TaxTMI 
TaxTMI 
2020 (2) TMI 1221
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....for various assessment years in deleting the penalty levied u/s. 271D/271E of the Act. 2. Briefly stated the facts are that, the Assessing Officer in the course of the assessment proceedings noticed that assessee recorded journal entries in its books of accounts accepting and repaying loans/deposits otherwise than account payee cheque or draft more than Rs..20,000/- from various group concerns of the assessee.. The Assessing Officer was of the view that there is contravention of provisions of section 269SS/269T of the Act since assessee received and repaid loan/deposit over and above Rs..20,000/- otherwise than by Account Payee Cheque or draft and accordingly an order u/s. 271D/271E was passed levying penalty. 3. On appeal the Ld. CIT(A) deleted the penalties observing as under: "5.3.4 Respectfully, following the above decision, the contention of the appellant that the journal entries are not covered within the violation of Section 269T is rejected. However, the transactions covered by the journal entries are made in regular course of business with the sister concerns by the appellant. Even in the present case, there is no adverse finding of the AO either in the pena....
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....reeing with the view expressed by the Division Bench in the case of M/s. V.N. Parekh Securities Pvt Ltd v. ACIT (supra) the matter be referred to the Special Bench for adjudication. 5. Learned Counsel Shri Vijay Mehta appearing for the assessee, at the outset submitted that the issue in all these appeals is squarely covered by the decision of the Coordinate Benches in various assessee group cases wherein on identical facts the penalties levied u/s. 271D/271E of the Act were deleted. Ld. Counsel for the assessee placed reliance on the decision of the Coordinate Bench in the case of the DCIT v. Lodha Constructions and others in ITA.No. 110, 111, 139 to 142/Mum/2017 dated 30.07.2018 and a copy of the order was placed on record. Referring to this order Ld. Counsel for the assessee submitted that the Coordinate Bench following the decision of the Hon'ble Bombay High Court in the case of the CIT v. Ajinath Hitech Builders Private Ltd and Others in ITA.Nos. 171, 172, 202, 203, 218 & 219 of 2015 dated 06.02.2018 and decision of the Coordinate Bench in assessee's group case in the case of Aashthavinayak Estate Company Ltd., in ITA.No. 602/Mum/2017 dated 31.05.2018 and also considerin....
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....ounsel for the assessee submitted that, the issue in all these appeals relates to the journal entries passed by the assessee for the loans/deposits taken and repaid within the group concerns of the assessee is squarely covered by the above decisions. 9. We have heard the rival submissions, perused the orders of the authorities below and the decisions relied on. The only issue in all these appeals is as to whether there is a reasonable cause within the meaning of the provisions of section 273B of the Act on the loans/deposits taken and repaid through journal entries by the assessee within its group concerns. On a perusal of the orders passed by different Benches of this Tribunal and the decision of the Hon'ble Jurisdictional High Court and also the dismissal of SLPs filed by the revenue, we notice that identical issue has been decided by the Tribunal in various cases in assessee's group concerns and which were travelled to Hon'ble Bombay High Court and also the Hon'ble Supreme Court wherein the Special Leave Petitions filed by the Revenue were dismissed. 10. The Hon'ble Bombay High Court in the case of CIT v. Ajinath Hitech Builders Private Ltd and Others (supr....
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....it or repayment in any other mode other than the account payee cheque. It is merely a case of assignment of debt by one group entity to another group entity and journal entries have been passed to record such assigned transactions. The provision of section 269SS and 269T are not applicable on such genuine transactions. The Assessing officer in the assessment order has not made any observation that transactions in question are not out of business exigency or was done with a motive to evade tax. Penalties cannot be levied in a mechanical manner. The provisions of section 269SS and section 269T are not applicable where transaction is between sister concerns. The ld. CIT(A) after considering the contention of the assessee concluded that the assessee has violated the provisions of section 269SS and 269T of the Act. However, the ld CIT(A) concluded that the assessee has given sufficient explanation within the meaning of section 273B , particularly in the facts that there is no finding that such transactions were undertaken to evade the tax. The ld CIT(A) also followed the decision of Tribunal in Lodha Builder Pvt Ltd Vs ACIT in (ITA No. 476/M/2014 and 481/M/2014 dated 27.06.2014 for AY 2....
