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TMI Blog2015 (2) TMI 987X X X X Extracts X X X X X X X X Extracts X X X X ..... s 271E - violation of provisions of section 269T - CIT(A) deleted penalty as partner and partnership firm is one and the same person in the eyes of law and provision of section 269T are not applicable on the transaction entered by the partner with the firm - Held that:- All the payments were made by M/s Vardaan Fashion, a partnership firm in which assessee is a partner. All the payments were made by account payee cheque and in the assessee’s books of account, there was only a journal entry (book entry), thus, the provisions of Section 269SS/269T cannot be said to have been violated. The factual finding recorded by the CIT(A) that the payment was for share application money has not been controverted by the Revenue before us. Therefore, the same is accepted and we have no hesitation in holding that payment for allotment of shares as share application money cannot be said to be repayment of loan or advance so as to violate provisions of Section 269T. - Decided in favour of assessee. Penalty u/s 271D - violation of provisions of section 269SS - Held that:- The acceptance of the cash by the husband from his wife cannot be said to be taking of the loan or advance in strict sense of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vardaan Fashion 18/2/2008 612175 Vardaan Fashion 1/2/2008 2100000 Vardaan Fashion 1/2/2008 140000 Vardaan Fashion 7/12/2007 3000000 Vardaan Fashion 2/2/2008 1300000 Vardaan Fashion 1/2/2008 10000000 Vardaan Fashion 15/3/2008 27050000 Total 58570875 4. During penalty proceedings, it was explained by the learned counsel that all the above credit entries in the assessee s books of account are only by journal entry and no monetary transaction had actually taken place between the assessee and the above mentioned lenders. Since the assessee s explanation with regard to each and every lender is more or less similar, it would be appropriate to reproduce the assessee s explanation with regard to the credit entry in the name of GMS Real Estate (P) Ltd. (hereinafter refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of ₹ 5,85,70,875/- which is deleted by the learned CIT(A). Hence, this appeal by the Revenue. 7. At the time of hearing before us, it is stated by the learned DR that there is no dispute that there is a credit entry in the assessee s books of account in the name of above mentioned persons. As per Section 269SS, the assessee is supposed to accept loan or deposit either by account payee cheque or by account payee bank draft. Admittedly, the above credit entries by the assessee were accepted neither by account payee cheque nor by bank draft and therefore, there is clear violation of Section 269SS and Assessing Officer rightly levied penalty under Section 271D. The CIT(A) cancelled the penalty without properly appreciating the facts. Therefore, his order should be reversed and that of the Assessing Officer may be restored. 8. Learned counsel for the assessee, on the other hand, stated that the assessee is a partnership of M/s DNK. M/s DNK received/paid cheques from/to GMS from time to time on behalf of the assessee for advance for property. In the assessee s books of account, a journal entry is passed in respect of net amount of ₹ 1,90,000/- by which the account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntry was passed only as a rectification entry. These facts were duly stated before the Assessing Officer during penalty proceedings and the assessee s submission which is reproduced by the Assessing Officer in the penalty order is reproduced below for ready reference:- (v) The assessee has wrongly credited the cheque received from M.S. Appreal Pvt.Ltd. in the ledger of Mr. Manjinder Singh, who is a director of M.S. Appreal Pvt.Ltd. dated 16/1/2007. When mistake became known a rectification entry has been made in the year under consideration. The assessee has not received loan/advance amounting to ₹ 40,00,000/- from M.S. Appreal Pvt.Ltd. during the financial year 2007-08. All loan/advances amounts were received through account payee cheque only. The assessee has wrongly by mistake reduced the loan/advance amount of G.S. Batra during the financial year 2006-07 by wrongly entering a cheque received from M.S. Appreal Pvt.Ltd. copy of ledger account of M.S. Appreal Pvt.Ltd. and Sh. Majinder Singh in the books of assessee an ledger account of the Shri Mahinder Singh for the financial year 2006-07 in the books of the assessee are enclosed herewith as Annexure- F . 10. Simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette : [Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act.] Explanation. - For the purposes of this section, - [(i) banking company means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of that Act;] (ii) co-operative bank shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949); (iii) loan or deposit means loan or deposit of money.]. 