AI Drafter 
TaxTMI 
TaxTMI 
2015 (2) TMI 987
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....essing Officer noticed that the assessee had accepted loan or deposit amounting to Rs. 5,85,70,875/- otherwise than account payee cheque or account payee draft. The details of such loan accepted otherwise than account payee cheque/bank draft are as under:- Name of the lender Date of entry Amount of loan or deposit taken or accepted otherwise than by an account payee cheques or an account payee bank draft GMS Real Estate (P) Ltd. 4/2/2008 190000 Godsons Shoes 4/2/2008 970000 Godsons Bros. 4/2/2008 3900000 M.S. Appreal Pvt. Ltd. 1/4/2007 4000000 Vardaan Fashion 14/11/2007 250000 Vardaan Fashion 19/11/2007 612175 Vardaan Fashion 18/3/2008 612175 Vardaan Fashion 18/1/2008 612175 Vardaan Fashion 18/2/2008 612175 Vardaan Fashion 1/2/2008 2100000 Vardaan Fashion 1/2/2008 140000 Vardaan Fashion 7/12/2007 3000000 Vardaan Fashion 2/2/2008 1300000 Vardaan Fashion 1/2/2008 10000000 Vardaan Fashion 15/3/2008 27050000 Total 58570875 4. During penalty proceedings, it was explained by the learned counsel that all the above cred....
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....This camouflaging transaction is merely a colourable device to hide the original transaction which is quite clear from the ledger account of GMS Real Estate in the books of the assessee Inderpal Singh wherein GMS Real Estate's account has been credited dated 4.2.2008 by Rs. 1,90,000/-. Thus it is quite clear that the assessee's contention has no force in it." 6. Accordingly, the Assessing Officer levied the penalty of Rs. 5,85,70,875/- which is deleted by the learned CIT(A). Hence, this appeal by the Revenue. 7. At the time of hearing before us, it is stated by the learned DR that there is no dispute that there is a credit entry in the assessee's books of account in the name of above mentioned persons. As per Section 269SS, the assessee is supposed to accept loan or deposit either by account payee cheque or by account payee bank draft. Admittedly, the above credit entries by the assessee were accepted neither by account payee cheque nor by bank draft and therefore, there is clear violation of Section 269SS and Assessing Officer rightly levied penalty under Section 271D. The CIT(A) cancelled the penalty without properly appreciating the facts. Therefore, his order should be re....
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....f the assessee and then by way of journal entry in the assessee's books of account. Godsons Shoes was credited with debit to M/s DNK. In the case of Godsons Bros., there was a transaction by cheque between Vardaan Fashion, a partnership firm in which assessee is a partner and Godsons Bros. and in the books of the assessee, there was only a journal entry. In the case of M.S. Appreal Pvt.Ltd., the journal entry was passed only as a rectification entry. These facts were duly stated before the Assessing Officer during penalty proceedings and the assessee's submission which is reproduced by the Assessing Officer in the penalty order is reproduced below for ready reference:- "(v) The assessee has wrongly credited the cheque received from M.S. Appreal Pvt.Ltd. in the ledger of Mr. Manjinder Singh, who is a director of M.S. Appreal Pvt.Ltd. dated 16/1/2007. When mistake became known a rectification entry has been made in the year under consideration. The assessee has not received loan/advance amounting to Rs. 40,00,000/- from M.S. Appreal Pvt.Ltd. during the financial year 2007-08. All loan/advances amounts were received through account payee cheque only. The assessee has wrongly by mis....
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....hall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by, - (a) Government; (b) any banking company, post office savings bank or co-operative bank; (c) any corporation established by a Central, State or Provincial Act; (d) any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); (e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette : [Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act.] Explanation. - For the purposes of this section, - [(i) "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of that Act;] (ii) "co-operative bank"....
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.... cheque or an account payee draft. The ambit of the section is clearly restricted to a transaction involving acceptance of money and not intended to affect cases where a debt or a liability arises on account of book entries. The object of the section is to prevent transactions in currency. This is also clearly explicit from clause (iii) of the Explanation to section 269SS of the Act which defines loan or deposit to mean "loan or deposit of money". The liability recorded in the books of account by way of journal entries, i.e., crediting the account of a party to whom monies are payable or debiting the account of a party from whom moneys are receivable in the books of account, is clearly outside the ambit of the provisions of section 269SS of the Act because passing such entries does not involve acceptance of any loan or deposit of money." 14. In the case of National Clothing Co. (supra), Hon'ble Jurisdictional High Court reiterated the same view and held as under:- "The issue in question is covered by decision of this Court dated 20.11.2014 in ITA No.33/2002 titled Commissioner of Income Tax vs. M/s Ruchika Commercials and Investment Pvt.Ltd. This decision follows two earl....