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....ourt in Triumph International Finance (supra) to determine reasonable cause for not complying with the provisions of Section 269SS of the Act. (c) Mr. Mohanty, the learned Counsel for the Revenue seeks to challenge the impugned order of the Tribunal on the ground that Section 273B of the Act will have no application as the test of reasonable cause is not satisfied :in the present facts for the following reasons :- (i) the decision of this Court in Triumph International Finance (supra) will have no application as that was of the case of only one transaction while in this case, there are numerous transactions reflected through the passing of journal entries; (ii) the reasons set out for taking advances / deposits by way of journal entry would not satisfy the test of reasonable cause; and (iii) the non-satisfaction of showing reasonable cause as required under Section 273B of the Act gives rise to a question of law as it is a legal inference to be drawn from primary facts as held by the Apex Court in Premier Breweries Ltd. Vs. Commissioner of Income Tax 372 ITR 180. Thus, it is submitted this question requires admission as it gives rise to a substan....
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....he Agreements entered into between the parties. The inference of law in that case was whether on the facts, it could be inferred that the claim for deduction is in respect of expenditure incurred wholly and exclusively for the purposes of the business. Thus, it would involve a question of interpretation of the agreements etc. from which an inference is to be drawn. Further, it also involves application of principles of law to the facts for the purposes of deductions and, therefore, it would lead to a question of law. Therefore, the Court held in the facts of that case that a question of law does arise. (f) In this case, the issue of reasonable cause is an inference of fact from facts and, therefore, a question of fact. The Supreme Court decision in Sree Meenakshi Mills Ltd. Vs. Commissioner of Income Tax, 31 ITR 28 had laid down the tests to determine a question of law and / or fact. In the above context, the Court observed that when the finding is one of fact, the fact that it itself is an inference from other basic facts, will not alter its character as one of fact. Therefore, the issue of there being reasonable cause or not, is a question of fact and unless it is shown ....
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....decision of this Court in Triumph International Finance (supra) has only clarified / stated the position as always existing in law, the receiving of deposits / loans through journal entries would certainly be hit by Section 269SS of the Act. Nevertheless, prior to the decision of this Court in Triumph International Finance (supra), there was reasonable cause for respondents to receive deposit / loan through journal entries. This non-compliance with Section 269SS of the Act would certainly be a reasonable cause under Section 273B of the Act for non-imposition of penalty under Section 271D of the Act. (j) In the above circumstances, the view taken by the Tribunal in the impugned order holding that no penalty can be imposed upon the respondents as there was a reasonable cause in terms of Section 271B of the Act for having received loans / deposits through journal entries is at the very least is a possible view in the facts of the case. (k) Therefore, the question as posed does not give rise to any substantial question of law. Thus, not entertained." 9. Further co-ordinate Bench of the Tribunal in Assessee's group case in DCIT vs. Aashthavinayak Estate Compan....
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....at prior to the judgment in CIT v. Triumph International Finance (I) Ltd. (345 ITR 270), there were series of orders on this point holding that journal entry would not fall foul of S. 269SS of the Act. Since the judgment in CIT v. Triumph International Finance (I) Ltd. (345 ITR 270) was rendered on 12.06.2012, it was held, that the assessee could have had a bonafide belief prior to that date that there was no violation of S. 269SS of the Act in accepting loan by journal entry. 9. While deciding the issue, the CIT(A) has also followed the decision of Jurisdictional High Court in case of group concern of the case. The facts and circumstances during the year under consideration are same, accordingly, we do not find any infirmity in the order of CIT(A) for deleting the penalty imposed u/s.271D by relying on the decision of Jurisdictional High Court in group case of the assessee. 10. In the result, appeal of the Revenue is dismissed." 10. Considering the decision of Hon'ble Jurisdictional High Court in assessee group case in Ajinath Hi Tech Builder Pvt Ltd (supra), Triumph International Finance(I) Ltd (supra) dated 12.06.2012 and in Assessee's group case in DCIT vs.....
