DCIT CEN CIR 7(3), MUMBAI vs. HI CLASS BUILDCON P.LTD, MUMBAI

आदेश / O R D E R PER SANDEEP GOSAIN (J.M): These appeals filed by the Revenue are against the order of CIT(A)-49, Mumbai dated 17/10/2016 for A.Y.2008-09 and 2009-10 in the matter of penalty imposed u/s. 271E & 271D of the IT Act. First of all we have taken the appeal 121/Mum/2017 filed by the revenue.

6. We have heard the counsels for both the parties and also perused the orders of the lower authorities and the material available on record. Before we decide the merits of the case, it is necessary to evaluate the order passed by Ld. CIT(A) while dealing with these grounds. The Ld. CIT(A) had dealt with these grounds in para No. 7 of its order. The operative portion is contained in para no. 7.4 of its order and the same is reproduced below:

“7.0. I have considered the facts of the case, the stand taken by the Addl. CIT, Central Range-7 in the penalty order, the grounds of appeal and the written submissions filed by the appellant during the appeal proceedings. Ground No.2 is general in nature and is linked to other grounds. 7.1. The assessment in this case was completed u/s.143(3)r.w.s.147 of the Act on 31.3.2015 at total income of Rs,4,68,320/-. In the assessment order it was observed by the A.O. that the assessee has violated the provisions of section 269SS/269T by not accepting/not repaying the loans through account payee cheque or bank draft and accordingly a reference was made to the Addl.CIT., Central Range-7, Mumbai. The Addl.CIT has levied the penalty u/s.271D with respect to the total of credit entries amounting to Rs.2,18,05,667/-, arising in its books by way of journal entries in the account of Lodha Developers Pvt. Ltd., Shri Vardhvinayak Builders Pvt Ltd, Ajitnath Hi Tech Builders Pvt Ltd, Lodha Hi Rise Builders Pvt Ltd reflected during the financial year 2007-08 relevant to A.Y. 2008-09. The Addl.CIT has refied on the decision of Hon'ble Bombay High Court in the case of Triumph International Finance(l) Ltd to hold that the transaction of loan/deposit by way of adjustment through book entries will result in contravention of the provisions of section 269SS of the Act. Further, it was found that the appellant could not prove any reasonable cause for contravention of above said provision, The Addl.CIT has taken the view that in the case of Triumph International (supra) the transaction was in the nature of squaring up with the same party and accordingly the benefit of reasonable cause would be available, if the transactions by way of passing journal entries were with respect to the same party. The Addl.CIT has also observed that in view of the disclosure made by the group companies before the Income Tax Settlement Commission, Mumbai, following search in the Lodha group of cases on 10.12011, it could not be ruled out that the entities through whom such repayment/acceptances are done by way of journal entries are not part of a chain of entities involved in transaction for the purpose of tax evasion. 7.2. The appellant has submitted that the journal entries passed for transactions assigning debts and liabilities among sister concerns and reimbursement of expenses do not constitute acceptance of loan or deposit of money as per provisions of section 269SS of the Act. It has been submitted that out of the total credits, an amount of Rs.55,18,391/- has been credited in the account of Lodha Hi-Rise Builders Pvt. Ltd (LHRBPL) on 31,3.2008 being amount payable to Ajitnath Hi-tech Builders Pvt Ltd transferred to LHRBPL. Similarly, the account of LHRBPL has been credited by Rs.53,82,6137- on 31.3.2008 on transfer of amount payable to Lodha Builders Pvt Ltd to LHRBPL and by Rs.37,89,912/- on transfer of amount payable to LDPL to LHRBPL. The account of Ajitnath Hi-Tech Builders Pvt Ltd has been credited by Rs.30,02,422/-on account of payment made by it to Land vendor on behalf of the appellant company. It is also submitted that the account of Ajitnath Hi-tech Builders Pvt Ltd has been credited by Rs.5000/- in cash on 26.3.2008. These transactions have been categorised as transfer of inter-company balance, assignment of debt and on behalf payment etc. Penalty has been levied u/s.271 D with respect to the above said amounts. Other credit entries are stated to be various small amounts of similar nature, on account payment etc. It has been submitted that the levy of penalty was not justified since the transactions made through journal entries were bonafide and out of commercial expediency and since there existed reasonable cause u/s.273Bof the Act. 7.2.1. From the account of Shri Vardhvinayak Builders Pvt Ltd, in the books of the appellant company it is noted that there is a debit balance of Rs.9,29,030/- on 23.7.2007 on account of various transactions by way of cheque. There is a provision of interest of Rs.79,067/- on 31.3.2008 and the entire debit balance of Rs.10,08,097/-has been transferred to Lodha H-Rise Builders Pvt Ltd on 31,3.2008. The A.O. has considered the credit total and debit total of Rs.31,08,097/- in the account of Shri Vardhvinayak Builders Pvt Ltd towards levy of penalty u/s.271D/271E. This is not correct since the entire debit amount is by way of cheque and provision of interest of Rs.79,067/- would not attract levy of penalty. Similarly, the credit amounts are by way of cheque and assignment of receivable/debit balance from Shri Vardhvinayak Builders Pvt Ltd to LHRBPL, which does not result in a loan in the account of the former, would not attract levy of penalty u/s 271 D/ 271E. 7.3. From the details furnished and submissions