TaxTMI 
TaxTMI 
2009 (2) TMI 279
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....------------------------------------------ 2. 16-11-2004 2 crores -do- ------------------------------------------------------------ 3. 21-12-2004 2 crores -do- ------------------------------------------------------------ 4. 12-02-2005 2 crores -do- ------------------------------------------------------------ 5. 28-02-2005 2 crores -do- ------------------------------------------------------------ 6. 22-03-2005 60 lakhs -do- ------------------------------------------------------------ 7. 16-12-2004 12 lakhs M/s Adarsh Enterprise ------------------------------------------------------------ The amounts were taken from the above parties earlier and they were appearing in the liability side of the assessee's balance sheet. The AO took the view that there was a violation of s. 269T of the Act and accordingly referred the proceedings to the Addl. CIT under s. 271E for the purpose of ascertaining whether the assessee was liable for penalty. The Addl. CIT called upon the assessee to show cause why penalty should not be levied for violation of s. 269T by repayment of loans or deposits taken from Annapoorneshwari Investments (AI for short) and Adarsh Enterprises (AE for short). In....
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....gations on fast track, remove encroachments and also to make the land useful for construction/development. Contracts were entered into with various contractors to remove the ridges, trees, plants and wild bushes, levelling the earth, earth filling, making the ground level, removal of unauthorized occupants by making settlements with them, obtaining vacant possession of the land, constructing compound wall and handing over the land to MAHE. In support of this claim, the assessee also filed copies o[ the few agreements. It was reiterated that the transactions between the firms were purely in the nature of current account and not by way of loans or deposits. 4. It would appear from the penalty order that the Addl. CIT asked for further clarifications regarding the transactions, the accounts of AI, etc., which were furnished by the assessee. All these are recorded in the penalty order and they are not reproduced here. After taking into consideration all the materials submitted by the assessee, the Addl. CIT came to the conclusion that the assessee had no reasonable cause for making cash payments. to the contractors on behalf of AI since AI as also the contractors were operating in Ban....
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.... AI was not repayable after notice or after a specific period still it is taken in by the section as a loan or deposit "of any nature". (d) Transactions between group concerns are not exempted under s. 269T. In any case, the assessee and AI had only one common partner, namely, Ramakrishna. In the case of the assessee and AE, there was only one common partner, namely, Satish Pai. The existence of a single common partner does hot make the firms sister concerns. Besides, Ramakrishna was not the managing partner of the assessee firm; it was one Dayananda Pai. Even Satish Pai is not the managing partner of the assessee firm. The accounts of the three firms were maintained independently and were not centralized. Thus, even on merits the order of the Cochin Bench of the Tribunal was not applicable. (e) There was no urgency about the repayments in cash to the contractors since Bangalore city is flooded with banking facilities and many banks run even for 24/7 hours. Even the TDS payments have been effected from April, 2005. Thus there was no urgency in making cash payments. (f) The assessee's claim that it was under a bona fide belief that there was no violation of s. 269T is an aftertho....
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....le. 8. On a careful consideration of the matter, we are of the view that the additional evidence should be admitted. It is true that both before the AO and the CIT(A) the assessee had raised the plea that transactions between the sister concerns were not hit by s. 269T. The AO held that transactions between sister concerns are not exempt from the section. From this it is possible to infer that he did not question the fact that the assessee and AI were sister concerns. The CIT(A) however. has given detailed reasons in para 6(a) of his order as to why the assessee, AI and AE cannot be considered as sister concerns, but it is the assessee's contention that the queries of the CIT(A) could have been put to him so that it would have been possible for the assessee to adduce evidence, which is now sought to be admitted as additional evidence, to support its claim. The assessee was entitled to assume that the CIT(A) was not disputing the assessee's claim that AI and AE were its sister concerns since the AO had not disputed the same, but had only held that even then s. 269T was applicable. It is undoubtedly open to the CIT(A) to reopen this question in the course of the appeal before him si....