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....o subscribe to the observation of the CIT(A) that there was a reasonable cause for the assessee to have carried out the transactions with its "sister concerns‟ by journal entries viz. (i). the journal entries had been made with the group concerns under the bonafide belief that such transactions would not be hit by the provisions of Sec. 269SS in view of various judicial decisions on the issue, including the decision of High Court of Delhi in the case of CIT Vs. Noida Toll Bridge Co. Ltd. (2003) 262 ITR 260 (Del); and (ii). such loans by way of journal entry transactions were undertaken for various commercial reasons like assigning of receivables for operational efficiency, payment on behalf of group concern for squaring up transactions, for ease in consolidation of accounts, rectification entries etc. In our considered view the aforesaid reasons do constitute a "reasonable cause‟ within the meaning of Sec. 273B of the Act, particularly in light of the fact that there is no finding that such transactions were undertaken to evade tax. Our aforesaid view is fortified by the orders of the coordinate benches of the Tribunal in the case of "sister concern‟ of the assess....
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.... was made by journal entry has to be considered judiciously. 7. In the order reported as Lodha Builders (P) Ltd. v. ACIT [2014] 163 TTJ 778 (Mum), a bunch of appeals belonging to Lodha group (to which the present assessee belongs) involving identical issue, was disposed of by the coordinate Bench in which levy of similar penalties was held to be not sustainable as there was a reasonable cause, copies of which have been placed on record. In deciding the dispute in favour of the assessee, the Hon'ble Tribunal had considered and applied the ratio laid down by the Hon'ble jurisdictional High Court in the case of CIT v. Triumph International Finance (I) Ltd. (345 ITR 270). 8. The aforesaid order of the Hon'ble Tribunal was approved by the Hon'ble jurisdictions! High Court in their judgment and order dated 06.02.2018 in the case of CIT v. Ajinath Hi-Tech Builders Pvt Ltd., copies of which have also been placed on record. In this case, it was also held that prior to the judgment in CIT v. Triumph International Finance (I) Ltd. (345 ITR 270), there were series of orders on this point holding that journal entry would not fall foul of S. 269SS of the Act. Since ....
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....t in breach of Section 269SS of the Act In the above view, while agreeing with the submission of Mr. Mohanty, learned Counsel for the appellant that the decision of this Court in Triumph International Finance (supra) has only clarified/stated the position as always existing in law, the receiving of deposits/ loans through journal entries would certainly be hit by Section 269SS of the Act Nevertheless, prior to the decision of this Court in Triumph International Finance (supra), there was reasonable cause for respondents to receive deposit/loan through journal entries. This noncompliance with Section 269SS of the Act would certainly be a reasonable cause under Section 273B of the Act for non-imposition of penalty under Section 271D of the Act" 9. From the record we found that the journal entries in the present case were passed in F.Y. 2010-11. Therefore, indisputably such journal entries were passed prior to 12.06.2012, the date on which judgment of the Hon'ble Bombay High Court in the case of CIT v. Triumph International Finance (I) Ltd was pronounced. Further more, in addition to the orders of the Hon'ble Tribunal, referred to in the aforesaid judgment, there were....
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....ara (i) of para 3 on page No. 10 of their judgment which read as under: (i) ........................,..... In the above view, while agreeing with the submission of Mr. Mohanty. learned Counsel for the appellant that the decision of this Court in Triumph International Finance (supra) has only clarified/ stated the position as always existing in law, the receiving of deposits/loans through journal entries would certainly be hit by Section 269SS of the Act Nevertheless, prior to the decision of this Court in Triumph International Finance (supra), there was reasonable cause for respondents to receive deposit/loan through journal entries. " (Emphasis supplied). 12. So far as the second argument of the Id. DR is concerned, we observe that as per the above decision of the Hon'ble High Court, the assessee could not be visited with penalty in respect of the period prior to 12.06.2012, the day on which the decision in CIT v. Triumph International Finance (I) Ltd. was pronounced. In light of this, it can safely be concluded that the assessee being under a bona fide belief, could not be visited with penalties u/ss. 271D requirement to establish reasonable cause in respect....
