AND THE OBSERVATIONS HAVE TO BE UNDERSTOOD IN THAT CONTEXT. THE OBSERVATIONS AT BEST CAN ONLY BE CONSIDERED AS PASS ING OBSERVATIONS. NO ASSISTANCE CAN BE TAKEN FROM THEM IN THE PRESENT PROCEEDINGS. 8. FOR THE AFORESAID REASONS, WE CANCEL THE PENALTY IMPOSED UNDER SECTION 271D AND ALLOW THE APPEAL OF THE ASS ESSEE WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED ON THIS 8 TH DAY OF DECEMBER, 2009. SD/- (R.K. PANDA) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER SENIOR VICE PRESIDENT MUMBAI, DATED 8 TH DECEMBER, 2009. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT, CEN.I, MUMBAI. 4. THE CIT(A) CEN.II, MUMBAI 5. THE DR A BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI