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Income Tax Appellate Tribunal, “B”
Before: HON‟BLE SH. G. S. PANNU, V.P. & HON‟BLE SH. SANDEEP GOSAIN, JM
ITO-9(2)(3), M/s MRC Logistics Pvt. Aayakar Bhavan Ltd. बिधम/ Mumbai-400 020 A-318, Atlanta Estate G. M. Link Road, Near Vs. Virvani Goregaon (east), Mumbai-400063 स्थायीलेखासं./जीआइआरसं./ PAN No. AAECM6826B (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant by : Shri Nitesh Joshi, AR प्रत्यथीकीओरसे/Respondentby : Shri B. S. Bist & Shri Rajeev Gubgotra, DR सुनवाईकीतारीख/ : 05.04.2019 Date of Hearing घोषणाकीतारीख / : 23.04.2019 Date of Pronouncement आदेश / O R D E R
Per Sandeep Gosain, Judicial Member:
The present Appeal filed by the assessee is against the order of Ld. CIT (Appeal) – 20, Mumbai dated 04.03.13 for AY 2009-10.
M/s MRC Logistics Pvt. Ltd.
2. The brief facts of the case are that the return of income for the year under consideration was filed on 29.09.00 declaring total income of Rs. 27,43,140/-. Subsequently the case was selected for scrutiny and after serving statutory notices and providing opportunity of hearing, assessment order u/s 143(3) of the I.T. Act was passed on 29.12.2011, thereby determining the total income at Rs. 41,63,683/-. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties, dismissed the appeal of the assessee.
Now before us, the assessee has preferred the present appeal.
3. The solitary ground raised by the assessee relates to challenging the order of Ld. CIT(A) in reaching to the conclusion that the assessee has violated the provision of law u/s 269SS of the I.T. Act and hence is liable for penalty u/s 271D of the I.T. Act.
M/s MRC Logistics Pvt. Ltd.
We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by revenue authorities. From the records, we notice that assessee company had shown cash loans taken from its directors Mr. Vijay Kumar Agrawal and Jay Kumar Gupta amounting to Rs. 13 lakhs. According to the AO, the same is in contravention of law provided u/s 269SS of the Act and it was held by the AO that since the cash loans taken are accepted by the company from its directors in contravention of law provided u/s 269SS, therefore under these circumstances, AO levied the penalty after giving opportunity to the assessee. The AO referred to the findings which are discussed in para no. 10 of assessment order in detail. Apart from above, AO also discussed the provisions of law u/s 271D and 269SS in para no. 7 of the penalty order dated 28.06.12.
Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before Ld. CIT(A), which is contained in para no. 3.2 of its order, which is reproduced below:-
M/s MRC Logistics Pvt. Ltd. "1. The facts of the case in brief are that the two Directors, who have brought in cash also canyon business in Partnership under the firm and style of Mis. Mumbai Road Carriers. Both these partners in Mis. Mumbai Road Carriers are Directors in the assessee company. Cash was brought in by the partners as and when required by the firm and the provisions of section 26955 did not apply to the cash received from partners. They were therefore under the impression that although the assessee is a Private Limited Company, both of them being equal shareholder, they can meet the cash requirement of the Company as and when needed as was being done by them in the case of the Partnership firm. A summarized statement giving cash on hand before receipt of cash from Directors, cash received from the Directors, total cash balance after receipt from Directors, total cash spent for the purposes of the business and balance cash on hand on the date of receipt are tabulated and given in the attached statement. From the attached statement, you will please observe that, cash was mainly brought in by the Directors as and when required by the Company for the purposes of its business. Thus, it can be seen that, the cash is introduced only to meet the current requirement of business of the Company and not otherwise.
M/s MRC Logistics Pvt. Ltd. Further, please note that, the facts that both the Directors are assessed to tax, their source of bringing cash into the Company and genuine requirement of the cash by the Company for its business purpose are all on record and are not disputed by the Assessing Officer.
On the aforestated facts and ill the circumstances of the case, which constitute reasonable cause, it is submitted that, the provisions of section 271D read together with section 2738 of the IT Act are not applicable.
Without prejudice, it is submitted that, under the Companies (Acceptance of Deposits) Rules, 1975, under rule 2(b)(ix), deposit does not include any amount received from a Director or a shareholder of a private limited company. Also, from the ledger account, it can be seen that, there is a running account in the names of the Directors. It is only a current account in nature and no interest has been charged for the above transactions.
On these facts, it is submitted that, the transaction between the assessee company and the Directors-cum- shareholders is not a loan or deposit and it is only a current account in nature and no interest is being charged for the above transaction. Therefore, the M/s MRC Logistics Pvt. Ltd. provisions of section 26955 are not applicable and consequently the provisions of section 271D r.w.s. 2738 of the IT Act are not applicable.
Without prejudice, it is further submitted that, the true reason for enacting section 26955 was to counter the device of tax evasion, which enabled taxpayers to explain away unaccounted cash 01- unaccounted deposits. The prime object of law is to secure justice to the people. In view of this, the Legislature took proper safeguard under section 2738 of the IT Act, which enumerates the cases where penalty is not to be imposed. In such remuneration, section 271D of the IT Act also finds a place. It is prescribed under section 273B of the IT Act that penalty is not to be imposed on the assessee if he proves that there existed a reasonable cause for not complying with the provisions. Reasonable cause means genuine belief based on reasonable grounds. The Directors are promoters and shareholders of the Company. It is a closely held company. The assessee was mainly concerned with carrying on of its business, and, therefore, as required, the cash has been brought in by the Directors to meet the genuine business needs of the Company. On these facts, it is submitted that, the provisions of section 269S5 and consequently section 271D of the IT Act are not applicable.
M/s MRC Logistics Pvt. Ltd. Further, it is submitted that, the fact that, there is a mention of section 271D in section 273B, it is clear that, there is a discretion left with the authority concerned whether to levy the penalty or not in the given circumstances and that is to be excised taking into account all the facts and the circumstances of the case. Based on the facts and the circumstances given above, it is submitted that, penalty u/s 271D of the IT Act is not leviable.
On the aforestated facts and in the circumstances of the case and tile objective behind introduction of section in the Act, we request you to please direct tile Assessing Officer to cancel the penalty levied u/s 271D of the IT Act."
On the other hand, Ld. DR relied upon the orders passed by the revenue authorities.
After having gone through the facts of the present case and hearing the parties at length, we find that as per the stand taken by the assessee, two Directors i.e. Vijay Kumar Agrawal and Jay Kumar Gupta of the assessee company, who had brought in cash, also carry on the business in Partnership under the name and M/s MRC Logistics Pvt. Ltd. style of M/s. Mumbai Road Carriers and were also Directors in the assessee company. Thus, the Cash was brought in by the partners as and when required by the firm and the provisions of section 269SS did not apply to the cash received from partners. The assessee belief that since the assessee is a Private Limited Company, both of them being equal shareholder, therefore can meet the cash requirements of the Company as and when needed as was being done by them in the case of the Partnership firm.
The assessee also placed on record documents showing a summarized statements giving cash on hand before receipt cash from the directors, cash received from the directors, total cash balance after receipt from directors, total cash spend for the purposes of the business and balance cash in hand on the date of receipt. From the said statement, we notice that cash was brought in by the directors as and when required by the company for its business.
From the ledger account, we notice that there was a running account in the name of director. It is only a current
M/s MRC Logistics Pvt. Ltd. account in nature and thus no interest has been charged on the transactions. Thus, the transactions between the assessee and the directors-cum-shareholders was not a loan or deposit and it was only a current account in nature and therefore, no interest is being charged for the above transaction. Even otherwise, it is pertinent to mention here that both of the directors are assessed to tax, their source of bringing cash into the Company and ‘genuine requirement’ of the cash by the Company for its business purpose are all on record and are not disputed by the Assessing Officer.
The true reason for enacting section 269SS of the Act was to counter the device of tax evasion, which enabled tax payers to explain away unaccounted cash or unaccounted deposits. The prime object of law is to secure justice to the people, therefore in view of this, the legislature took proper safeguard u/s 273B of the Act, which enumerates the cases, where penalty is not to be imposed. In such enumeration, section 271D of the Act also finds a place. It is prescribed u/s 273B of the Act that penalty is not to be imposed on the assessee, if he proves that there existed a M/s MRC Logistics Pvt. Ltd. reasonable cause for not complying with the provisions. Reasonable cause means ‘genuine belief’ based on reasonable grounds. In the present case, the directors are promoters and shareholders of the company. It is a closely held company. The company was mainly concerned with carrying on of its business and therefore, as per assessee, as required, the cash was brought in by the directors to meet the genuine business needs of the company, thus the act of the directors in brining cash to meet the genuine business needs of the company, thus constitutes reasonable cause as prescribed u/s 273B of the Act and thus, penalty u/s 271D is not attracted.
