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Income Tax Appellate Tribunal, Mumbai “H” Bench, Mumbai.
Before: Shri B.R. Baskaran (AM) & Shri Narender Kumar Choudhry (JM)
The revenue has filed this appeal challenging the order dated 13.02.2020 passed by Ld CIT(A)-22, Mumbai and it relates to the assessment year 2013-14. The revenue is aggrieved by the decision of Ld CIT(A) in deleting the penalty levied by the Ld JCIT u/s 271D and 271E of the Act on merits.
This appeal was initially disposed of by the Tribunal, vide its order dated 05-07-2022, wherein the Tribunal had reversed the order passed by Ld CIT(A) and confirmed the penalties levied. However, the assessee had raised an oral ground before the Tribunal under Rule 27 of the Appellate Tribunal Rules contending that there was ‘reasonable cause’ for the assessee in accepting and repaying the loan otherwise than by way of Account payee
2 M/s. Redwood I.T. Services Pvt. Ltd. cheques and hence the impugned penalties are liable to be deleted in terms of sec.273B of the Act. Since the Tribunal did not examine the above said contention, the assessee filed a miscellaneous petition, which was numbered as M A No.213/Mum/2022. The above said miscellaneous application was disposed of by the Tribunal, vide its order dated 20-02-2023, wherein the Tribunal recalled its earlier order for the purpose of adjudicating the contention of the assessee on the issue of existence of reasonable cause or not in violating the provisions of section 269SS/269T of the Act in accepting/repaying loan otherwise than by way of Account payee cheque. Accordingly, this appeal came to be placed before us.
The background of this issue is discussed in brief. Shri Chandan Asrani is one of the promoters of the assessee company and director. Smt. Daya Rani is his sister and is also a share holder of the assessee company. The assessee had taken loan of Rs.5.00 crores from Shri Chandan Asrani in the earlier years and it was outstanding as on the beginning of the year. During the year under consideration, the assessee has passed a journal entry as on 31.3.2013 through which, a sum of Rs.3.40 crores was transferred from the account of Shri Chandan Asrani to the account of Smt Daya Rani. It resulted in repayment of loan of Rs.3.40 crores from Shri Chandran Asrani and receipt of fresh loan of the very same amount from Smt. Daya Asrani. The assessee also accounted for interest amount of Rs.4,43,885/- on the above said loan and the said interest was also assigned to Smt Daya Rani. In effect, the assessee has repaid a sum of Rs.3.44 crores to Shri Chandan Asrani and received loan of Rs.3.40 crores from Smt Daya Asrani by passing journal entries. The AO treated the same as violation of provisions of sec. 269SS and 269T of the Act, since the transactions of receipt and repayment of loans have been carried out otherwise than by way of account payee cheque or account payee bank draft. Accordingly, the AO reported these transactions to the JCIT.
3 M/s. Redwood I.T. Services Pvt. Ltd.
The JCIT levied penalty of Rs.3.40 crores u/s 271D of the Act for accepting loan otherwise than by way of account payee cheques/drafts, i.e., in violation of the provisions of sec.269SS of the Act. He also levied a penalty of Rs.3.44 crores u/s 271E of the Act for repaying the loan in violation of the provisions of sec. 269T of the Act. The Ld CIT(A) deleted both the penalties and hence the revenue filed appeal before the Tribunal.
As noticed earlier, the co-ordinate bench of Tribunal reversed the order passed by Ld CIT(A) and confirmed the penalties levied u/s 271D & 271E of the Act. In the miscellaneous petition filed by the assessee pointing out that the Tribunal has not adjudicated the ground relating to availability of “reasonable cause”. Accordingly, the order so passed by the Tribunal was recalled for the purpose of adjudicating the above said contention of the assessee.
The Ld A.R submitted that, as per the provision of sec.273B of the Act, the penalties u/s 271D and 271E are not leviable if there exists “reasonable cause” for violating the provisions of sec. 269SS and 269T of the Act respectively. Inviting our attention to pages 13 and 17 of the paper book, the ld A.R submitted that both Shri Chandan Asrani and Smt Daya Asrani are having running accounts with the assessee company. Since both are related to each other and since both are the shareholders of the assessee company, the amount of Rs.3.40 crores was transferred by passing a journal entry from the Account of Shri Chandan Asrani to the account of Smt Daya Asrani. He submitted that, if the said journal entries were not passed, then the assessee should have repaid Rs.3.40 crores to Shri Chandan Asrani, who in turn, should have transferred the said amount to Smt Daya Rani. Thereafter, Smt Daya Rani should have transferred the said amount to the assessee company. These transactions would have given hardships in complying with the provisions of sec. 269SS/269T of the Act and the same would have been an empty formality. He submitted that the assessee has actually avoided
4 M/s. Redwood I.T. Services Pvt. Ltd. these hardships by passing a journal entry and the same would constitute reasonable cause in terms of sec.273B of the Act. He further submitted that the AO has not doubted the genuineness of the transactions. He also submitted that the Taxpayers Charter issued by the CBDT gives a right to the assessee to be treated as honest and tax-compliant.
