ACIT CC-40, MUMBAI V. N.H SECURITIES LTD, MUMBAI

ITA 694/MUM/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6136 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 30-11-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 28-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P DANIEL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 694/MUM/2010 (ASSESSMENT YEAR: 2005-06) ACIT, CENTRAL CIRCLE 40 M/S. N.H. SECURITIES LTD. ROOM NO. 653, 6TH FLOOR BHUPEN CHAMBERS, GROUND FLO OR AAYAKAR BHAVAN, M.K. ROAD VS. 9, DALAL STREET, FORT MUMBAI 400020 MUMBAI 400023 PAN - AAACS 7140 Q APPELLANT RESPONDENT APPELLANT BY: DR. P. DANIEL RESPONDENT BY: SHRI RAJIV KHANDELWAL O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) XXXVIII, MUMBAI DATED 16.11.2009. 2. IN THE TWO GROUNDS RAISED BY THE REVENUE THE ISSUE OF LEVY OF PENALTY UNDER SECTION 271D WAS CONTESTED. 3. BRIEFLY STATED, THE ADDL. COMMISSIONER NOTICED THAT THE ASSESSEE HAD RECEIVED AN AMOUNT OF LOAN OF ` 26,16,588/- FROM M/S. NAKSHATRA SOFTWARE PVT. LTD. AND A LOAN OF ` 9,99,97,540/- FROM M/S. PANTHER IND. PRODUCT LTD., OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR DRAFT IN VIOLATION OF SECTION 269SS. ACCORDINGLY, THE PENALTY OF ` 10,26,14,128/- WAS LEVIED. THE ASSESSEES EXPLANATION THAT THE AFORESAID TRANSACTI ON OF LOAN WERE NOT MADE IN CASH BUT THROUGH JOURNAL ENTRIES, AND THEREFORE, THIS DID NOT AMOUNT TO CONTRAVENTION OF PROVISIONS OF SECTION 269SS WAS NO T ACCEPTED BY THE A.O., WHO REFERRED TO THE JOINT PARLIAMENTARY COMMITTEES REPORT ON THE STOCK MARKET SCAM AND HELD THAT ALL THESE TRANSACTIONS WE RE MADE WITH AN OBJECT TO EVADE TAX IN VARIOUS HANDS. SINCE THE AFORESAID TRANSACTIONS OF LOAN WERE NOT MADE THROUGH ACCOUNT PAYEE CHEQUE OR DRAFT, THE ADDL. COMMISSIONER HELD THAT PENALTY UNDER SECTION 271D WAS LEVIABLE. WITH REGARD TO ASSESSEES ITA NO. 694/MUM/2010 M/S. N.H. SECURITIES LTD. 2 CLAIM THAT ITAT HAD ALREADY DELETED THE PENALTY IN ASSESSEES GROUP CASES, THE ADDL. CIT OBSERVED THAT THE DEPARTMENT HAD PREF ERRED THE APPEAL BEFORE THE HON'BLE BOMBAY HIGH COURT. THE MATTER WAS CARRI ED TO THE CIT(A). BEFORE THE CIT(A) THE ASSESSEE REITERATED THE SUBMI SSIONS BOTH ON MERITS AND ON LAW. WITH REFERENCE TO THE FACTS OF THE TRAN SACTIONS BY WAY OF JOURNAL ENTRIES THE SUBMISSIONS ARE AS UNDER: - NAKSHATRA SOFTWARE PVT. LTD. : THE APPELLANTS REQUESTED M/S. NAKSHATRA SOFTWARE PV T. LTD. TO PAY THE EXPENSES ON THEIR BEHALF INCURRED DURING THE FINANC IAL YEAR 2004-05. M/S. NAKSHATRA SOFTWARE PVT. LTD. PAID THE EXPENSES BY WAY OF CHEQUES/PAY ORDERS. 