GIRISH APPA REDDY,BANGALORE vs. INCOME TAX OFFICER, WARD-2(2), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER

ITA NOs. A.Y. APPELLANTS VS. RESPONDENT

1637/Bang/2014 2008-09 Shri Girish Appareddy 1638/Bang/2014 2009-10 PAN: ADBPA 7977Q 1639/Bang/2014 2010-11 The Income Tax 1640/Bang/2014 2010-11 Officer, Ward 12(2), Bangalore. 1641/Bang/2014 2010-11 Smt. Veena Girish, PAN: ADZPG 5085G No.442, 8th Main Road 11th Cross, Sadashivanagar, Bangalore – 560 080.

Appellant by : None Respondent by : Dr. P.K. Srihari, Addl. CIT(DR)

Date of hearing : 05.05.2016 Date of Pronouncement : 11.05.2016 O R D E R Per Sunil Kumar Yadav, Judicial Member

These appeals are preferred by the assessees against the order of CIT(Appeals)-III, Bangalore. These appeals came up for hearing on 5.5.2016, but none appeared on behalf of the assessee. The assessees, however, moved an application for adjournment stating therein that due to unavoidable circumstances, the ld. counsel for the assessee could not

ITA Nos.1637 to 1641/Bang/2014

Page 2 of 20

appear on the designated day. Since no reasons have been explained for

the absence of the assessees or their counsel, the request for adjournment

cannot be entertained, for the simple reason that on account of

unavoidable circumstances the counsel for the assessee could not appear.

Moreover, none appeared on behalf of the assessees, but only an

application for adjournment was sent through post.

move an application for adjournment in advance and if he does not receive

any communication with regard to disposal of his application, the

application that he made is deemed to have been rejected and assessee

should appear in person on the date fixed.

asses took it for granted that the hearing of these appeals would be

adjourned. We cannot appreciate this type of approach by the assessees.

Moreover, we find that no justifiable reasons in the adjournment application

and accordingly reject the same and heard the appeals of the assessee.

appeals.

ITA Nos.1637 to 1641/Bang/2014 Page 3 of 20 5. Common grounds of appeal are raised in ITA Nos.1637 to 1639 & 1641/Bang/2014 and for the sake of reference, we extract the grounds raised in ITA No.1637/Bang/2014 as under:-

“Vintage Bio Fuels Private Limited (Hereinafter referred to as Vintage) of Mr. Girish Appareddy is one of the Directors; bought one commercial building bearing no 93/ A, 5th Block, Koramangala, Bangalore - 560095 in FY 2005-06 the total value of which is Rs 8,l1,30,690/-(Rupees Eight Crore Eleven Lakhs Thirty Thousand Six Hundred and Ninety Only). Vintage bought one more commercial building at Jakkasandra in FY 2007-0B total values of which is Rs 11,53,20,780/-(Rupees Eleven Crore Fifty Three Lakhs Twenty Thousand Seven Hundred and Eighty Only). The Consideration mentioned herein is composite consideration for the Land, Building & Furniture and Interiors. These buildings being software buildings contain lot of infrastructure facilities. However, in the Balance Sheet since the composite value was given no depreciation was charged each year. Also depreciation as per IT rules was not claimed as the Income there from was offered to tax under the head "income from house property". During the Assessment based on the Valuation Certificates the Land, Building & Furniture and Interiors was bifurcated and depreciation schedule was reworked and presented to the Assessing officer for his perusal. Reworked Depreciation Schedule and Resultant Accumulated Profit both as per Income Tax Act/ Rules and Companies Act were presented. The Details have been presented in Annexure 3 The assessing officer has contented that accounts have been prepared as per Schedule VI of The Companies Act, 1956 and that he can not disturb in the course of assessment of one of its directors. The Assessee hereby wishes to establish/maintain in a sequential manner as follows: 1. Eligibility for claiming depreciation when not originally claimed: Explanation 5 to Section 32 of The Income Tax Act, 1961 inter alia states that "For the removal of doubts. It is hereby declared that the

ITA Nos.1637 to 1641/Bang/2014 Page 4 of 20 provisions of this sub section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income" (Emphasis supplied) (Refer Annexure 4) Accordingly, the Act itself stipulates that benefit of depreciation shall be provided whether the assessee claims the same or not. Reliance is also placed on the following: Income Tax Department Circular No 14 (XI-35) of 1955 dated April 11, 1955. The said circular reads as follows: "3. Officers of the Department must not take advantage of the ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing relief and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department, for it would inspire confidence in him that he may be sure of getting a square deal from the Department. Although, therefore, the responsibility for claiming refunds and relief rest with the assessee on whom it is imposed by law, officers should: (a) draw their attention to any refunds or relief to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs ITAT Bangalore Bench 'B' in the case of Rakesh Singh v/s Assistant Commissioner of Income Tax IT Appeal No 1027 (Bang) of 2011 dated August 24, 2012 (Refer Annexure 5) The above circular and ruling substantiates the fact that just because the Assessee has not claimed the benefit available to him in the form of

ITA Nos.1637 to 1641/Bang/2014 Page 5 of 20 depreciation doesn't disentitle him from claming the benefit for those years. Again, if allowance for depreciation is not made at the end of the useful life of the asset there will not be any fund/provision left to replace the same. Hence, as per the Balance Sheet of Vintage as on 31.03.2010 the Accumulated Profit contains "Capital Element" to the tune of Accumulated Depreciation thereon. Hence the Capital Element in the form of Depreciation has to be removed to arrive at the actual "Revenue Element". It is our humble opinion that it is on this Revenue Element that we should apply the provisions of Section 2(22) (e) of The Income Tax Act, 1961 to test the applicability of Deemed Dividend Provisions. Reference is also made to P.K. Badiani v/s CIT (1976) 105 ITR 642 (SC) We wish to reproduce the relevant portion of the citation in P K Badiani case where it is stated that “ …. when arriving at the profits for that period the amount of depreciation has to be deducted, because the amount of the value lost by depreciation is a capital loss which must be replaced first as otherwise the initial capital would, to that extent, incorrectly and falsely be converted into and treated as profits" (Refer Annexure 6) 'We also wish to state that incase if the depreciation allowance is not provided the Accumulated Profit would partake the Character of "CAPITAL" either in part or in full depending upon the quantum of depreciation allowance. If no allowance to depreciation is made at the end of the useful life of the asset can not be replaced by the new asset and thus it would impair the revenue earning capacity of the company. We wish to state that depreciation is a charge against the profits and shall be charged against the profit as "it is to provide for replacement of the capital assets so lost by reason of normal wear and tear that depreciation is allowed, so that at the end of the useful life of those assets a fund is available to replace those assets". We also wish to state that as per Section 205 of The Companies Act, 1956 dividend shall be declared only after charging depreciation. The said section inter alia reads as follows:

ITA Nos.1637 to 1641/Bang/2014 Page 6 of 20 205. DIVIDEND TO BE PAID ONLY OUT OF PROFITS (1) No dividend shall be declared or paid by a company for any financial year except out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2) or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with those provisions and remaining undistributed or out of both or out of moneys provided by the Central Government or a State Government for the payment of dividend~ in pursuance of a guarantee given by that Government: (Emphasis Supplied) (Refer Annexure 7) After maintaining that depreciation is allowable next point for consideration is whether it is depreciation as per Companies Act or as per IT Rules. 2. Whether Depreciation as per IT Rules or as per Companies Act? For the purpose of determining the Accumulated Profit u/s 2(22) (e) depreciation as per IT Rules shall be considered as envisaged in the following citations. Commissioner of Income Tax v/s Jamnadas Khimji Kothari (1973) 92 ITR 105 (Bom) where it has been Inter alto HELD that "The Phrase "accumulated profits" does not mean profits as disclosed by the company's balance sheet. The Profits disclosed would be subject to adjustment and the depreciation as granted in accordance with the rates prescribed by the Income Tax Act would have to be deducted for ascertaining the accumulated profits" (Refer Annexure 8) Navnitlal C Jhaveri v. Commissioner of Income Tax (1971) 80 ITR 582 (Bom) also states that depreciation as per IT rules shall be considered for the purpose of arriving at accumulated profits for the purpose of section 2(22)(e) (Refer Annexure 10) Reference is also made to P.K. Badiani v/s CIT (1976) 105 ITR 642 (SC) where it has been HELD that The expression accumulated profits occurring in sub clause (e) of Section 2(6A) of The 1922 Act

ITA Nos.1637 to 1641/Bang/2014 Page 7 of 20 (Corresponding to Section 2(22) (e) of The 1961 Act) or for the matter in any other clause means PROFITS IN THE COMMERCIAL SENSE AND NOT ASSESSABLE OR TAXABLE PROFITS liable to tax as income under the 1922 Act. Based on the above we are of the opinion that it is the Depreciation as per IT rules which shall be allowed for the purpose of arriving at Accumulated Profit as per section 2(22)(e) of The Income Tax. EXPLANATIONS TO THE OBSERVATIONS MADE BY THE COMMISSIONER OF INCOME TAX APPEALS III BANGALORE In Paragraph 5 of the order the learned Commissioner of Income Tax Appeals inter alia states that "Even as per Company Law declaration of dividend is with reference to the books of account" Section 205(1) of the Companies Act (Matter discussed elsewhere in the grounds of appeal as well) states that "No dividend shall be declared or paid by a company for any financial year except out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2) or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with those provisions and remaining undistributed or out of both or out of moneys provided by the Central Government or a State Government for the payment of dividend in pursuance of a guarantee given by that Government: (Emphasis Supplied) (Refer Annexure 8). Hence it would be mandatory under Company Law to provide for the depreciation for the declaration of dividend. Similar Analogy is to be applied for deemed dividend u/s 2(22)(e) is our humble submission in this regard. In Paragraph 6.1 of the order the learned Commissioner of Income Tax Appeals inter alia states that "the mandatory allowance of depreciation will not be required to be allowed when the issue of assessing deemed dividend u/s 2(22)(e) is being considered" We wish to state that depreciation allowance shall be provided to arrive at "accumulated Profits" based on the below mentioned citations Commissioner of Income Tax v/s Jamnadas Khimji Kothari (1973) 92 ITR 105 (Bom.) where it has been Inter alia HELD that

ITA Nos.1637 to 1641/Bang/2014 Page 8 of 20 "The Phrase "accumulated profits" does not mean profits as disclosed by the company's balance sheet. The Profits disclosed would be subject to adjustment and the depreciation as granted in accordance with the rates prescribed by the Income Tax Act would have to be deducted for ascertaining the accumulated profits" (Refer Annexure 8) Navnitlal C Jhaveri v. Commissioner of Income Tax (1971) 80 ITR 582 (Bom) also states that depreciation as per IT rules shall be considered for the purpose of arriving at accumulated profits for the purpose of section 2(22)(e) (Refer Annexure 9) In Paragraph 8 of the order the learned Commissioner of Income Tax Appeals enunciates that it is profit in commercial sense and not the assessable or taxable profits that shall be considered for Section 2(22)(e). We too are establishing the same stand in our earlier explanations especially in the light of Navnitlal C Jhaveri v. Commissioner of Income Tax (1971) 80 ITR 582 (Bom) case wherein we wish to state that it is the profit in the commercial sense that has to considered by providing for depreciation allowance because if that is not considered company will not have funds to replace the assets after their useful life. Then the going concern of the company will be at stake. Certainly the intention of the law makers will always be to support the principle of Going Concern which can be only met after providing for depreciation. Thus Profit in commercial sense is also after providing for depreciation itself. In Paragraph 8.1 of the order the learned Commissioner of Income Tax Appeals inter alia states that "as the company has not made any provision for depreciation or created a depreciation reserve in its books the argument of the assessee that a notional amount of depreciation is to be reduced and balance sheet recast is untanable" We wish to state that Sec 2(22)(e) is a deeming provision. We are relying upon Navnitlal C Jhaveri v. Commissioner of Income Tax (1971) 80 ITR 582 (Bom) which states that depreciation as per IT rules shall be considered for the purpose of arriving at accumulated profits for the purpose of section 2(22)(e). As per our understanding the

