DCIT 2(2), MUMBAI V. MEDEX SPECIALITIES P.LTD, MUMBAI

ITA 945/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93251 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 10-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V MOHAN
• Keywords: Reasonable cause
• Section: 273B; 143(3)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.945 & 946 /MUM/2014 ASSESSMENT YEAR:2009-10 DCIT-2(2), R. NO.545, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S MEDEX SPECIALITIES PRIVATE LIMITED, 12, GUNBOW STREET FORT, MUMBAI-400001 ( / REVENUE) ( !'# $ /ASSESSEE) P.A. NO. AAACM4986G / REVENUE BY SHRI N.P.SINGH CIT-DR !'# $ / ASSESSEE BY SHRI V. MOHAN % & ' $ ( / DATE OF HEARING 22/07/2015 ' $ ( / DATE OF ORDER: 24/07/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) BOTH THESE APPEALS ARE FILED BY THE REVENUE AGAINS T THE ORDERS DATED 29/11/2013, OF THE LD. FIRST APPELLATE ITA NO.945 & 946/MUM/2014 , MEDEX SPECIALTIES PVT. LTD. 2 AUTHORITY, MUMBAI. BOTH THESE APPEALS ARE BEING DIS POSED OF BY THIS COMMON ORDER. 2. THE GROUNDS OF THE APPEAL RAISED BY THE REVENU E IN THESE TWO APPEALS ARE AS UNDER:- ITA NO.945/MUM/2014 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CANCELLING THE PENALTY IMPOSED U/S. 271E OF THE IT ACT OF RS.7,44,82,683/- BY HOLDING THAT THE TRANSACTIONS CANNOT BE REGARDED AS LOAN OR DEPOSIT, WITHOUT APPRECIATING THAT THE ADVANCES ARE INDEED IN THE NA TURE OF LOAN/DEPOSIT, AS CLEARLY EVIDENCED BY THE NATURE OF TRANSACTIONS, AND REPAYM ENT OF THE SAME OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR AN ACCOUNT PAYEE BANK DRAFT VIOLATED THE PROVISIONS OF SECTION 269T ATTRACTING PENALTY U/S. 271E OF THE IT ACT.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CANCELLING THE PENALTY IMPOSED U/S. 271E OF THE IT ACT OF RS.7,44,82,683/-, FOR VIOLATION OF THE PROVISIONS OF SECTION 269T, BY HOL DING THAT THERE EXISTED 'REASONABLE CAUSE' WITHOUT APPRECIATING THAT SERIAL VIOLATION B Y THE ASSESSEE OF LEGAL PROVISIONS FOR MEETING ITS WORKING CAPITAL REQUIREMENTS CANNOT BE SAID TO BE A 'REASONABLE CAUSE' AS ENVISAGED IN SECTION 2738 OF THE IT ACT.' ITA NO.946/MUM/2014 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CANCELLING THE PENALTY IMPOSED U/S. 271D OF THE IT ACT OF RS.16,46,L19J- BY HOLDING THAT THE TRANSACTIONS CANNOT BE REGARDED AS LOAN OR DEPOSIT, WITHOUT APPRECIATING THAT THE ADVANCES ARE INDEED IN THE NA TURE OF LOAN/DEPOSIT, AS CLEARLY EVIDENCED BY THE NATURE OF TRANSACTIONS, AND REPAYM ENT OF THE SAME OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR AN ACCOUNT PAYEE BANK DRAFT VIOLATED THE PROVISIONS OF SECTION 26955 ATTRACTING PENALTY U/S. 271D OF TH E IT ACT.