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Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
The captioned appeals filed by the revenue are directed against the order of the Commissioner of Income Tax (Appeals)-49, Mumbai [in short ‘CIT(A)’] and arise out of penalty u/s 271D/271E of the Income Tax Act 1961 (the ‘Act’). As common issues are involved, we are proceeding to dispose them off through a consolidated order for the sake of convenience.
M/s Roselabs Finance Ltd. 2 ITA 131 & 132 /Mum/2017 2. The grounds of appeal in respect of penalty u/s 271D are as under:
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty of Rs.49,03,36,357/- levied u/s 271D of the Income Tax Act, 1961 on the ground that genuineness of the transaction journal entries is not in doubt.
2. On the facts and in the circumstances of the case and in law, the CIT(A) having held that the assessee had contravened the provisions of section 269SS of the Income Tax Act, 1961, ought to have upheld the levy of penalty u/s 271D as the assessee failed to establish the compelling reasons or genuine business constraints or reasonable cause for having transactions in respect of each and every journal entry with its group concerns.
3. The grounds of appeal in respect of penalty u/s 271E read as under:
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty of Rs.27,32,00,000/- levied u/s 271E of the Income Tax Act, 1961 on the ground that genuineness of the transaction journal entries is not in doubt.
2. On the facts and in the circumstances of the case and in law, the CIT(A) having held that the assessee had contravened the provisions of section 269T of the Income Tax Act, 1961, ought to have upheld the levy of penalty u/s 271E as the assessee failed to establish the compelling reasons or genuine business constraints or reasonable cause for having transactions in respect of each and every journal entry with its group concerns.
4. Briefly stated, the facts of the case are that the Addl. CIT, Central Range-7, Mumbai (hereinafter referred as the “AO”) noticed that the M/s Roselabs Finance Ltd. 3 ITA 131 & 132 /Mum/2017 assessee had accepted loans/deposits from various sister concerns through journal entries i.e. otherwise then account payee cheque/draft, thus violating the provisions of section 269SS of the Act. The total of such entries are as under: Sl. No. Name of the Sister Concerns Credits (Rs.)
1. Aastvinayak Estate Co. Pvt. Ltd. 18,67,00,000 2. Suryoday Buildwell & Farms Pvt. 10,26,36,357 Ltd. 3. Lodha Buildcon Pvt. Ltd. 20,00,00,000
4. Lodha Dwellers Pvt. Ltd. 10,00,000 Total 49,03,36,357 In response to a query raised by the AO to explain as to why penalty u/s 271D shall not be levied, the assessee filed a reply which has been extracted at page 2-13 of the penalty order dated 20.09.2015. However, the AO was not convinced with the said reply of the assessee for the reason that Lodha Developers Ltd. is the parent holding company which has further subsidiaries and step down subsidiaries. Relying on the judgment of the Hon’ble Bombay High Court in Triumph International Finance (India) Ltd. and the order of the ITAT ‘F’ Bench Mumbai in M/s V.N. Parekh Securities v. ACIT (ITA No. 6082 and 6083/Mum/2009 dated 16.08.2013), the AO levied a penalty of Rs.49,03,36,357/- u/s 271D of the Act.
