2015 (11) TMI 71 - HC - Income Tax

Penalty under section 271E - violation of the provisions of section 269T - ITAT deleted penalty levy - Whether the Tribunal was correct in accepting the additional evidence placed before it by the assessee when the same was not produced before the Assessing Officer and the Appellate Commissioner, when the assessee has not assigned any reasons for not producing the same before the Assessing Officer? - Held that - It is clear that the question as to whether the firms in question were group concerns or not was always under consideration, right from the stage of the assessee submitting its reply to the notice, and it was for the assessee to have filed necessary documents at the initial stage itself, when it took the stand that the firms were group concerns or sister concerns. Filing of the additional evidence at a late stage, even when the said documents are said to be available with the assessee at the initial stage itself, makes the authenticity of the documents doubtful. The main agreements dated 5.10.2004 are both unregistered documents. There could be substance in the submission of the learned counsel for the Revenue, that the said documents could have been prepared at a later date for the purposes of this case. Merits of the said documents shall be considered while dealing with the second substantial question of law. At present, we have to only consider whether the filing of additional documents, which were available with the assessee at the initial stage, would be justified or not, when they have been filed at the stage of second appeal before the Tribunal. In the facts and circumstances of the case and for the reasons given hereinabove, we are of the view that the Tribunal was not justified in accepting the additional evidence filed by the assessee at the second appellate stage, and we are also of the view that the reasons assigned by the assessee for not having produced the same earlier before the Assessing Officer, is not worthy of acceptance. As such, we answer the first substantial question of law in favour of the Revenue Whether the Tribunal was correct in holding that the repayment made by the assessee in favour of Annapoorneshwari Investment and Adarsh Enterprises is in the nature of current account transaction and hence the same is not in violation of section 269T? - Held that - The common partner between the assessee and AE is one Sri Satish Pai, but no such plea had been raised by the assessee before the Assessing Officer, as has been categorically held by the Appellate Commissioner in his order. The Tribunal has, in paragraph 14, justified the same by observing that Satish Pai is a partner in the assessee firm, as also a partner in AE. It is not understood as to on what basis the same has been observed by the Tribunal, because the Appellate Commissioner has specifically stated that no such plea had ever been taken by the assessee with regard to such common partner being there between the assessee firm and the firm AE. On perusal of the replies given to the notices and other documents, the assessee has only stated that Sri Rama Krishna is a common partner between the assessee firm and the firm AI, but nothing has been said about the assessee and AE firms having a common partner. On being asked, Sri Parthasarathi, learned counsel for the respondent-assessee could not place any document from the entire record to show that such information was ever given to any of the authorities below. As such, the observation made by the Tribunal in paragraph 14 of its order with regard to Sri Satish Pai being a partner in the assessee firm as well as the firm AE, is not borne out from the record. Thus if the additional documents are accepted on record, answer to the second substantial question of law, would still be in favour of the Revenue and against the assessee.

Issues Involved:
1. Acceptance of additional evidence by the Tribunal.
2. Nature of transactions and compliance with Section 269T of the Income Tax Act.

Issue-wise Detailed Analysis:

Issue 1: Acceptance of Additional Evidence by the Tribunal
The first issue pertains to whether the Tribunal was correct in accepting additional evidence that the assessee had not produced before the Assessing Officer and the Appellate Commissioner. The Tribunal accepted additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, which allows for such evidence if it is necessary for passing orders or if the income tax authorities did not provide sufficient opportunity to the assessee to adduce evidence.

The Tribunal accepted documents including agreements and cash book extracts, which the assessee argued were necessary to establish that the transactions were between group concerns. However, the court found that the question of whether the firms were group concerns was always under consideration, and the assessee should have produced these documents at the initial stage. The court noted that the documents, especially unregistered ones, could have been prepared later for the case, making their authenticity doubtful.

The court concluded that the Tribunal was not justified in accepting the additional evidence at the second appellate stage, as the reasons for not producing them earlier were not satisfactory. Thus, the first substantial question of law was answered in favor of the Revenue and against the assessee.

Issue 2: Nature of Transactions and Compliance with Section 269T of the Income Tax Act
The second issue concerns whether the repayments made by the assessee to AI and AE were in the nature of current account transactions, thereby not violating Section 269T of the Act. The court examined the nature of the transactions and the relationship between the assessee and the two firms.

The court noted that there were multiple cash repayments totaling Rs. 14.6 crores to AI and Rs. 0.12 crores to AE, which were claimed to be inter-firm transactions due to a common partner. However, the authorities found that there was no urgency justifying such large cash payments, especially when banking facilities were available. The court observed that the transactions were recorded as loans or deposits in the account books, and the repeated cash payments indicated a violation of Section 269T.

The court also addressed the argument that the advances could not be treated as loans or deposits. It was held that parking such large sums with another firm could only be by way of loan or deposit. The court dismissed the relevance of unregistered agreements submitted as additional evidence, noting their doubtful authenticity.

The court further emphasized that Section 273B, which provides for non-imposition of penalty if there is a reasonable cause, did not apply as the repeated cash transactions did not constitute a reasonable cause. The court distinguished the present case from others where minor or family transactions were involved, noting that the transactions here involved large sums and multiple violations.

In conclusion, the court found that the transactions were indeed loans or deposits, and the repeated cash repayments violated Section 269T. Thus, the second substantial question of law was also answered in favor of the Revenue and against the assessee.

Final Judgment:
The appeal filed by the Revenue was allowed, and the order of the Assessing Officer imposing a penalty under Section 271E was confirmed.

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