AI Drafter 
TaxTMI 
TaxTMI 
2013 (12) TMI 1735
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....d company, is carrying on business of manufacturing and trading in various types of tea products. For the impugned assessment year, assessee filed its return of income on 27.10.2004 declaring loss of Rs.4,78,905/-. The Assessing Officer while completing the assessment for assessment year 2008-09, noted that assessee had obtained certain amount of unsecured loans in cash in excess of the amounts specified in section 269SS of the Act. He further noted that same facts were also emerging for the assessment years 2004-05 and 2005-06 also. Simultaneously, AO issued notices under section 271D and 271E of the Act requiring the assessee to explain non-compliance of the provisions under sections 269SS and 269T of the Act. For the assessment year under dispute, it was noted by the AO that assessee had accepted cash loans exceeding of Rs.20,000/- totaling to Rs.12,86,000/-. He further noted that the loans were accepted on 21 occasions in various amounts. In response to show cause notice, assessee explained that assessee had to borrow funds due to slackness in business. The loans received from the Directors were only temporary loans and treated as unsecured loans which were interest free. The l....
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....stand taken before the AO, submitted that the loans with regard to which penalty was imposed were taken by the assessee either from the sister concern i.e. M/s. Shree Surya Finance or from the directors. It was submitted that the loans were availed to fund the initial investment in the form of fixed assets and working capital for setting up the company. It was submitted that since it is a start up company, it was difficult to obtain loans from banks or financial institutions and the company had to fall back upon its directors whenever there was requirement of funds. The directors extended interest free loans either from their own account or through Surya Finance which is a partnership firm, where the directors of the company since were having major shares. It was submitted that the directors of the assessee company are not having any educational background, they did not know the technicalities of the statutory provisions and hence, failed to comply with them. It was contended by the assessee that the AO was not correct in observing that assessee was subjected to audit under section 44AB of the Act as the turnover of the company for all the assessment years under consideration do no....
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..... referring to page 18 of PB, which is a memorandum of Article of Association of the company, wherein, the directors name have been mentioned and also the partnership deed of Shree Surya Finance placed at page 75 of paper book submitted that two of the Directors are also partners in Shree Surya Finance, so effectively Sri Surya Finance is a sister concern of the assessee company. Ld A.R. submitted that it is not a fact that assessee did not disclose the transactions with the sister concern but in fact assessee had disclosed all the transactions to the department in the financial statement submitted alongwith the return of income. Ld A.R. submitted that since it is the first year of operation, assessee was not well conversant with the taxing provisions being an uneducated person. He did not know the implication of taking loans in cash. It was submitted that the object behind the introduction of section 269SS and 269T is to prevent explaining undisclosed income. However, in case of the assessee, no such situation arises as there is neither any doubt nor allegation by the AO with regard to genuineness of the loans taken. Ld A.R. therefore summed up his arguments by contending that the....
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....th return of income. Since there is neither reopening of assessment nor any addition of the unsecured loan, the genuineness of the transaction has not been doubted. 12. It is a fact that as per certificate of incorporation, assessee company was incorporated on 17.4.2001, however, on perusal of profit and loss account, for assessment year 2004-05, copy of which is placed at page 28 of PB, shows that there was no operation by the company prior to assessment year 2004-05. 13. It is also a fact that all the directors of the assessee company are also partner in Shree Surya Finance. Therefore, it cannot be denied that Surya Finance is a sister concern of the assessee company. In these circumstances, it cannot be said that there was no reasonable cause within the meaning of section 273B of the Act shown by the assessee. 14. In the case of Shree Ambica Flour Mills (supra), the Hon'ble Gujarat High Court while considering similar issue of imposition of penalty under section 271D and 271E of the Act, observed that the transactions between sister concern are not covered by either provisions of section 269SS or Section 269T of the Act. The Hon'ble High Court also taking into note the ....