Similarly, the AO noticed that the assessee had repaid loans/deposits to various sister concerns through journal entries i.e. otherwise then account payee cheque/draft, thereby stating that the M/s Roselabs Finance Ltd. 4 ITA 131 & 132 /Mum/2017 assessee had violated the provisions of section 269T of the Act. The total of such entries are as under: Sl. No. Name of the Sister Concerns Debits (Rs.) 1. Aastvinayak Estate Co. Pvt. Ltd. 20,66,50,000 2. Suryoday Buildwell & Farms Pvt. Ltd. 6,65,50,000 Total 27,32,00,000 With similar reasons as recorded while imposing penalty u/s 271D delineated at para 4 hereinbefore, the AO levied a penalty of Rs.27,32,00,000/- u/s 271E of the Act.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). In respect of penalty u/s 271D, the Ld. CIT(A), referring to the order of the Tribunal in the case of Lodha Builders Pvt. Ltd. v. ACIT and 5 other group concerns for AY 2009-10, observed that under similar facts and circumstances, the ITAT was of the opinion that the assessee had violated the provisions of section 269SS/ 269T of the Act in respect of journal entries. Accordingly, following the said order, the Ld. CIT(A) held that the assessee had received the loan amount of Rs.49,03,36,357/- by way of journal entries, as noted in the penalty order, in contravention of provisions of section 269SS of the Act. However, the Ld. CIT(A) relied on the above order of the Tribunal for AY 2009-10, wherein under similar facts and circumstances, it has been held that the assessee had shown reasonable cause and therefore the penalty imposed u/s 271D/271E are not sustainable. It was thus held by the Ld. CIT(A) that the reasons given by assessee do constitute reasonable cause within the meaning of section 273B of the Act, M/s Roselabs Finance Ltd. 5 ITA 131 & 132 /Mum/2017 particularly in light of the fact that there is no finding that such transactions were undertaken to evade tax. Therefore, he deleted the penalty of Rs.49,03,36,357/- levied by the AO u/s 271D of the Act. Also following the above order of the Tribunal, the Ld. CIT(A) held that although the said transactions by way of journal entries were in contravention of provisions of section 269T of the Act, the assessee had shown reasonable cause u/s 273B and the levy of penalty was not justified. Accordingly, he deleted the penalty of Rs.27,32,00,000/- imposed by the AO u/s 271E of the Act.
Before us, the Ld. DR submits that in the instant case the assessee has not been able to demonstrate the necessity of receiving/repayment of loan/deposit otherwise than by account payee cheque in case of alternate mode of raising funds, consolidation of family debts etc. He referred to the finding of the AO that the assessee group had made a disclosure before the Income Tax Settlement Commission, Mumbai of undisclosed income arising out of the transactions with and by various group entities, which were also the subject matter of further investigation and hence it cannot be ruled out that the entities through whom such payment/acceptances are made are not part of a chain of entities involved in transaction for the purpose of tax evasion. Thus the Ld. DR supports the order passed by the AO.
On the other hand, the Ld. counsel of the assessee relies on the judgment dated 06.02.2018 of the Hon’ble Bombay High Court in CIT v. Ajitnath Hi-Tech Builders Pvt. Ltd. (ITA No. 171 of 2015) and the orders of the Tribunal following the above judgment.
M/s Roselabs Finance Ltd. 6 ITA 131 & 132 /Mum/2017 9. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. In the case of Ajitnath Hi-Tech Builders Pvt. Ltd. (supra) to the Hon’ble Bombay High Court has held that “3. Regarding Question No.(i) :- (a) The common impugned order of the Tribunal arises from the orders passed by the Addl. Commissioner of Income Tax imposing penalty upon the respondents under Section 271D of the Act for breach of Section 269SS of the Act. This penalty was imposed inasmuch as during the previous year relevant to the subject assessment year, the respondents had accepted loans / deposits by way of passing journal entries in its books of accounts, in breach of Section 269SS of the Act. In terms Section 269SS of the Act prohibits a person from taking / accepting any loan / deposit or specified sum, otherwise by an account payee cheque or by an account payee bank draft or by use of electronic clearing system of a bank if the amount involved is in excess of Rs.20,000/-. This imposition of penalty under Section 271D of the Act, was upheld by a common order dated 31st December, 2013 passed by the Commissioner of Income Tax (Appeals). On further appeal, the impugned order dated 27th June, 2014 of the Tribunal, inter alia held that penalty under Section 271D of the Act is not imposable in view of Section 273B of the Act. This for the reason that there was a reasonable cause for the failure to comply with Section 269SS of the Act. (b) On merits of the issue, the parties before us are agreed that the Tribunal was correct in holding that receipt of any advance / loan by way of journal entries is in breach of Section 269SS of the Act as the decision of this Court in Commissioner of Income Tax Vs. Triumph International Finance (I) Ltd. 345 ITR 270 is binding upon it. However, the Revenue's grievance is with the impugned order dated 27th June, 2014 of the Tribunal further holding no penalty under Section 271D of the Act is imposable in view of Section 273B of M/s Roselabs Finance Ltd. 7 ITA 131 & 132 /Mum/2017 the Act in the present facts. This is so as the Tribunal holds that the failure to comply with Section 269SS of the Act was on account of reasonable cause on the part of the respondents. This finding of reasonable cause was on the application of parameters laid down by this Court in Triumph International Finance (supra) to determine reasonable cause for not complying with the provisions of Section 269SS of the Act. (c) Mr. Mohanty, the learned Counsel for the Revenue seeks to challenge the impugned order of the Tribunal on the ground that Section 273B of the Act will have no application as the test of reasonable cause is not satisfied :in the present facts for the following reasons :- (i) the decision of this Court in Triumph International Finance (supra) will have no application as that was of the case of only one transaction while in this case, there are numerous transactions reflected through the passing of journal entries; (ii) the reasons set out for taking advances / deposits by way of journal entry would not satisfy the test of reasonable cause; and (iii) the non-satisfaction of showing reasonable cause as required under Section 273B of the Act gives rise to a question of law as it is a legal inference to be drawn from primary facts as held by the Apex Court in Premier Breweries Ltd. Vs. Commissioner of Income Tax 372 ITR 180. Thus, it is submitted this question requires admission as it gives rise to a substantial question of law; (d) We find that the impugned order of the Tribunal has on application of the test laid down for establishment of reasonable cause, for breach of Section 269SS of the Act by this Court in Triumph International Finance (supra) found that there is a reasonable cause in the present facts to have made M/s Roselabs Finance Ltd. 8 ITA 131 & 132 /Mum/2017 journal entries reflecting deposits. The Tribunal while relying upon the order of this Court in Triumph International Finance (supra) has held that in the present facts, neither the genuineness of receipt of loans / deposits by way of an adjustment through journal entries carried out in the ordinary course of business has been doubted in the regular assessment proceedings. It held in the present facts the transaction by way of journal entries was undisputedly done to raise funds from sister concerns, to adjust or transfer balances to consolidate debts, to correct clerical errors etc. Further, the Tribunal records that as observed by this Court in Triumph International Finance (supra) that journal entries constituted a recognized modes of recording of transactions and in the absence of any adverse finding by the authorities that the journal entries were made with a view to achieve purposes outside the normal business operations or there was any involvement of money, then, in these facts there was a reasonable cause for not complying with Section 269SS of the Act. (e) Mr. Mohanty's submission that the test laid down in Triumph International Finance (supra) will have no application in the present facts in view of the large number of entries in this case as compared to only one entry in the case before this Court. The test of reasonable cause cannot, in the present facts be determined on the basis of the number of entries. If there was a reasonable cause for making the journal entries, then, the number of entries made, will not make any difference. Besides, on facts, the Tribunal was satisfied with the reasons given by the Assessee for reasonable cause and this finding is not shown to be perverse. Finally, the issue of there being a reasonable cause or not is an issue of fact. No inference of law and / or issue of interpretation is to be made. The decision relied upon by the Revenue in case of Premier Breweries Ltd.(supra) concerned itself with the issue of a claim for deduction under Section 37 of the Act on the basis of the Agreements entered into between the parties. The inference of law in that case was whether on the facts, it could be inferred that the claim for M/s Roselabs Finance Ltd. 9 ITA 131 & 132 /Mum/2017 deduction is in respect of expenditure incurred wholly and exclusively for the purposes of the business. Thus, it would involve a question of interpretation of the agreements etc. from which an inference is to be drawn. Further, it also involves application of principles of law to the facts for the purposes of deductions and, therefore, it would lead to a question of law. Therefore, the Court held in the facts of that case that a question of law does arise. (f) In this case, the issue of reasonable cause is an inference of fact from facts and, therefore, a question of fact. The Supreme Court decision in Sree Meenakshi Mills Ltd. Vs. Commissioner of Income Tax, 31 ITR 28 had laid down the tests to determine a question of law and / or fact. In the above context, the Court observed that when the finding is one of fact, the fact that it itself is an inference from other basic facts, will not alter its character as one of fact. Therefore, the issue of there being reasonable cause or not, is a question of fact and unless it is shown to be perverse, we would normally not interfere. (g) In the above circumstances, the view taken by the Tribunal on the facts before it, is a possible view and does not give rise to any substantial question of law. (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, M/s Roselabs Finance Ltd. 10 ITA 131 & 132 /Mum/2017 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 alia 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 VH. 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 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. (j) In the above circumstances, the view taken by the Tribunal in the impugned order holding that no penalty can be imposed upon the