DEPUTY COMMISSIONER OF INCOME TAX,CC-7(3), MUMBAI vs. M/S MAHAVIR BUILD ESTATE PVT LTD , MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL "F" BENCH, MUMBAI SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER Deputy, Commissioner of Income Tax, CC-7(3), Mumbai Room No. 655, Aaykar Bhavan, M.K. Road, Mumbai - 400020 ……………… Appellant Vs M/s Mahavir Build Estate Pvt. Ltd., (Successor to Mahavir Build Estate Private Limited), 216, Shah & Nahar Industrial Estate, Off Dr. E. Mose Road, Worli, Mumbai - 400018 [PAN:AAFCM074Q] ……………… Respondent Appearances For the Respondent/ Department : Shri Nishant Somaiya For the Appellant/ Assessee : Shri Gunajjan Kakkad Date of conclusion of hearing : 22.09.2022 Date of pronouncement of order : 20.12.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant/Revenue has challenged the order, dated 29.11.2021, passed by the Commissioner of Income Tax (Appeals) -49, Mumbai [hereinafter referred to as „the CIT(A)‟], under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟] in appeal No. 49/IT-10459/2015-16 for the Assessment Year 2009-10, whereby the CIT(A) had partly allowed the appeal filed by the Assessee against the penalty order dated

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28.09.2015, passed under Section 271D and 271E of the Act. The appeal is being treated as having been filed within limitation in view of the order dated 10.01.2022 passed by the Hon‟ble Supreme Court in suo moto Writ Petition (C) No. 3 of 2022. 2. Assessee has raised the following grounds of appeal:

“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified in deleting the penalty levied u/s. 271D of the Act since the assessee has not shown the reasonable cause w/s. 273B of the Act for entering into such transactions through journal entries? 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) is erred in deleting the penalty without giving a finding on transaction to transaction basis in the given case for existence of reasonable cause u/s. 273B which led to the exigency of contravention of provisions of 269SS as the fact of each transaction need independent verification?" 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in merely relying upon the various case laws without examining the cause behind each instance of default which, therefore, rendered the impugned order perverse, and thereby rendered the applicability of any judicial precedent as otiose? 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified in giving the benefit of reasonable cause to a series of transactions, without appreciating that the such benefit is available as an exception rather than a rule, unlawfully granting perpetual legitimacy to transactions otherwise held to be illegal?” 3. Brief facts of the case are that the Assessee/Respondent

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belongs to the Lodha Group and was engaged in the business of land development and construction of real estate properties during the Assessment Year 2009-10. The Assessee filed return of income for the Assessment Year 2009-10 declaring loss at INR 17,69,197/-. Subsequently, a search and seizure action under Section 132 of the Act was carried out on Lodha Group on 10.01.2011. Reassessment proceedings were initiated for the Assessment Year 2009-10 and order under Section 143(3) read with Section 147 of the Act was passed on 30.03.2015 assessing total income of the Assessee at INR 4,36,970/- as against the returned loss of INR 17,69,197/-. During the assessment proceedings, the Assessing Officer had noticed that the Assessee had accepted loans/deposits from various sister concerns through journal entries (i.e., otherwise than by way of account payee cheques/draft). Accordingly, the Assessing Officer made reference for levy of penalty under Section 271D of the Act for violation of the provisions of Section 269SS of the Act in respect of the following transaction, vide letter dated 25.06.2015:

SNo. Name of the Sister Concern Credits (INR) 1. Lodha Developers Pvt. Ltd. 11,06,254/- 2. Lodha Hi Rise Builders Pvt. Ltd 46,28,42,029/- 3. Lodha Dwellers Pvt. Ltd 8,35,986/- 4. Lodha Pinnacle Buildtech & Farms Pvt. Ltd. 2,87,414/- Total 46,50,71,683/-