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....o in s. 269T otherwise than in accordance with that section, he shall be liable to pay penalty of a sum equal to the amount of the loan or deposit so repaid. The power to levy the penalty is with the Jt. CIT. We may clarify that though in the present case the penalty order was passed by the Addl. CIT, the assessee has not taken any ground that the penalty order is invalid as it was not passed by the Jt. CIT. Be that as it may, the facts presented before us, including the additional evidence, show that it is doubtful whether the amounts received by the assessee from AI and AE could be considered as loans or deposits in the first place under s. 269T. We have gone through the documents compiled by the assessee in the paper book containing the additional evidence. These are agreements to sell land of the extent of 189 acres as well as sale agreement dt. 31st March, 2005 between Gauri Ganesh Real Estate and AI, on the one part and MAHE, on the other. This sale agreement is a registered document which is one more reason why it should be received in evidence. A conjoint perusal of all the agreements shows that a total of 189 acres of land in or around the Bangalore-Devahanalli NH 7 was to....
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.... that its own credibility and standing were not impaired. The main terms of the agreement provided that the funds received by AI from MAHE shall be made over and advanced to the assessee to ensure that they are not diverted away by AI [cl. (5)]. According to cl. (6), the funds were not to carry any interest and after the entire obligations were discharged, they were to be returned by AI to the assessee without interest. Clause (7) provided that the assessee shall approve the selection of all the civil contractors and the terms of the contract entered into by AI in the matter of rates, type of work and time frame for completion of civil development and layout works on the property to be developed and sold to MAHE. The clause further provided that the assessee shall be entitled to supervise the work and make payments to the contractors "on behalf of and account of the first party", which is AI, and render accounts from time to time. Clause (9) stated that the arrangement entered into between the parties shall not be construed as resulting in any business arrangement between them. 10. Pursuant to the above arrangement AI started advancing monies to the assessee from 6th Oct., 2004 an....
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....tes, type of work and timeframe for completion of the development and layout work. It thus appears to us to be an arrangement whereby the responsibility for supervising the contract work is entrusted to the assessee firm whose responsibility it will also be to make payments to the contractors out of the amounts received from AI. Both the receipts from AI and payments made to the contractors on its behalf are credited and debited respectively in the ledger account of "M/s AI (A. Ramakrishna)" maintained in the assessee's books of account, an extract of which is placed at pp. 65 and 66 of the paper book filed by the assessee. The ledger account shows both debits and credits and as on 31st March, 2005, there is a closing credit balance of Rs. 31,75,00,000. The total amount received between 6th Oct., 2004 and 31st March, 2005 was Rs. 50.36 crores. When the assessee has thus acted only as a conduit between AI and the contractors with the additional responsibility of supervising the work, it seems to us that it would not be proper to characterize the amounts received from AI as either loans or deposits. The ledger account shows both receipts and payments and read with the MoU it appears ....
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.... In the case of Supreme Investments vs. Jt. CIT in ITA No. 76/Bang/2006, dt. 3rd Aug., 2007, for the asst. yr. 2001-02, the Bangalore Bench did not record a definite conclusion that transactions between sister concerns are not hit by s. 269T, though the penalty was cancelled on other grounds. For the limited purpose of imposing penalty under s. 271E, it is perhaps enough to see whether the assessee could have bona fide belief that transactions with sister concerns involving cash were not hit by s. 269T. Since there is a difference of opinion on this point between two orders of the Tribunal, the assessee was perhaps justified in believing that it is entitled to rely on the order which was in its favour. Thus, it may even be stated that the assessee's bona fide belief constitutes reasonable cause for the violation of s. 269T r/w s. 273B. Similarly, if the assessee had bona fide belief that cash transactions in a current account are not hit by s. 269T, which belief is vindicated by the judgment of the Madras High Court, cited, even that can be considered as reasonable cause under s. 273B and on that ground also the penalty is liable to be cancelled. The judgment of the Hon'ble Karnata....