DCIT CC 8(2), MUMBAI vs. WHITE FEATHER FILMS LTD, MUMBAI

Facts of the case as noted by Ld. CIT(A) is that the assessee filed its return of income on 06.10.2010. And the case was selected for scrutiny. Subsequently, assessment was completed on 28.03.2013 determining the total income of Rs.(-) 2,62,73,380/-. Thereafter, penalty was imposed in respect of two sets of transactions by which the assessee has accepted/squared up loans by passing journal entries in the books. Details are discussed in the following paras:-

The first set of transactions involved loans aggregating to Rs.1,43,00,000/-. The assessee had received loan aggregating to by way of account payee cheques from the following parties: - Name of the Lender Amount (Rs.) Mr Rakesh Sarin 30,00,000 Mrs Renu Sarin 32,00,000 Rakesh Sarin HUF 27,00,000 Mr. Akshay Sarin 18,00,000 Akshay Mercantile Pvt. Ltd 10,00,000 B. R. Sarin HUF 5,00,000 Akshay Communication Pvt. Ltd 15,00,000 Dhanabakkam Enterprises 6,00,000 1,43,00,000 Hereinafter, the eight (8) persons mentioned above will be collectively referred to as the ‘original creditors of Sarin Group'. During the previous year 2009-10, consequent to a family arrangement, the credit balances in the credit of the ‘original creditors of Sarin group' in the books of accounts of the assessee were transferred/assigned to the account of two other persons viz., [Ashna Sarin (Rs.1,37,00,000/- and Akshay Sarin HUF (6,00,000/-)], by passing Journal Entries in the books of the assessee company (hereinafter Ashna Sarin and Akshay Sarin HUF will by referred to as the 'new creditors Sarin Group'). The second set of transactions involve loans aggregating to Rs.1,00,00,000/-. The assessee took the following loans in the normal course of its business: Ashna Sarin 60,00,000 Akshay Sarin HUF 20,00,000 Dhanabakkam Enterprises 20,00,000 1,00,00,000

During the previous year, the loans were squared off by passing journal entries in the books of the assessee, (the accounts of the loan creditors were debited and the account of M/s. Eros Multimedia was credited). Thus, in all total loan Rs.2,43,00,000/- was repaid by passing Journal Entries during the previous year 2009-10. 5. Taking note of the above two (2) transactions, the Add. CIT initiated the penalty proceedings u/s 271D of the Act regarding acceptance/assigning of loan of Rs.1.43 cr from the ‘new creditors' in contravention of section 269SS of the Act; and initiated penalty proceedings u/s 271E of the Act for repayment/squaring off of loan of Rs.2.43 cr in contravention to section 269T of the Act. Thereafter, the Ld. Add. CIT in the penalty order, cited the decision of the Hon'ble Bombay High Court in the case of M/s. Triumph International Finance (I) Ltd, 22 Taxman 138 and held that accepting/repaying the loans by passing journal entry entails contravention of section 269SS/269T of the Act and levied penalty of Rs.1.43 cr u/s 271D of the Act and Rs.2.43 cr u/s 271E of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete both the penalty finding that the AO neither in the assessment order nor in the penalty orders made any finding to the effect that the acceptance/repayment of loans/ deposit were made with a view to evade tax and the transactions were malafide. The Ld. CIT(A) found force in the contention of assessee that there was reasonable cause for non-levy of penalty and taking note of the facts and circumstances of the case, he noted that the loans were taken of Rs 1.43 cr in the first place through account payee cheques, which were transferred/assigned from the original creditor (referred to in the first set of transaction supra who all belongs to Sarin family) to other members of Sarin family (Ashna Sarin Rs. 1.37 cr and Akshay Sarin HUF Rs.6 Lakhs total Rs.1.43 cr new creditors) by passing necessary journal entries in the books of assessee does not warrant levy of penalty u/s 271D of the Act. According to Ld. CIT(A) loan of Rs.1.43 cr was received from original creditors were through “account payee cheque