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....; 18. The penalty levied has been cancelled by the learned CIT(A). Hence, this appeal by the Revenue. 19. We have heard the arguments of both the sides and perused relevant material placed before us. So far as the debit in the books of account of the assessee through book entry is concerned, our discussion in paragraph Nos.10 to 15 above would be applicable and for the detailed discussion therein, we hold that when there is no monetary transaction between the assessee and the person whose account is credited and there is only journal entry, it cannot be said that there is violation of Section 269T. 20. So far as the payments by pay orders is concerned, we find that the CIT(A) deleted the penalty in respect of payment through pay orders with the following finding:- "6. Penalty of Rs. 1,91,80,000/- on repayment through pay orders (i) That in respect of penalty of Rs. 1,91,80,000/-, the appellant in the written submission dated 25.11.2011 Page 13 has explained that the payments were made through pay order/bank draft in which the name of the payers were mentioned and against each name the word ONLY, were written. It means, the pay order was not transferable/neg....
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....is no violation of any provision of Section 271E of the IT Act, 1961. (vi) That the appellant's contention is supported by the decision of the Hon'ble ITAT, Bench A, Lucknow in the case of M/s Devlok Hatcheries vs. The ITO 1(1), ITA No.544(LKW) 2010. The copy of the case law is enclosed as Annexure-2. The relevant portion of the decision is reproduced below: "Ground No.2 of the appeal reads as under : "2. That the learned Lower Court erred in facts and legal aspects of the case in treating amount of Rs. 27,674 paid by Account payee pay order (which is bankers cheque) as cash and disallowing 20% of the same u/s 40A(3)." The assessee is engaged in the business of buying day old chicks, growing them and then producing the chicks. During the course of assessment proceedings, the AO found that the assessee made payment of Rs. 27,674 on 27.10.2004 (pay order) otherwise than account payee cheque/draft to M/s Ram Saran Rakesh Saran. In response to the query, the assessee submitted that no cash payment has been made to party for Rs. 27,674. The AO, therefore disallowed 20% of the same under Section 40A(3) of the Income-tax Act, 1961 (in short 'the Act'). On appeal, the ld.CIT(A....
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.... certain expenditure if paid otherwise than by account payee cheque or account pay bank draft is to be disallowed. The ITAT held that the pay order is a bankers cheque and when in the pay order, 'only' is mentioned, the provisions of Section 40A(3) do not apply to payment by such pay order. In our opinion, the ratio of the above decision would be squarely applicable in respect of levy of penalty under Section 271E also and learned CIT(A), rightly applying the above decision, deleted the penalty. In view of above facts and the decision of the ITAT, Lucknow Bench, we do not find any infirmity in the order of learned CIT(A). The same is upheld and Revenue's appeal is dismissed. ITA No.2253/Del/2013 :- 22. In this appeal by the Revenue, following grounds have been raised:- "1. The CIT(A) has erred in deleting the penalty of Rs. 2,45,59,221/- levied by the AO u/s 271D for violation of provision of Section 269SS of the I.T. Act 1961. 2. The CIT(A) has erred in holding that partner and partnership firm are not different from each other and the provisions of section 269SS cannot be made applicable between the transaction of the partner and the firm. 3. The CIT(A) has err....
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....- (i) Where there is a credit by way of journal entry (book entry). (ii) Where there is a credit on account of receipt of pay order. (iii) Credit by way of cash receipt. 26. So far as the credit by way of journal entry is concerned, this issue has been discussed by us in detail while considering the penalty in the case of Shri Inderpal Singh Wadhawan. For the detailed discussion in paragraph Nos.10 to 15 above, we are of the opinion that on account of credit by journal entry (book entry), there is no violation of Section 269SS and therefore, penalty under Section 271D is notleviable. 27. So far as the credit by way of pay orders is concerned, this issue has also been discussed by us while considering penalty in the case of Shri Inderpal Singh Wadhawan. At the time of hearing before us, it was admitted by the parties that the facts in the case of the assessee are identical to the facts in the case of Shri Inderpal Singh Wadhawan. Therefore, our finding in this regard in the case of Shri Inderpal Singh Wadhawan vide paragraph Nos.20 and 21 above would be squarely applicable and for the detailed discussion therein, we find no infirmity in the order of learned CIT(A) whe....
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.... the product of agreement to share the profits of a business. "Firm" is a collective noun, a compendious expression to designate an entity, not a person. In income-tax law a firm is a unit of assessment, by special provisions, but is not a full person which leads to the next step that since a contract of employment requires two distinct persons, viz., the employer and the employee, there cannot be a contract of service, in strict law, between a firm and one of its partners." 31. Similar observations were made at page 299 which read as under:- "The necessary inference from the premise that a partnership is only a collective of separate persons and not a legal person in itself lends to the further conclusion that the salary stipulated to be paid to a partner from the firm is in reality a mode of division of the firm's profits, no person being his own servant in law since a contract of service postulates two different persons." 32. Thus, their Lordships of the Apex Court clearly held that the partnership firm is only a collective name of separate persons and not a legal person in itself and therefore, a partner cannot be a servant of the firm because no person can be his own ....
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....l contribution by the partner to the firm. Accordingly, the Revenue's appeal is dismissed. ITA No.2259/Del/2013 :- 36. The grounds raised by the Revenue in this appeal read as under:- "1. The CIT(A) has erred in deleting the penalty of Rs. 1,70,70,000/- levied by the AO u/s 271E for violation of provision of Section 269T of the I.T. Act 1961. 2. The CIT(A) has erred in holding that partner and partnership firm are not different from each other and the provisions of section 269T cannot be made applicable between the transaction of the partner and the firm." 37. The Assessing Officer had levied penalty under Section 271E amounting to Rs. 1,70,70,000/- in respect of the following debit in the assessee's books of account:- Name of lender Date of entry Amount of loan or deposit repaid otherwise than by an account payee cheque or an account payee draft Remarks Rups Craft Inc 03/11/2006 15,45,000/- Cash Inder Pal Singh 07/06/2006 4,00,000/- Cash Inder Pal Singh 08/06/2006 4,00,000/- Cash Inder Pal Singh 17/06/2006 4,00,000/- Cash Inder Pal Singh 02/11/2006 25,00,000/- Journal entry as cheque received fr....
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....isions of section 269T is not correct. In fact the appellant was doing business with the M/s Rups Craft Inc and all the transactions with this party related to business only and there was no transaction of loan or deposit. I also find that in the course of business Sh. Inderpal Singh, partner of the appellant firm had paid Rs. 15,45,000/- though an account payee cheque no.57308 to M/s Rups Craft Inc on behalf of the appellant and consequently a journal entry dated 3.11.2006 was passed by increasing the capital of Sh. Inderpal Singh and reducing the credit balance of Rs. 7,64,292/- which was already appearing in his name. In view of these facts since the repayment was not in respect of any loan or deposit but related to business transactions there was no violation of the provisions of section 269T of the Income-tax Act, 1961." 42. At the time of hearing before us, the above factual finding recorded by the CIT(A) has not been controverted. The CIT(A) has clearly recorded the finding that there was the business transaction between the assessee firm and M/s Rups Craft Inc. and all the transactions with the said party were business transactions only and there was no transaction of lo....
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....pak Fabrics as proprietor of M/s DNK Creation. It was on account of business transaction that the appellant had paid Rs. 19,50,000/- vide an account payee cheque no.344561 dated 7.5.2007 to M/s Deepak Fabrics on behalf of the proprietary concern M/s DNK Creations. During the course of penalty proceedings, these facts were duly brought to notice of the Assessing Officer along with the copy of account of M/s DNK Creations in the books of the appellant, copy of account of M/s Deepak Fabrics and copy of account of the appellant in the books of M/s DNK Creation. The observation of the Assessing Officer that this payment was made to a lender and was not a business transaction was merely based on the report of the special auditor. On the contrary, the appellant had filed copies of the accounts which clearly showed that the transaction with M/s Deepak Fabrics was a business transaction and not a repayment of loan as held by the Addl. CIT. No independent finding was given by the Addl. CIT to state that this is a repayment of loan. Since, the transaction in question is not a repayment of loan the provisions of section 269T read with section 271E are not applicable against this transaction." ....
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.... ITR 172 and of the ITAT A-Bench Ahmedabad in the case of Shrepak Enterprises vs. Deputy Commissioner of Income-tax (1998) 60 TTJ 199. Even otherwise, there was no contravention of the provisions of section 269T as the repayment was made only through an account payee cheque. 6.11 Entries dated 7.12.2007, 1.2.2008 and 1.2.2008 of Rs. 30,00,000/-, Rs. 21,00,000/- and Rs. 1,40,000/- in the name of M/s Dewana Dairy : The nature of all these entries was same as discussed above while dealing with entry of Rs. 25,00,000/- as all these payments have been made by M/s Vardaan Fashion, a partnership firm in which the appellant is a partner, on behalf of the appellant through account payee cheques. Therefore, as discussed above the provisions of section 269T read with section 271E are not applicable to these transactions." 49. From the above, it is evident that all these payments were made by M/s Vardaan Fashion, a partnership firm in which assessee is a partner. All the payments were made by account payee cheque and in the assessee's books of account, there was only a journal entry (book entry). We have already discussed at length in paragraph Nos.10 to 15 above that in respect of book ....
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....al account, it cannot be said to be either loan or advance by the partner to the firm or the repayment of loan or advance by the firm to the partner. Therefore, for the detailed discussion in paragraph Nos.30 to 35 above, we hold that in respect of payment by the assessee to the partnership firm M/s Vardaan Fashion, it cannot be said that there is violation of Section 269T. 54. In view of the above, we are of the opinion that the CIT(A) rightly cancelled the penalty levied under Section 269T amounting to Rs. 4,04,79,453/-. Accordingly, we uphold the order of learned CIT(A) and dismiss the appeal filed by the Revenue. 55. The grounds raised by the Revenue in this appeal read as under:- ITA No.2252/Del/2013 :- "1. The CIT(A) has erred in deleting the penalty of Rs. 95,25,000/- made by the AO u/s 271D for violation of provisions of section 269SS of the I.T. Act 1961. 2. The CIT(A) has erred in admitting additional evidences under Rule 46A which were not produced before the AO despite providing two opportunities." 56. The Assessing Officer had levied the penalty under Section 271D amounting to Rs. 95,25,000/- in respect of the following credit entries in the assessee'....
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....int venture. It was also submitted that the amount in question taken from wife was a bona fide act with commercial expediency. 7.9 The Hon'ble Calcutta High Court in the case of Dr. P.G. Panda vs. CIT (2000) 111 Taxman 86 held that where the assessee obtained certain loan from his wife in cash for construction of house property which was naturally a joint venture for prosperity of the family and the transaction did not involve any interest element and there was no promise to return the amount with or without interest, it could be said that there was a reasonable cause for not complying with section 269SS. 7.10 In the case of ITO vs. Tarlochan Singh (2003) 128 Taxman 20 (Asr)(SMC), it has been held that where the assessee had received a loan of Rs. 70,000/- in cash from his wife for investment in acquisition of immovable properties, and the assessee was under the bona fide belief that the amount was not to be refunded, no penalty was leviable. 7.11 In the following cases, the Ahmedabad Bench of the Hon'ble ITAT have also cancelled the penalties levied u/s 271D even where loans/deposits were taken in cash. a) Shreenathji Corporation vs. ACIT 58 TTJ 611. b) Ganesh Woode....
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....uld be clear that the assessee had taken plea that firstly there was no violation of the provisions of section 269SS. Secondly, there was a reasonable cause. Thirdly, the assessee was under the bona fide belief that he was not required to receive the amount otherwise than by an account payee cheque or account payee draft. As an alternative submission, it was contended that the default could be considered either technical or venial breach of the provisions of law and, therefore, no penalty under section 271D was leviable. In view of the above discussion, no penalty under section 271D was leviable. It is well-settled that penalty provision should be interpreted as it stands and, in case of doubt, in a manner favourable to the taxpayer. If the Court finds that the language is ambiguous or capable of more meaning that the one, then the Court has to adopt the provision which favours the assessee, more particularly where the provisions relate to the imposition of penalty. In view of the above, the penalty sustained by the Commissioner (Appeals) was cancelled." 61. That the ratio of the above decision of ITAT, Amritsar Bench would be squarely applicable to the facts of the assess....