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....der of the coordinate bench of the Tribunal i.e. ITAT "B" bench, Mumbai in the case of the "sister concern‟ of the assessee viz. DCIT CC-7(3), Mumbai vs. M/s. National Standard India Ltd. (ITA no. 6607/Mum/2016) for AY 2011-12, and are persuaded to subscribe to the view therein taken. In the backdrop of our aforesaid deliberations, as observed by us at length hereinabove, as the assessee had remained under a bonafide belief that the acceptance and repayment of loans by journal entries did not involve any contravention of the provisions of Sec. 269SS and Sec. 269T of the I.T Act, therefore, we are in agreement with the view taken by the CIT(A) that in the backdrop of the said "reasonable cause‟ within the meaning of Sec. 273B of the I.T Act, no penalty under Sec. 271D and Sec. 271E could have been imposed on the assessee. We thus finding no infirmity in the order of the CIT(A) who had in terms of his aforesaid observations vacated the penalty of Rs. 38,09,55,274/- and Rs. 35,52,90,732/- imposed by the Additional CIT u/s. 271D and 271E of the I.T Act, respectively, uphold his order." 12. Similarly, in the case of DCIT v. M/s. Sahajanand Hi-Tech Construction Pvt. Ltd., ....
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....271E of the Act was illegal and bad in law as it was passed beyond the period of limitation provided in clause(c) of section 275(1) of the Income-tax Act, 1961." 16. Ld. Counsel for the assessee, at the outset submits that in all these cases the Addl. CIT passed penalty orders u/s. 271D/271E of the Act beyond a period of six months from the end of the month in which action for the imposition of penalty is initiated as specified in clause (c) of section 275(1) of the Act and therefore, the orders passed u/s. 271D/271E of the Act are barred by limitation. Ld. Counsel for the assessee submits that on identical facts the Coordinate Bench in ITA.No. 475 to 481/Mum/2014 dated 27.06.2014 in assessee own case and associate company's cases held that the penalty orders passed u/s. 271D/271E were time barred. 17. On the other hand, Ld. Senior Standing Counsel strongly placed reliance on the orders of the Ld. CIT(A)who rejected the ground raised by the assessee on limitation. 18. We have heard the rival submissions, perused the orders of the authorities below and case laws relied on. We observed that the tribunal in assessee's own case and group cases after considering various decisio....
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....ty is initiated, whichever period expires later." 17. The said provisions are explained by various Honble High courts and Tribunal. To start with, Honble High Court of Rajasthan in the case of CIT vs. Hissaria Bros (supra) explained the said provisions vide the para 21 to 27 of the said judgment and the same are produced as under: "21. By substituting section 275(1) which became operative from 01.04.1989, the provision of divided cases for the purpose of prescribing limitation for completing penalty proceedings into three categories: (i) Category I covers cases where the assessment to which the proceedings for imposition of penalty relate is the subject - matter of an appeal to the Dy. CIT(A) or the CIT(A) under section 246 or with effect from 1 - 6 - 2000, section 246A or an appeal to the Tribunal under section 253; (ii) Category II covers cases where the relevant assessment is the subject matter of revision under section 263; and (iii) Category III covers all other cases not falling within category I and category II which is governed by clause (c). By dividing into three categories the period of limitation for cases falling un....
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....cation depending on the outcome of the appeal against the orders passed in the relevant assessment proceedings or the other proceedings in the course of which the penalty proceedings are required to be initiated. 25. We have also noticed that section 271 and 273 were the two original penalty provisions, which require the penalty proceedings to be initiated during the course of relevant assessment proceedings or the other relevant proceedings, as the case may be. The penalty proceedings could also be initiated during the appellate proceedings arising out of the relevant assessment proceedings. It is only where the assessment proceedings are independent and not directly linked to the assessment proceedings that the result of such proceedings in the course of which the penalty proceedings were initiated does not affect the levy of penalty. On such penalty proceedings, independent of the assessment proceedings, clause (c) has been made applicable. In this category, the period of limitation for completing the penalty proceedings is linked with the initiation of the penalty proceedings itself. In such cases, the penalty proceedings can be initiated independent of any pr....
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.... bearing on the issues relating to establishing default, e.g., penalty for not deducting tax at source while making payment to employees, or contractor, or for that matter not making payment through cheque or demand draft where it is so required to be made. Either of the contingencies does not affect the computation of taxable income and levy of correct tax on chargeable income; if clause (a) was to be invoked, no necessity of clause (c) would arise." 18. Similar interpretations were taken by the ITAT, Rajkot Bench (Third Member) in the case of ACIT vs. Dipak Kantilal Takvani [2013] 39 taxmann.com 53 (Rajkot - Trib.) (TM) and the penalty orders u/s 271D and 271E of the Act, being unconnected to the income of the assessee, are to be considered as per the provisions of clause (c) of section 275(1) of the Act. The said Rajkot Bench of ITAT has followed the judgment of the Rajasthan High Court in the case of Jitendra Singh Rathore (supra). In this case, the Hon'ble High Court also observed that the first show cause notice for levy of penalty was issued by the AO though the authority obtained to initiate penalty proceedings has also subsequently issued a show cause notice as we....
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....t 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 accounts 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 monies are receivable in the books of accounts, is clearly outside the ambit of the provision of section 269SS of the Act, because pasing such entries does not involve acceptance of any loan or deposit of money. In the present case, admittedly no money was transacted other than through banking channels M/s. PACL India Ltd made certain payments through banking channels to land owners. This payment made on behalf of the assessee was recorded by the assessee in its books by crediting the account of M/s. PACL India Ltd. In view of this admitted position, no infringement of section 269SS of the Act is made out. This court, in the case of Noida Toll Bridge Co. Ltd (supra), considered a similar case where a company had paid money to the Government of Delhi for acquisition of a land on behalf of the assessee therein. ....
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....pe of the relevant penal provisions. Thus, it is the decision of the High Court/Tribunals that the provisions of clause (a) of section 275(1) of the Act would not apply and in alternative, the provisions of section 275(1)(c) only be attracted in the matters of penalties levied u/s 271D/271E of the Act. Further, it is also held that the limitation period would be counted from the date of assessment order with the AO's decision to make referral to his Addl CIT, who is authorized to impose penalty. 22. In the instant case, it is an undisputed fact that the Assessing Officer discussed the details as to the violation of the provisions of section 269SS and 269T of the Act in the assessment order. It also contains a reference to the requirement of making a reference to the Addl. CIT, CR-6, Mumbai for necessary action. Para 6 of the assessment order, which is already extracted above paras, bears witness to the above findings. Further, to give effect to his findings in the assessment order, the AO wrote a letter to the Addl. CIT on 11.1.2012, intimating to him about the violation to the said provisions of the Act. On receipt of the said reference from the AO, Addl. CIT issued a sho....
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....2 M/s. Lodha Builders Pvt. Ltd 29.05.13 26.06.2013 271E 27.03.14 31.03.14 30.11.13 30.09.14 31.03.14 30.09.14 10.09.14 3. M/s. Lodha Properties Development Pvt Ltd., 07.12.11 11.12.2012 271E 04.12.13 31.03.12 30.06.12 30.06.14 30.06.12 30.06.14 24.06.14 4. M/s. Ajinath Hitech Builders Pvt Ltd., 05.12.11 11.12.2012 271E 04.12.13 31.03.12 30.06.12 30.06.14 30.06.12 30.06.14 24.06.14 5. M/s. Adinath Builders Pvt Ltd. 15.12.11 11.12.2012 271E 04.12.13 31.03.12 30.06.12 30.06.14 30.06.12 30.06.14 24.06.14 20. In all the above cases, facts are identical as the Assessing Officer in the course of the assessment proceedings made reference in the Assessment Order to the loans accepted and repaid other than by way of Account Payee Cheque/Drafts. We also observed that the assessee was asked to explain why the loans were accepted other than by Account Payee Cheque and in response to the query raised by the Assessing Officer in the course of assessment assessee submitted its reply. The Assessing Officer records a finding that the contentions of the asses....