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CANCELLING THE PENALTY IMPOSED U/S. 271D OF THE IT ACT OF RS.16,46,119/-, FOR VIOLATION OF THE PROVISIONS OF SECTION 26955, BY HO LDING THAT THERE EXISTED 'REASONABLE CAUSE' WITHOUT APPRECIATING THAT SERIAL VIOLATION BY THE ASSESSEE OF LEGAL ITA NO.945 & 946/MUM/2014 , MEDEX SPECIALTIES PVT. LTD. 3 PROVISIONS FOR MEETING ITS WORKING CAPITAL REQUIREM ENTS CANNOT BE SAID TO BE A 'REASONABLE CAUSE' AS ENVISAGED IN SECTION 2738 OF THE IT ACT.' 2.1. THE FACTS OF THE CASE ARE THAT THE ASSESSEE I S IN THE BUSINESS OF PROVIDING MAN POWER SERVICES TO CIPLA L TD, AS PER AGREEMENT DATED 31 ST JULY, 2006. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT (HEREI NAFTER THE ACT), IT WAS OBSERVED BY THE ASSESSING OFFICER FROM THE TAX AUDIT REPORT IN FORM NO. 3CD CLAUSE 24(A) & (B) THA T THE ASSESSEE HAS RECEIVED RS.16,46,119/- AS LOAN/DEPOSI T FROM M/S CIPLA LTD. OTHERWISE THAN BY CROSSED ACCOUNT P AYEE CHEQUE/DRAFT. SIMILARLY, IT WAS OBSERVED THAT THE ASSESSEE HAS REPAID RS.7,44,82,683/- TO M/S CIPLA LTD. WHICH WAS REPAID OTHERWISE THEM BY ACCOUNT PAYEE CHEQUE OR AC COUNT PAYEE BANK-DRAFT BY WAY OF AN ADJUSTMENT. THE PENA LTY PROCEEDINGS WERE INITIATED U/S 269SS R.W.S 271D OF THE ACT FOR ACCEPTING RS.16,46,119/- AS LOAN/DEPOSIT OTHERW ISE THAN BY CROSSED ACCOUNT PAYEE CHQUE/DRAFT AND ALSO PENAL TY PROCEEDINGS WERE INITIATED U/S 269T R.W.S 271E OF T HE ACT FOR REPAYING LOAN OR DEPOSIT OF RS.7,44,82,683/- OTHERW ISE THAN BY AN ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE DRAFT. 2.2. IN RESPONSE TO THE PENALTY NOTICES, THE ASSES SEE SUBMITTED THAT THE SAID AMOUNT WAS RECEIVED TOWARDS BUSINESS TRANSACTIONS WHICH WERE ADJUSTED AGAINST T HE SERVICES RENDERED/EXPENSES INCURRED FOR CIPLA LTD. IN PURSUANCE OF THE AGREEMENT. AS THE SAID CREDITS HAV E BEEN ADJUSTED REGULARLY ON MONTHLY BASIS AGAINST THE INV OICES RAISED BY THE ASSESSEE FOR SERVICE CHARGES/EXPENSES INCURRED FOR CIPLA LTD., WHICH ARE DULY REFLECTED AND EVIDEN CED IN THE ITA NO.945 & 946/MUM/2014 , MEDEX SPECIALTIES PVT. LTD. 4 STATEMENT OF ACCOUNT OF CIPLA LTD. THE ASSESSEE REL IED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS TRIUMPH INTERNATIONAL FINANCE LTD 345 ITR 270: (201 2) 208 TAXMAN 299 AND STATED THAT GENUINENESS OF THE TRANS ACTIONS BY WAY OF ADJUSTMENT OF BOOK ENTRIES CARRIED ON IN THE REGULAR COURSE OF BUSINESS IS NOT DOUBTED IN THE AS SESSMENT ORDER FRAMED BY THE AO FOR THE IMPUGNED ASSESSMENT YEAR. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION S OF THE ASSESSEE AND LEVIED PENALTY OF RS.16,46,119/- U/S 2 69SS R.W.S 271D OF THE ACT VIDE ORDERS DATED 29 TH JUNE, 2012. SIMILARLY, VIDE SEPARATE ORDERS DATED 29 TH JUNE, 2012, PENALTY OF RS.7,44,82,683/- WAS LEVIED U/S 269T R.W.S 271E OF THE ACT. 2.3. AGGRIEVED ASSESSEE CARRIED THE MATTER TO THE LD. FIRST APPELLATE AUTHORITY I.E. COMMISSIONER OF INCO ME TAX (APPEALS). THE ASSESSEE REITERATED STAND THAT THE AMOUNT WAS RECEIVED AS AN ADVANCE TOWARDS WORKING CAPITAL AND IS BEING ADJUSTED THROUGH THE RAISING OF THE INVOICES FOR SERVICES RENDERED TO M/S CIPLA LTD. IT ALSO SUBMITTED THAT C BDT VIE CIRCULAR NO.387 OF 6 TH JULY, 1984 HAD ALSO CLARIFIED THAT PURCHASE/SALE TRANSACTIONS ARE NOT COVERED BY THE P ROVISIONS OF SECTION 269T OF THE ACT. THE ON-ACCOUNT PAYMENT RECEIVED ARE NORMAL BUSINESS TRANSACTION IN THE ORDINARY COU RSE OF BUSINESS AND ITS ADJUSTMENT BY JOURNAL VOUCHER FOR ADJUSTING AGAINST SERVICES RENDERED DO NOT COME UNDER THE DEF INITION OF THE TERM LOAN OR DEPOSIT AS REFERRED TO SECTION 2 69SS/269T OF THE ACT IN ORDER THAT A TRANSACTION SHOULD INVOL VED LEVY OF PENALTY U/S 271D/271E OF THE ACT. ASSESSEE REITERAT ED THAT A ITA NO.945 & 946/MUM/2014 , MEDEX SPECIALTIES PVT. LTD. 5 TRANSACTIONS WERE HELD TO BE BONA FIDE AND ACCEPTED BY THE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS, TH US ASSESSEE SUBMITTED THAT TRANSACTION BEING GENUINE F OR THE BUSINESS REQUIREMENT THERE EXIST REASONABLE CAUSE A ND DID NOT WARRANT LEVY OF PENALTY. THE LD. FIRST APPELLA TE AUTHORITY, AFTER CONSIDERING THE SUBMISSION HELD THAT THE ASSE SSEE SUPPLIED MAN POWER TO CIPLA LTD. AND RAISED MONTHLY BILLS FOR MAN POWER SERVICES AND THE PAYMENT THEREOF WAS RECE IVED AFTER THE MONTH WAS OVER, IT HAVE TAKEN ADVANCES EV ERY MONTH REGULARLY SO AS TO MAKE PAYMENT OF SALARY TO ITS STAFF (INCLUDING THE MAN POWER PROVIDED ON CONTRACT TO CI PLA LTD. AND TO MEET OUT OTHER EXPENSES). SOME OF THE PAYME NT ARE MADE BY CIPLA LTD. DIRECTLY TO THE ASSESSEES CREDI TORS AND THE AMOUNTS SO PAID WERE ACCOUNTED FOR IN ASSESSEE S BOOKS OF ACCOUNTS BY WAY OF JOURNAL ENTRIES, BUT, THE AMO UNT SO PAID WERE PART OF ADVANCES TAKEN AGAINST THE BILLS TO BE RAISED TO CIPLA LTD. (FOR SUPPLY OF MAN POWER) AND AT NO POINT OF TIME, THE ADVANCE SO TAKEN (INCLUDING THE PAYMEN TS TO THE CREDITORS) REFUNDED BACK TO THE CIPLA LTD. THUS, T HE LD. FIRST APPELLATE AUTHORITY HELD THAT THE TRANSACTIONS CANN OT BE REGARDED AS LOAN OR DEPOSITS AS THEREFORE, HELD THA T THE ASSESSEE HAD NOT CONTRAVENED THE PROVISIONS OF SECT ION 269SS OR SECTION 269T AT ALL WITH RESPECT TO PAYMEN T OF RS.16,46,119/- MADE DIRECTLY BY CIPLA LTD. TO ASSES SEE CREDITORS AND ADJUSTMENT OF RS.7,44,82,683/- TOWARD S MONTHLY BILLS OF SERVICES AND EXPENSES RAISED BY AS SESSEE IN FAVOUR OF CIPLA LTD AND HENCE THE PENALTY OF RS.16, 46,119/- IMPOSED U/S 271D OF THE ACT WAS CANCELLED. SIMILAR LY, ITA NO.945 & 946/MUM/2014 , MEDEX SPECIALTIES PVT. LTD. 6 PENALTY OF RS.7,44,82,683/- IMPOSED U/S 271E OF THE ACT WAS CANCELLED. AGGRIEVED REVENUE IS IN APPEAL BEFORE T HIS TRIBUNAL BY WAY OF TWO APPEALS. 2.4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ITA NO.945/MUM/2014 IS WITH RESPECT TO ADJUSTMENT BY JO URNAL ENTRIES OF SERVICES AND EXPENSES BILL OF RS.7,44,82 ,683/- ADJUSTED AGAINST THE ADVANCES RECEIVED BY ASSESSEE IN NORMAL COURSE OF BUSINESS FROM CIPLA LTD. 2.5. LD. DR RELIED UPON THE ORDERS OF LD. ASSESSIN G OFFICER AND MADE SUBMISSIONS BY CONTENDING THAT CRE DITS TO THE ACCOUNT OF CIPLA LTD. BY WAY OF JOURNAL BOOK EN TRIES ARE IN THE NATURE OF REPAYMENT OF LOAN OTHERWISE THAN B Y ACCOUNT PAYEE CHEQUE/BANK DRAFT AND HENCE PROVISIONS OF SEC TION 269T OF THE ACT ARE VIOLATED AND LD. ASSESSING OFFI CER HAS RIGHTLY LEVIED THE PENALTY U/S 271E OF THE ACT. 2.6. THE LD. AR SUPPORTED THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND CONTENDED THAT THE ASSESSEE HAS RECEIVED THE ADVANCES OF RS.7,44,8 2,683/- IN THE NORMAL COURSE OF BUSINESS AS TRADE ADVANCES FROM CIPLA LTD. UNDER AN AGREEMENT DATED 31 ST JULY, 2006 FOR PROVIDING MAN POWER SERVICES TO CIPLA LTD. THE AR C ONTENDED THAT NONE OF THESE ADVANCES ARE REPAID DURING THE I MPUGNED ASSESSMENT YEAR RATHER THEY ARE ADJUSTED THROUGH JO URNAL ENTRY IN NORMAL COURSE OF BUSINESS BY WAY OF RAISIN G OF INVOICES IN FAVOUR OF CIPLA LTD FOR SERVICES RENDER ED/EXPENSES ITA NO.945 & 946/MUM/2014 , MEDEX SPECIALTIES PVT. LTD. 7 INCURRED FOR MAN POWER SUPPLY TO CIPLA LTD. IN PURS UANCE OF AGREEMENT DATED 31 ST JULY, 2006. 2.7. THUS, HE STATED THAT THESE ADVANCES AND ITS ADJUSTMENT BY WAY OF JOURNAL ENTRIES ARE NOT HIT BY PROVISIONS OF SECTION 269T OF THE ACT AND HENCE LD. COMMISSION ER OF INCOME TAX (APPEALS) HAS RIGHTLY DELETED THE PENALT Y LEVIED BY LD. ASSESSING OFFICER. WE HAVE OBSERVED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY DE LETED THE PENALTY LEVIED BY THE LD. ASSESSING OFFICER AND WE FIND NO INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF I NCOME TAX (APPEALS). 3. ITA NO.946/MUM/2014 IS WITH RESPECT TO PAYMENT OF RS.16,46,119/- DIRECTLY BY CIPLA LTD. IN FAVOUR OF ASSESSEES CREDITORS 3.1. THE LD. DR RELIED UPON THE ORDERS OF LD. ASSE SSING OFFICER AND MADE SUBMISSIONS BY CONTENDING THAT PAY MENT OF RS.16,46,119/- IS BEING MADE DIRECTLY BY CIPLA LTD. IN FAVOUR OF ASSESSEES CREDITORS AND HENCE ASSESSEE HAS ACCE PTED THESE LOANS OR DEPOSITS OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE/BANK DRAFT AND HENCE ASSESSEE HAS VIOLATED P ROVISIONS OF SECTION 269SS OF THE ACT AND LD. ASSESSING OFFIC ER HAS RIGHTLY LEVIED THE PENALTY U/S 271E OF THE ACT. 3.2. THE LD. AR SUBMITTED THAT PAYMENT OF RS.16,46,119/- IS BEING MADE DIRECTLY BY CIPLA LTD. IN FAVOUR OF ASSESSEES CREDITORS RELATED TO THE EXPENSES INC URRED IN PURSUANCE OF AGREEMENT DATED 31 ST JULY, 2006. ITA NO.945 & 946/MUM/2014 , MEDEX SPECIALTIES PVT. LTD. 8 3.3. HE SUBMITTED THAT THESE ARE NORMAL BUSINESS TRANSACTIONS IN THE