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on behalf of the Assessee. Journal entries were also passed for squaring off and/or consolidation of receivable and payable. The journal entries were passed for business exigencies to clear the transactions expeditiously and helped in (i) avoiding the delay in procedural hassles of preparing cheques and obtaining signature of authorised person, (ii) avoiding temporary arrangement of funds for clearance of cheques, (iii) helped in earlier settlement of the transactions as settlement of these transactions through banking channels results in avoidable delay of 3-5 days and (iv) avoided the blocking of huge funds for temporary period without any corresponding commercial gain. During the course of regular assessment proceeding confirmations of accounts recording all the transactions were duly considered and no adverse inference, of any kind, was drawn by the Assessing Officer. All the journal entries passed by it were genuine with a corresponding journal entries in the books of sister concerns. All sister concerns with whom the Assessee had entered into transaction through journal entries are having Permanent Account Number (PAN) and were regularly filing their return of income. There was no avoidance of any tax liability by transferring assets/liabilities through journal entries; or loss of revenue to the Income Tax Department. On behalf of the Assessee reliance was placed on the following:

- CIT vs. Triumph International Finance (India) Limited [ITA No. 5745/2010- unreported judgment dated 17.08.2012. - CIT vs. Triumph International Finance (India) Limited [ 345 ITR 272 Bombay HC] - Goldstar Electricals Pvt. Ltd. vs. ACIT [ITA No.

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5509/Mum/2013) - Circular No. 387 dated 06.07.1984, issued by the CBDT the purpose and scope of introducing the section 269SS in the Act has been explained which read as under 146 ITR (Statute) 162. - ADI vs. Kum. A.B. Shanthi, 255 ITR 258

“The Assessee could not justify that the repayment / acceptance of loan/ deposits are merely transactions with one party with whom repayment and acceptance is involved. The case before the Hon'ble Bombay High Court in Triumph International Finance (12.06.2012) involved transaction with one party and hence it was held that it would be an empty formality to pay and accept by account payee cheque the same amount. The assessee in this case has not shown that such transaction is with same party. It is not a case of simple squaring up or mutual extinguishment of liabilities which can be done by passing journal entries. In our case, the party from whom amount is shown to be accepted/ in the nature of loan or deposit is not the same party to whom the same amount is repaid. The assessee has not able to demonstrate in support of its case the necessity of receiving / repayment of loan / deposit otherwise than by account payee cheque in case of alternate mode of raising funds, assignment of receivables, squaring up of transactions, operation efficiency purpose, consolidation of family debts etc. The plea of the assessee for the benefit of reasonable cause cannot be accepted. The spirit of the Bombay High Court judgment is that only such transactions which are in the nature of squaring up with the same party can only claim the benefit of reasonable cause. Needless to add, the onus is on the assessee to prove there was a reasonable cause in respect of each such transaction since section 273B postulates that penalty is not enforceable if assessee proves that there was a reasonable cause for the said failure. No such reasonable cause could be found in this case. The assessee has further submitted that there is no unaccounted cash flowing among the group entities. It shall not be out of place to mention here that the assessee group has made a disclosure before the Hon'ble Income Tax Settlement Commission, Mumbai, of undisclosed

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income arising out of transactions with and by various group entities which are also the subject matter of investigation pursuant to 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.” (Emphasis Supplied) 6. Being aggrieved the Assessee carried the issue in appeal before the CIT(A). The CIT(A) confirmed the penalty levied in respect of cash transactions and deleted penalty in respect of the journal entries levied under Section 271D of the Act and holding as under: “9.1 I have considered the facts of the cases, orders of the Addl. CIT and the submissions of the appellant. I find that in arriving at the conclusion that the arriving appellant has violated the provisions of Sections 269SS/269T of the Act, the Addl. CIT has heavily relied on the judgement dated 12/06/2012 of the Hon'ble Bombay High Court in the case of CIT(Central)-IV vs. Triumph International Finance (India) Ltd. (supra.), wherein it was held that where loan/deposit has been repaid by debiting the account through journal entries, it must be held that the assessee has contravened the provisions of Section 269SS of the Act. The appellant, on the other hand, has submitted before me that the Hon'ble Bombay High Court, in order dated 06/02/2018 in the case of appellant's Group concerns [CIT(C)- IV.vs. Ajitnath Hi-Tech Builders Pvt. Ltd. (ITA No.171/2015); CIT(C)-IV vs. Lodha Properties Development Pvt. Ltd. (ITA No.172/2015); CIT(C)-IV vs. Lodha Crown Buildmart Pvt. Ltd. (ITA No.202/2015); CIT(C)-IV vs. Lodha Builders Pvt. Ltd. (ITA No.213/2015); CIT(C)-IV vs. Adinath Builders Pvt. Ltd. (ITA No.218/ 2015); and CIT(C)-IV vs. Asthavinayak Real Estate Pvt. Ltd. (ITA No.219/2015), has held that no penalty can be levied in respect of transactions made through journal entries prior to the decision dated 12/06/2012 of the Court in the case of Triumph International Finance (India) Ltd. (supra.). The appellant has further submitted that the Hon'ble Supreme Court has also dismissed the Special Leave Petition (SLP) filed by the Department against the above decision of the Hon'ble Bombay High Court. The appellant has filed copies of the aforesaid orders of the Hon'ble Bombay High Court and the Hon'ble Supreme Court, before me. 9.2 I have gone through the orders of the Hon'ble Bombay High Court and the Hon'ble Supreme Court in the above-

