TaxTMI 
TaxTMI 
2013 (3) TMI 829
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....sp; During the course of assessment proceedings the A.O. noticed that the assessee has received an amount of Rs. 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 Rs. 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 Rs. 39,80,42,079/- and closing credit balance of Rs. 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 a....
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....person takes or accepts any loan or deposit in contravention of provisions of section 269SS, he shall be liable to pay by way of penalty, a sum equal to the amount of loan or deposit so taken or accepted. He has 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 tran....
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....uineness of transaction and also proved that such transactions was not intended to be covered u/s 269SS/269T. 7. That during the course of or at the time of finalization of the assessment proceedings, there has no addition was made on account of the above alleged amount received from M/s Om Prakash Mahesh Kumar & Party as well as at any stage, 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 assessmen....
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....ken before the authorities below. It was argued by Shri P.C. Parwal, the ld. A.R. of the assessee that the amount of Rs. 3.25 crores received from the AOP during the F.Y. 2008-09 is not a 'loan' and only a withdrawal as a AOP member from the AOP and therefore, the provisions of section 269SS are not attracted. In this regard, reliance has been placed on numerous decisions. The ld. A.R. has also filed a lengthy paper book and also concised written submission. There is no dispute about the above mentioned facts of this case except that the A.O. has 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 no....
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....er se the assesseecompany and the AOP when the assessee-company has a substantial interest in it cannot be treated as receipt of loan, even if the interest is credited in this account on running outstanding balances. In this regard, the following decisions are relevant: (i) C1T Vs. Idhayam Publications Ltd.[285 ITR 221] (Mad.) The facts of the case are that assessee has accepted a loan of Rs. 2.94.000/- from M, a sister concern in violation of the provisions of section 269SS. Dy. Commissioner initiated penalty proceedings u/s 271D. Tribunal found that M was one of the directors of the company and there was a running account in his name, therefore it deleted the penalty. On appeal 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 curren....
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....in by the taxpayers to explain away its unexplained cash or unaccounted deposit. This section is definitely not intended to penalize genuine transactions, where no tax evasion is involved." 7. Undeniably, the assessee is one of the members of the AOP and it has maintained two accounts for the transactions between them. One is Capital Account and another is Current Account. In the Capital Account there is no transaction except for the credit on account of share of profit, whereas in the Current Account there are number of transactions. Credit entry in the current account entails a withdrawal of money from the account of AOP, even if the withdrawal is made through capital account or current account in the books of the AOP. Once withdrawal 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 F....
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.... tried to distinguish these cases for the reason that it is a case of transaction between the firm and the partner. It may be noted that an AOP under the Act also stands on the same footing as a firm. An AOP is also a compendious name of all the members taken together. They also have the joint and several liability like the firm. Therefore amount paid by the AOP to the assessee who is its member is payment to self and therefore section 269SS is not attracted to such transaction. Otherwise also, the assessee has a bonafide belief that the amount so taken in cash is not hit by sec.269SS and therefore as held by Raj.HC supra, a bonafide and reasonable ground existed for not adhering to the requirement of section 269SS." 8. Likewise, we are also in agreement with the ld. A.R. that these transactions can be treated as transactions 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 a....
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.... held that it is not in dispute that both the firms were having common partners. The fault of the assessee may be considered as technical fault because there were common partners and if entries had been routed through the partners, there should have been no grievance to the department. In that view of the matter assessee committed a technical breach only and for this breach no penalty is exigible as per the ratio laid down by Hon'ble SC in case of Hindustan Steel Ltd, (83 ITR 26). It further held that department has not doubted the transactions and the transaction have been considered as genuine because both the parties are assessed to tax and the entries were shown in the books of accounts of both parties. In these facts the deletion of penalty by CIT (A) was confirmed. (ii) CIT vs. Shree Ambika Flour Mills [6 DTR 169 ](Guj.) In this case Hon'ble HC held that Tribunal having deleted the penalty u/s 271D and 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....