11. As per Section 269SS, no person is supposed to take or accept from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft. The term 'loan or deposit has also been defined by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan or deposit to mean loan or deposit of money . The liability recorded in the books of account by way of journal entries, i.e., crediting the account of a party to whom monies are payable or debiting the account of a party from whom moneys are receivable in the books of account, is clearly outside the ambit of the provisions of section 269SS of the Act because passing such entries does not involve acceptance of any loan or deposit of money. 14. In the case of National Clothing Co. (supra), Hon'ble Jurisdictional High Court reiterated the same view and held as under:- The issue in question is covered by decision of this Court dated 20.11.2014 in ITA No.33/2002 titled Commissioner of Income Tax vs. M/s Ruchika Commercials and Investment Pvt.Ltd. This decision follows two earlier decisions of this Court in Commissioner of Income Tax vs. Noida Toll Bridge Co.Ltd. [2003] 262 ITR 260 (Delhi) and Commissioner of Income Tax-VI vs. Worldwide Townships Project Ltd. [2014] 367 ITR 433 (Delhi). In the said decisions, in view of the language of Explanation to Section 269SS, it has been held that the provision would apply to loan or deposit of money, and not mere formal entries r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count payee PO 740615 from PNB Shree Hanuman Enterprises 16.12.2006 37,80,000 Non account payee PO 738613 3,26,97,283 18. The penalty levied has been cancelled by the learned CIT(A). Hence, this appeal by the Revenue. 19. We have heard the arguments of both the sides and perused relevant material placed before us. So far as the debit in the books of account of the assessee through book entry is concerned, our discussion in paragraph Nos.10 to 15 above would be applicable and for the detailed discussion therein, we hold that when there is no monetary transaction between the assessee and the person whose account is credited and there is only journal entry, it cannot be said that there is violation of Section 269T. 20. So far as the payments by pay orders is concerned, we find that the CIT(A) deleted the penalty in respect of payment through pay orders with the following finding:- 6. Penalty of ₹ 1,91,80,000/- on repayment through pay orders (i) That in respect of penalty of ₹ 1,91,80,000/-, the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o credit the amount in the account of the payee and not to encash the same on the counter. The pay order being banker s cheque issued by the bank by writing the word ONLY is equivalent to account payee cheque/account payee bank draft. Hence, in the case of appellant there is no violation of any provision of Section 271E of the IT Act, 1961. (vi) That the appellant s contention is supported by the decision of the Hon ble ITAT, Bench A, Lucknow in the case of M/s Devlok Hatcheries vs. The ITO 1(1), ITA No.544(LKW) 2010. The copy of the case law is enclosed as Annexure-2. The relevant portion of the decision is reproduced below: Ground No.2 of the appeal reads as under : 2. That the learned Lower Court erred in facts and legal aspects of the case in treating amount of ₹ 27,674 paid by Account payee pay order (which is bankers cheque) as cash and disallowing 20% of the same u/s 40A(3). The assessee is engaged in the business of buying day old chicks, growing them and then producing the chicks. During the course of assessment proceedings, the AO found that the assessee made payment of ₹ 27,674 on 27.10.2004 (pay order) otherwise than account payee cheque/draft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the payments were actually made to the account of the payees only. The CIT(A) has also relied upon the decision of ITAT, Lucknow Bench in the case of M/s Devlok Hatcheries vide ITA No.544/Lkw/2010. In the said case, the ITAT was considering the applicability of Section 40A(3) wherein certain expenditure if paid otherwise than by account payee cheque or account pay bank draft is to be disallowed. The ITAT held that the pay order is a bankers cheque and when in the pay order, 'only is mentioned, the provisions of Section 40A(3) do not apply to payment by such pay order. In our opinion, the ratio of the above decision would be squarely applicable in respect of levy of penalty under Section 271E also and learned CIT(A), rightly applying the above decision, deleted the penalty. In view of above facts and the decision of the ITAT, Lucknow Bench, we do not find any infirmity in the order of learned CIT(A). The same is upheld and Revenue s appeal is dismissed. ITA No.2253/Del/2013 :- 22. In this appeal by the Revenue, following grounds have been raised:- 1. The CIT(A) has erred in deleting the penalty of ₹ 2,45,59,221/- levied by the AO u/s 271D for violation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,221/- PO 724690 Inder Pal Singh 05/10/2006 15,00,000/- PO 919286 Inder Pal Singh 18/10/2006 4,00,000/- Cash Inder Pal Singh 19/10/2006 4,00,000/- Cash Inder Pal Singh 11/11/2006 24,80,000/- PO Inder Pal Singh 11/12/2006 30,00,000/- PO 738528 Inder Pal Singh 21/01/2007 5,00,000/- Cash Inder Pal Singh 23/01/2007 5,00,000/- Cash Inder Pal Singh 09/03/2007 7,00,000/- Cash Total 2,45,59,221/- 24. Learned CIT(A) cancelled the penalty. Hence, this appeal by the Revenue. 25. We have heard the arguments of both the sides and perused relevant mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied upon the following decisions:- (i) CIT, Madras Vs. R.M. Chidambaram Pillai, Etc. - [1977] 106 ITR 292 (SC). (ii) CIT Vs. Lokhpat Film Exchange (Cinema) - [2008] 304 ITR 172 (Raj). (iii) Shrepak Enterprises Vs. DCIT - [1998] 60 TTJ (Ahd) 199. 29. Learned DR, on the other hand, relied upon the order of the Assessing Officer and stated that for the purpose of income tax, firm and partner are separate assessable units and therefore, acceptance of money by the partnership firm from the partner is in the nature of loan and advance by the partner to the firm. 30. We have carefully considered the submissions of both the sides and perused relevant material placed before us. We find that Hon ble Apex Court has considered the nature of partnership firm as well as partners under the general law as well as under the Income-tax Act in the case of R.M. Chidambaram Pillai (supra). In the above case, the partnership firm claimed the deduction of salary paid to the partner and in that context, their Lordships considered the relationship between the firm and the partners under the general law vis-a-vis under the Income-tax Act. The relevant observations of their Lordships at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as considered the issue of levy of penalty under Section 271D and 271E in respect of cash transactions between the firm and the partners, and their Lordships held as under:- Held, dismissing the appeals, that the assessee had acted bona fide and its plea that inter se transactions between the partners and the firm were not governed by the provisions of sections 269SS and 269T was a reasonable explanation. Penalty could not be imposed. 34. The ITAT, Ahmedabad Bench in the case of Shrepak Enterprises (supra) held as under:- Therefore, the payment of the amount made by a partner to a firm is the payment itself to self and does not partake the character of loan or deposit in general law. Therefore, the provisions of s. 269SS are not applicable to the facts of the case, and no penalty is imposable under s. 271D. The assessee could be under genuine impression that advancing of loan by a partner to firm is not a transfer from one person to the another and hence, there is no violation of provisions of s. 269SS. In view of the above, the penalty is cancelled. 35. The ratio of the above decision of ITAT, Ahmedabad Bench, Hon ble Rajasthan High Court and Hon ble Apex Court wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cash Inder Pal Singh 01/03/2007 10,00,000/- Cash Inder Pal Singh 02/03/2007 5,00,000/- Cash Inder Pal Singh 08/03/2007 4,00,000/- Cash Inder Pal Singh 22/03/2007 2,00,000/- Cash Total 1,70,70,000/- 38. Learned CIT(A) cancelled the penalty. Hence, this appeal by the Revenue. 39. We have heard the arguments of both the sides and perused relevant material placed before us. From the analysis of the debit entries in the assessee s books of account, the same can be divided in four categories - (i) debit by journal entry, (ii) debit by pay order, (iii) debit for payment in cash to partner and (iv) debit in cash in the name of Rups Craft Inc. 40. So far as first three debits are concerned, i.e., debit by way of journal entry (book entry), pay order as well as payment to the partner is concerned, identical issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. On the other hand, the payment of ₹ 15,45,000/- was made by account payee cheque No.57308 to M/s Rups Craft Inc. by Shri Inderpal Singh Wadhawan, partner of the firm and consequently, the entry was passed in the assessee s books of account. Therefore, there was no cash transaction. Both these findings recorded by the CIT(A) remained uncontroverted before us. We, therefore, find no justification to interfere with the order of learned CIT(A) in this regard. The same is sustained and the appeal of the Revenue is dismissed. ITA No.3084/Del/2013 :- 43. The only ground raised in this appeal by the Revenue reads as under:- The CIT(A) has erred in deleting the penalty of ₹ 4,04,79,453/- levied by the AO u/s 271E for violation of provisions of section 269T of the I.T. Act 1961. 2. The CIT(A) has erred in holding that partner and partnership firm is one and the same person in the eyes of law and provision of section 269T are not applicable on the transaction entered by the partner with the firm. 44. The Assessing Officer had levied the penalty under Section 271E in respect of the following debit entries in the assessee s books of account holding the same to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d copies of the accounts which clearly showed that the transaction with M/s Deepak Fabrics was a business transaction and not a repayment of loan as held by the Addl. CIT. No independent finding was given by the Addl. CIT to state that this is a repayment of loan. Since, the transaction in question is not a repayment of loan the provisions of section 269T read with section 271E are not applicable against this transaction. 47. Thus, the CIT(A) has recorded the finding that the appellant was doing the business of clothes in the proprietary concern named M/s DNK Creations. M/s DNK Creations, proprietary concern of the assessee had the business transactions with M/s Deepak Fabrics. The assessee made the payment of ₹ 19,50,000/- by account payee cheque to M/s Deepak Fabrics on behalf of the proprietary concern M/s DNK Creations. Thus, the CIT(A) has recorded the finding that it was not the repayment of loan within the provisions of Section 269T. The above finding of fact recorded by the CIT(A) has not been controverted before us. From this finding, it is evident that there was a business transaction between M/s DNK Creations, the proprietary concern of the assessee and M/s Dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 269T read with section 271E are not applicable to these transactions. 49. From the above, it is evident that all these payments were made by M/s Vardaan Fashion, a partnership firm in which assessee is a partner. All the payments were made by account payee cheque and in the assessee s books of account, there was only a journal entry (book entry). We have already discussed at length in paragraph Nos.10 to 15 above that in respect of book entry, the provisions of Section 269SS/269T cannot be said to have been violated. For the detailed discussion therein, we uphold the order of learned CIT(A) wherein he cancelled the penalty relating to debit in the name of M/s Dewana Dairy, by journal entry (book entry). 50. The debit relating to M/s B.K. Bros. is also by way of book entry. Similar is the debit in the name of M/s God Sons Bros. The finding of fact recorded by the learned CIT(A) that the debit in the name of M/s B.K. Bros. and M/s God Sons Bros. were by book entry only has not been controverted by the Revenue before us. Therefore, for the detailed discussion in paragraph Nos.10 to 15 above, we hold that the provisions of Section 269T cannot be said to have been viola ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The CIT(A) has erred in deleting the penalty of ₹ 95,25,000/- made by the AO u/s 271D for violation of provisions of section 269SS of the I.T. Act 1961. 2. The CIT(A) has erred in admitting additional evidences under Rule 46A which were not produced before the AO despite providing two opportunities. 56. The Assessing Officer had levied the penalty under Section 271D amounting to ₹ 95,25,000/- in respect of the following credit entries in the assessee s books of account:- Name of lender Date of entry Amount of loan or deposit taken or accepted otherwise than by an account payee cheque or an account payee draft Remarks Satvinder Singh 15/12/2006 15,00,000/- Journal entry passed and debit 5/83 property account Nirupama Wadhawan 02/06/2006 5,00,000/- Cash Nirupama Wadhawan 12/10/2006 5,00,000/- Cash Nirupama Wadhawan 25/10/2006 5,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with commercial expediency. 7.9 The Hon ble Calcutta High Court in the case of Dr. P.G. Panda vs. CIT (2000) 111 Taxman 86 held that where the assessee obtained certain loan from his wife in cash for construction of house property which was naturally a joint venture for prosperity of the family and the transaction did not involve any interest element and there was no promise to return the amount with or without interest, it could be said that there was a reasonable cause for not complying with section 269SS. 7.10 In the case of ITO vs. Tarlochan Singh (2003) 128 Taxman 20 (Asr)(SMC), it has been held that where the assessee had received a loan of ₹ 70,000/- in cash from his wife for investment in acquisition of immovable properties, and the assessee was under the bona fide belief that the amount was not to be refunded, no penalty was leviable. 7.11 In the following cases, the Ahmedabad Bench of the Hon ble ITAT have also cancelled the penalties levied u/s 271D even where loans/deposits were taken in cash. a) Shreenathji Corporation vs. ACIT 58 TTJ 611. b) Ganesh Wooden Industries ITA No.1626Ahd/1997, Bench 'SMC order dated 8.7.2002. 7.12 In view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 269SS. Secondly, there was a reasonable cause. Thirdly, the assessee was under the bona fide belief that he was not required to receive the amount otherwise than by an account payee cheque or account payee draft. As an alternative submission, it was contended that the default could be considered either technical or venial breach of the provisions of law and, therefore, no penalty under section 271D was leviable. In view of the above discussion, no penalty under section 271D was leviable. It is well-settled that penalty provision should be interpreted as it stands and, in case of doubt, in a manner favourable to the taxpayer. If the Court finds that the language is ambiguous or capable of more meaning that the one, then the Court has to adopt the provision which favours the assessee, more particularly where the provisions relate to the imposition of penalty. In view of the above, the penalty sustained by the Commissioner (Appeals) was cancelled. 61. That the ratio of the above decision of ITAT, Amritsar Bench would be squarely applicable to the facts of the assessee s case. Here also, the wife had given the money to the husband for acquisition of a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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