A. S. Diamonds (India) Private Limited, Surat V. The Addl. Commissioner of Income Tax, Range-1(1), Surat, Surat

ITA 760/SRT/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 8732 (ITAT-SURAT)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 07-01-2024
• Assessment Year: 2015-2016
• Appeal Filed On: 05-11-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reasonable cause; Assessment record; Set aside
• Section: 273B; 271D; 271E

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, "SMC” BENCH, SURAT BEFORE DR. A. L. SAINI, AM आयकर अपील सं./ITA Nos.759 & 760/SRT/2023 (Ǔनधा[रण वष[ / Assessment Year: (2015-16) (Physical Court Hearing) A.S Diamonds (India) Pvt.Ltd. B-27, Adarsh Society, Opp. Seventh Day Hospital, Athwalines, Surat-395007 Vs. Additional Commissioner of Income Tax, Range-1(1), Surat, Aaykar Bhavan, Majura Gate, Surat-395001 èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAICA 3269 J (अपीलाथŎ/Assessee) (ŮȑथŎ /Respondent) िनधाŊįरती की ओर से /Assessee by Shri P.M. Jagasheth, CA िनधाŊįरती की ओर से /Respondent by Shri Vinod Kumar, Sr. DR सुनवाई की तारीख/Date of Hearing 08/01/2024 घोषणा की तारीख/Date of Pronouncement 24/02/2024 आदेश / ORDER PER DR. A. L. SAINI, AM: Captioned two appeals filed by single assessee, pertaining to same Assessment Years (AY) 2015-16 are directed against the separate orders passed by the National Faceless Appeal Centre, Delhi [in short “NFAC/ld. CIT(A)”], both dated 07.09.2023, which in turn arise out of separate penalty orders passed by the Assessing Officer, under section 271-D and 271-E of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), both dated 09.02.2018. 2. Since the issue involved in both the appeals pertain to same assessment year and same assessee, therefore both these appeals have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. Page | 2 ITA. Nos759-760/SRT/2023 AY. 15-16 A.S Diamonds (I) Pvt. Ltd. 3. First, I shall take assessee’s appeal in ITA No. No.759/SRT/2023, wherein the grounds of appeal raised by the assessee are as follows: “1. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the levying penalty of Rs.24,00,000/- u/s 271D of the Income Tax Act, 1961. 2. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has not offered adequate opportunities to hear the case and passed ex-parte order and hence the case may please be set aside and restored back to the CIT(A)or AO. 3. It is therefore prayed that the above addition may please be deleted as learned members of the Tribunal may deem it proper. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.” 4. Succinct facts qua the issue are that assessee before us is a Private Limited Company. While passing assessment order in the case of assessee, it was noticed by the Assessing Officer that the assessee had passed entries in its books relating to unsecured loan of Rs.24,00,000/- received from Shri Mahesh Damjibhai Desai, director of the assessee-company, during the year under consideration. The said amount was deposited in the bank account of the assessee amounting Rs.24,00,000/- during the year. Therefore, Assessing Officer noted that the unsecured loan received during the year under consideration attract provision of section 269SS of the Act. Therefore, assessee was liable for penalty to be levied u/s 271D of the Act. In this connection, a notice u/s 271D was issued to the assessee on 27.12.2017 and show cause notice was also issued by the assessing officer, stating that as to why, an order imposing a penalty should not be made u/s 269SS r.w.s. 271D of the Act. Page | 3 ITA. Nos759-760/SRT/2023 AY. 15-16 A.S Diamonds (I) Pvt. Ltd. 5. In response, the assessee did not file any submission before the assessing officer. On perusal of assessment record, it was noticed by the assessing officer that the unsecured loans were received from Shri Amit R Shah and Shital A Shah, directors of assessee-company of Rs.11,00,000/- and 13,00,000/- respectively, during the year, the details of the loans are as follows: Ledger of Amit R Shah in the books of A.S Diamond Pvt. Ltd. Date Dr. Date Cr. 16.04.14 400000 15.05.14 450000 02.06.14 250000 12.12.14 500000 02.01.15 500000 16.01.15 100000 27.03.15 500000 Balance 500000 Total 1600000 1600000 Ledger of Shital A. Shah in the books of A.S Diamond Pvt. Ltd. Date Dr. Date Cr. 01.05.14 400000 28.05.14 350000 18.06.14 550000 13.12.14 500000 03.01.15 500000 28.01.15 300000 30.03.15 500000 Balance 500000 Total 1800000 1800000 The Assessing Officer noted that from the above-mentioned facts, it become evident that the assessee-company has received loan of Rs.24,00,00/- during the year on various date from two company directors, and these amounts of each receipt being more than 20,000/-. The details of loans accepted have also not been recorded in audit report of the assessee- company for the year under consideration. It is evident that the assessee has violated the provisions of section 269SS of the Act. Therefore, it is clear that the assessee has violated the provisions of section 269SS of the Page | 4 ITA. Nos759-760/SRT/2023 AY. 15-16 A.S Diamonds (I) Pvt. Ltd. Act, by accepting loan of Rs.24,00,000/- in cash from the director of the company and liable to be penalized u/s 271D of the Act. In view of the above, the penalty proceeding u/s 271D was initiated by the Assessing Officer on 27.12.2017 for violating the provisions of section 269SS of the Act which is duly served upon the assessee-company. The assessee did not reply, therefore Assessing Officer imposed a penalty of Rs.24,00,000/-, under section 271D of the Act. 6. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before NFAC/Ld.CIT(A), who has dismissed the appeal of assessee, observing as follows: “Thus, from the assessment order, it is amply clear that the appellant has contravened the provisions of section 269SS of the Act and further, it has failed to respond/give any explanation as to why penalty u/s 271D should not be levied.in view of these facts, in my considered view, the penalty order passed by the AO does not require any interference and deserves to be confirmed. appeal is, thus, dismissed on merits as well.” 7. Aggrieved by the order of NFAC/Ld. CIT(A), the assessee is in further appeal before this Tribunal. 8. Shri P.M. Jagasheth, Learned Counsel for the assessee submitted that during assessment stage, assessee submitted the details of the amount taken or repaid by the director on account of current account. The director of the assessee-company took the amount for the purpose of business of the company and whenever it is not required, he re-deposited in the account of assessee-company. Therefore, it was kind of current account, which was maintained with the Director, by the assessee-company for company`s business purposes. Therefore, this current account should not be subjected to any penalty. Moreover, in audit report, the auditor has also not mentioned any violation of section 269SS r.w.s. 269TT of the Act, because these were the normal transactions with the director of the Page | 5 ITA. Nos759-760/SRT/2023 AY. 15-16 A.S Diamonds (I) Pvt. Ltd. assessee-company, on account of business i.e., on account of current account transactions. Therefore, no penalty should have been levied on the assessee-company. 9. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 10. I have heard both the sides and gone through the relevant material on record. I find merit in the submission of Ld. Counsel for the assessee to the effect that these are current account transactions between Director and the assessee-company. I have examined the ledger account of Mr. Amit R Shah, in the books of A.S. Diamond Pvt. Ltd (assessee-company). I have also examined the ledger account of Shital A. Shah in the books of A.S. Diamond Pvt. Ltd (assessee-company). I find that these are the transactions between Directors and assessee-company for company`s business purposes and these are in the nature of current account transactions. In these transactions, no any personal gain or profit is involved. These transactions are at Arm`s Length and are not tainted by any extra commercial consideration. Since the Private Limited Company is an artificial and judicial person which cannot talk and walk and only directors can execute work of the assessee-company, therefore, on behalf of the assessee- company, the directors do the transactions, hence these are the current transactions for the purpose of assessee-company`s business. Thus, these all transactions are for company`s business purposes and therefore not liable for penalty under section 271D of the Act, and for that I rely on the Judgment of Coordinate Bench of ITAT Chennai in the case of Thamira Green Farm (P.) Ltd, [2023] 155 taxmann.com 320 (Chennai - Trib.), wherein it was held that where assessee-company had taken loan from its Page | 6 ITA. Nos759-760/SRT/2023 AY. 15-16 A.S Diamonds (I) Pvt. Ltd. director in cash for purpose of purchase of lands in name of company, since said transactions between assessee-company and director was in nature of current account transactions, which did not come under purview of loan and deposit as per section 269SS, penalty levied under section 271D was to be deleted. The detailed findings of the Coordinate Bench are as follows: “11. Having said so, let us come back, whether explanation offered by the appellant is bona fide and reasonable or not. According to the appellant, there is a business exigency in accepting cash loan from director because the company does not have any bank account at the given point of time in a place, where the lands has been purchased. Further, the sellers of the land were insisting for payment in cash. Although, the appellant could not explain why it could not open a bank account in the name of the company, but going by the transactions of purchase of land and the place where said transaction had happen, it appears that there is a bona fide reason for the assessee to make cash payments for purchase of land and also acceptance of loan in cash from the Director. Therefore, once the transactions between the appellant company and its director are genuine and bona fide and explanation offered by the assessee for accepting loan in cash is reasonable, then levy of penalty u/s. 271D of the Act, for contravention of provisions of section 269SS of the Act, needs to be verified in light of provisions of section 273B(1) of the Act. 12. Provision of section 273B deals with reasonable cause. If there is a reasonable cause in accepting loans in violation