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mentioned cases and relied upon by the appellant. It is seen that in the order 06/02/2018, the Hon'ble Bombay High Court has held as under: "(h) In any event, as rightly pointed out by Mr. Sridharan, learned Senior Counsel for the respondents assesses, the order of this Court in Triumph International Finance (supra) was rendered on 12th June, 2012. This, was in an appeal filed by the Revenue from the order of the Tribunal dated 29th January, 2008, which had held that deposits /loans received through journal entries do not fall with the mischief of Section 269SS of the Act, so as to invite penalty under Section 271D of the Act. This, the Tribunal did by following its earlier orders in the case of V.N. Parekh Ltd. and Ketan Parekh as indicated in the order of this Court in Triumph International Finance (supra). Our attention was also invited to numerous reported decisions of the Tribunal in the cases of Sunflower Builders Vs. Dy.CIT, 1997 (61) ITD (Pune) 227, Asst.CIT Vs. Ruchika Chemicals & Investment (P) Ltd. 2004 (88) TTJ (Delhi) 85 and Asst.CIT Vs. Lala Murari Lal & Sons, 2004(2) SOT (Luck) 543 wherein it has been held journal entries in the book of accounts Indicating deposit / loans will not fall foul of Section 269SS of the Act. Besides, the Delhi High Court in Commissioner of Income Tax Vs. Noida Toll Bridge Co. Ltd. 262 ITR 260 inter alla held that payment of Rs.4.85 crores made by the assesses by a journal entry in its books of account by crediting the account of ILFS, would not fall foul of Section 269SS of the Act. This particularly in the absence of any payment being made in cash. (i) In the present facts, the period during which the journal entries were made by the respondents was in the previous year relevant to the Assessment Year 2009-10 i.e. Financial Year 2008-09. At that time, the decisions of the Tribunal in the cases of Triumph International (Supra) and decision of V.H. Parekh (P) Ltd., Ketan V. Parekh, Sunflower Builders (supra), Ruchika Chemicals (supra), Lala Murari Lal (supra) and the decision of the Delhi High Court in Noida Toll Bridge Co. Ltd.(supra) were holding the field. Thus, not in breach of Section 269SS of the Act. In the above view, while agreeing with the submission of Mr. Mohanty, learned Counsel for the appellant that the decision of this Court in Triumph International Finance (supra) has only clarified /stated the position as always existing in law, the receiving of deposits loans through journal entries would certainly be hit by Section 269SS of the Act. Nevertheless, prior to the decision of this Court in Triumph International Finance (supra), there was reasonable cause for respondents to receive deposit/loan