While reaching to this conclusion, we rely upon the decision of Hon’ble Allahabad High Court in the case of CIT Vrs. Smt Dimple Yadav in of 2015 with CIT Vrs. Akhilesh Kumar Yadav in ITA No. 71 of 2013, wherein the penalties under similar circumstances were deleted while relying upon the judgment of Hon’ble Supreme Court in the case of Chamundi Granites (supra) the Supreme Court considered the provision of Section 271D and 273B of the Act and held:-
M/s MRC Logistics Pvt. Ltd. "It is important to note that another provision, namely section 273B was also incorporated which provides that notwithstanding anything contained in the provisions of section 271D, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provision is he proves that there was reasonable cause for such failure and if the assessee proves that there was reasonable cause for failure to take a loan otherwise than by account-payee cheque or account-payee demand draft, then the penalty may not be levied.
Therefore, undue hardship is very much mitigated by the inclusion of section 273B in the Act. If there was a genuine and bona fide transaction and if for any reason the taxpayer could not get a loan or deposit by account-payee cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty has got discretionary power."
Further in the case of Bhagwati Prasad Bajoria's (supra) the Gauhati High Court, it was held;
"....... The transaction of loan has found place in the books of account of the assessee as well as the lender
M/s MRC Logistics Pvt. Ltd. of the loan. None of the authorities have reached the conclusion that the transaction of the loan was not genuine and it was a sham transaction to cover up the unaccounted money. It appears to us that the assessee felt need of money and thus he approached the money- lender for advancement of the money, the transaction is reflected in the promissory notes executed by the assessee in favour of the lender. When there is an immediate need of money the person cannot get such money from the nationalised bank to satisfy the immediate requirement....."
Apart from above, Hon’ble Madras High Court in the case of CIT Vrs. M/s Idhayam Publication, Tax Case (Appeal) No. 1315 of 2005 had held as under:-
As per the Companies Act, under Companies (Acceptance of Deposit) Rules 1975, under Rule 2(b)(ix), deposit does not include any amount received from a Director or a share holder of a Private Limited Company. Therefore the transaction between the appellant and the Director cum Share holder is not a loan or deposit and it is only current account in nature and no interest being charged for the above transaction.
M/s MRC Logistics Pvt. Ltd. In the foregoing conclusions, we are of the view that, since the said transaction does not fall within the meaning of loan or advance, there is no violation of Section 269SS of the Income Tax Act. We find no error in the order of the Trib the same requires no interference. Hence, no substantial question of law arises for consideration of this Court. Accordingly, we dismiss the above tax case. No costs.
Further, the decision passed by the Hon’ble Madras High Court in the case of CIT vrs. Deccan Design (I) Pvt. Ltd. (2012) 81 CCH 280 Chen HC (2012) 347 ITR 580 (Mad), wherein it was held that when the creditors and debtors are genuine, that the transactions were genuine, that the money was withdrawn from the current account on OD facility of the sister concern and such transaction were meant for payment of wages and to save the sick company from its closure the other findings in the remand report cannot be accepted. The CIT(A), therefore deleted the penalty levied by the AO.
Therefore keeping in view the facts and circumstances as discussed above as well as relying upon the judgments of M/s MRC Logistics Pvt. Ltd. Hon’ble Supreme Court and Hon’ble High Courts, we find that even though the assessee had taken a loan in cash, nonetheless, the said transaction was a genuine transaction and routed through books /bank accounts of the assessee, which clearly shown the bonafides of the assessee. The cash given by the lender was not unaccounted money, but was duly reflected in the books of accounts. The AO had not doubted the transactions, therefore in the light of the above facts, we are of the view that „reasonable cause’ had been shown by the assessee and the provisions of 273B of the Act are applicable. Therefore, we delete the penalty and allowed this ground raised by the assessee.