M/s Chemmanur Metals and Alloys Pvt. Ltd., Bangalore V. Addl.C.I.T., Bangalore

ITA 934/BANG/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5565 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 06-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SURYAVAMSHI
• Keywords: Reasonable cause
• Section: 143(3); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER A ND SH RI P AVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO. 934 /BANG/2 01 6 ASSESSMENT YEAR : 200 7 - 0 8 M/S. CHEMMANUR METALS AND ALLOYS PVT. LTD., NO.96, DORAISWAMY BUILDING, MARATHAHALLI BANGALORE 560 037. PAN: AABCC 7621F VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 11, BANGALORE. APP ELLANT RESP ONDENT APP ELLANT BY : SHRI RAVISHANKAR, ADVOCATE RESPONDENT BY : SHRI VIKRA M SURYAVAMSHI, ACIT DATE OF HEARING : 31 . 01.2019 DATE OF PRONOUNCEMENT : 31 . 01 . 201 9 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 26.02.2016 OF THE CIT(APPEALS), BENGALURU-2, BENGAL URU RELATING TO ASSESSMENT YEAR 2007-08 WITH REGARD TO SUSTAINING A PENALTY OF RS.2,50,000 U/S. 271D OF THE INCOME-TAX ACT, 1961 [ THE ACT]. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY IN THE BUSINESS OF RETAIL TRADE OF METAL AL LOYS, ADHESIVES, PLYWOOD, GLASS, TILES, ETC. IT FILED RETURN OF INCOME OF RS .5,37,923 FOR AY 2007-08 ITA NO. 934/BANG/2016 PAGE 2 OF 7 WHICH WAS PROCESSED U/S. 143(1) OF THE ACT. UNDER SCRUTINY ASSESSMENT, AN ORDER U/S. 143(3) OF THE ACT WAS PASSED MAKING C ERTAIN DISALLOWANCES AND PENALTY PROCEEDINGS WERE INITIATED U/S. 271D FO R VIOLATION OF THE PROVISIONS U/S. 269SS OF THE ACT. 3. IN THE PENALTY PROCEEDINGS, THE ASSESSEE SUBMITT ED THAT THERE WERE NO INSTANCES OF CASH LOANS RECEIVED AND THE CASH AP PEARING IN ITS BOOKS WERE MERELY ADVANCES RECEIVED FOR GOODS IN FURTHERA NCE OF TRADE AND COMMERCE. TO SUBSTANTIATE THE SAME, IT WAS FURTHER SUBMITTED THAT THE SAID CASH RECEIVED AS ADVANCE FOR GOODS APPEARING ON THE CLOSING DATE OF THE BALANCE SHEET WAS ALSO REPORTED IN THE AUDIT REPORT AS ADVANCE FOR GOODS AND IT WAS NOT A CASH LOAN. THE AO, HOWEVER, REJEC TED THE EXPLANATION OF THE ASSESSEE AND LEVIED PENALTY U/S. 271D AMOUNTING TO RS.8,80,000 AS FOLLOWS:- S L. NO. N AME OF THE PARTY A MOUNT RS. 1. E S JOSE 1 ,00,000 2. J OSEPH MAL L IAKEL 5 0,000 3. E U MARTIN 1 ,00 ,000 4. J OSHI 1 ,00,000 5. H OTEL RAJADHANI 5 ,30,000 T OTAL 8 ,80,000 4. ON APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE FILED WRITTEN SUBMISSIONS AND ARGUED ON THE MERITS OF THE CASE. THE CIT(APPEALS), HOWEVER, ALLOWED PARTIAL RELIEF TO TH E EXTENT OF RS.6,30,000 AND CONFIRMED THE PENALTY TO THE EXTENT OF RS.2,50, 000 IN RESPECT OF FOLLOWING ADVANCES:- S L. NO. N AME OF THE PARTY A MOUNT RS. 1. E S JOSE 1 ,00,000 2. J OSEPH MALLIAKEL 5 0,000 3. E U MARTIN 1 ,00 ,00 0 T OTAL 8 ,80,000 ITA NO. 934/BANG/2016 PAGE 3 OF 7 5. AGGRIEVED BY THE ORDER OF CIT(APPEALS) IN SUST AINING THE PENALTY, THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOL LOWING GROUNDS:- 1. THE ORDER OF THE CIT (A) IN SO FAR AS IT IS AGA INST THE APPELLANT ARE OPPOSED TO LAW, EQUITY, AND WEIGHT OF EVIDENCE, PROBABILITIES, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE APPELLANT DENIES ITSELF LIABLE TO A PENALTY OF RS.2,50,000/- UNDER SECTION 271D OF THE ACT, FOR TH E IMPUGNED ASSESSMENT YEAR 2007-08 ON THE FACTS AND CIRCUMSTAN CES OF THE CASE. 3. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT DOCUMENTARY EVIDENCE TO PROVE THAT THE GOODS WERE C ONTRACTED TO BE SOLD WERE NOT FURNISHED AND HENCE THE SAID DEPOS ITS ARE TO BE CONSIDERED AS A LOAN AND THE PENALTY LEVIED BY THE AO UNDER SECTION 271D OF THE ACT WAS TO BE CONFIRMED ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN RELYING ON THE AUDIT REPORT IN COMING TO A CONCLUSION, THAT THE DE POSITS WERE ALSO IN THE NATURE OF LOANS AND ATTRACTED THE PROVISIONS OF SECTION 269SS OF THE ACT, WHILE THE SAME AUDIT REPORT HAS C ATEGORICALLY STATED THAT THE SAID ADVANCES TO HAVE BEEN RECEIVED IN RESPECT OF GOODS ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN IGNORING THE CONFIRMATIONS FILED WHICH DEPICTED THE COMPLETE NAT URE OF THE TRANSACTION, AND WHICH WAS OBTAINED DURING THE PEND ENCY OF HEARING OF THE APPEAL ON THE FACTS AND CIRCUMSTANCE S OF THE CASE. 6. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN STATING THAT THE APPELLANT, BY NOT FILING THE ORDER-CONFIRMATION OR VOUCHERS FOR CANCELLATION OF ORDER, THE ADVANCES OUGHT TO BE CON SIDERED AS LOANS, WHEN THE COMPLETE TRANSACTION WAS CONFIRMED BY FILING OF THE CONFIRMATION STATEMENT FROM CONCERNED PARTIES, ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. WITHOUT PREJUDICE, THE LEARNED CIT(A) OUGHT TO H AVE CONSIDERED THAT THE AMOUNTS RECEIVED IN CASH WERE O NLY ON ACCOUNT OF REASONABLE CAUSE AND HENCE DELETED THE P ENALTY LEVIED ON THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO. 934/BANG/2016 PAGE 4 OF 7 8. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY , DELETE OR SUBSTITUTE ANY OR ALL OF THE GROUNDS AND TO FILE A PAPER BOOK AT THE TIME OF HEARING THE APPEAL. 9. IN VIEW OF THE ABOVE AND OTHER GROUNDS THAT MAY BE TAKEN AT THE TIME OF THE HEARING THE APPEAL, THE APPELLAN T PRAYS THAT THE APPEAL BE ALLOWED IN THE INTEREST OF JUSTICE AND EQ UITY. 6. ON THE ISSUE OF THE ASSESSEES CLAIM THAT THE AM OUNTS RECEIVED AS ADVANCE WAS FOR SUPPLY OF GOODS TO THE CUSTOMERS, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE SAID AMOUNTS WERE STATE D IN THE BOOKS AS AN UNSECURED LOAN WHICH OUGHT TO HAVE BEEN MENTIONED A S UNSECURED CREDITOR, WHICH WAS A MERE CHANGE IN THE NOMENCLATU RE WHILE WRITING THE ACCOUNTS. IT IS NOT IN DISPUTE THAT THE INTENT AND PURPOSE OF THE ADVANCE WAS CLEARLY MENTIONED IN THE AUDIT REPORT. IT WAS FURTHER SUBMITTED THAT THE THERE WAS A DIFFICULTY IN THE SUPPLY OF THE TILES D UE TO NON-AVAILABILITY OF PARTICULAR DESIGN, COLOUR, ETC. AS PROPOSED BY THE CUSTOMERS AND THE SAID ADVANCE WAS REFUNDED TO THE CUSTOMERS FOR NON-FULFI LMENT OF THE SPECIFIC PRODUCT REQUIREMENTS OF THE CUSTOMERS. THE AMOUNTS RECEIVED IN CASH ARE TRADE ADVANCES AND THE SAME WAS ACCOUNTED IN A PROP ER MANNER IN THE AUDIT REPORT. THE AMOUNTS REFLECTED IN THE BALANCE SHEET AS LOANS ARE IN THE NATURE OF TRADE ADVANCES RECEIVED BY THE ASSESS EE AND THE BALANCE SHEET ALONE OUGHT NOT TO HAVE BEEN CONSIDERED IN IS OLATION, BUT THE AUDIT REPORT ALSO OUGHT TO HAVE BEEN CONSIDERED TO COME T O THE CONCLUSION THAT THE LOANS WERE MERE TRADE ADVANCES, RATHER THAN CAS H LOANS AND NO PENALTY OUGHT TO HAVE BEEN LEVIED ON THESE FACTS. THE AUDIT REPORT CLEARLY RECOGNIZED THE SAID ADVANCES WHICH SUBSTANTIATES TH E CLAIM OF ASSESSEE AND HENCE THERE WAS NO CONTRAVENTION OF THE PROVISI ONS OF SECTION 269SS OF THE ACT. IT WAS SUBMITTED THAT THE CIT(APPEALS) HAS NOT CONSIDERED THE DETAILED WRITTEN SUBMISSIONS AND DOCUMENTS FILED BY WAY OF PAPERBOOK OF THE ASSESSEE BEFORE ARRIVING AT HIS CONCLUSION. ITA NO. 934/BANG/2016 PAGE 5 OF 7 7. IT WAS REITERATED THAT THE CASH RECEIVED WAS IN RESPECT OF ADVANCE FOR GOODS AND SINCE THE SPECIFIC REQUIREMENT OF CUS TOMERS WAS NOT MET, THE ADVANCE WAS REFUNDED TO THE CUSTOMERS. AS REGARDS C ONFIRMATION OF THE SAME BY THE PARTIES SOUGHT BY THE CIT(A), IT WAS SU BMITTED THAT THE BRANCH OF ASSESSEE WAS IN KERALA WHICH CEASED ITS OPERATIO N IN SEPTEMBER, 2014 AND SURRENDERED REGISTRATION IN MARCH, 2015. THE PA RTICULAR DOCUMENTS IN RESPECT OF ORDER PLACED, SPECIFICATIONS, ETC. COULD NOT BE LOCATED AND HENCE THE CONFIRMATIONS OF THE PARTIES WERE RECEIVED DURI NG THE PENDENCY OF THE APPEAL BEFORE THE CIT(A). THE CONFIRMATIONS WERE F ILED BEFORE THE CIT(APPEALS) IN SUPPORT OF THE ASSESSEES CLAIM, WH ICH WERE NOT CONSIDERED BY THE CIT(A). IT WAS SUBMITTED THAT TH E CIT(APPEALS) WAS NOT JUSTIFIED IN IGNORING THE SAID CONFIRMATIONS FILED BY THE ASSESSEE TO SHOW THE NATURE OF TRANSACTIONS AND TO DEMONSTRATE THAT THE CASH RECEIVED WAS IN THE NATURE OF TRADE ADVANCE AND IT WAS NOT CASH LOANS A S PRESUMED BY THE AO. THE CIT(A) ERRED IN OBSERVING THAT DEPOSITS ALSO AT TRACTED THE PROVISIONS OF SECTION 269SS OF THE ACT SINCE THE AUDIT REPORT CLE ARLY MENTIONS THAT EH SAID MONIES WERE ADVANCES RECEIVED FROM CUSTOMERS , WHICH WERE OUTSIDE THE AMBIT OF LOAN. IT WAS SUBMITTED THAT A MERE M ENTION IN THE FORM 3CD DOES NOT AUTOMATICALLY ATTRACT PENALTY U/S. 271D. FOR THE PURPOSE OF INVOKING SECTION 269SS OF THE ACT, THE TRUE NATURE OF THE RECEIPTS HAS TO BE EXAMINED. THE INFORMATION IN FORM 3CD IN RESPECT O F CASH ADVANCES IS OUT OF ABUNDANT CAUTION AND GOES TO THE BONAFIDES OF TH E ASSESSEE THAT IT WAS MAKING TRUE AND COMPLETE DISCLOSURE AS REQUIRED BY LAW. BUT FOR THE MENTION IN FORM 3CD, IT WOULD NOT HAVE EVEN COME TO THE ATTENTION OF THE AO. FOR THESE REASONS, THE ORDER OF THE CIT(A) IN SUSTAINING THE PENALTY PARTLY WAS ERRONEOUS. 