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through journal entries. This non compliance with Section 269SS of the Act would certainly be a reasonable cause under Section 273B of the Act for non-imposition of penalty under Section 271D of the Act." 9.3 From the above, it can be seen that in the cases under consideration before the Hon'ble High Court also, the assessment year involved was A.Y. 2009-10, as in the present case. The Hon'ble Court had observed that at the relevant time, the decisions of Tribunal in the cases of Triumph International (supra.), V.H. Parekh (P) Ltd., Ketan V. Parekh, Sunflower Builders, Ruchika Chemicals, Lala Murari Lal and the decision of Delhi High Court in the case of Noida Toll Bridge Co. Ltd., wherein it had been held that journal entries in the books of accounts indicating deposits/loans will not fall foul of Section 269SS of the Act, were holding the field. Accordingly, the Hon'ble High Court held that though receiving of deposits / loans through journal entries would certainly be hit by Section 269SS of the Act, nevertheless, prior to the decision of the Court in the case of Triumph International Finance (supra.), there was reasonable cause for assessees to receive deposit/loan through journal entries, which would also be a reasonable cause u/s.273B of the Act for non-imposition of penalty u/s.271D of the Act. 9.4 It is also seen that the Hon'ble Supreme Court has, vide orders dated 10/12/2018, 03/01/2019, 04/01/2019 and 21/01/2019, dismissed the SLPs filed by the Department against the judgement of Hon'ble Bombay High Court in ITA Nos.172/2015, 202/2015, 2013/2015 and 219/2015. While dismissing the SLP arising out of ITA No.172/2015, the Hon'ble Apex Court has observed as under: "We do not find any good ground to entertain this Special Leave Petition, which is, accordingly, dismissed. Pending application(s), if any, shall stand disposed of." 9.5 With the above orders of the Hon'ble Supreme Court, it is now the settled legal position that though receiving of deposits / loans through journal entries would be hit by Section 269SS of the Act, nevertheless, where such transactions are made by an assessee prior to the decision of the Hon'ble Bombay High Court in the case of Triumph International Finance (supra.), the provisions of Section 271D of the Act would not be attracted, as the assessee shall be deemed to have had reasonable cause to receive the deposits/loans through journal entries, which would also be a reasonable cause u/s.273B of the Act for non- imposition of penalty u/s.271D of the Act. 8

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9.6 Though the judgment of the Hon'ble Bombay High Court in the case of Triumph International Finance (supra.) relates to levy of penalty u/s.271D of the Act for violation of the provisions of Section 289SS of the Act, considering the fact that the provisions of Section 269T of the Act are analogous to the provisions of Section 269SS of the Act, the above principle laid down by the Hon'ble Bombay High Court, and upheld by the Hon'ble Supreme Court, in respect of levy of penalty u/s. 271D of the Act would apply to levy of penalty u/s.271E also, which is levied for violation of the provisions of Section 269T of the Act. In fact, this position is not disputed even by the Addl. CIT, as he has levied the penalty u/s.271E of the Act, relying upon the principle laid down by the Hon'ble High Court in respect of levy of penalty u/s.271D of the Act. 9.7 The facts in the case of the appellant are identical to the facts involved in the case of appellant's Group concerns decided by the Hon'ble Bombay High Court vide order dated 06/02/2018. The appellant had made the transactions of receipt and repayment of loans/deposits from its sister concerns, through journal entries, prior to the decision of the Hon'ble Bombay High Court in the case of Triumph International Finance (supra.). Accordingly, in view of the judgement dated 06/02/2018 of the Hon'ble jurisdictional High Court in the case of appellant's Group concerns and the orders dated 10/12/2018, 03/01/2019, 04/01/2019 and 21/01/2019 of the Hon'ble Supreme Court dismissing the SLPS filed by the Department against the aforesaid decision of the Hon'ble Bombay High Court discussed above, no penalty is leviable u/ss. 271D and 271E of the Act on the appellant, in respect of the transactions which has been made through journal entries. 9.8. This being so, it is however, found from the submissions of the assessee that there are certain transactions which could not be held as in the nature of journal entries, since those transactions have been made by depositing cash on behalf of the transacting parties. Such transactions, without any doubt or dispute, cannot be held as made through journal entries. Those transactions, in my considered view, would be liable to be considered for levy of penalty u/s 271D/271E even during the assessment year under reference. find that in the submissions made before me, the assessee has not explained any reasonable cause for transacting in cash with these parties. Hence, the penalty levied by the Addl.CIT as applicable u/s 271D and u/s 271E deserves to be upheld to the extent of transactions where cash has been deposited on behalf of the transacting parties. The AO is accordingly directed to make this 9

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factual verification and ascertain the total amount deposited in cash and restrict the penalties levied as applicable under both the sections 271D and 271E to that extent only. 9.9. Hence, the penalty levied by the Addl. CIT u/ss.271D and 271E of the Act, respectively, is directed to be deleted to the extant it has been levied in respect of the journal entries, whereas the same is upheld in respect of transactions where cash has been deposited on behalf of the transacting parties. The grounds taken by the appellant in both the appeals are, accordingly, Partly Allowed subject to verification of facts as above.” 7. Being aggrieved by the order of CIT(A), the Revenue is in appeal before us. All the grounds raised by the Revenue are directed against the order of CIT(A) deleting the penalty levied by the Assessing Officer under Section 271D of the Act in case of violation of Section 269SS of the Act in respect of the transactions undertaken by way of journal entries.

transactions were made by an assessee prior to the decision of the Hon'ble Bombay High Court in the case of Triumph International Finance (345 ITR 270), the provisions of Section 271D of the Act would not be attracted, as the assessee shall be deemed to have had reasonable cause to receive the deposits/loans through journal entries, which would also be a reasonable cause under Section 273B of the Act for non- imposition of penalty u/s.271D of the Act. The Special Leave Petitions against the aforesaid Judgment and order passed by the Hon‟ble Bombay High Court have been dismissed by the Hon‟ble Supreme Court. The details of some of the matters is as under: Name of Sister Before the Before the Status Concern Hon‟ble Hon‟ble High Court Supreme [ITA No.] Court [(SLP)(C) Diary No.] Lodha Properties 172/2015 42791/2018 Dismissed, Development Pvt. vide order dated Ltd. 10.12.2018 Lodha Crown 202/2015 44666/2018 Dismissed, Buildmart Pvt. Ltd. vide order dated 03.01.2019 Ashtavinayak Real 219/2015 44674/2018 Dismissed, Estate Pvt. Ltd. vide order dated 04.01.2019 Lodha Builders Pvt. 213/2015 42738/2018 Dismissed, Ltd. vide order dated 21.01.2019

- DCIT, Central Circle-7(3) Vs. M/s Macrotech Developers

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Limited in & ITA no. 1416/Mum/2018 (AY 2013-14) dated 8.4.2021 - DCIT, Central Circle-7(3) Vs. M/s Palava Dwellers Pvt Ltd in ITA No. 3050/Mum/2019 & ITA No. 3051/Mum/2019 (AY 2014- 15) dated 11.10.2021

- DCIT, Central Circle-7(3) Vs. M/s Macrotech Developers Limited in ITA No. 3038/Mum/2019 & ITA No. 3046/Mum/2019 (AY 2014-15) dated 25.11.2021

- DCIT, Central Circle-7(3) Vs. M/s Sanathanagar Enterprises Limited in ITA No. 3143/Mum/2017 & ITA No. 3144/Mum/2019 (AY 2012-13); etc dated 17.12.2021 20. In view of the above, we are unable to persuade ourselves to take a view contrary to the one adopted by the Tribunal in the cases discussed hereinabove. We note that the CIT(A) has granted relief to the Assessee by following the judgment of the Hon‟ble Bombay High Court [common judgment & order dated 06.02.2018 passed in Income Tax Appeal No. 171, 172, 202, 213 & 219 of 2015] rendered in identical facts and circumstances and deciding identical issue in favour of the Assessee. Following the judgment of the Hon‟ble Bombay High Court, we uphold the order of CIT(A) deleting penalty under Section 271D of the Act in respect of loans/advances received by the Assessee through journal entry. The deposits/loans received by the Assessee through journal entries though hit by Section 269SS of the Act, would not result in levy of penalty since the transactions were undertaken by the assessee prior to the decision of the Hon'ble Bombay High Court in the case of Triumph International Finance (345 ITR 270) rendered on 12.06.2012 as the assessee shall be deemed to have had reasonable cause to receive the deposits/loans through journal entries on account of various judgments/orders holding

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that journal entries in the book of accounts indicating deposit/loans did not fall foul of Section 269SS of the Act, which would also be a reasonable cause under Section 273B of the Act for non-imposition of penalty under Section 271D of the Act. Accordingly, all the grounds raised by revenue are rejected.

In the result, appeal preferred by the Revenue is dismissed.

Order pronounced on 20.12.2022. (Prashant Maharishi) Judicial Member

म ुंबई Mumbai; दिन ुंक Dated : 20.12.2022 Alindra, PS

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आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.

आिेश न स र/ BY ORDER, सत्य दपि प्रदि //// उप/सह यक पुंजीक र /(Dy./Asstt.