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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Mahavir Singh, JM & Shri Waseem Ahmed, AM]
ORDER Per Shri Mahavir Singh, JM:
This appeal by revenue is arising out of order of CIT(A)-I, Kolkata in Appeal No.241/CIT(A)-I/Cir-3/07-08 dated 30.08.2010. Penalty u/s. 271D of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) was imposed by Addl. CIT, Range-3, Kolkata vide its order dated 29.12.2006.
The only issue in this appeal of revenue is against the order of CIT(A) deleting the penalty levied by Addl. CIT, Range-3, Kolkata u/s. 271D of the Act for violation of the provisions of section 269SS for accepting loan in cash. For this, revenue has raised following ground nos. 5 and 6: “5. Ld. CIT(A) has erred on the facts and circumstances of the case in deleting the penalty of 8,40,000/- that was imposed by Addl. CIT Range-3 u/s. 271D of the I. T. Act.
6. Ld. CIT(A) has erred on the facts & circumstances of the case, in accepting the assessee’s explanation that necessity was purely a matter of commercial expediency without appreciating the findings of the AO that assessee could not furnish sufficient and valid reason for accepting cash deposits violating provisions of section 269SS of the I. T. Act.”
Briefly stated facts are that the assessee has received payment of Rs.1.75 lacs and cash loan of Rs.6.65 lacs from Hind Overseas Corporation assessee’s sister concern. The AO during the course of assessment proceedings initiated penalty proceedings u/s. 271(1)(c) of the Act for receiving this loan in cash. The Addl. CIT, Range-3 levied the penalty by not accepting the submissions of the assessee u/s. 271D of the Act for violation of the provisions of section 269SS of the Act for receipt of cash loan in excess of 2 M/s. Jaggi Ispat Pvt. Ltd. AY 1996-97 Rs.20,000/- at Rs.8.40 lacs. The assessee before us submitted that the penalty of Rs.8.40 lacs have been worked out as under: “Rs.1,75,000/- being the amount directly deposited by the sister concern, “Hind Overseas Corporation” in to the appellant’s bank a/c to clear the cheque issued in favour of M/s. Orissa Sponge Ltd. Rs.6,65,000/- being the amount received in cash on various dates from sister concern, “M/s. Hind Overseas Corporation” to meet the urgent business needs of the appellant as per statement attached. ___________ Rs.8,40,000/-”
Aggrieved assessee preferred appeal before CIT(A), who deleted the penalty. Aggrieved, now revenue is in appeal before us.
None appeared on behalf of both the sides at the time of hearing before us. After perusing the orders of the lower authorities and considering the facts and circumstances of the case, we find that the assessee has issued one cheque in favour of Orissa Sponge Ltd. against purchases made but this cheque was dishonoured due to insufficient funds. Accordingly, assessee requested its sister concern M/s. Hind Overseas Corporation to arrange funds so that payment can be made to Orissa Sponge Ltd. and accordingly, M/s. Hind Overseas Corporation has withdrawn cash from their bank account maintained with Punjab National Bank vide cheque no. 734525 and directly deposited the cash into assessee’s bank account to clear cheque issued by the assessee. Accordingly, this cash of Rs.1.75 lac was not received by assessee in cash rather it was directly deposited to its bank account by sister concern Hind Overseas Corporation. As regards to the receipt of Rs.6.65 lacs in cash on various dates by assessee from sister concern M/s. Hind Overseas Corporation the amount was received to meet the urgent business needs such as payment for electricity charges, rent, salary, wages, excise duty, purchase of raw material and transportation charges etc. The assessee explained before the Addl. CIT, Range-3 and CIT(A) that this loan in cash is received from sister concern for commercial expediency and sister concern having common shareholders and directors and this is not a loan in stricter sense but temporary accommodation of funds which is duly reflected in the running account maintained by assessee and its sister concern. We find that this issue is covered in favour of assessee where funds are received from sister concern by the decision of Hon’ble Madras High court in the case of CIT Vs. Idhayam Publications Ltd. (2006) 285 ITR 221 (Mad), wherein the Hon’ble High court has held as under:
“We heard the arguments of learned counsel for the Revenue. We have perused the materials available in record. Admittedly Mr. S. V. S. Manian was one of the directors. Therefore the order of the lower authority clearly shows that there was a running current account in the books of account of the assessee in the name of Mr. S. V. S. Manian. Mr. S. V. S. Manian used to pay the money in the current account and used to withdraw the money also from the current account. The Revenue should establish that what was received by the assessee is a loan or deposit within the meaning of section 269SS. The deposit and the withdrawal of the money from the current account could not be considered as a loan or advance. Further it was also found that the assessee filed a letter dated September 29, 1997, and in that letter he explained that the amount received from Mr. S. V. S. Manian had been shown as “secured loan from directors" in the balance-sheet. As per the Companies Act, under the Companies (Acceptance of Deposits) Rules, 1975, under rule 2 (b) (ix), deposit does not include any amount received from a director or a shareholder of a private limited company. Therefore, the transaction between the appellant and the director cum shareholder is not a loan or deposit and it is only a current account in nature and no interest is being charged for the above transaction. In the foregoing conclusions, we are of the view that since the said transaction does not fall within the meaning of loan or advance, there is no violation of section 269SS of the Income- tax Act. We find no error in the order of the Tribunal and the same requires no interference. Hence, no substantial question of law arises for consideration of the court. Accordingly, we dismiss the above tax case.”
We further find that the issue is also covered by the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Natvarlal Purshottamdas Pareekh (2008)303 ITR 5 (Guj), wherein Hon’ble High Court has reproduced para 18 of Tribunal’s order and confirmed the issue as under:
“18. As discussed above, the annexure attached to the penalty order goes to show that each of the family members of the assessee and each one of them was having sufficient opening balance as on April 1, 1990. After that we have to look into sources of the amounts received by the assessee on behalf of his family members as the same is an important factor. Handsome amount has been received on account of maturity of NSCs and then most of the amounts have been credited on account of gifts received from one family member to other and that was through journal entry except Rs. 32,000 which was gift by one family member to other. These amounts were not received by the assessee in cash as these were mere book entries. These amounts cannot be equated with any of the amounts involved in the cases relied on by both the parties as in those cases, the amounts were received by the assessee as deposits in cash and that is not the position here because these were book entries except the amounts of NSCs and other cash loan of Rs. 11,910. In the same breath, the amount of Rs.1,920 credited on account of rent and Rs.24,360 credit in the account of Harendrakumar and Hiteshkumar cannot be treated as deposits or loan because these were credit entries on account of salary and bonus. Accordingly, the crux of the matter is that most of the amounts as referred to above was based on mere book entries and not received in cash by the assessee from family members except the amount of NSCs and other cash loan and that cannot be treated as loan or deposits for the purpose of section 269SS.”
We have gone through facts and circumstances of the case. We find that the facts are that the assessee company received cash loan from its sister concern. In view of the above proposition law laid down by various High Courts i.e. Hon’ble Madras High Court in the case of Idhayam Publications Ltd., supra and Hon’ble Gujarat High Court in the case
4 M/s. Jaggi Ispat Pvt. Ltd. AY 1996-97 of Natvarlal Purshottamdas Pareekh, supra, we find that the penalty levied by Addl.CIT, Range-3, Kolkata and confirmed by CIT(A) needs to be quashed. In term of the above, we delete the penalty levied by Addl. CIT and confirmed by CIT(A). Appeal of assessee is allowed. 6. In the result, the appeal of assessee is allowed. 7. Order is pronounced in the open court on 29.10.2015 Sd/- Sd/- (Waseem Ahmed) (Mahavir Singh) Accountant Member Judicial Member
Dated : 29th October, 2015 Jd. Sr. P.S Copy of the order forwarded to: