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TMI Blog2014 (8) TMI 872X X X X Extracts X X X X X X X X Extracts X X X X ..... g payment through cheque or demand draft where it is so required to be made - Following the decision in ITO, Ward 24(1), New Delhi Versus Sh. Dinesh Jain [2014 (6) TMI 140 - ITAT DELHI] - it is the AO who applies mind during the assessment proceedings to the issues relating to the violation of section 269SS or 269T of the Act and therefore, the limitation should commence from the date of the Assessment Order. journal entries are outside the scope of the relevant penal provisions - the provisions of clause (a) of section 275(1) of the Act would not apply and in alternative, the provisions of section 275(1)(c) only be attracted in the matters of penalties levied u/s 271D/271E of the Act - the limitation period would be counted from the date of assessment order with the AO’s decision to make referral to his Addl. CIT, who is authorized to impose penalty - The orders of the penalty of this kind have to be explained considering the provisions of clause (c) of section 275(1) of the Act - 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 penalty – Decided in favour of Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds raised in the appeal read as under: "1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in upholding the order passed by the Addl. CIT under section 271D of the Act on the basis that the appellant had violated the provisions of section 269SS of the Act and also argued that there was no reasonable cause for such alleged contravention. 2. On the facts and in the circumstances of the case and in law, the CIT (A) erred in upholding the penalty imposed under section 271D of the Act without appreciating the fact that the appellant had not accepted any loan or deposit of money more so in contravention of the provisions of section 269SS of the Act. 3. On the facts and in the circumstances of the case and in law, the CIT (A) erred in upholding the penalty imposed under section 271D of the Act without appreciating the fact that the transactions of assigning or transferring rights / receivables and liabilities amongst the group companies by passing journal entries does not tantamount to taking or accepting of loan or deposit of money and it is not in contravention of section 269SS of the Act. Hence, the impugned penalty levied under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of land development and construction of real estate properties. Assessee filed the return of income declaring the total income at Rs. NIL and the same was subsequently revised to adjust carry forward losses. Assessment was completed determining the total income of ₹ 26,69,084/- under the special provisions of section 115JB of the Act. In the scrutiny assessment, there is a solitary and minor addition made by the AO u/s 14A of the Act. There is no further appeal against the said order of the AO before the CIT (A). Thus, the assessment reached finality. In the assessment, vide para 6, the AO, otherwise, mentioned about "Accepting / repayment of loans other than account payee cheques / draft". Eventually, AO mentioned that such accepting / repayment of loans other than account payee cheques / drafts (through journal entries) amounts to violation of the provisions of section 269SS and 269T of the Act. Subsequently, for imposing the penalty proceedings, AO made a reference to the Addl. CIT for necessary action. The contents of para 6 is extracted as under: "Accepting / Repayment of loans other than account payee cheques / draft: 6. During the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 40,000/- Balaji Hitech Macrotech construction Pvt Ltd ₹ 3,00,00,000/- Durgeshwari Hi-rise Farms Pvt Ltd Lodha Hi-rise Builders Pvt Ltd Rs.2,22,51,23,478/- Macrotech Constructions ₹ 1,20,50,00,000/- Gajanand Buildtech & Agro Pvt Ltd Vamadevi Developers & Farms P Ltd ₹ 78,462/- Ganeshji realty and Agro P Ltd M.P. Lodha ₹ 1,00,000/- Lodha Buildcon Pvt Ltd Lodha Hi-Rise Builders Pvt Ltd ₹ 36,52,594/- Lodha Designer construction Pvt Ltd Lodha Developers Ltd Rs.1,78,13,002/- Lodha Developers Dharmnath Infra & Agro Pvt Ltd ₹ 25,350/- Lodha Impression Real Estate P Ltd ₹ 4,00,00,000/- Hi-class Buildcon Pvt Ltd ₹ 5,00,00,000/- Arihant Premises ₹ 35,95,401/- Marutinandan Real Estate ₹ 9,30,50,000/- Hi-class Buildcon Pvt Ltd ₹ 3,00,000/- Maa Padmavati Township Pvt Ltd ₹ 20,19,76,661/- Macrotech Constructions Pvt ltd ₹ 17,60,752/- Adinath Builders ₹ 38,95,868/- Lodha Estate Pvt Ltd Lodha Dwellers ₹ 2,59,47,923/- Lodha Hirise Arihand Premises ₹ 17,20,00,000/- Ajitnath Hi Tech Builders ₹ 1,00,000/- Lodha Healthy Construction ₹ 33,30,00,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the expenses within the group. In such cases, the provisions of section 269SS of the Act have no application and for this, the assesse relied on the judgment of the Hon'ble Madras High Court in the case of CIT vs. Idhayam Publications Ltd [2007] 163 Taxman 265 (Mad.) which is relevant for the proposition that the deposit and the withdrawal of the money from the current account could not be considered as a loan or advance. It is the contention of the assessee that there is no cash transactions involved and relied on the contents of the CBDT Circular No.387, dated 6th July, 1984 and mentioned that the purpose of introducing section 269SS of the Act is to curb cash transactions only and the same is not aimed at transfer of money by transfer / assignment of loans of other group companies. In this regard, Ld Counsel cited various decisions mentioned in para 7.4 of the impugned order. It is the submission of the assessee that the said provisions of section 269SS of the Act do not apply to "journal entries". To substantiate the reasonable cause as to why journal entries were resorted to, the assessee made the following submissions. "7.5.1. Journal entries are pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat where the loan / deposit were repaid by debiting the amount through journal entries, it must be held that the assessee has contravened the relevant provisions. Though the said judgment was delivered in the context of provisions of section 269T of the Act, the same was equally adopted for the provisions of section 269SS of the Act. Addl. CIT discussed on the irrelevance of the genuineness of the transactions in these matters of impugned penalty proceedings. He also examined the aspects of the bona fide and genuineness of the transactions before concluding that the assessee failed to establish the genuineness of transactions carried out. Addl. CIT further mentioned that even bona fide and genuineness of the transactions, if carried out in violation of provisions of section 269SS of the Act, the same would attract the provisions of section 271D of the Act. There was a discussion on the applicability of the decision of the Tribunal in the case of Mahak Sing vs. ITO (ITAT, Del) 127 ITD 1 relating to the mens rea issues. Eventually, the Addl. CIT levied the penalty of ₹ 495,23,61,634/- u/s 269SS of the Act within the meaning of section 271D of the Act. Further, depending on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it constitutes a 'reasonable cause' in the instant case too. For this, assessee relied on the judgment in the case of Sun Engineering works Pvt Ltd 198 ITR 297 and others. It is the case of the assessee that the Hon'ble High Court of Bombay eventually deleted the penalty on the ground of 'reasonable cause' and therefore, on appreciating the 'principles of commercial expediency' here in this case, the AO/ Addl. CIT should not have imposed the penalty. CIT (A) extracted the written submissions on the 'reasonable cause' vide the letters dated 15.4.2013 and 3.5.2013. Further, on these submissions, CIT (A) called for remand report of the AO vide letter dated 10.5.2013 and considered the remand report of the Addl. CIT dated 31.10.2013 before confirming the penalty. Further, CIT (A) discussed the factual matrix of the transactions involved among the group concerns in the light of the provisions of section 269SS as well as 271D of the Act. Para 9 of the impugned order contains the decision of the CIT (A), wherein, he dealt with the remand report, provisions of section 46A of the IT Rules, 1962. CIT (A) is of the opinion that the journal entries constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Raj). However, CIT (A) did not considered the said judgment of the Hon'ble High Court. Instead, he relied on the decision of ITAT, Chandigarh Special Bench in the case of Dewan Chand Amit Lal [283 ITR (AT) 203]. In the said judgment, the Special Bench held that the 'limitation' does not commence from the date of the show cause notice issued by the Assessing Officer as Joint Commissioner is the empowered to impose the penalty. CIT (A) discussed the ratio of the said Rajasthan High Court judgment in the case of Jitendra Singh Rathore (supra) and extracted its conclusion that the period of limitation should be reckoned from the date of issue of notice from the AO and not from the date of issue of show cause notice by the Joint Commissioner. Without analyzing the distinguished features of the said judgment of the Rajasthan High Court, substantially, the CIT (A) followed the said Special Bench decision (supra). CIT (A) is of the opinion that the Special Bench decision of the Tribunal has more binding effect than that of the non-jurisdictional High Court judgment. Para 9.34 and 9.35 of the CIT (A)'s order are relevant here. Essentially, for dismissing the assessee's l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.1.12 271D 15.2.12 31.3.12 30.6.12 31.8.12 31.8.12 30 30.9.12 28.9.12 3 Ashtavinayak Real Estate Pvt Ltd 25.11.11 ACIT 11.1.12 271D 15.2.12 31.3.12 30.5.12 31.8.12 31.8.12 30 30.9.12 28.9.12 4 Adinath Builders Pvt Ltd 15.12.11 ACIT 11.1.12 271D 15.2.12 31.3.12 30.6.12 31.8.12 31.8.12 30 30.9.12 28.9.12 5 Ajinath Hi- Tech Builders Pvt Ltd 5.12.11 ACIT 11.1.12 271D 15.2.12 31.3.12 30.6.12 31.8.12 31.8.12 30 30.9.12 28.9.12 6 Infratech Builders and agro Pvt Ltd 25.11.11 ACIT 11.1.12 271D 15.2.12 31.3.12 30.5.12 31.8.12 31.8.12 30 30.9.12 28.9.12 7 Lodha Properties Development Pvt Ltd 7.12.11 ACIT 11.1.12 271D 15.2.12 31.3.12 30.6.12 31.8.12 31.8.12 30 30.9.12 28.9.12 13. Referring to the above data, Sri Pardiwala, Ld Counsel submitted that the impugned penalty orders are barred by limitation of time as they are passed after the expiry of the statutory period specified in clause (c) of Section 275(1) of the Act. In this context, Ld Counsel read out the provisions of section 275(1) and mentioned that the provisions of clause (a) to this section are not applicable to the impugned penalties imposed u/s 271D a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued by the Assessing Officer is valid in such matters and filed copies of judgments of the Hon.ble High Courts of Delhi and Rajasthan. He also mentioned that the Special Bench decision in the case of Dewan Chand Amit Lal (supra) is not a binding judgment considering the existence of judgments of various High Courts i.e., CIT vs. Hissaria Bros [2007] 291 ITR 244 (Raj) which upheld the order of the Tribunal, wherein the penalty show cause notice, which was issued by the AO, is found valid for the purpose of computing the time limitation u/s 275(1)(c) of the Act. It is also mentioned that the judgment of the Hon.ble Rajasthan High Court in the case of Hissaria Bros (supra) was subsequently followed by the same High Court in the case of CIT vs. Jitendra Singh Rathore [2013] 352 ITR 327 (Raj). It is the contention of the assessee that an identical decision was taken by the Delhi High Court in the case of Noida Toll Bridge Co. Ltd (supra). It is the contention of the assessee that in the instant case, assessment orders were passed on Nov / Dec. 2011 and therefore, the penalty would be time barred in May / June, 2012, as the case may be, whereas the penalty orders passed by the Addl. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed or six months from the end of the month in which the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later : [Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A, and the Commissioner (Appeals) passes the order on or after the 1st day of June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the Chief Commissioner or Commissioner, whichever is later;] (b) ……… (c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nother Circular No. 554, dated 13-2-1990 [(1990) 82 CTR (St.) 280] were issued by the CBDT. 23. A close scrutiny of section 275 which is reproduced hereinabove shows that clause (1)(a) covers those cases where the penalty proceedings are in respect of a default related to principal assessment for a particular assessment year and the penalty proceedings are required to be initiated in the course of that proceedings only. In such cases where the relevant assessment order or other orders are the subject-matter of an appeal to the CIT(A) under section 246 or an appeal to the Tribunal under section 253, after the expiry of the financial year in which the proceedings in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of CIT(A) or, as the case may be, of the Tribunal is received by the Chief CIT or CIT, whichever period expires later. Apparently, clause (a) governs the categories which are integrally related to the assessment proceedings and are not independent of it. 24. We have also noticed that this provision was brought into effect in 1970 with effect from 1-4-1971, so that pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the penalty proceedings are linked with the assessment proceedings or the other relevant proceedings. 26. The expression 'other relevant thing' used in section 275(1)(a) and clause (b) of sub-section (1) of section 275 is significantly missing from clause (c) of section 275(1) to make out this distinction very clear. 27. We are, therefore, of the opinion that since penalty proceedings for default in not having transactions through the bank as required under sections 269SS and 269T are not related to the assessment proceedings but are independent of it, therefore, the completion of appellate proceedings arising out of the assessment proceedings or the other proceedings during which the penalty proceedings under sections 271D and 271E may have been initiated has no relevance for sustaining or not sustaining the penalty proceedings and, therefore, clause (a) of sub-section (1) of section 275 cannot be attracted to such proceedings. If that were not so, clause (c) of section 275(1) would be redundant because otherwise, as a matter of fact every penalty proceeding is usually initiated when during some proceedings such default is noticed, though the final fact finding in this pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the JCIT, who is actually empowered by the statute to impose the penalty u/s 271D and 271E of the Act, the limitation should be counted right from the date of such reference in the assessment order / issue of show cause notice by the AO. 19. Further, the judgment of Hon'ble Delhi High Court in the case of M/s Noida Toll Bridge Co. Ltd [262 ITR 260] (Del) is relevant. We have also come across another judgment of the same High court in the case of CIT vs. Worldwide Township Projects Ltd vide ITA No.232/2014, where Hon'ble Delhi High Court explained the above said provisions in the context of penalty levied u/s 271D of the Act. Para 8 of the said judgment of the High Court is relevant here and the same reads as under: "8. A plain reading of the aforesaid section indicates that (the import of the above provisions is limited) it applies to a transaction where a deposit or a loan is accepted by an assessee, otherwise than by an account payee cheque or an account payee draft. 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 arises on account of book entries. The object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case. Admittedly, neither the assessee nor IL & FS had made any payment in cash. The order of the Tribunal does not give rise to any question of law, much less a substantial question of law. We accordingly decline to entertain the appeal. Dismissed." 20. Thus, the judgment in the case of M/s Worldwide Township Projects Ltd vide ITA No.232/2014 is relevant for the proposition that the provisions of section 275(1)(a) of the Act would not be applicable to the penalties u/s 271D of the Act and the provisions of section 275(1)(c) would only be attracted. This is also relevant for another ratio that the period will be counted from the date of assessment order where the Assessing Officer decided to make a referral to the Addl. CIT. 21. On this aspect, following the said judgment, the Delhi Bench of the Tribunal in the case of Dinesh Jain ITA no 3794/Del/2013 held that it is the AO who applies mind during the assessment proceedings to the issues relating to the violation of section 269SS or 269T of the Act and therefore, the limitation should commence from the date of the Assessment Order. On the facts of squiring up of the loans with the wife by way of 'journal e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition 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 penalty. In our opinion, the AO's discussion given in para 6 of the assessment order and AO's letter dated 6 to the Addl. CIT constitutes "action for imposition of penalty". Therefore, we are of the opinion, the assessee should succeed on the legal issue. Accordingly, ground raised by the assessee is allowed. Provisions of section 273B of the Act - Reasonable Cause 23. Now, we shall take up the applicability of provisions of section 273B of the Act qua the reasonable cause to be proved by the assessee. The provisions of section 273B of the Act reads as under: "Section 273B. Notwithstanding anything contained in the provisions of [clause (b) of sub-section (1) of [section 271, section 271A, [section 271AA], section 271B, [section 271BA], [section 271BB,] section 271C, [section 271CA,] section 271D, section 271E, [section 271F, [section 271FA,] [section 271FB,] [section 271G,]] [section 271H,] clause (c) or clause (d) of sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contents of para 9 of the said judgment are relevant here which read as under: "9. The question as to whether loans / deposits can be repaid by debiting the accounts through journal entries has been considered by this Court in the assessee's own case in