DCIT, NEW DELHI vs. M/S NIRMAN OVERSEAS PVT. LTD.,, NEW DELHI

ORDER

PER BEENA A. PILLAI, JM

2. Whether on the facts and in the circumstances of the case, the ld. CIT(A) has erred in law by ignoring the fact that the word ‘advance’ falls under the meaning of the loan.

3. Whether on the facts and in the circumstances of the case, the ld. CIT(A) has erred in law by ignoring the fact that the Statutory Auditor of the assessee himself has mentioned in his report regarding payment of loan and I.T.A. No. 3952/D/2013 deposits otherwise than account payee cheques or drafts.

4. Whether on the facts & in the circumstances of the case, the ld. CIT(A) has erred in law by ignoring the fact that transfer of loan or deposit in the books of the assessee that shall be evidenced by an A/c payee cheque or an A/c payee bank draft. It was to curb the rampant circulation of black money that such a provision has been introduced in the Act.

5. The appellant craves to be allowed to add any fresh grounds of appeal and/or delete or amend any of the grounds of appeal.”

The assessee filed its return of income declaring total income of Rs. 3,95,414/-. The case was completed in scrutiny and order u/s 143(3) was passed excepting the returned income. Subsequently the case was transferred to ACIT, Circle 13(1), New Delhi and the ACIT issued notice for initiation of penalty u/s 271E of the Act on 28/03/2011.

2.1. During the penalty proceedings, the ld. AO observed that the statutory Auditor in Form 3CD had qualified noted that the assessee had repaid loan or deposit of Rs. 4,80,71,518/-, otherwise than by crossed cheque/bank draft, which is in violation of the provisions of sec. 269T of the I.T. Act, 1961. The ld. AO observed that the assessee had accepted that the said amount of Rs. 4,77,41,314.86/- from M/s Ansal Properties & Infrastructure Ltd.(APIL, being the developer), and were adjustment entries for the proportionate cost of land in terms of sub clause (a) of clause 8 of the principal agreement dt. 10/06/1981 incurred by assessee, on behalf of APIL. Therefore,

I.T.A. No. 3952/D/2013 ld.AO observed that the said sum has been repaid otherwise, than by account payee cheque or draft.

2.2. The Ld.AO noted that though the assessee has claimed that the transaction was covered under the terms of agreement with the APIL, the assessee has not advanced any reasonable cause for repaying the impugned amount, by means other than account payee cheque or draft, as provided u/s 269T of the Act. The ld.AO observed that compliance with the terms of agreement did not in any way exonerate the assessee from the provisions of IT Act, 1961, since the assessee repaid a loan/deposit of Rs. 4,77,41,314.86/- to APIL, otherwise than by account payee cheque/draft in violation of the provisions of sec. 269T, rendering the assessee liable for penalty u/s 271E of the IT Act for an amount equal to the amount repaid other than by account payee cheque/draft. Accordingly, penalty of Rs. 4,80,71,519/- is imposed on the assessee by the AO u/s 271E of the IT Act, 1961.

3.1. Before the ld. CIT(A) the assessee referred to the principle agreement dated 10/06/1981 and the relevant clauses of the agreement therein, as well as in agreements dated 5th August, 2002 and 16th March, 2006 were referred to by the assessee. After perusing the agreements and the statements of accounts filed by the assessee, the ld. CIT(A) deleted the penalty on the ground that there was no violation of section 269T by the assessee as the liability recorded in the books of account were I.T.A. No. 3952/D/2013 only general entries i.e. crediting the account of APIL by the monies were payable.

4.1. The ld. DR submitted that there is violation of section 269T by the assessee as the amount has been paid by means other than account payee cheques or drafts as required u/s 269T. Ld. DR further submitted that the auditor’s report filed by the assessee for the year under consideration, has stated that the sum of Rs. 4,80,71,518/- has been paid other than by crossed cheque or draft. He submitted that the assessee has grossly violated the requirements u/s 269T of the Act. The ld. DR supported the order of the ld. AO.

5.1. The ld. AR submitted that these were only adjustment entries by which the proportionate cost of land represented by the finances provided by APIL were adjusted against the sale

I.T.A. No. 3952/D/2013 proceeds becoming payable to the assessee by APIL as per the development agreement.

6.1. The ld. CIT(A) has considered the submissions viz-a-viz the agreements entered into by the assessee with APIL and has come to the conclusion that the provisions of section 269T were not attracted to the facts of the present case. The ld. CIT(A) has also observed that even on the basis of the nature of genuineness of transaction, circumstances of the case and the explanations provided by the assessee, penalty u/s 271E cannot be imposed.

“The ambit of the Section is clearly restricted to transaction involving acceptance of money and not intended to affect cases where a debt or a liability

I.T.A. No. 3952/D/2013 arises on account of book entries. The object of the Section is to prevent transactions in currency. This is also clearly explicit from clause (iii) of the explanation to Section 269SS of the Act which defines loan or deposit to mean “loan or deposit of money”. The liability recorded in the books of accounts by way of journal entries, i.e. crediting the account of a party to whom monies are payable or debiting the account of a party from whom monies are receivable in the books of accounts, is clearly outside the ambit of the provision of Section 269SS of the Act, because passing such entries does not involve acceptance of any loan or deposit of money.”