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Facts
A search and seizure operation led to the discovery of an agreement for sale concerning a property. The assessee, a real estate company, acted as a facilitator in receiving advance payments. Subsequently, penalty proceedings under Section 271D were initiated for alleged violation of Section 269SS.
Held
The Tribunal held that the assessee acted merely as a facilitator and was not the recipient of the money in the real sense. The co-ordinate bench had already held that the assessee was not the owner and the money was handed over to the actual owners. Therefore, the penalty proceedings were quashed.
Key Issues
Whether penalty under Section 271D is leviable when the assessee acted merely as a facilitator and not the recipient of funds, and whether a 'reasonable cause' for non-compliance existed.
Sections Cited
271D, 269SS, 153C, 153A, 273B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH‘G’: NEW DELHI
Before: MS. MADHUMITA ROY & SHRI NAVEEN CHANDRA
& 5866/Del/2024 Sai Samarpan Realtors Pvt. Ltd. vs. DCIT 2. Since, the issues involved in both the appeals are common, therefore, these are heard analogously and are being disposed of by a common order. We first take up the appeal in Assessment Year 2019-20 as a lead case.
Brief facts of the case are that the assessee is a Private Limited Company engaged in the business of dealing in Duty-Free Import Licenses, Scrips, e.g., DFIA, DEPB, etc., issued by the Department of Foreign Trade (DGFT) to the exporters on the basis of FOB Value of the exports and trading/export of Mobile phones. The assessee is maintaining proper books of account.
A search and seizure operation was conducted in the case of Shri Pranjil Batra Group on 17.08.2020 wherein an agreement for sale dated 04.02.2019 in regard to the transfer of property laying and situated at F-60B, Mangal Bazar, Laxmi Nagar, Delhi-110092 having a land measuring area of 100 sq. yard was found. This particular document relates to the assessee and notice, therefore, under Section 153C r.w.s. 153A was issued to the assessee before us. This agreement was executed between the Directors of the appellant namely Shri Ashish Gupta on behalf of Mr. Narender Kapoor, Mr. Aseem Doomra and M/s Kritunairu Builders and Developers Private Limited for sale. It is the case of the Revenue that the appellant entered into this agreement through its Director as a facilitator on behalf of the actual owners i.e. Mr. Narender & 5866/Del/2024 Sai Samarpan Realtors Pvt. Ltd. vs. DCIT Kapoor and Mr. Asseem Domra. Later on the aforesaid property was sold by the owners to some other party and in the final sale deed, the appellant company’s name did not figure as the transferor. The ACIT on the basis of alleged incriminating material being the agreement to sale concluded that the appellant received Rs.10,00,000/- and Rs.15,00,000/- respectively as advance money receipts whereof were not recorded in the books of accounts of the appellant. The proceedings under section 271D for violation of the provisions of section 269SS of the Act was initiated on the allegation of assesse having been receipt of Rs.25 lacks from M/s Kritunairu Builders & Developers Private Limited through their Directors Smt Pranjil Batra and Shri Rahul Sondhi. Finally penalty was imposed on the assessee. The appellant has received cash not for himself but on behalf of the Aseem Doomra and Mr. Narender Kapoor as the case made out by the assessee. In fact that the JCIT imposed penalty under section 271D of the Act of Rs.25 lacks, equivalent to the alleged cash received by the appellant which was further confirmed by the First Appellant Authority. Hence, the instant appeal before us.
At the time of hearing the instant appeal, the Ld. Counsel appearing for the assessee furnished a copy of the order passed by the Co-ordinate Bench in and 2711/Del/2023 for Assessment Year 2019-20 and 2020-21 in the matter of the assessee itself on quantum addition. In that order the Coordinate Bench has been pleased to hold that the assessee before & 5866/Del/2024 Sai Samarpan Realtors Pvt. Ltd. vs. DCIT us was never the owner of the property. The earnest money was ultimately handed over to the actual owner i.e., Aseem Doomra and Mr. Narender Kumar. The said money received from M/s Kritunairu Builders & Developers Private Limited actually belonged those two persons namely Narender Kumar and Aseem Doomra. There was no reason for the appellant before us to record such transaction in its books of accounts. In that view of the matter the addition made by the authorities below in the hands of the assessee stood deleted.
From the records, it also appears that the AO has not recorded satisfaction that the assessee made contravention to the provision of Section 269SS and, therefore, liable to penalty under section 271D of the Act rather simply informed the Addl. CIT, Central Range-1, Delhi to proceed against the assessee under section 271D of the Act.
In this regard the Ld. AR relied upon a judgment passed by the Hon’ble Supreme Court in the case of Jai Laxmi Rice Mills, reported in 379 ITR 521. Such information cannot be said to be satisfaction of the Ld. AO and relying upon the order passed by the Hon’ble Supreme Court the penalty under Section 271D is also found to be void and therefore, liable to be quashed as prayed for by the Ld. AR.
However, once the Co-ordinate Bench has already held that the assessee was not beneficiary of the impugned amount and assessee & 5866/Del/2024 Sai Samarpan Realtors Pvt. Ltd. vs. DCIT under the genuine and bonafide belief received the money and handed over the money to the real owners i.e., Aseem Doomra and Mr. Narender Kumar, there was no reason for the assessee to record such transaction in its books and, therefore, in our considered opinion, initiation of penalty under section 271D does not and cannot arise.