2. PANTHER INDUSTRIAL PRODUCTS LTD. PANTHER INDUSTRIAL PRODUCTS LTD. HAS PLEDGED CERTAI N SHARES WITH MADHAVPURA MERCANTILE CO-OP BANK LTD. ON BEHALF OF THE APPELLANT. MADHAVPURA MERCANTILE CO-OP BANK LTD. CREDITED THE ACCOUNT OF THE APPELLANTS TOWARDS THE INVOCATION OF THE SAID SHARE S. IN TURN, THE APPELLANTS CREDITED THE ACCOUNT OF M/S. PANTHER IND USTRIAL PRODUCTS LTD. IN ANY VIEW OF THE MATTER, ALL THE TRANSACTIONS ARE BANK ENTRIES, WHICH DOES NOT AMOUNT TO ACCEPTANCE OF LOAN IN CONTRAVENT ION TO SECTION 269SS. IT IS ALSO FURTHER SUBMITTED THAT AS TRANSACTIONS W ERE MADE THROUGH JOURNAL ENTRIES, THE PROVISIONS OF SECTION 269SS WERE NOT A TTRACTED AND THAT UNDER IDENTICAL FACTS, IN ASSESSEES OWN CASE FOR A.Y. 19 99-2000 IN ITA NO.3310/M/04 AND FOR A.Y. 2003-04 IN ITA NO. 537/M/ 07, THE PENALTY LEVIED UNDER SECTION 271D STOOD DELETED. IT WAS FUR THER SUBMITTED THAT IN AS MANY AS 39 GROUP CASES INVOLVING IDENTICAL FACTS, THE PENALTY LEVIED BY THE DEPARTMENT UNDER SECTION 271D STOOD DELETED BY THE ITAT. AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE BOTH ON FACTS AND A LSO ON LEGAL PRINCIPLES THE CIT(A) DELETED THE PENALTY BY STATING AS UNDER: - 3.7 I HAVE CAREFULLY PERUSED THE ITAT ORDER IN THE APPELLANTS OWN CASE FOR AY 1999-2000 IN ITA NO. 3310/M/04 & 3311/M /04 DATED 16.03.2005 WHEREIN THE TRIBUNAL HELD THAT PENALTY C ANNOT BE LEVIED WHEN THE PAYMENTS WERE MADE OR RECEIVED THROUGH JOU RNAL ENTRIES. IT WOULD BE PERTINENT TO REPRODUCE THE RELEVANT PARA 7 OF THE ITAT DECISION DATED 13.6.05 FOR A.Y. 1999-2000 AS UNDER: - THE STATEMENT OF ACCOUNTS IN THE NAME OF THE AFORE SAID PARTIES PERTAINING TO THE YEAR UNDER CONSIDERATION REVEALS THAT NONE OF THE AMOUNTS EITHER PAID BY THE ASSESSEE OR RECEIVED BY THE ASSESSEE WAS IN CASH. THERE ARE CERTAIN ENTRIES THROUGH JOURNAL VOU CHER. THEREFORE, THE ITA NO. 694/MUM/2010 M/S. N.H. SECURITIES LTD. 3 QUESTION MAY ARISE WHETHER SUCH PAYMENTS WOULD FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 269-SS AND 269T. THIS ISSUE HAS BEEN EXAMINED BY THE TRIBUNAL IN THE CASE OF V.N. PAREKH SECURITIES PVT. LTD. (ITA NO. 3316 & 3317/MUM/2004). THE FACTS OF THAT C ASE ARE ADMITTEDLY IDENTICAL AND THE QUESTION AROSE WHETHER ANY PENALT Y COULD BE LEVIED WHERE PAYMENTS ARE MADE THROUGH JOURNAL ENTRIES. TH E TRIBUNAL, VIDE ORDER DATED 22.3.2005, HELD THAT NO SUCH PENALTY CO ULD BE LEVIED IN THE CASE WHERE PAYMENTS WERE MADE THROUGH JOURNAL ENTRI ES. THIS ISSUE WAS ALSO EXAMINED BY PUNE BENCH IN THE CASE OF SUNF LOWER BUILDERS PVT. LTD. 61 ITD 227 TO WHICH ONE OF US (JM) WAS