TaxTMI 
TaxTMI 
2018 (7) TMI 2242
X X X X Extracts X X X X
X X X X Extracts X X X X
....me Tax Act. 1961, ought to have upheld the levy of penalty u/s.271D as the assessee failed to establish the compelling reasons or genuine business constraints or reasonable cause for having transactions in respect of each and every journal entry with its group concerns. The appellant prays that the order of CIT(A)-49, Mumbai on above grounds be set aside and that of the Assessing Officer be restored." 3. The revenue has raised the following grounds: - "On the facts and in the circumstances of the case and in law. the LdCIT{A) erred m deleting the penalty of Rs. 1,96,38,939/- levied u/s. 271D of the income Tax Act, 1961 on the ground that genuineness of the transaction made through journal entries is not in doubt. " 2. "On the fat-&ant! in the circumstances of the case and in law. The Ld. CIT(A)held that the assessee had contravened the provision of section 269SS of the Income Tax Act. 1961, ought to have upheld the levy of penalty u/s.271D as the assessee failed to establish the compelling reasons or genuine business constraints or reasonable cause for having transactions in respect of each and every journal entry with its group concerns. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....establish the compelling reasons or genuine business constraints or reasonable cause for having transactions in respect of each and every journal entry with its group concerns. However, on the other hand, the Ld. Representative of the assessee has placed reliance upon the order passed by the CIT(A) in question. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record.: - "7.0. 1 have considered the facts of the case, the stand taken by the Addl. C1T, Central Range-7 in the penalty order, the grounds of appeal and the written submissions filed by the appellant during the appeal proceedings. Ground No.2 is general in nature and is linked to other grounds. 7.1. The assessment in this case was completed u/s.143(3)r.w.s.147 of the Act on 30.3.201 & at total income of Rs. 4,86,390/-. In the assessment order it was observed by the A.O. that the assesses has violated the provisions of section 2G9SS/269T by not accepting/not repaying the loans through account payee cheque or bank drat and accordingly a reference was made to the Addl.ClT., Central Range-7, Mumbai. The Addl ClT has levied the penalty u/s.271D with respect to the total of cre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....been submitted that the levy of penalty was not justified since the transactions made through journal entries were bonafide and out of commercial expediency and since there existed reasonable cause u/s 273B of the Act. 7.3 From the details furnished and submissions made it is noted that the penalty has been levied with respect to journal entries with group concern, which have been undertaken to assign receivables, payment on behalf of group concern for squaring up transactions and for ease in consolidation of accounts, rectification entries etc. except for cash entry of Rs. 5000/- on 26.3.2006 in the account of Shri Vardhvinayak Builders Pvt Ltd. As a result of this cash entry the loan amount has increased from Rs. 7,30,000/- to Rs. 7,35,000/-.No explanation for taking this cash loan of Rs. 5000/- in contravention of has been furnished. As a result of these journal/cash entries the receivables have gone up or down resulting in taking of loan/ repayment of loan. The appellant company has also paid interest on such loans taken. Since the transactions are for more than The amount of Rs. 2Q.QQQ/-and the same are not through account payee cheque or bank draft, there is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by various courts. The Hon'ble Delhi High Court has enunciated the meaning of the term 'reasonable cause' in the case of Azadi Bachao Andolan Vs. Union of India 252 ITR 471 to be a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or inaction or want of bonafides. In Woodward Governors India (P) Ltd vs, C1T 118 Taxman 433 (Delhi), the Hon'ble Delhi High Court considered the meaning of reasonable cause and held : "Reasonable cause as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as a probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which, assuming them to be True, would reasonably lead any ordinary prudent and cautious man, placed the position of the person concerned, to come to the conclusion that the same was the right thing to do.'1 In the case of CIT vs. Triumph International Finance (1) Ltd, (Supra), the Hon'ble Bombay High Court has held : (i) that the Tribunal WAS not justified an holding the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 7.5.1, Further, the appellant has submitted that there was reasonable cause for the above said contravention of section 269SS since (i) the journal entries have been made with the group concerns under the bonafide belief that such transactions would not be hit by the provisions of section 269SS in view of various judicial decisions on this issue, including the decision of High Court of Delhi in the case of Noida Toll Bridge 262 ITR 260 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 this regard I find that the decision dated June 12, 2012, of the Hon'ble Bombay High Court in the case of CIT vs. Triumph International Finance(i) Ltd (supra), holding that repayment of loan/deposit by way of journal entries was in contravention of provision of section 269T has been given after the close of the financial year 2011-12 relevant to AY.2012-13. In my considered opinion the above said reasons do constitute reasonable cause within the m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on'ble Income Tax Settlement Commission, Mumbai, of undisclosed income arising out of transactions with and by various group entities which are also the subject matter of investigation pursuant to the direction of Hon'ble ITSC. Hence it cannot be ruled out that the entities through whom such repayment/acceptances are done are not part of a chain of entities involved in transaction for the purpose of tax evasion. In this regard the appellant has submitted that no investigation pursuant to the order of the Settlement Commission was pending on the date of levy of penalty since the order of the Settlement Commission." u/s 245D(4) was passed on 28.11.2014. Thus, the abov said observation is found to be based on presumptions and do not justify the levy of penalty u/s 271D of the Act, in respect of journal entries amounting to Rs. 19,633,939/-. 8.0 In view of the above discussion, the levy of penalty of Rs. 5000/- us. 271D is upheld. Further, the levy of penalty u/s 271D of Rs,1,96,33,939/- is found to benot justified and the same is hereby deleted. Ground No. 4 to 9 taken by the appellant are partly allowed." 7. The penalty has been levied by AO on the basis of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Developers Pvt. Ltd. 2,07,34,391 2 Vardhvinayak Builders Pvt. Ltd. 7,35,000 Total 2,14,69,391 The reasons for levying the penalty u/s 271E is on the same lines as stated in the penalty order us/ 271D of the Act. The submissions made by the appellant are on the same lines as for the appeal with respect to penalty u/s 271D of the Act. From the details filed, it is observed that out of the amount of Rs. 2,14,69,391/-, the debit amount of Rs. 19,565,190/- represents transfer of credit balance of LDPL to LHRBPL. Similarly, the debit amount of Rs,272,931/- represents the transfer of amount, payable to LDPL to Naminath Builders & Farms Pvt. Ltd. the debit amount of Rs. 896,270/- in the account of LDPL represents reduction in its credit balance by way of allotment of equity shares of the said value to it. The debit of Rs. 7,35,000/- in the account of Shri Vardhvinayak Builders Pvt. Ltd. is on account of transfer of amount payable to LHRBPL on 31.03.2008. I find that penalty has been levied in respect of journal entries which have been undertaken to assign loans, payment on behalf of group concerns for squaring up transaction and for e....