We further note that the assessee was under the genuine and bonafide belief that taking cash for and on behalf of the owner, from the prospective buyer (who was not ready to give money to one of the two co-owners of the property) was not in contravention of section 269SS. It is worth emphasizing here that Hon'ble ITAT had already held that the assessee was not the real beneficiary of the amounts and also that the assessee had acted as mere facilitator.
We have further taken note of the judgment passed by the Chennai Bench in the case of Mr. R. Anbuvelrajan Vs. The Addl. CIT, Central Range – 1, wherein in the identical facts and circumstances of the matter it was held that provision of Section 269SS would apply in the hands of the recipient of the money in real sense, the relevant observation is whereof as follows:
“20. It is noted that the lower authorities had factually erred in holding that, the assessee was in ‘receipt’ of part ‘sale consideration’ and therefore, irrespective of whether the transfer ultimately took place or not, since he was in receipt of the ‘specified sum’, he is liable to be penalized under Section 269SS r.w.s. 271D of the Act. As noted above, ‘sale consideration’ involved in true sense, as no transfer ever took place. Having regard to the facts as already narrated in the preceding paragraphs, the sums impugned in this appeal were paid by Shri M Vedamurthy by way of ‘advance’. Although provisions of Section 269SS would still apply in case of an ‘advance’, whether or not the transfer took place, but as held above, it would apply in the hands of the ‘recipient’ of the monies in real sense i.e. the person who would be transferring the immoveable property. As noted above, the assessee was not the ‘recipient’ but only the agent or facilitator through whom the payment was made, he cannot be subject to provisions of Section 269SS of the Act.
We have taken cognizance of the Revenue’s argument that, there was no explicit language used in Section 269SS of the Act that, it would apply only to ‘buyer’ and ‘seller’ of immoveable property. The lower authorities failed to appreciate that the provision would apply ‘in relation to transfer of immovable property’ and that is broad enough to encompass not only vanilla transaction of buy & sell of immovable property, but even extinguishment of rights in immovable property viz., where occupier or tenant is vacated therefrom, or where there is a long-term lease in the nature of ‘transfer’ between lessor and lessee etc. Hence, there can be several situations of transfer of immovable property which can be envisaged, apart from simple conveyance of immovable property between a buyer and seller. The provision of section 269SS would apply to recipient of monies in relation to transfer of immovable property viz., who actually receives the monies in his own independent right. We are therefore unable to countenance the Revenue’s argument that even a broker, who receives from a principal and immediately pays the monies to the other principal, shall be regarded as ‘recipient’ of monies in relation to transfer of immovable property.
Further, on the facts of the present case, we also find that there is a 'reasonable cause' as mandated under Section 273B of the Act, as Section 269SS of the Act was amended by the Finance Act 2015, wherein the term 'specified sum' was introduced to include amount received for transfer of immoveable property, whereas the MoU pursuant to which the advances were paid, in the present case, admittedly was entered into on 03.07.2014 viz., prior to the introduction of the aforesaid amendment, we agree with the Ld. AR that this amendment would not have come to the knowledge of the assessee who is a middle man having elementary education and no knowledge of tax laws. The assessee would have not been under a belief that there was any contravention of any provision of the Act. Further, since the assessee was only the middleman and was never the recipient of the monies in real sense, his conduct cannot be treated to be contumacious or malafide.”
If a strict and literal construction of a statue leads to an absurd result, that is, a result not intended to be sub-served by the object of the legislation ascertained from the scheme of the legislation and if another construction is possible from the strict and literal construction, then, that should be preferred to strict literal construction. Reliance is hereby placed on the judgments of Hon'ble Supreme Court in J.H. Gotla (156 ITR 323).
The expression 'reasonable cause' used in section 273B is not defined in the Act. Unlike the expression 'sufficient cause' used in section 249(3), 253(5) and 260A(2A) of the Act, the legislation has used the expression 'reasonable cause' in section 273B of the Act. A cause which is reasonable may not be a sufficient cause. Thus, the expression 'reasonable cause' in section 273B for non-imposition of penalty under Section 271D would have to be construed liberally.
As per the provisions of Section 273B, no penalty under Section 271D shall be imposed on the person or the assessee, for any failure referred to in section 271D if he proves that there was reasonable cause. The Ld. AR relied upon the judgment passed by the Hon'ble Jharkhand High Court in OMEC Engineers (294 ITR 599) which has recorded as follows: -
"22. The words" reasonable cause" have not been defined under the Act but they could receive the same interpretation which is given to the expression "sufficient cause". Therefore, in the context of the penalty provisions, the words "reasonable cause" would mean a cause which is beyond the control of the assessee. "Reasonable cause" obviously means a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides. Before imposition of penalty under section 271, the Assessing Officer must be satisfied, not arbitrarily but judiciously, that the assessee has without reasonable cause failed to comply with the provisions.
& 5866/Del/2024 Sai Samarpan Realtors Pvt. Ltd. vs. DCIT 14. The Ld. AR further relied upon the judgment passed by the Hon'ble Allahabad High Court in Dimpal Yadav (379 ITR 177) wherein it has been held as follows:
“reasonable cause had been shown by the assessee and the provisions of Section 273B were applicable. The cancellation of penalty was justified”.
Thus, having regard to the entire aspect of the matter, when reasonable cause has been shown by the assessee which was further considered by the Co-ordinate Bench and granted relief on quantum, the penalty proceeding initiated by the Ld. AO is found to have no basis and, therefore, quashed.
The order passed in this appeal applies mutatis mutandis in the appeal in for Assessment Year 2020-21 having regard to the individual facts involved therein.
In the result, both the appeals filed by the assessee are allowed.