of provisions of section 269SS of the Act, then said transactions needs to be taken out of the rigorous of section 271D of the Act. In order to consider whether there is a reasonable cause in violation of relevant provisions, the explanation of the assessee needs to be considered. If the explanation of the assessee is bona fide and reasonable, then said explanation needs to be considered in light of reasonable cause as provided u/s. 273B of the Act. In the present case, if you go by the explanation of the assessee, it appears that there is a reasonable cause in accepting loan from director in contravention of provisions of section 269SS of the Act, for two reasons. Firstly, entire amount of loan has been utilized for acquisition of capital asset for the purpose of business of the company. Secondly, the appellant and the director both have disclosed transactions in their books of account for the relevant previous year. Further, the director has explained the source for loan given to the appellant company. Since, all these paramount's are satisfied, the genuineness of the transactions is not in doubt. Further, it is a case of loan between director and appellant company. Although, the appellant company and its director are two separate legal entities, but both cannot be considered as separate for the purpose of these transactions. If there are transactions between company and director, then said transactions inter-se cannot be considered as loan or deposit within the meaning of section 269SS & 269TT of the Act, and this principle is supported by the decision of Hon'ble Delhi High Court in the case of Muthoot Financiers (Supra), where it has been held that no penalty can be imposed on assessee firm in respect of transactions Page | 7 ITA. Nos759-760/SRT/2023 AY. 15-16 A.S Diamonds (I) Pvt. Ltd. inter-se between assessee and its partners, even though there is a violation of section 269SS & 269TT of the Act. If you apply above analogy to transactions between the director and the company, then in our considered view transactions inter-se between company and director cannot be treated as violation of section 269SS & 269TT of the Act. Further, even assuming for a moment, but not conceding cash loans received from director, which is in contravention of section 269SS of the Act, but still the appellant company can argue that it is a capital account transactions between director and company. Further, loan transactions between director and company can always be considered as equity capital. If these transactions are considered as equity capital, then it is outside the scope of section 269SS of the Act. In the present case, since it is solitary transaction of loan from one director, it can always be considered as a share capital received from the director. Therefore, for this reason also penalty levied by the Assessing Officer cannot be sustained. 13. At this stage, it is relevant to consider the decision of Hon'ble Madras High Court in the case of Idhayam Publications Ltd. (Supra). 14. Coming back to the case laws relied upon by the ld. DR present for the revenue. The ld. DR, took support from the decision of Hon'ble High Court of Madras in the case of Vasan Healthcare (P.) Ltd. (supra). We find that in the said case, the director of the assessee company obtained cash loan from the financer and same was deposited by him in cash in bank account of the assessee and claimed that said loan has been received for the purpose of business exigency. Since, the appellant company has obtained loan from third party financer, the Hon'ble Court held that provisions of section 269SS r.w.s. 271D of the Act, is applicable. In the present case, it is a direct transaction between the appellant company and director and further the assessee could able to explain business exigency and therefore, we are of the considered view that the decision of Hon'ble Madras High Court in the case of Vasan Healthcare (P.) Ltd (supra), is not applicable to the facts of the present case. 15. The ld. DR, has also relied upon the decision of Hon'ble High Court of Madras in the case of P. Baskar v. CIT (Supra). We find that in the said case, the assessee has obtained cash loan in the form of cheque discounting facility with the financers and assessee could not explain business exigency with evidence. Under those facts, the Court held that the provisions of section 271D of the Act, was rightly invoked and penalty u/s. 271D of the Act is in accordance with law. In the present case, simpliciter transaction between company and director are in the nature of current account and thus, said case laws cannot be applied to the facts of the present case. 16. The ld. DR, also relied upon the decision of Hon'ble High Court of Madras in the case of Kasi Consultant Corporation (supra). In the said case, the assessee firm has accepted deposits in cash exceeding prescribed limit from the public for the purpose of real asset business and said loans were in contravention of provisions of section 271D of the Act and thus, the Hon'ble High Court held that penalty u/s. 271D of the Act is applicable. In the present case, it was not a case of loan from public, but amount received from director to meet the business exigencies. Therefore, the case laws relied upon by the ld. DR is not applicable to the facts of the present case. Page | 8 ITA. Nos759-760/SRT/2023 AY. 15-16 A.S Diamonds (I) Pvt. Ltd. 17. In this view of the matter and considering facts and circumstances of this case, we are of the considered view that transactions between appellant company and director are in the nature of current account transactions, which does not come under the purview of loan and deposit as per section 269SS of the Act. Therefore, we are of the considered view that the Assessing Officer is erred in levying penalty u/s. 271D of the Act. The ld. CIT(A), without appreciating relevant facts simply sustained penalty levied by the Assessing Officer. Thus, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to delete penalty levied u/s. 271D of the Act.18. In the result, appeal filed by the assessee is allowed.” 11. From the above judgment of the Coordinate Bench of ITAT Chennai in the case of Thamira Green Farm (P.) Ltd (supra), it is vivid that transaction done during the business exigency does not attract the penalty under section 271D of the Act. We note that in the assessee`s case under consideration the transactions between Directors and assessee-company are on account of business exigency. Besides, assessee-company and the director both have disclosed transactions in their respective books of accounts for the relevant previous year. In the assessee`s case, it was not a case of loan taken/given from/to public, but amount received/paid to director to meet the business exigencies. Therefore, respectfully following the binding precedent of the Coordinate Bench of ITAT Chennai in the case of Thamira Green Farm (P.) Ltd (supra), I delete the penalty under section 271D of the Act. 12. In the result, appeal filed by the assessee, (in ITA No. No.759/SRT/2023), is allowed. 13. Now coming to ITA No.760/SRT/2023, wherein the grounds of appeal raised by the assessee are as follows: “1. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the levying penalty of Rs.34,00,000/- u/s 271E of the Income Tax Act, 1961. Page | 9 ITA. Nos759-760/SRT/2023 AY. 15-16 A.S Diamonds (I) Pvt. Ltd. 2. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has not offered adequate opportunities to hear the case and passed ex-parte order and hence the case may please be set aside and restored back to the CIT(A) or AO. 3. It is therefore prayed that the above addition may please be deleted as learned members of the Tribunal may deem it proper. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.” 14. Brief facts qua the issue are that in this case the assessee-company has repaid loan of Rs.34,00,000/- during the year on various dates to two Company`s Directors, and these amounts paid being more than Rs.20,000/- . The details of loans transactions have also not been recorded in audit report of the company for the year under consideration. Therefore, Assessing Officer noted that assessee has violated the provisions of Section 269T of the Act. Therefore, Assessing Officer imposed penalty of Rs.34,00,000/- u/s 271E of the Act. 15. I have heard the rival arguments made by both the sides and perused the material available on record. Shri P.M. Jagasheth, Learned Counsel for the assessee submitted that based on the same set of facts as narrated in ITA No. No.759/SRT/2023(supra), it is a case of repayment of loan (under section 269T) on account of current account transaction, therefore, Assessing Officer imposed penalty under section 271E of the Act, the facts remain same, therefore, ld Counsel contended that the arguments made by him in ITA No. No.759/SRT/2023 (supra), may be applied. On the other hand, the Ld. DR for the Revenue has also relied on the arguments advanced in ITA No. No.759/SRT/2023 (supra). 16. Since I have narrated the facts of the assessee’s case while adjudicating the penalty in ITA No.759/SRT/2023; the facts narrated in said penalty order are identical and same in ITA No.760/SRT/2023 also, Page | 10 ITA. Nos759-760/SRT/2023 AY. 15-16 A.S Diamonds (I) Pvt. Ltd. (except quoting section 271E of the Act, by the Assessing Officer). Therefore, the ratio- decendi, that is ratio of my order in ITA No.759/SRT/2023, is squarely applicable to the assessee`s appeal in ITA No.760/SRT/2023 also. As in ITA No.759/SRT/2023, there is an issue of acceptance of loan, whereas in ITA No.760/SRT/2023, there is an issue of repayment of loan on same set of facts and circumstances, hence it does not require separate adjudication. 17. Accordingly, my observations made in ITA No.759/SRT/2023, shall apply mutatis mutandis to the aforesaid other appeal of assessee, namely, in ITA No.760/SRT/2023. For the parity of reasons, I allow the abovementioned appeal of the assessee in terms of directions noted in ITA No.759/SRT/2023 (supra). 18. In the combined result, both appeals of assessee (ITA No. No.759 and 760/SRT/ 2023,) are allowed. A copy of the instant common order be placed in the respective case file(s). Order is pronounced in the open court on 14/02/2024. Sd/- (Dr. A.L. SAINI) ACCOUNTANT MEMBER स ू रत / Surat Ǒदनांक/ Date: 14/02/2024 DKP (Sr. PS Outsourcing) Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // True Copy // Assistant Registrar/Sr. PS/PS ITAT, Surat