Income Tax Appeal No.5746 of 2010 decided on 12th June, 2012. Applying the ratio laid down therein we hold that receiving loans / deposits through journal entries would be in violation of section 269SS of the Act. However, as rightly contended by Mr. Pardiwala, Ld Senior Advocate appearing on behalf of the assessee, the transactions in question were undertaken not with a view to receive loans / deposits in contravention of section 269SS but with a view to extinguish the mutual liability of paying / receiving the amounts by the assessee and its sister concern to the customers. In the absence of any material on record to suggest that the transactions in question were not reasonable or bona fide and in view of section 273B of the Act, we see no reason to interfere with the order of the Tribunal in deleting the penalty of ₹ 22.99 Crs." 26. From the above, it is evident that the Hon'ble High Court has granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions to which falls into each of the group are tabulated as under: Sl No.1, 2, 3, 4, 5, 6 & 7 refer to the categories mentioned in the preceding table inserted in page 23 of the order relating to 'Classification of Reasonable Causes'. 29. Submission of the assessee justifying the claim of immunity u/s 273B of the Act to the impugned journal entries is as under: a) "The seven categories of entries and a very brief explanation. b) These entries are with sister concerns and associates. The view in the penalty order that Durgeshwari is an independent concern is incorrect because penalty order itself starts with the sentence that "Assesee has taken from sister concerns". c) It has been proved before the Addl. CIT and CIT (A) that there is absolutely no cash involved and the source can be traced to A/c payee cheques only. Addl. CIT has failed to refute this but only in order to strengthen his case on flimsy ground he makes a presumptive assertion that these entries has been passed to camouflage the sources and to evade tax. d) There is no attempt either in assessment order or in order to doubt the source of the entries and to take any consequential actio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment Trust of India or the assessee. The fact that the assessee company belongs to the Ketan Parekh Group which is involved in the securities scam cannot be a ground for sustaining penalty imposed under Section 271E of the Act if reasonable cause is shown by the assessee for failing to comply with the provisions of Section 269T. It is not in dispute that settling the claims by making journal entries in the respective books is also one of the recognized modes of repaying loan/deposit. Therefore, in the facts of the present case, in our opinion, though the assessee has violated the provisions of Section 269T, the assessee has shown reasonable cause and, therefore, the decision of the Tribunal to delete the penalty imposed under Section 271E of the Act deserves acceptance." 32. From the above extracts from the judgment of jurisdictional High court, it is clear that the journal entries are hit by the relevant provisions of section 269SS of the Act. However, it is the finding of the Hon'ble High court that completing the "empty formalities" of payments and repayments by issuing/receiving cheque to swap/squire up the transactions, is not the intention of the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onclusion apply so long as the transactions are for business purposes and do not involve unaccounted money and they are genuine. In fact, such journal entries shall save large number of cheque books for the banks. 35. Further, There is no dispute that the impugned journal entries in the respective books were done with the view to raise funds from the sister concerns, to assign the receivable among the sister concerns, to adjust or transfer the balances, to consolidate the debts, to correct the clerical errors etc. In the language of the Hon'ble High court, the said 'journal entries' constitutes one of the recognized modes of recording the loan/deposit. The commercial nature and occurrence of these transactions by way of journal entries is in the normal course of business operation of the group concerns. In this regard, there is no adverse finding by the AO in the regular assessment. AO has not made out in the assessment that any of the impugned transactions is aimed at non commercial reasons and outside the normal business operations. As such, the provisions of section 269SS and 269T of the Act shall not be attracted where there is no involvement of the 'money' ..... 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