made it is noted that the penalty has been levied with respect to journal entries with, group concern, which have been undertaken to assign receivables, payment on behalf of group concern for squaring up transactions and for ease in consolidation of accounts, rectification entries etc except for cash entry of Rs.5000/- on 26.3.2008 in the account of Shri Ajitnath Hi-tech Builders Pvt Ltd. As a result of this cash entry the credit balance has increased from Rs.42,83,2397- to Rs.42,88,239/-. No explanation for taking this cash loan of Rs.5000/-in contravention of section 269SS has been furnished. As a result of these entries the receivables have gone up or down resulting in taking of loan/ repayment of loan. The appellant company has also paid interest on such loans taken. Since the transactions are for more than the amount of Rs.20,000/- and the same are not through account payee cheque or bank draft, there is violation of the provisions of Section 269SS/269T. 7.3.1. In this regard reliance is placed on the decision of the jurisdictional High Court in the case of CIT vs Triumph International Finance(l) Ltd dated June 12, 2012 (22 Taxmann.com 138 BOM) for A.Y, 2003-04 and the case of CIT vs M/s. Triumph International Finance(l) Ltd of 2010 dated 17.8.2012 for A.Y.2000-01. The decision for A.Y.2003-04 is with respect to contravention of provisions of section 269T, since there was a repayment of loan by making journal entries in the books of account and it was held by the Hon'ble Court that repayment of loan/deposit, except by the modes specified in Section 269T, would amount to contravention of the said provision. The decision for the A.Y.2000-01 is with respect to contravention of provisions of Section 269SS wherein the appellant company and its sister concern M/s. Triumph Securities Ltd had transactions of sale and purchase with common customers and the credit/debit liabilities were settled through journal entries. The Hon'ble Court held, applying the ratio laid down in ITA No.5746 of 2010 decided on 12th June 2012 (the decision for A.Y.2003-04), that receiving loans/deposits through journal entries would be in violation of section 269SS of the Act. 7.3.2 Further, I find that the issue regarding levy of penalty u/s.271D/271E of the IT. Act in the case of various other companies of Lodha group (Lodha Builders Pvt Ltd vs ACIT and five other group concerns) for A.Y.2009-10 has been decided by the ITAT '£' Bench, Mumbai vide order dated 27.6,2014. In the said order, under similar facts and circumstances, the ITAT is of the opinion that the assessee has violated the provisions of section 269SS/269T of the Act in respect of journal entries. Accordingly, following the above said decision, it is held that the appellant has received the loan amount of Rs.186,97,570/- ( Rs.218,05,667 (-) Rs.31,08,097/-) by way of journal entries, as noted in the penalty order, in contravention of the provision of section 269SS and ground No,3 taken by the appellant in this regard is dismissed. 7.4. Ground No.4 to 9 are against the finding of the Add!.CIT that penalty was leviable u/s.271D of the Act since no reasonable cause could be found in this case. In this regard it is observed that the words 'reasonable cause' have not been defined under the I.T. Act, though, it has been interpreted by various courts. The Hon'ble Delhi High Court has enunciated the meaning of the term 'reasonable cause' in the case of Azadi Bachao Andolan Vs. Union of India 252 ITR 471 to be a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or inaction or want of bonafides. In Woodward Governors India (P) Ltd. Vs. CIT 118 Taxman 433 (Delhi), the Hon'ble Delhi High Court considered the meaning of reasonable cause and held : "Reasonable cause as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as a probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which, assuming them to be true, would reasonably lead any ordinary prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do." In the case of CIT vs, Triumph International Finance (I.) Ltd. (supra), the Hon'ble Bombay High Court has held : (I) that the Tribunal was not justified in holding that repayment of loan or deposit through journal entries did not violate the provisions of section 269T of the Act. (ii) That it would have been an empty formality to repay the loan or deposit amount by account-payee cheque or draft and receive back almost the same amount towards the sale price of the shares. Neither the genuineness of the receipt of loan or deposit nor the transaction of repayment of loan by way of adjustment through book entries carried out in the ordinary course of business had been doubted in the regular assessment. There was 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 belonged to the Ketan Parekh group involved in the securities scam could not be a ground for sustaining penalty imposed under section 271E of the Act if reasonable cause was shown by the assessee for failing to comply with the provisions of section 2697. Settling claims by making journal entries in the respective books is also one of the recognized modes of repaying loan or deposit. Therefore, on the facts, in the absence of any finding recorded in the assessment order or in the penalty order to the effect that the repayment of loan or deposit was not a bonafide transaction and was made with a view to evade tax, the cause shown by the assessee was a reasonable cause and in view of section 273B of the Act, no penalty under section 271E could be imposed for contravening the provisions of section 269T of the Act.