ITA Nos.1637 to 1641/Bang/2014 Page 9 of 20 "Accumulated Profit" is a separate calculation the starting point of which is the Accumulated Profits as per Balance Sheet. It is somewhat similar to the Sec 115JB of The IT Act, 1961 calculation. From the Accumulated Profit as per Balance Sheet prudent and allowable deductions shall be permitted. We believe that Depreciation Allowance is one such prudent deduction as per our explanations in this grounds of appeal. In Paragraph 9 of the order the learned Commissioner of Income Tax Appeals inter alia cites that “Loss or depreciation of fixed Capital does not affect the divisible profits or render it necessary to make good the same out of income" In our opinion here the inference is for a Casual Loss and not the depreciation of Fixed Assets (Emphasis Supplied) In Paragraph 9.2 of the order the learned Commissioner of Income Tax Appeals inter alia cites that "the expression' "accumulated profits" shall include all profits of the company up to the date of distribution or payment referred to in those sub clauses" In our opinion as well the expression "accumulated profits" shall include all the profits of the company up to the date of distribution or payment referred to in those sub clauses. However Profit shall be arrived after providing for all the expenses of which Depreciation is one. PRAYER Based on the above submissions we feel aggrieved by the learned Commissioner of Income Tax Appeal Order and are praying your good selves to consider the Facts of Law and decide the case on its merit. The Appellant prays that the Addition of Rs 67,77,835/- (Rupees Sixty Seven Lakhs Seventy Seven Thousand Eight Hundred and Thirty Five Only) made be deleted.”

“Section 269SS inter alia states that

ITA Nos.1637 to 1641/Bang/2014 Page 10 of 20 269SS. No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if,- (a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or (b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is [twenty] thousand rupees or more: Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,- (a) Government; (b) any banking company, post office savings bank or co- operative bank; (c) any corporation established by a Central, State or Provincial Act; (d) any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956) ; (e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette: [Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken

ITA Nos.1637 to 1641/Bang/2014 Page 11 of 20 or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act.] Explanation.-For the purposes of this section,- [(I) "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of that Act ;] (Ii) "co-operative bank" shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949) ; (Iii) "loan or deposit" means loan or deposit of money.] Accordingly Sec 26955 is applicable for "Loan" or "Deposit" and the same is not applicable for any advance received. In the instant case; Mr. Umesh wanted to buy one of the properties i.e. Property No 1/1, Sy No 49/43A, Kalyana Mantapa Road, Jakkasandra, Koramangala Ist Block, Bangalore - 560034 (I,e property under question) owned by M/s Vintage Bio Fuels Private Limited (Hereinafter referred to as Vintage); a Private Limited Company of which Mr. Girish is one of the Directors. An Agreement of Sale (Please refer Exhibit 1) was entered in to by Mr. Umesh with M/s Vintage represented by its Directors Mr. Girish and his wife Mrs. Veena Girish (Hereinafter referred to as Veena) on 28th January 2010. The Purchase Consideration as per the Agreement of Sale was fixed at Rs 13,00,00,000/- (Rupees Thirteen Crores Only). An amount of Rs 3,00,00,000/- (Three Crores Only) was paid as Advance as follows: (as evidenced by the agreement of sale mentioned supra) 1) Rs 90,00,000 (Rupees Ninety Lakhs Only) in Cash 2) Rs 45,04,521/- (Rupees Forty Five Lakhs Four Thousand Five Hundred and Twenty One Only) by way of demand draft bearing no 451893 dated 28th January 2010 drawn on State Bank of India, SME JP Nagar Branch, Bangalore 3) Rs 52,02,129/- (Rupees Fifty Two Lakhs Two Thousand One Hundred and Twenty Nine Only) by way of demand draft bearing no 451894 dated 28th January 2010 drawn on State Bank of India, SME JP Nagar Branch, Bangalore

ITA Nos.1637 to 1641/Bang/2014 Page 12 of 20 4) Rs 51,80,335/- (Rupees Fifty One Lakhs Eighty Thousand Three Hundred and Thirty Five Only) by way of demand draft bearing no 451895 dated 28th January 2010 drawn on State Bank of India, SME JP Nagar Branch, Bangalore 5) Rs 51,80,235/- (Rupees Fifty One Lakhs Eighty Thousand Two Hundred and Thirty Five Only) by way of demand draft 'bearing no 451896 dated 28th January 2010 drawn on State Bank of India, SME JP Nagar Branch, Bangalore 6) Rs 10,00,000/- (Rupees Ten Lakhs Only) by way of cheque bearing no 114144 dated 28th January 2010 drawn on corporation bank, Mysore Road Branch, Bangalore However, there appears to be a drafting error in the agreement as far as Advance money is concerned, Sl No 1 to SI No 6 totalls to Rs 3,00,67,220/- (Rupees Three Crores Sixty Seven Thousand Two Hundred and Twenty Only) where as it should have been Rs 3,00,00,000/- (Rupees Three Crores Only). However, Sl No 6 cheque no 114144 is appearing in the bank statement as Rs 9,43,000/- (Rupees Nine Lakhs Forty Three Thousand Only) instead of Rs 10,00,000/- (Rupees Ten Lakhs Only) thereby totaling actual advance at Rs 3,00,10,220/- (Rupees Three Crores Ten Thousand Two Hundred and Twenty Only). These are some typographic errors in the agreement and they do not diminish the value of the agreement by no means. Sl No 1 I,e Rs 90,00,0001- was paid to M/s Vintage as Advance money for the Purchase of property. Sl No 2 to 6 have been inadvertently paid to Mr. Girish , Director of M/s Vintage. Mr. Girish was in the process of transferring the said amount to the account of Vintage. However, in the interim, both Mr. Umesh and M/s Vinatge mutually decided to cancel the deal and consequently entered in to an agreement of refund of advance money dated 20th February 2010. Mr. Umesh decided to take refund of Rs 1,00,00,000/- (Rupees One Crore Only) from M/s Vintage and the same was paid to Mr. Umesh from M/s Vintage. As far as the Balance amount of Rs 2,00,67,320/- (Rupees Two Crore Sixty Seven Lakhs Three Hundred and Twenty Only) is concerned Mr. Girish requested Mr. Umesh to convert the same in to an interest free unsecured loan to which Mr. Umesh out of "natural love and affection" towards his brother agreed. As the decision to pay the amount to Mr.

ITA Nos.1637 to 1641/Bang/2014 Page 13 of 20 Girish was made by Mr. Umesh; Mr. Girish felt that there is no need to physically transfer the said amount to M/s Vintage and then again transfer it back to him. There may be a lapse on the part of Mr. Girish of physically not transferring the amount to the account of M/s Vintage. However this was due to the fact that there was hardly any significant time lag between the "Agreement to Sell" and "Agreement of Refund of Advance Money". Section 269SS & 269T of The Income Tax Act, 1961 speaks about the "Loan or Deposit". We wish to clarify that the said amount doesn't fall within the meaning of "Loan or Deposit" as envisaged in Section 26955 and 269T. Accordingly, we are of the opinion that so far as the amount of Rs 90,00,000/- (Ninety Lakhs Only) paid in cash is concerned since the amount has been paid to M/s Vintage & thereafter repaid provisions of Section 269SS/269T and consequent provisions of Section 271D are not applicable in case of Mr. Girish. We wish to answer the order clause by clause as follows: Clause (a) - Page No 2 of the Order "The agreement that the assessee referred to for claiming the receipt of money as advance is for a property owned by the company M/s Vintage Bio Fuels P Ltd, But not by the Assessee Mr. Girish Appareddy. However as examined from the Bank Statement of Mr. Girish Appareddy and as admitted by him also, the amount of Rs.210 lacs has been deposited into the account of the assessee through demand drafts/cheque but not into the account of the company that actually owns the property" The Assessee has admitted the same even during Assessment with the Income Tax Officer as well as with the Additional Commissioner of Income Tax. There has been a honest mistake by the Assessee. The Assessee was in the process of transferring the amount to the account of M/s Vintage. There may be a lapse on the part of Mr. Girish of physically not transferring the amount to the account of M/s Vintage. However this was due to the fact that there was hardly any significant time lag between the "Agreement to Sell" and "Agreement of Refund of Advance Money". Clause B - page No 2

