M/S CHEMMANUR METALS AND ALLOYS PVT. LTD.,,BANGALORE vs. ADDL.C.I.T., BANGALORE

Per Chandra Poojari, Accountant Member

1. The order of the CIT (A) in so far as it is against the appellant are opposed to law, equity, and weight of evidence, probabilities, facts and circumstances of the case.

2. The appellant denies itself liable to a penalty of Rs.2,50,000/- under section 271D of the Act, for the impugned assessment year 2007-08 on the facts and circumstances of the case.

3. The learned CIT(A) was not justified in holding that documentary evidence to prove that the goods were contracted to be sold were not furnished and hence the said deposits are to be considered as a loan and the penalty levied by the AO under section 271D of the Act was to be confirmed on the facts and circumstances of the case.

4. The learned CIT(A) was not justified in relying on the audit report in coming to a conclusion, that the deposits were also in the nature of loans and attracted the provisions of section 269SS of the Act, while the same audit report has categorically stated that the said advances to have been received in respect of goods on the facts and circumstances of the case.

5. The learned CIT(A) was not justified in ignoring the confirmations filed which depicted the complete nature of the transaction, and which was obtained during the pendency of hearing of the appeal on the facts and circumstances of the case.

6. The learned CIT(A) was not justified in stating that the appellant, by not filing the order-confirmation or vouchers for cancellation of order, the advances ought to be considered as loans, when the complete transaction was confirmed by filing of the confirmation statement from concerned parties, on the facts and circumstances of the case.

7. Without prejudice, the learned CIT(A) ought to have considered that the amounts received in cash were only on account of reasonable cause and hence deleted the penalty levied on the facts and circumstances of the case.

8. The appellant craves leave to add, alter, modify, delete or substitute any or all of the grounds and to file a paper book at the time of hearing the appeal.

9. In view of the above and other grounds that may be taken at the time of the hearing the appeal, the appellant prays that the appeal be allowed in the interest of justice and equity.” 6. On the issue of the assessee’s claim that the amounts received as advance was for supply of goods to the customers, the ld. AR for the assessee submitted that the said amounts were stated in the books as an unsecured loan which ought to have been mentioned as unsecured creditor, which was a mere change in the nomenclature while writing the accounts. It is not in dispute that the intent and purpose of the advance was clearly mentioned in the audit report. It was further submitted that the there was a difficulty in the supply of the tiles due to non-availability of particular design, colour, etc. as proposed by the customers and the said advance was refunded to the customers for non-fulfilment of the specific product requirements of the customers. The amounts received in cash are trade advances and the same was accounted in a proper manner in the audit report. The amounts reflected in the balance sheet as loans are in the nature of trade advances received by the assessee and the balance sheet alone ought not to have been considered in isolation, but the audit report also ought to have been considered to come to the conclusion that the loans were mere trade advances, rather than cash loans and no penalty ought to have been levied on these facts. The audit report clearly recognized the said advances which substantiates the claim of assessee and hence there was no contravention of the provisions of section 269SS of the Act. It was submitted that the CIT(Appeals) has not considered the detailed written submissions and documents filed by way of paperbook of the assessee before arriving at his conclusion.

7. It was reiterated that the cash received was in respect of advance for goods and since the specific requirement of customers was not met, the advance was refunded to the customers. As regards confirmation of the same by the parties sought by the CIT(A), it was submitted that the branch of assessee was in Kerala which ceased its operation in September, 2014 and surrendered registration in March, 2015. The particular documents in respect of order placed, specifications, etc. could not be located and hence the confirmations of the parties were received during the pendency of the appeal before the CIT(A). The confirmations were filed before the CIT(Appeals) in support of the assessee’s claim, which were not considered by the CIT(A). It was submitted that the CIT(Appeals) was not justified in ignoring the said confirmations filed by the assessee to show the nature of transactions and to demonstrate that the cash received was in the nature of trade advance and it was not cash loans as presumed by the AO. The CIT(A) erred in observing that deposits also attracted the provisions of section 269SS of the Act since the audit report clearly mentions that eh said monies were “Advances received from customers”, which were outside the ambit of loan. It was submitted that a mere mention in the Form 3CD does not automatically attract penalty u/s. 271D. For the purpose of invoking section 269SS of the Act, the true nature of the receipts has to be examined. The information in Form 3CD in respect of cash advances is out of abundant caution and goes to the bonafides of the assessee that it was making true and complete disclosure as required by law. But for the mention in Form 3CD, it would not have even come to the attention of the AO. For these reasons, the order of the CIT(A) in sustaining the penalty partly was erroneous.

8. In support of his contentions, the ld. AR relied on the decision of Mumbai Bench of the Tribunal in the case of Karnataka Ginning & Pressing Factory v. JCIT, 77 ITD 478 (Mum). He also drew our attention to Audit Report in Form 3CD stating that these are advances received from customers, which is placed at pages 28 of PB. He also furnished copies of confirmation letter from the concerned parties which is placed on record at pages 31 to 33 of assessee’s PB. Therefore, the ld. AR submitted that the amounts are credit advances received from the parties and it is not loans in terms of section 269SS of the Act.

9. On the other hand, the ld. DR submitted that with regard to amounts received in cash, the assessee claimed an amount of Rs.1,00,000/- from Mr. E.S. Jose on 10.4.2006, Rs.50,000 from Mr. Joseph Malliakel and Rs.1,00,000 from Mr. E.U. Martin as ‘advance for sale from customer’, but it is not substantiated with any subsequent adjustment towards sale. The claim that the order was cancelled is also not acceptable in the absence of details or evidence like Purchase Order, Cancellation, etc. In any case, deposits/loans are covered u/s. 269SS and the same is certified by the auditor in Form 3CD, therefore it is a violation of the provisions and attracts penalty u/s. 271D and rightly sustained by the CIT(Appeals).

Pronounced in the open court on this 31st day of January, 2019.