ORDINARY COURSE OF BUSINESS AND ARE NOT HIT BY PROVISIONS OF SECTION 269SS OF THE ACT AND HENCE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY DE LETED THE PENALTY LEVIED BY LD. ASSESSING OFFICER. WE HAVE OB SERVED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTL Y DELETED THE PENALTY LEVIED BY THE LD. ASSESSING OFFICER AND WE FIND NO INFIRMITY IN THE ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). THE STAND OF THE ASSESSEE IS FORTIFIED BY THE FOLLO WING DECISION 1) CIT VS MADHAV ENTERPRISES LTD. IN ITA NO.561 OF 201 3 A.Y. 2006-07, 356 ITR 588 (GUJ.). THE HONBLE GUJA RAT HIGH COURT HELD THAT ADVANCES FOR PURCHASE OF SHOPS OF P REMISES WHICH WAS ACCEPTED BY THE ASSESSEE WITHOUT ANY PRE- CONDITION OF REPAYMENT ON OR AFTER AN INTERVAL OF TIME COULD NOT BE TERMED AS LOAN/DEPOSIT TO FALL UNDER SECTION 269SS AND ANY REPAYMENT MADE IN CASH OF THE AFORESAID AMOUNT WILL NOT BE HIT BY SECTION 269T OF THE ACT AS THE AMOUNT IS NEI THER DEPOSIT FOR LOAN AND HENCE NO PENALTY IS WARRANTED U/S 271D AND 271E OF THE ACT. 2) CIT VS TRIUMPH INTERNATIONAL FINANCE INDIA LTD. IN ITA NO.5746 OF 2010 A.Y. 2003-04 (345 ITR 270 BOM). HO NBLE BOMBAY HIGH COURT HELD THAT IN CASE OF LOAN/INTER-C ORPORATE DEPOSIT RECEIVED BY THE ASSESSEE IS SET OFF/REPAID OF A MUTUAL CLAIM THROUGH A JOURNAL ENTRY IS HIT BY SECTION 269 T BUT IF THE ITA NO.945 & 946/MUM/2014 , MEDEX SPECIALTIES PVT. LTD. 9 ASSESSEE SHOWS REASONABLE CAUSE FOR SUCH CONTRAVENT ION AS PROVIDED UNDER SECTION 273B OF THE ACT, NO PENALTY COULD BE IMPOSED FOR CONTRAVENING THE PROVISION OF SECTION 2 69T OF THE ACT. HONBLE BOMBAY HIGH COURT FURTHER HELD THAT I N THE ABSENCE OF ANY FINDING RECORDED IN THE ASSESSMENT O RDER OR IN THE PENALTY ORDER TO THE EFFECT THAT THE REPAYMENT OF LOAN/DEPOSIT WAS NOT A BONA FIDE TRANSACTIONS AND W AS MADE WITH A VIEW TO EVADE TAX AND REASONABLE CAUSE IS SH OWN BY THE ASSESSEE, NO PENALTY COULD BE LEVIED. 4. IDENTICAL RATIO WAS LAID DOWN IN CIT VS KAILASH CHA NDRA DEEPAK KUMAR 317 ITR 351 (ALL.), CIT VS KHARAITI LA L & COMPANY 270 ITR 445 (P&H) AND DCIT VS M/S MAHAGUN TECHNOLOGIES PVT. LTD. FINALLY, BOTH THE APPEALS OF THE REVENUE ARE DISMIS SED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVE OF BOTH SIDES, AT TH E CONCLUSION OF HEARING ON 22/07/2015. SD/- SD/- ( SANJAY ARORA ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER % & MUMBAI; ) DATED : 24/07/2015 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. +,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 % 1$ ( + ) / THE CIT, MUMBAI. 4. 0 0 % 1$ / CIT(A)- , MUMBAI ITA NO.945 & 946/MUM/2014 , MEDEX SPECIALTIES PVT. LTD. 10 5. 34 .$ ! , 0 +( ! 5 , % & / DR, ITAT, MUMBAI 6. ' 7& / GUARD FILE. / BY ORDER, /3+$ .$ //TRUE COPY// / (DY./ASSTT. REGISTRAR) , % & / ITAT, MUMBAI