ITA Nos.1637 to 1641/Bang/2014 Page 14 of 20 "The whole argument of the assessee rests on the purported agreement entered into by M/s Vintage Bio fuels P ltd and Mr. Umesh Appareddy for an intended sale of a property owned by the company to the latter. However despite being asked to submit, the assessee could not submit the original of the said agreement. That the photocopy submitted carries no evidentiary value, in the absence of the original, needs no over emphasis." During the course of the Assessment with the Income Tax Officer Ward 12(2) for the AY 2010-11 the assessee has suo moto submitted many details out of which one is "Agreement to Sell" dated 28th January 2010. Had the intention of the Assessee was to conceal something he would not have suo moto submitted the "Agreement to sell". Only the Bank Statements where the DD's mentioned supra could have been submitted and source could have been explained. The Suo moto submission of the Agreement itself proves the fact that there was no "mens rea" in the mind of the Assessee. During the course of the hearing with the Learned Additional Commissioner of Income Tax, the AR has submitted the notarsied copy of the Agreement to Sell. The Notarised Copy shall be deemed to be original and we beg to strongly differ the stand taken by the learned Additional Commissioner that it has no evidentiary value is beyond our comprehension. Going by the same logic if there is no evidentiary value the Notice u/s 271D itself becomes null and void as it is the very basic document based on which the notice has been served and penalty has been levied. Clause (c) - Page No 3 The claim that the amount received through draft / Cheque was credited into the individual account of the assessee and the cash of Rs.90 lacs was received by the company stands unexplainable when the property is owned by the company but not the assessee as an individual. There cannot be a part payment to the director and part payment to the company for sale of property owned by a company but not the director. Even if such payment is warranted, the consideration paid in cash that normally goes outside the books of accounts goes to the director while the consideration paid through the demand draft/cheque goes to the account of the company that owns the property, However, the contrary claim made in the instant case beyond any plausible explanation.

ITA Nos.1637 to 1641/Bang/2014 Page 15 of 20 As far as the Assessee fails to comprehend the above proposition. As far as he is concerned wishes to re iterate that the transaction was between Mr. Umesh and M/s Vintage. However, due to a honest mistake the DD's were taken in assesses name and that he was in the process of transferring the same to M/s Vintage. There may be a lapse on the part of Mr. Girish of physically not transferring the amount to the account of M/s Vintage. However this was due to the fact that there was hardly any significant time lag between the "Agreement to Sell" and "Agreement of Refund of Advance Money". Clause (d) - Page No 3 It needs to be noted that the property referred to in the purported agreement still stands in the name of the company without being any subject to any sale indicating the fact that there was neither an intension nor a necessity for the company to dispose of the said property at all, The reference to the said agreement by the assessee is only to explain away the receipts of amount the contravened certain provisions of the income Tax Act, 1961. The Property still is in the name of company doesn't establish the fact that there was not intention to sell the property. Many a times people take certain decisions and subsequently change their mind. A careful examination of the facts are as follows: Mr. Umesh Appareddy (hereinafter referred to as Umesh), brother of Mr. Girish Appareddy (hereinafter referred to as Girish) sold one property during FY 2009-10 (2rh April 2009). During the same time M/s Venus Bio Fuels Private Limited of which the Assessee is a director was in the process of buying a property. Assessee and Mr. Umesh mutually decided that Mr. Umesh would buy the property in question (which is in the name of M/s Vintage) and out of the consideration M/s Venus would invest in the proposed Property. M/s Venus bought one commercial property on 13th February 2010. However, later on Mr. Umesh decided not to proceed with the deal and upon request from Mr. Girish out of natural love and affection agreed to convert the amounts as interest free unsecured loans. Accordingly Agreement for refund of money was entered upon. Notarised Copy of Agreement of Refund of money is shown in Exhibit 2. As Mr. Girish wanted the property to be with in the "family" decided not to sell the Vintage Building.