7.5. In the appellant's case the genuineness of the transaction made through journal entries is not in doubt and it has not been shown either in the assessment proceedings or in the penalty proceedings that unaccounted income of the lender or the borrower was involved. From the assessment order passed u/s.143(3} dated 31.3.2015, it is noted that the total income has been assessed after making the following additions : i) land & brokerage income- Rs.5,00,000/- (ii) capital expenditure -Rs.19.284/- and penalty proceedings u/s.271(1)(c) have been initiated. This additional income represents the additional income disclosed before the Settlement Commission, which was not allowed to be proceeded with vide order u/s.245D(1) dated 12.2.2013. However, there is no finding that the transactions by way of journal entries were not bonafide or had been undertaken to evade tax. 7.5.1. Further, the appellant has submitted that there was reasonable cause for the above said contravention of section 269SS since (i) the journal entries have been made with the group concerns under the bonafide belief that such transactions would not be hit by the provisions of section 269SS in view of various judicial decisions on this issue, including -the decision of High Court of Delhi in the case of Noida Toll Bridge 262 ITR 260 and (ii) such loans by way of journal entry transactions were undertaken for various commercial reasons like assigning of receivables for operational efficiency, payment on behalf of group concern for squaring up transactions, for ease in consolidation of accounts, rectification entries etc. In this regard I find that the decision dated June 12, 2012, of the Hon'ble Bombay High Court in the case of CIT vs. Triumph International Finance(l) Ltd (supra), holding that repayment of loan/deposit by way of journal entries was in contravention of provision of section 269T has been given after the close of the financial year 2011-12 relevant to A.Y.2012-13. !n my considered opinion the above said reasons do constitute reasonable cause within the meaning of section 273B of the Act, particularly in light of the fact that there is no finding that such transactions were undertaken to evade tax. Reliance is placed on the decision of the ITAT dated 27.6.2014 in the case of Lodha Builders Pvt Ltd vs ACIT and ITA No.481/M/2014 A.Y.2009-1Q and five other group cases, wherein under similar facts and circumstances, it has been held that the assessee has shown reasonable cause and therefore, the penalty imposed U/S.271D/271E of the Act are not sustainable. However, there is a contravention of section 269SS in respect of the cash loan of Rs.5000/- taken on 26.3.2008 from Ajitnath Hi-tech Builders Pvt Ltd when the credit balance was Rs42,88,239/- i.e. more than Rs.20,000/-. Therefore, levy of penalty u/s.271D in respect of Rs.5000/- is found to be justified. 7.5.2. In the penalty order the Addl.CIT has observed that the plea of the assessee for the benefit of reasonable cause cannot be accepted as the spirit of the Bombay High Court judgement ( in the case of CIT vs Triumph International Finance(l) Ltd) is only that such transactions which are in the nature of squaring up with the same party can only claim the benefit of reasonable cause. This observation is found to be without merit particularly in light of the decision of High Court of Bombay in the case of CIT vs M/s. Triumph International Finance(l) Ltd ITA No.5745 of 2010 dated 17.8.2012 for the A.Y.2000-01,as noted in para 6.3 above, wherein the appellant company and its sister concern M/s. Triumph Securities Ltd had transactions of sale and purchase with common customers and the credit/debit liabilities were settled through journal entries and it was held 'that the transactions in question were undertaken not with a view to receive loans/deposits in contravention of Section 269SS, but in a view to extinguish the mutual liability of paying/receiving the amounts by the assessee and its sister concern to the customers, in the absence of any material on record to suggest that the transactions in question were not reasonable or bonafide and in view of section 273B of the Act, we see no reason to interfere with the order of the Tribunal in deleting the penalty of Rs.22.99 crores. 7.5.3. It has also been observed by the Addl.CIT that it shall not be out of place to mention that the assessee group has made a disclosure before the Hon'bie Income Tax Settlement Commission, Mumbai, of undisclosed income arising out of transactions with and by various group entities which are also the subject matter of investigation pursuant to the 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- In this regard the appellant has submitted that no investigation pursuant to the order of the Settlement Commission was pending on 28.9.2015 i.e the date of levy of penalty since the order of the Settlement Commission u/s.245D(4) was passed on 28.11.2014. Thus, the above said observation is found to be based on presumptions and do not justify the levy of penalty u/s.271D of the Act, except for the amount of Rs.5000/- as noted above. 8.0. In view of above discussion, the levy of penalty of Rs.5000/- u/s,271D is upheld. Further, the levy of penalty u/s.271D of the balance amount of Rs.2,18,00,667/- is found to be not justified and the same is hereby cancelled. Ground No.4 to 9 taken by the appellant are partly allowed.