TaxTMI 
TaxTMI 
2013 (3) TMI 829
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....d an amount of ₹ 3,25,00,000/- in cash, from M/s Om Prakash Mahesh Kumar and Party, an Association of Persons [AOP] in which the assessee-company is also a member-person. The AOP is engaged in liquor business. Accordingly, the A.O. initiated penalty proceedings u/s 271D of the Act. During the F.Y. 2008-09 relevant to A.Y. 2009-10, on verification of this loan account, it was seen that the assessee had accepted cash loan of ₹ 3,25,00,000/- on 4.4.2008. In this account, there are numerous credit/debit entries on various dates of amounts running into several crores of rupees. It was further noticed that in this account there is an opening credit balance of ₹ 39,80,42,079/- and closing credit balance of ₹ 97,96,14,595/- which is also reflected in the balance-sheet of the assessee-company in Schedule VII, under the head 'other liabilities'. Consequently, the A.O. issued a notice to the assessee u/s 271D of the Act holding that the provisions of section 269SS of the Act have been violated. The assessee replied to the notice by stating that this amount is not a loan. The assessee explained the meaning of the term 'loan' with reference to various dictionaries, encyc....
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....further observed that once the violation of provisions of section 269SS is established, a penalty of the equal amount has to be mandatorily imposed on that person. While imposing penalty, he has further observed that the assessee has not shown any exceptional circumstance or urgency or business exigencies to explain the contravention of the provisions of section 269SS in accepting the cash loan/deposit. Therefore, he has held this action of the assessee to be a blatant violation of the provisions of section 269SS of the Act. He has also observed by referring to decision of Hon'ble Supreme Court rendered in the case of Assistant Director of Inspection [INV] Vs. Kum. A.B. Shanthi [2002] 255 ITR 258 [SC] wherein it has been held that breach of provisions of section 269SS is not a mere technical or venial breach and hence penalty u/s 271D of the Act is leviable for such violation. The A.O. has also not agreed with the proposition that this transaction is between two sister concerns. He has observed that there is no any centralized account and management involved between the lender AOP and the assessee-company who has allegedly taken the cash loan. Accordingly, he has imposed penalt....
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....tage, there has no doubt raised that the money involved was black money and also no such type of inquiry was made during thecourse of assessment. Further, the creditor was identifiable, the source was explained and also the genuineness of transactions was proved & accepted by the department, then no question would arise to leviable of penalty u/s 271D of the IT Act, 1961. 8. That except this transaction all the transactions was made from the bank account only, which includes the repayment of the above cash transactions by account payee cheques also. Hence, the intention of the appellant is not malafide to the revenue or there was no intention to evade the tax. 9. That the alleged transaction was ledgerised in the books of accounts of the assessee, which was duly produced during the course of assessment proceedings and while completing the assessment U/s 143(3) of the IT Act, 1961, no addition was made U/s 68 of the It Act, 1961 on account of the alleged cash transaction in the quantum assessment, which also proves that the appellant has not intended to evade any tax on account of it. 10. That the appellant company is engage in the business of real estate development, proje....
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....s treated this amount as loan/deposit whereas the assessee is treating this amount as withdrawal from its AOP out of its capital account and the same is not treated as either deposit or loan. It is also pleaded by the assessee-company that at best this transaction can be treated to be between the two sister- concerns and therefore, again the provisions of section 269SS would not attract. With regard to payment of interest on this amount, it was stated that the Jaipur Bench of ITAT has, under identical facts and circumstances, held that only on the reason of paying a sum towards interest, the amount does not become either loan or deposit. The ld. A.R. has relied on various other decisions, which we will discuss at appropriate place. There is no denial of the fact that the assessee has taken the amount of ₹ 3.25 crores from the AOP and that it was also a member of that A.O. at the relevant time. 6. Any loan is a type of debt, which entails the redistribution of financial assets over a time between the lender and the borrower. In a loan, the borrower initially receives or borrows an amount of money, the 'principal' amount, from the lender and is obliged to repay an equal amoun....