ITA Nos.1637 to 1641/Bang/2014 Page 16 of 20

Clause (e) - Page No 3 The claim that upon termination of the purported agreement, the amount received in cash was refunded by the company in cash and the amount received by the director through bank instruments was retained by him as interest free loan, has no explanation as to why the company received part of consideration in cash and why the repayment was made in cash by the company as claimed. Further it needs to be noted that while the advance received in cash was Rs.90 lacs. The reason for the excess payment in cash is simply unavailable. The Agreement for Refund of Advance Money dated 20th February 2010 clearly explains the same. The Total Advance for the company was Rs 3,00,00,000/- (Three Crores Only). Out of this Rs 2,00,67,320/- (Rupees Two Crore Sixty Seven Lakhs Three Hundred and Twenty Only) was allowed by Mr. Umesh to be converted as Interest free unsecured Loan. This amount is the cumulative total of 4 DD's which were inadvertently credited to the Assessee's account. Balance amount of Rs 1,00,00,000/- (Rupees One Crore only) (Rounded off) was paid back by the Company to Mr. Umesh. The Assessee transferred an amount of Rs 10,00,000/- to Company and was accounted in the Company books thereby making the advance to Rs 1,00,00,000/- (Rupees One Crore Only). The same was repaid by the Company. If the transaction was not pertaining to the Company there was no need to the Assessee to pay the amount to company and repay the advance from the Company. This is a definitive indicator that the transaction pertained to company only and not to the Assessee as has been detailed out in the order. The necessary papers have been submitted during the course of the 271D hearing. Clause (f) - Page No 3 "It is interesting to note that in the computer printout of the ledger account in the books of the company M/s Vintage Bio fuels P Ltd, that the assessee submitted now during the penalty proceedings, only the transactions of receipt of Cash of Rs.90 lacs as the purported advance and repayment of Rs.100 lacs are recorded while the receipt of RS.210 lacs through bank Instruments is conspicuous by its absence. Further it needs to be noted that this ledger account copy was

ITA Nos.1637 to 1641/Bang/2014 Page 17 of 20 not part of the documents submitted during the course of the assessment proceedings" During the Course of the Assessment Proceedings the same was not called for and hence not furnished. Now the learned Additional Commissioner of Income tax called for the same for which the assessee has promptly submitted the same Clause (g) - Page No 4 "In the above mentioned ledger copy, to explain the sources for the excess payment of cash of Rs.10 lacs over and above the claimed receipt of Rs.90 lacs in cash a receipt of Rs.10 lacs from the assessee Mr. Girish Appareddy is shown. However as noted from the account of the assessee, he has no source for that cash of Rs.10 lacs claimed to have been paid to the company for making the repayment to the purported purchaser." The Assessee owns agricultural land to the tune of around 8 acres the details of which have been furnished even during the Assessment proceedings. The said Agricultural land is owned by him since 1994 and he has considerable agricultural income therefrom. The Assessee has transferred the said amount out of his agricultural income. Clause (h) - Page No 4 "It is also to be noted that the amounts mentioned to have been paid through drafts / cheque in the purported agreement are not exactly tallying with the amounts actually deposited into the bank account of the assessee through drafts/cheque, indicating that the agreement was not drafted or prepared at the time of the assessee actually received the amounts but at some other time when a necessity for existence of such an agreement arose." There have been many instances in the ordinary course of life where there are lot of typographic mistakes occur in the agreements, deeds and drafts. Precisely that is the reason there are so many rectifications deeds being prepared. That doesn't mean that agreement itself is invalid. We wish to re iterate that going by the same logic if there is no evidentiary value the Notice u/s 271D itself becomes null and void as it is the very basic document based on which the notice has been served and penalty has been levied.

ITA Nos.1637 to 1641/Bang/2014 Page 18 of 20 Since they were brothers it was not felt necessary to enter in to any rectification agreement. Clause (j) - Page No 4 "As understood from the information available on record, the purported purchaser Mr. Umesh Appareddy, brother of the assessee Mr. Girish Appareddy was in possession of funds having sold a property and the same funds were made available to the assessee as needed by him. In this context, it needs to be noted that, from the balance sheet on record, the assessee Mr. Girirsh Appareddy invested Rs.217.78 lacs in M/s Vintage Bio Fuels P Ltd and M/s Venus Bio Fuels P Ltd, after receipt of the funds from his brother. Later to avoid complications for contravening the provisions of the Income Tax Act, the agreement for sale of a property that was not actually owned by him in his Individual Capacity was contrived." We wish to state that the "Agreement to Sell" and "Agreement for refund of money" are genuine and wish to state that we have also submitted notarized copy of the same which is as good as original in the eyes of law. They have been printed on stamp papers and the very point that it has been printed on stamp papers proves the genuineness of the agreement and also the transactions. In para 6 The Learned Commissioner of Income Tax Appeals has interalia stated that "In my view the observations of the Addl.CIT appear to be justified for the following reasons the agreement for sale purportedly subsisted only for a period of 24 days". We wish to state that the period of agreement does not affect the validity of agreement in any way. The Agreements are entered in to as when the transactions happen and it has no bearing on the time lag between the transactions. "Agreement to Sell" and "Agreement for refund of money" are between M/s Venus Bio Fuels Private Limited and Mr. Umesh Appareddy. In such a scenario we are also of the view that how one can come to the conclusion that cash has been paid to Mr. Girish Appareddy. Accordingly, whether the Notice & Order u/s 271D in the name of Mr. Girish Appareddy is valid? We rely upon the following case laws in favour of defense

ITA Nos.1637 to 1641/Bang/2014 Page 19 of 20 Azadi Bachao Andolan V Is Union of India 2001 252 ITR 471 (Delhi) No penalty u/s 26955 or T if there is reasonable cause for non compliance. Reasonable cause as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. We wish to place on record that there is no non compliance as far as Section 26955 or T is concerned. We are relying on the above case law to the limited extent of demonstrating that the reasonable cause for non transferring of the funds by the Assessee to the company is that fact that there was hardly any considerable time lag between the dates of two agreements. Further case laws in support of our defense will be submitted either during the Personal Hearing or prior to that. PRAYER Based on the above submissions we feel aggrieved by the learned Commissioner of Income Tax III Bangalore Order and are praying your goodselves to consider the Facts of Law and decide the case on its merit. The Appellant prays that the penalty of Rs 90,00,0001- (Rupees Ninety Lakhs) Only made u/s 271D of The Income Tax Act, 1961 be deleted.”

ITA Nos.1637 to 1641/Bang/2014 Page 20 of 20 8. In the result, the appeals of the assessees are dismissed.

Pronounced in the open court on this 11th day of May, 2016.

Sd/- Sd/-

( ABRAHAM P. GEORGE ) (SUNIL KUMAR YADAV ) Accountant Member Judicial Member

Bangalore, Dated, the 11th May, 2016.

Ds/-

Copy to:

By order

Assistant Registrar ITAT, Bangalore.