DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, GUNTUR vs. BHRATHI CONSUMER CARE PRODUCTS PVT LTD, GUNTUR
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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER S. BALAKRISHNAN, Accountant Member :
The captioned appeal is filed by the Revenue against the
penalty order passed U/s. 271D by the Ld.AO in DIN No.
ITBA/PNL/F/271D/2021-22/1034956727(1) dated 18/8/2021
for the AY 2017-18.
Briefly stated the facts of the case are that the assessee is
into the business of manufacturing of detergent products such
as detergent powders and soaps. A search and seizure
operation U/s. 132 of the Act was conducted on 30/08/2016 in
the group case of Sri Arunachalam Manickavel. During the
course of assessment proceedings, the Ld. AO noticed the cash
deposits of Rs. 1,74,52,500/- during the demonetization
period. The assessee claimed that the source of such cash
deposits was loan from Sri Arunachalam Manickavel, one of the
Directors of the assessee company. The Ld. AO called for
confirmation from Sri Arunachalam Manickavel wherein Mr.
Arunachalam Manickavel has confirmed that the amount of
cash loan was out of money received from M/s. Gowtham
Buddha Textile Park P. Ltd. The Ld. AO rejected the contention
of the assessee as well as the confirmation of Mr. Arunachalam
Manickavel and considered the cash deposits of Rs. 1.74 Crs
as unexplained cash credit U/s. 68 of the Act and brought to
tax as per section 115BBE of the Act. Further, the same
amount was brought to tax in the hands of Sri Arunachalam
Manickavel (individual) on the same ground but on protective
basis. Aggrieved by the additions made by the Ld. AO, the
assessee filed an appeal before the Ld. CIT(A) who has deleted
the addition as the creditworthiness and genuineness of the
transactions were proved by the assessee. Aggrieved by the
order of the Ld. CIT(A), the Revenue filed an appeal before the
ITAT, Visakhapatnam Bench wherein the Tribunal upheld the
order of the Ld. CIT(A). Thereafter, the Ld. AO considered that
the assessee-company has violated the provisions of section
269SS of the Act and made a proposal to levy the penalty U/s.
271D of the Act vide letter dated 8/6/2021. In response to the
notice, the Ld. Counsel for the assessee appeared and
submitted the explanation before the Ld. AO by filing the
written submissions on 7/7/2021. The Ld. AO rejected the
submissions made by the Ld. Counsel for the assessee and
found that there is no any reasonable cause for acceptance of
cash of Rs. 1.74 Crs by the assessee company from one of its
Directors and considered that it is a fit case for levy of penalty
U/s. 271D of the Act and therefore levied a penalty of Rs. 1.74
Crs U/s. 271D of the Act. Aggrieved by the order of the Ld.
AO, the assessee filed an appeal before the Ld. CIT(A),
Visakhapatnam. The Ld. CIT(A) considered that the sources
for the deposits have been proved in the case of Sri
Arunachalam Manickavel and thereby relying on the decision of
the Hon’ble ITAT, Visakhapatnam in the case of Dharmana
Products (P) Ltd vs. ACIT, Circle-4(1), Visakhapatnam allowed
the appeal of the assessee. Aggrieved by the order of the Ld.
CIT(A), the Revenue is in appeal before us and raised the
following grounds of appeal:
“1. The order of the Ld. CIT(A) is erroneous in law and the facts and circumstances of the case.
The Ld.CIT(A) erred in law and facts in deleting the penalty levied U/s. 271D of Rs. 1,74,00,000/-.
The Ld. CIT(A) has erred in ignoring the judicial pronouncement of Hon’ble Supreme Court in the case of M/s. Vasan Healthcare Vs. Addl. CIT reported in [2011] 125 taxmann.com 266 (SC).
The Ld. CIT(A) has erred in law and facts in deleting the penalty even when the assessee company could not establish any bona fide reason as to why the assessee could not get a loan or deposit by A/c Payee Cheque or A/c Payee Demand Draft. 5. The Ld. CIT(A) has erred in not considering the contention of the AO that the assessee has not proved any exigency to forego the route of transacting through banking channel. 6. The Ld. CIT(A) has erred in relying on the submissions of the assessee that under the Companies (Acceptance and Deposits) Rules, 1975, Rule 2(b)(ix), transaction between the Director and company are not loan or deposit but only in the nature of current account ignoring the judicial pronouncements given by the Hon’ble Delhi High Court in the case of Commissioner of Income Tax vs. Samora Hotels (P) Ltd reported in [2012] 19 taxmann.com 285 (Delhi) and the Hon’ble Madras High Court in the case of Vasan Healthcare (P) 4
Ltd vs. Addl Commissioner of Income Tax, Range-2, reported in [2019] 103 taxmann.com 26 (Mad.).
The Ld. CIT(A) erred in concluding that when genuineness of transactions is proved to be correct, no penal proceedings get attracted, even though no bona fide reason exists.
Any other ground that may be urged at the time of hearing.”
Further, we also find that the assessee has filed the Cross
Objection by raising the following grounds:
“1. The Ld. CIT(A) is justified in finding that the facts as contained in Hon’ble Supreme Court in the case of M/s. Vasan Healthcare Pvt Ltd., are distinguishable with the facts of the present case, since the Director of the company do not have source to give cash loan and further obtained cash loan from financiers who also do not have any sources.
The Ld. CIT(A) is justified in holding that when the genuineness of the transaction, creditworthiness of the Director and company are not doubted and held to be genuine, no penal proceedings are attracted and hence penalty levied U/s. 271D is unreasonable and therefore the establishment of any bonafide reason does not warrant.
The Ld. CIT(A) is justified in holding that as per the Companies (Acceptance and Deposits) Rules, 1975, under Rule 2(b)(ix), deposit does not include any amount received from a Director or Shareholder of a Private Limited Company and therefore, the transaction between the Director and the company is not in the nature of a loan or deposit. Hence violation of provisions of section 269SS does not attract.
The Ld. CIT(A) is justified in following the Hon’ble Madras High Court in the case of CIT vs. Idayan Publications Limited since the facts and issue involved in the case of Delhi High Court in CIT vs. Samora Hotels Pvt Ltd is on “bonafide belief” but not on the violation of provisions of section 269SS and hence distinguishable.
The Ld. CIT(A) is justified in holding that when the penal provisions itself are not attracted, the other technical issues like bonafide reasons etc., are not relevant. 5
On the facts and circumstances of the case, the penalty order passed U/s. 271D is invalid in law as there is no satisfaction written in the Assessment Order. 7. Any other ground of cross objections that may be raised at the time of hearing.”
At the outset, the Ld. AR pleaded that Ground No.6 of the
Cross Objection shall be taken up first as this being a legal
issue and depending upon the adjudication and outcome of the
same, the other grounds may be considered on merits.
Accordingly, first we take up the Ground No.6 of the Cross
Objection raised by the assessee being a legal issue wherein
the assessee contested that the penalty order passed U/s.
271D is invalid since there is no satisfaction written in the
assessment order.
Before us, the Ld. AR submitted that the Ld. AO in his
order U/s. 143(3) of the Act has proposed to levy the penalty
U/s. 271AAB and 271AAC of the Act. The Ld. AR further
vehemently argued that since the quantum appeal before the
Ld. CIT(A) as well as before the Hon’ble ITAT has been held in
favour of the assessee, penalty U/s. 271D cannot be levied.
The Ld. AR relied on the decision of the Visakhapatnam Bench
in the case of ACIT vs. Kanchumarthi Venkata Sita
Ramachandra Rao in ITA Nos. 245 & 246/Viz/2020 (AY 2016-
17), dated 30/08/2022. The Ld. AR also relied on the decision 6
of the Hon’ble High Court of Telangana in the case of Srinivasa
Reddy Reddeppagari vs. JCIT, Central Circle, Range-2,
Hyderabad in W.P No. 44285 of 2022. Further, the Ld. AR also
placed reliance on the judgment of the Hon’ble Supreme Court
in the case of CIT vs. Jai Laxmi Rice Mills Ambala City
reported in [2015] 64 taxmann.com 75 (SC).