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....ppeal to the high court it was held that the order of the lower authorities clearly shows that there was a running current account in the books of account of the assessee in the name of M. M, used to pay money in the current account and used to -withdraw the money also from the current account. The revenue should establish that what was received by the assessee is a loan or deposit within the meaning of section 269SS. The deposit and the withdrawal of the money from the current account could not be considered as a loan or advance. Therefore the transaction between the assessee and the director cum shareholder is not a loan or deposit and it is only a current account in nature, therefore the deletion of penalty was justified. (ii) Muthoot M.George Bankers Vs. AC1T [46 ITD 10](Cochin):In this case Hon'ble ITAT after considering the facts of the case held as under: " we hold that the transactions inter se between the sister concerns and the assessee cannot partake of the nature of either "deposit" or "loan", though interest might have been paid on the same. Except for the transfer of funds being witnessed in the books of accounts of the concerned firm....
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....l is made from AOP and is credited in the books of account of the assessee, such credit cannot be said to be a transaction of 'loan' and it is to be treated only as a 'payment made by AOP to its member since the payment to self does not partake the character of a loan and the provisions of section 269SS are also not attracted. In this regard, following decisions are relevant: (v) C1T Vs. Lakhpat Film Exchange (Cinema) [ 304 ITR 172](Raj.) In this case firm accepted cash from partners in belief that it was not different from them. Tribunal relying on the decision in CIT Vs. R.M Chidamabaram Pillai 106 ITR 292 wherein the Supreme Court said that there cannot be a contract of service, in strict law, between a firm and one of its partners-so as to consider the salary paid to the partners as income from salary held that for the purpose of section 269SS and 269T also, the firm and partners cannot be considered as to be separate entity and deleted the penalty. Hon'ble Rajasthan High Court by considering the above decision of SC and considering the fact that general provisions relating to Partnership Act that partnership firm is not a juristic person and for interrelationship diffe....
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....tions between the two sister concerns and the transactions undertaken between the sister concerns definitely fall outside the purview of provisions of section 269SS of the Act. The A.O. has not accepted this theory propounded by the assessee on the reasoning that the nature of businesses, mainly of both the concerns are different, and there are no common accounts and management and the assessee has only 0.50% share in the AOP. According to the assessee, these are not relevant considerations to decide whether these are sister concerns or not. The A.O. as well as the ld. CIT(A) have tried to decide this issue only on the basis of the percentage of shares. They have stated that only when the assessee company has 10% beneficial interest in the other concern only then the transacting parties can be treated as sister concerns. Although the term 'sister concern' is not defined in the Act anywhere, but in common parlance, if two concerns have interest in each other, these are called as sister concerns. As per the provisions of sec. 40(a)(ii) of the Act where an assessee is an AOP, any payment of expenditure made to its member may be called for disallowance if it is excessive or unreasonabl....
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....271E observing that transaction between sister concerns are not covered by either provisions of sec.269SS or sec.269T and that the default, if any, was of venial nature, no interference is called for. (iii) CIT vs. Sunil Kumar Goel [315 ITR 163] (Pun. & Har.) In this case Hon'ble Court held that ITAT was right in recording its conclusion that a reasonable cause has been shown by the assessee. The ITAT relied on the fact that assessee has produced its cash book, depicting loan taken by him unilaterally before the revenue. Another fact taken into consideration was that no prejudice was caused to the revenue in the instant action of the assessee in as much as assessee did not attempt by the impugned act to avoid any tax liability. Furthermore, there is no dispute about the fact that the instant cash transactions of the assessee was with sister concern and these transactions were between the family and due to business exigency. A family transaction between two independent assessee's, based on an act of casualness, especially in a case where the disclosure thereof was contained in the compilation of accounts, and which had no tax effect, established "reasonable cause&q....