The Ld A.R submitted that the assessee company should have sufficient bank balance for repaying the loan of Rs.3.40 crores to Shri Chandan Asrani. He submitted that the journal entry was passed on 31.3.2013 and on that date, the assessee was having aggregate bank balance of Rs.58.30 lakhs only. He submitted that Shri Chandan Asrani had given a letter to the assessee company stating that he has gifted the amount of Rs.3.40 crores and accordingly requested to transfer the loan standing in his name to the name of Smt Daya Asrani. The assessee company is required to honour the said letter and since it did not have enough funds in its bank account, the assessee was constrained to pass the journal entry due to business compulsions. Accordingly, the Ld A.R submitted that non-availability of funds with the assessee to carry out the above said transactions would constitute ‘reasonable cause’ in terms of sec.273B of the Act. He submitted that assessee has not taken any loan or repaid any loan in cash, which was the primary purpose of introducing sec. 269SS/269T of the Act. The Ld A.R placed his reliance on the following case laws in support of his contentions:- (a) ADI vs. Kum. A.B. Shanthi (2002)(122 Taxman 574)(SC)
(b) CIT vs. Triumph International Finance (I) Ltd (2012)(345 ITR 270)(Bom)
(c) CIT (Central) vs. Ajitnath Hi-Tech Builders (P) Ltd (2018)(92 taxmann.com 228)(Bom)
(d) CIT (Central) vs. Adinath Builders (P) Ltd (2019)(102 taxmann.com 57)(SC)
5 M/s. Redwood I.T. Services Pvt. Ltd.
The Ld D.R, however, submitted that the assessee has not proved the alleged hardships claimed now. He submitted that the assessing officer has doubted the documents furnished by the assessee and further the assessee has not shown existence of reasonable cause in terms of sec.273B of the Act. Accordingly, the Ld D.R contended that the immunity provided in sec. 273B of the Act will not be available to the assessee in the facts and circumstances of the case.
We heard rival contentions and perused the record. We noticed earlier that the order passed by the co-ordinate bench in this appeal has been recalled in order to examine as to whether there existed reasonable cause in terms of sec. 273B of the Act for violating the provisions of sec. 269SS and 269T of the Act which would protect the assessee from levying of penalty u/s 271D and 271E of the Act. If there existed “reasonable cause, then no penalty u/s 271D and 271E could be levied upon the assessee.
The facts, as noticed earlier is that the assessee had received loan in the earlier years from Shri Chandran Asrani, who is a shareholder and director of the assessee company. The above said person proposed to gift a sum of Rs.3.40 crores to his sister Smt Daya Asrani. Accordingly, he requested the assessee to transfer the loan due to him to his sister Smt Daya Asrani. In this regard, he gave a letter to the assessee on 1st of March, 2013 directing to transfer funds to Smt Daya Asrani. The assessee passed a journal entry to transfer the loan from the account of Shri Chandan Asrani to Smt Daya Asrani, i.e., the account of Shri Chandan Asrani was debited and the account of Smt Daya Asrani was credited. The effect of passing the above said journal entry is that the loan standing in the name of Shri Chandan Asrani stood repaid and a fresh loan was taken from Smt Daya Asrani. Since the loan was repaid/taken otherwise than by a way of account payee cheque/demand draft, the same resulted in violation of provisions of sec.269T (repayment of loan) and sec 269SS (accepting of loan). Both these
6 M/s. Redwood I.T. Services Pvt. Ltd. provisions state that the loan exceeding the prescribed amount should be taken or repaid only by way of account payee cheque/demand draft. Violation of these provisions would result in imposition of penalty u/s 271E (violation of sec. 269T) and u/s 271D (violation of sec. 269SS).
It is the submission of the Ld A.R that the repayment of loan by way of account payee cheque to Shri Chandan Asrani would have resulted in entering into multiple transactions as discussed earlier. They would have resulted in hardships and would be an empty formality to comply with the provisions of sec. 269T and 269SS of the Act. Accordingly, it was submitted that the journal entry was passed in order to avoid empty formalities and hardships. Further, the AO has not doubted the genuineness of entries. Accordingly, he submitted that the same shall constitute reasonable cause in terms of sec. 273B of the Act. In this regard, the Ld A.R placed reliance on the decision rendered by Hon’ble jurisdictional Bombay High Court in the case of CIT vs. Triumph International Finance (I) Ltd (supra).
The facts available in the above said case are that M/s Triumph International Finance (I) Ltd is a share broker and had accepted loan from M/s Investment Trust of India. It also sold some shares to M/s Investment Trust of India. The sale consideration from above said company was adjusted against the loan by passing a journal entry. The Hon’ble Bombay High Court held that repayment of loan by passing journal entry violates the provisions of sec.269T of the Act. However, it held that there existed reasonable cause, in the facts of those case, in passing a journal entry and accordingly held that the penalty is not leviable in terms of sec.273B of the Act. It was held as under:-
“23. The expression 'reasonable cause' used in Section 273B is not defined under the Act. Unlike the expression 'sufficient cause' used in Section 249(3), 253(5) and 260A(2A) of the Act, the legislature 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
7 M/s. Redwood I.T. Services Pvt. Ltd. cause' would have wider connotation than the expression 'sufficient cause'.Therefore, the expression 'reasonable cause' in Section 273B for non-imposition of penalty under Section 271E would have to be construed liberally depending upon the facts of each case.
In the present case, the cause shown by the assessee for repayment of the loan/deposit otherwise than by account-payee cheque/bank draft was on account of the fact that the assessee was liable to receive amount towards the sale price of the shares sold by the assessee to the person from whom loan/deposit was received by the assessee. It would have been an empty formality to repay the loan/deposit amount by account-payee cheque/draft and receive back almost the same amount towards the sale price of the shares. Neither the genuineness of the receipt of loan/deposit nor the transaction of repayment of loan by way of adjustment through book entries carried out in the ordinary course of business has been doubted in the regular assessment. There is nothing on record to suggest that the amounts advanced by Investment Trust of India to the assessee represented the unaccounted money of the Investment Trust of India or the assessee. The fact that the assessee company belongs to the Ketan Parekh Group which is involved in the securities scam cannot be a ground for sustaining penalty imposed under Section 271E of the Act if reasonable cause is shown by the assessee for failing to comply with the provisions of Section 269T. It is not in dispute that settling the claims by making journal entries in the respective books is also one of the recognized modes of repaying loan/ deposit. Therefore, in the facts of the present case, in our opinion, though the assessee has violated the provisions of Section 269T, the assessee has shown reasonable cause and, therefore, the decision of the Tribunal to delete the penalty imposed under Section 271E of the Act deserves acceptance.”
The Hon’ble Bombay High Court has followed the above said view in its subsequent decision rendered in the case of CIT vs. Ajitnath Hi-Tech Builders (P) Ltd (supra) and the SLP filed by the revenue before Hon’ble Supreme Court against the above said decision has since been dismissed by Hon’ble Supreme Court in the very same case reported as Adinath Builders P Ltd (supra).
In the instant case also, we notice that the assessee was requested by its creditor Shri Chandan Asrani to transfer his credit to Smt Daya Asrani. As discussed earlier, the exchange of account payee cheques/bank drafts would have been an empty formality to repay/receive the loan. Another crucial aspect is that both the creditors are shareholders belonging to 8 M/s. Redwood I.T. Services Pvt. Ltd.
promoter group. The AO has also not doubted the genuineness of transfer of loan from the account of Shri Chandan Asrani to the account of Smt. Daya Asrani. Hence, we are of the view that the “reasonable cause” explained by the jurisdictional High Court would apply to the facts of the present case.
The Ld A.R also pointed out one more reasonable cause, i.e., the assessee was having aggregate bank balance of Rs.58.30 lakhs only as on 31.3.2013. Hence the assessee could not have repaid a sum of Rs.3.40 crores to Shri Chandan Asrani. Since the request of Shri Chandan Asrani was to transfer funds to Smt Daya Asrani, which he had gifted, the assessee company has honoured the instructions by passing journal entry. Since the assessee was having insufficient funds with it, there was a business compulsion to pass journal entry. If the provisions of sec.269SS/269T are violated due to business exigencies, the same shall constitute reasonable cause within the meaning of sec.273B of the Act. For this proposition, we derive support from the decision rendered by Bangalore bench of Tribunal in the case of Padmanabha Mangalore Chowta vs. Addl/ Joint CIT (ITA No.:1147/Bang/2022), wherein it was held as under:-
“4.2 In our opinion, the explanation given by the assessee constitutes a reasonable cause as contemplated in section 273B of the Act. The expression “reasonable cause” has to be considered pragmatically and as its transaction openly done, to meet the exigency of business, it can be said to constitute “reasonable cause”. The bonafide business transaction cannot be considered for levying the penalty u/s 271D of the Act. In the present case, it is not the case of department that the transaction is not genuine and explanation given by assessee is not bonafide. In view of this, provisions of section 269SS of the Act cannot be applied as the assessee’s transaction is genuine and also constituted with “reasonable cause” and in such case, default on the part of assessee is merely a technical and venial nature and no penalty u/s 271D of the Act could be levied.”
In view of the foregoing discussions, we are of the view that there existed reasonable cause within the meaning of sec. 273B of the Act for the assessee in passing the journal entries transferring loan amount from the account of Shri Chandan Asrani to the account of Smt Daya Asrani.
9 M/s. Redwood I.T. Services Pvt. Ltd.
Accordingly, we hold that penalty u/s 271D and 271E of the Act should not have been levied in the hands of the assessee. Accordingly, we uphold the decision rendered by Ld CIT(A) in view of the existence of reasonable causes.
In the result, the appeal filed by the revenue is dismissed. Order pronounced in on 20.9.2023.