TaxTMI 
TaxTMI 
2018 (9) TMI 2068
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.... have upheld the levy of penalty u/s.271E 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." 3. The Brief facts of the case are that the appellant is a private limited company engaged in the business of land Development and construction of real estate properties. The appellant filed its return of income on 16.08.2010 declaring loss at Rs. 1,07,24,847/- for A.Y. 2009-10. The case was reopened vide notice dated 11.09.2013 u/s 148. The assessment u/s 147 r.w.s 143(3) of the Act was completed on 30.03.2015 determining total income at Rs. 1,97,860/-. A reference for consideration of penalty u/s 271D & 271E of the I.T. Act was received by the Addl. CIT, Central Circle -7 from the A.O (DCIT, Cent. Cir.-7 (3), Mumbai through letter dated 25.06.2015 intimating that the assessee has accepted loans/deposits from various sister concerns through Journal Entries i.e. otherwise than account payee cheque/draft, thereby stating that the assessee has violated the provisions of Sec. 269SS of the Income tax Act. 4. Aggrieved, by the order of the....
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....n the decision of Hon'ble Bombay High Court in the case of Triumph International Finance(l) Ltd to hold that the transaction of loan/deposit by way of adjustment through book entries will result in contravention of the provisions of section 269SS of the Act. Further, it was found that the appellant could not prove any reasonable cause for contravention of above said provision, The Addl.CIT has taken the view that in the case of Triumph International (supra) the transaction was in the nature of squaring up with the same party and accordingly the benefit of reasonable cause would be available, if the transactions by way of passing journal entries were with respect to the same party. The Addl.CIT has also observed that in view of the disclosure made by the group companies before the Income Tax Settlement Commission, Mumbai, following search in the Lodha group of cases on 10.12011, it could not be ruled out that the entities through whom such repayment/acceptances are done by way of journal entries are not part of a chain of entities involved in transaction for the purpose of tax evasion. 7.2. The appellant has submitted that the journal entries passed for transactions ass....
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.... the account of the former, would not attract levy of penalty u/s 271 D/ 271E. 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 26.3.2008 in the account of Shri Ajitnath Hi-tech Builders Pvt Ltd. As a result of this cash entry the credit balance has increased from Rs. 42,83,2397- to Rs. 42,88,239/-. No explanation for taking this cash loan of Rs. 5000/-in contravention of section 269SS has been furnished. As a result of these 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. 20,000/- and the same are not through account payee cheque or bank draft, there is violation of the provisions of Section 269SS/269T. 7.3.1. In this regard reliance is placed on the decision of the jurisdiction....
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....e 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. CIT 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 in the position of the person concerned, to come to the conclusion that the same was the right thing to do." In the case of CIT vs, Triumph International Finance (I.) Ltd. (supra), the Hon'ble Bombay High Court has held : (I) that the Tribunal was not justified in holding that repayment of loan or deposit through journal entries did not violate th....
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....vade tax. 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(l) 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 A.Y.2012-13. !n my considered opinion the above said reasons do constitute reasonable cause ....
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.... disclosure before the Hon'bie 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 28.9.2015 i.e 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 above said observation is found to be based on presumptions and do not justify the levy of penalty u/s.271D of the Act, except for the amount of Rs. 5000/- as noted above. 8.0. In view of above discussion, the levy of penalty of Rs. 5000/- u/s,271D is upheld. Further, the levy of penalty u/s.271D of the balance amount of Rs. 2,18,00,667/- is found to be not justified and the same is hereby cancelled. Ground No.4 to 9 taken by the appellant are partly allowed. 6. After h....