PARTY. IN THAT CASE ALSO, THE QUESTION AROSE WHETHER THE PENALTY U/S. 271-D COULD BE IMPOSED WHERE THE ENTRIES WERE MADE THROUGH THE JOURNAL ENTRIES. THE TRIBUNAL, AFTER DETAILED DISCUSSIONS, HELD THAT THE ACKNOWLEDGEMENT OF DEBT BY THE ASSESSEE COMPANY BY PASSING A JOURNAL ENTRY IN THE BOOKS OF ACCOUNTS WOULD NOT COME WITHIN THE AMBIT OF THE WORDS LOANS OR DEPOSITS OF MONEY AS MENTIONED IN SECTION 269-SS. THEREFORE, F OLLOWING THESE DECISIONS OF THE TRIBUNAL, WE HOLD THAT NO PENALTY CAN BE LEVIED WHERE THE PAYMENTS ARE SAID TO BE MADE OR RECEIVED THROUG H JOURNAL ENTRIES. 4. THE LEARNED STANDING COUNSEL FOR THE REVENUE SUBMIT TED THAT THE ISSUE IS STILL UNDER CONSIDERATION OF THE HON'BLE B OMBAY HIGH COURT AND ACCORDING TO THE STAND OF THE A.O. THE TRANSACTIONS ARE ATTRACTED BY THE PROVISIONS OF SECTION 269SS, THEREFORE PENALTY UNDE R SECTION 271D WAS WARRANTED. 5. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) AND PLACED ON RECORD COPIES OF TH E ORDERS OF THE ITAT IN ASSESSEES OWN CASE RELIED UPON BY THE CIT(A). HE F URTHER PLACED RELIANCE ON THE JUDGEMENT OF HON'BLE DELHI HIGH COURT IN THE CA SE OF NOIDA TOLL BRIDGE CO. LTD. 262 ITR 260 WHEREIN IT WAS HELD THAT PROVI SIONS OF SECTION 269SS AND 269T WERE NOT ATTRACTED IN CASE OF JOURNAL ENTR IES. FURTHER RELIANCE WAS ALSO PLACED ON THE JUDGEMENT OF SUNFLOWER BUILDRS ( P) LTD. 61 ITD 227 (PN). 6. WE HAVE CONSIDERED THE ISSUE. THE CIT(A) HIMSELF HA S FOLLOWED THE COORDINATE BENCH DECISION IN ASSESSEES OWN CASE FO R A.Y. 1999-2000, THE EXTRACT OF WHICH WAS MENTIONED IN HIS ORDER. THERE ARE NUMBER OF ORDERS ON THIS ISSUE AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE AND IN ALL THE CASES IT IS FELT THAT PROVISIONS OF SECTION 269 SS/271D ARE NOT WARRANTED WHEN THE AMOUNTS ARE RECEIVED BY WAY OF JOURNAL ENT RIES IN THE BOOKS OF ACCOUNT. THEREFORE, RESPECTFULLY FOLLOWING THE DECI SION OF THE COORDINATE BENCHES WE UPHOLD THE ORDER OF THE CIT(A) THAT NO P ENALTY COULD BE LEVIED ITA NO. 694/MUM/2010 M/S. N.H. SECURITIES LTD. 4 WHERE PAYMENTS ARE MADE OR RECEIVED THROUGH JOURNAL ENTRIES. SIMILAR PRINCIPLES WERE ALSO ESTABLISHED BY THE HON'BLE DEL HI HIGH COURT IN THE CASE OF NOIDA TOLL BRIDGE CO. LTD. 262 ITR 260. IN VIEW OF THIS, THERE IS NO MERIT IN REVENUES APPEAL. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD DECEMBER 2010. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 3 RD DECEMBER 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXXVIII, MUMBAI 4. THE CIT CENTRAL IV, MUMBAI CITY 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.