8. IN SUPPORT OF HIS CONTENTIONS, THE LD. AR RELIED ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF KARNATAKA GINNING & PRESSING FACTORY V. JCIT, 77 ITD 478 (MUM) . HE ALSO DREW OUR ATTENTION TO AUDIT ITA NO. 934/BANG/2016 PAGE 6 OF 7 REPORT IN FORM 3CD STATING THAT THESE ARE ADVANCES RECEIVED FROM CUSTOMERS, WHICH IS PLACED AT PAGES 28 OF PB. HE A LSO FURNISHED COPIES OF CONFIRMATION LETTER FROM THE CONCERNED PARTIES WHIC H IS PLACED ON RECORD AT PAGES 31 TO 33 OF ASSESSEES PB. THEREFORE, THE LD . AR SUBMITTED THAT THE AMOUNTS ARE CREDIT ADVANCES RECEIVED FROM THE PARTI ES AND IT IS NOT LOANS IN TERMS OF SECTION 269SS OF THE ACT. 9. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT WIT H REGARD TO AMOUNTS RECEIVED IN CASH, THE ASSESSEE CLAIMED AN AMOUNT O F RS.1,00,000/- FROM MR. E.S. JOSE ON 10.4.2006, RS.50,000 FROM MR. JOSE PH MALLIAKEL AND RS.1,00,000 FROM MR. E.U. MARTIN AS ADVANCE FOR SA LE FROM CUSTOMER, BUT IT IS NOT SUBSTANTIATED WITH ANY SUBSEQUENT ADJUSTM ENT TOWARDS SALE. THE CLAIM THAT THE ORDER WAS CANCELLED IS ALSO NOT ACCE PTABLE IN THE ABSENCE OF DETAILS OR EVIDENCE LIKE PURCHASE ORDER, CANCELLATI ON, ETC. IN ANY CASE, DEPOSITS/LOANS ARE COVERED U/S. 269SS AND THE SAME IS CERTIFIED BY THE AUDITOR IN FORM 3CD, THEREFORE IT IS A VIOLATION OF THE PROVISIONS AND ATTRACTS PENALTY U/S. 271D AND RIGHTLY SUSTAINED BY THE CIT( APPEALS). 10. NOW THE QUESTION BEFORE US IS WHETHER THESE TR ADE ADVANCES COULD BE CALLED AS LOAN OR DEPOSIT IN TERMS OF PROVIS IONS OF SECTION 269SS OF THE ACT. THE WORDS ARE NOT DEFINED IN EXPLANATION (III ) BELOW SECTION 269SS, EXCEPT SAYING THAT LOAN OR DEPOSIT MEANS LOAN O R DEPOSIT OF MONEY. THE TERMS LOAN AND DEPOSIT ARE NOT MUTUALLY EXCLUSI VE, THERE ARE A NUMBER OF COMMON FEATURES BETWEEN THE TWO. IT WAS HELD BY TH E HONBLE MADRAS HIGH COURT IN THE CASE OF ABDUL HAMID SAHIB V. RAHMAT BI, AIR 1965 MAD. 427, THAT A LOAN IS REPAYABLE THE MOMENT IT IS INCURRED WHILE IT IS NOT SO WITH THE DEPOSIT. IN A DEPOSIT, UNLIKE A LOAN, THERE IS NO IMMEDIATE OBLIGATION TO REPAY. NORMALLY A DEPOSIT IS FOR A FIXED TENURE. 11. IN THE PRESENT CASE, THE AMOUNTS RECEIVED BY TH E ASSESSEE ARE AS TRADE ADVANCES AND THERE IS NO EVIDENCE THAT THERE WAS ANY STIPULATION AS ITA NO. 934/BANG/2016 PAGE 7 OF 7 TO THE PERIOD OR ANY STIPULATION FOR INTEREST. IT IS THEREFORE MATTER OF GRAVE DOUBT AS TO WHETHER THE AMOUNTS RECEIVED FROM THE P ARTIES CAN BE CHARACTERIZED AS LOAN OR DEPOSIT. IN OUR VIEW, THE Y ARE TRADE ADVANCES RECEIVED FOR THE PURPOSE OF SUPPLY OF GOODS DEALT B Y THE ASSESSEE. SUCH TRADE ADVANCES CANNOT FALL UNDER THE PURVIEW OF SEC TION 269SS OF THE ACT SO AS TO ATTRACT PENALTY U/S. 271D OF THE ACT. ACC ORDINGLY, IN OUR OPINION, PENALTY U/S. 271D CANNOT BE SUSTAINED. IT IS ORDER ED ACCORDINGLY. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF JANUARY, 2019. SD/- SD/- ( PAVA N KUMAR GADALE ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNT ANT MEMBER BANGALORE, DATED, THE 31 ST JANUARY, 2019. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR , ITAT, BANGALORE. 6. GUARD FI LE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.