Per contra, the Ld. DR submitted that the penalty
proceedings U/s. 271D and the quantum proceedings are
mutually exclusive and as per section 271D of the Act the
Joint Commissioner of Income Tax cam impose penalty in the
case if there is any contravention of the provisions of section
269SS of the Act. The Ld. DR placed heavy reliance on the
case of M/s. Vasan Healthcare (P) Ltd vs. Addl. CIT reported in
[2019] 103 taxmann.com 26 [Mad.].
We have heard the rival contentions and perused the
material available on record. Admittedly, in the quantum
proceedings both in the case of the assessee company and in
the case of Sri Arunachalam Manickavel, the Hon’ble Tribunal
has held in favour of the assessee. Further, the reliance
placed by the Ld. AR on the judgment of the Hon’ble Supreme
Court in the case of CIT vs. Jai Laxmi Rice Mills Ambala City
(supra), wherein the Hon’ble Supreme Court has held that the
Ld. AO has to record his satisfaction for the purpose of
initiating penalty proceedings under the Act. The Hon’ble
Supreme Court has held as follows:
“As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under section 271(1)(c) of the Act. Thus, insofar as penalty under section 271E is concerned, it was without any satisfaction and therefore no such penalty could be levied.”
Further, this Bench of the Tribunal in the case of ACIT vs.
Kanchumarthi Venkata Sita Ramachandra Rao (supra) has
followed the decision of the Hon’ble Supreme Court in the case
of CIT vs. Jai Laxmi Rice Mills Ambala City (supra) and has
held that when there is no satisfaction report recorded by the
Ld. AO in the assessment record, no penalty could be levied.
The decision of the Hon’ble Supreme Court in the case of M/s.
Vasan Healthcare (P) Ltd vs. Addl. CIT (supra) relied on by the
Ld. DR is distinguishable on the fact that in that case the
creditworthiness and genuineness of the source of the funds
could not be proved by the assessee. Further, in the instant
case, the Hon’ble jurisdictional Bench of the Tribunal has
deleted the additions both under the protective basis and the
substantive basis as the creditworthiness and genuineness of
the source of the funds were proved beyond doubt.
Considering these facts and circumstances of the case as
stated above and following the principles of consistency as well
as following the judicial pronouncements as discussed above,
we are of the considered view that the penalty order U/s. 271D
passed by the Ld. AO without recording proper satisfaction,
deserves to be quashed and hence there is no infirmity in the
order of the Ld. CIT(A) and therefore no interference is
required. It is ordered accordingly.
Since the legal issue raised by the assessee is allowed in
favour of the assessee, the other grounds of cross objections
raised by the assessee its CO which are supportive in nature
need no separate adjudication.
Similarly, considering the outcome of the legal issue
raised by the assessee which is allowed in favour of the
assessee in the foregoing paragraphs of this order, the
adjudication of the grounds raised by the Revenue in its appeal
ITA No.249/Viz/2022 becomes merely an academic exercise
and hence dismissed.
In the result, appeal of the Revenue is dismissed and the
Cross Objection of the assessee is allowed as indicated herein
above.
Pronounced in the open Court on 31st October, 2023. Sd/- Sd/- (दु�वू� आर.एल रे�डी) (एस बालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER Dated : 31.10.2023 OKK - SPS आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee – M/s. Bharathi Consumer Care 1. Products Private Limited, Sy. No. 280, 281, Peddaparimi Village, Nidumukkala Post, Guntur – 522016, Andhra Pradesh. राज�व/The Revenue – Deputy Commissioner of Income Tax, 2. Central Circle-1, 3rd Floor, Rajkamal Complex, Lakshmipuram Main Road, Guntur – 522007, Andhra Pradesh. 3. The Principal Commissioner of Income Tax, आयकर आयु�त (अपील)/ The Commissioner of Income Tax 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, 5. Visakhapatnam गाड� फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam
