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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI R.C. SHARMA & SHRI SANDEEP GOSAIN
This is an appeal filed by the assessee against the order of CIT(A) dt. 28.2.2014 for A.Y 2009-10, in the matter of imposition of penalty u/s 271E of the Income Tax Act, 1961. The assessee has taken following grounds in the appeal :
“1. BECAUSE, ld. CIT(A) has erred in law in upholding the order of the AO and ignoring the fact that the said order is barred by limitation.
2. BECAUSE, ld. CIT(A) has erred in law in upholding the order of the AO and ignoring the fact that the said order is invalid since no valid notice was issued u/s. 274 r.w.s. 269T of the Act for initiating penalty proceedings.
3. BECAUSE, ld. CIT(A) has erred in law in ignoring the fact that the order passed by the AO is invalid since there is no finding made in the order that any “loan” or “deposit” amounting to Rs. 41,00,000/- has been received by the appellant in respect of which the payment has been made in contravention of provisions of section 269T of the Act.
4. BECAUSE, ld. CIT(A) has erred in law in holding repayment of contract consideration as deposit and confirming penalty u/s 271E r.w.s. 269T of the Act.
5. BECAUSE, ld. CIT(A) has after due consideration of material on record not disputed the genuineness of the transaction and still confirmed penalty u/s 271E r.w.s. 269T of the Act.”
Rival contentions have been heard and record perused. Facts in brief are that the assessee company is engaged in the business of construction and development of real estate had accepted booking of flat in the name of Shri Haresh Sadhwani and Smt. Roma Sadhwani. The Sadhwanis had deposited an amount of Rs.1,49,40,000/- towards booking of this flat at project “Ellora Castle” at CBD-Belapur. The Sadhwanis and Assessee company had entered into Memorandum of Understanding dt. 11.12.2008 for a payment of Rs.41,00,000/- on account of extra amenities and interior facilities as set out in the MoU, over and above the cost of shell structure that Sadhwanis had booked. This was followed by a Sale Agreement dt. 16.12.2008 wherein as against the market value of Rs. 1.46 crores, the property was agreed to be sold at a price of Rs.5.93 crores. Accordingly, out of the amount of Rs.1,49,40,000/- received from Sadhwanis, the amount of Rs.41,00,000/- was appropriated towards the MoU. Later, the Sadhwanis ran into financial difficulty and were forced to cancel the MoU for extra amenities and facilities and simply buy the shell structure. Thus they entered into a Deed of Compromise on 30.8.2010 cancelling the earlier MoU dt. 11.12.2008 for extra amenities. The Sadhwanis had made a further payment of Rs.3.78 crores for the flat and as part of compromise terms, an amount of Rs.41,00,000/- collected on account of extra amenities forming part of the initial payment of Rs.1,49,40,000/- was refunded to Sadhwanis in the form of bearer cheques. However, in the assessment order the AO recorded reasons for initiation of penalty u/s 269T in respect of refund of deposit to Shri Haresh Sadhwani and Smt. Roma Sadhwani. In reply to the AO's notice, assessee replied as under :
"In reply to your contention that Rs.41,00,000/- repaid to Mrs. Haresh J. Sadhwani why should not be added to income u/s 269T, we would like to state that to attract the provisions of Sec. 269T the repayment of amount should be in the nature of Loans or Deposits. However, in the given case the amount of Rs, 41,00,000/- repaid to Mr. Haresh Sadhwani was on account of cancellation of amenities which was earlier booked by Mr Haresh Sadhwani in his flat in the project "Ellora Castle". We would also like to draw your attention that the flat was registered in the name of Haresh Sadhwani & Roma Sadhwani on 16.12.2008 & repayment made were after 16.12.2008, so the amount repaid was part of the sale consideration which he was supposed to pay to M/s N.G.Group for providing various amenities along with his flat. So as of from 16.12.2008 Mr Haresh Sadhwani was more like a debtor party & not a loan party in the books of N.G. Group. Copy of the registered agreement has already been given for your kind reference.
From the explanations given above your good self would agree that there was no violation of Sec. 269T of the I.T.Act. Penalty u/s 271E is Leviable only if a person repays any loan or deposit referred to in section 269T otherwise than in accordance with the provisions of that section where as in the given case the repayment of Rs.41,00,000/- does not fall in the category of loans or deposits as mentioned u/s 269T of the I.T. Act, hence penalty u/s 271E shall not be applicable on the said transactions amounting to Rs.41,00,000/- "(Emphasis, supplied)"
However, the AO did not accept assessee’s contention and levied penalty u/s 269T r.w.s. 271E.
By the impugned order, CIT(A) affirmed the action of the AO against which the assessee is in further appeal before us.
It was argued by the ld. AR that limitation for imposition of penalty as per Sec. 275(1)(c) is 6 months from end of month in which action for imposition of penalty initiated. The assessee invited our attention to the fact that penalty proceeding was initiated from the date of assessment order i.e. 30.12.2011, therefore, limitation expires on 30.6.2012. Our attention was invited to the discussion made by the AO regarding alleged violation of Sec. 269SS and 269T in his assessment order. Thereafter, AO referred the matter to JCIT for imposition of penalty vide letter dt. 6.2.2012. The JCIT passed penalty order upon receipt of information from the AO. It was argued by the ld. AR that the Income Tax Act, 1961 specifies authority for imposition of penalty and not for initiation of penalty, and that preliminary acts by the AO constitute initiation, which is anterior in time to the imposition of penalty. As per the ld. AR, there is no finding of any loan or deposit of Rs. 41 lacs, however, the AO has levied penalty for repayment u/s 271E. As per the ld. AR the amount so paid was in the nature of booking deposit and, if refunded, same is not liable for penalty u/s 269T or 269E.
It was further contended that the amount of Rs. 41 lacs is not loan or deposit but appropriated out of booking advance of Rs. 1.49 crores.
The ld. AR, on merits, argued that the assessee is a partnership firm engaged in the business of real estate development. During the year under consideration, the Assessee firm had received an amount of Rs.1,49,40,000/- from Mr. Haresh Sadhwani and Mrs. Roma H. Sadhwani as “booking advance” towards the flat booked by them in the project named Ellora Castle along with amenities. Later, as the parties had cancelled the amenities in the said flat, an amount of Rs.41,00,000/- was refunded on various dates by bearer cheques. She further placed reliance on the decision of the coordinate bench in the case of M/s. Lodha Builders Pvt. Ltd. and the decision of Hon'ble Rajasthan High Court in the case of Jitendra Singh Rathore and contended that judgment in the case of M/s. Lodha Builders Pvt. Ltd. read with judgment of Rajasthan High Court in the case of Jitendra Singh Rathore effectively over ruled the judgment in the case of Dewanchand Amrit Lal which has been relied upon by the revenue. Reference was invited to the judgment of ITAT, Mumbai in the case of Ranisati Paper Mills Pvt. Ltd. which expounding on the hierarchical system of courts in India had ruled that judgment of any High Court, even non jurisdictional shall prevail over judgment of any bench of ITAT. It was also submitted that the impugned order of CIT(A) confirming the penalty was passed on 28.2.2014 when the benefit of Lodha’s ratio was not available.
On the other hand, the ld. DR relied on the order of the lower authorities and contended that the decision of ITAT Special Bench in the case of Dewanchand Amrit Lal (98 ITD 200) is applicable, wherein it was held that limitation for passing order u/s. 271 is to be with reference to the date of notice issued by JCIT and not from the date of notice issued by the AO. Accordingly, penalty imposed was well in time. He further contended that repayment of deposit by bearer cheques are in violation of Sec. 269T, therefore, the AO was justified in levying penalty u/s 271E of the Income Tax Act, 1961.
We have considered the rival contentions, carefully gone through the orders of the authorities below and also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by ld. AR and ld. DR during the course of hearing before us. From the records, we found that AO has discussed details of alleged violation of Sec. 269T in his order. The AO mentioned fact of initiation of penalty u/s. 271E in his order. The AO referred the matter to JCIT for imposition of penalty vide letter dt. 6.2.2012. The JCIT issued show cause notice for penalty on basis of information required from AO. The JCIT passed penalty order upon receipt of information from the AO. Preliminary acts by AO constitute initiation, which is anterior in time to imposition of penalty. Therefore, the ratio of Lodha Builders case is applicable on all fours and the penalty has been initiated by the AO vide his order dt. 30.12.2011.
In the case of Lodha Builders Pvt. Ltd., 106 DTR 226, the coordinate Bench observed as under :-
“………. any case where AO made a reference in the assessment order, after discussing the same with the assessee during the regular assessment proceedings or made a referral to the Addl. CIT for imposition of the penalty. In our opinion, these preliminary acts constitute action for the imposition of penalty’. An action for imposition of penalty is always anterior in time to the ‘actual’ imposition of the penalty. In our opinion, the AO's discussion given in para 6 of the assessment order and AO's letter dated 11th January, 2012 to the Addl. CIT constitutes ‘action for imposition of penalty’. Therefore, we are of the opinion, the assessee should succeed on the legal issue”.”
In view of above, the issue of limitation is covered by the decision of the co-ordinate Bench in the case of Lodha Builders Pvt. Ltd. (supra).
With respect to the merit of the penalty, we found that amount of Rs. 41 lacs is not a loan or deposit but appropriated out of booking advance of Rs. 1.49 crores. The judgment of Allahabad High Court in Chaubey Overseas Corporation is not applicable to facts of present case since there is no liability to return the amount in question. In this case, refund is of part of booking amount, not included in loans & deposits as per Sec. 269T. Thus, penalty u/s. 271E is not leviable.
In view of above, we do not find any merit for imposition of penalty u/s. 271E.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 30th March, 2016.