9911796707
TMI Blog2014 (2) TMI 1173X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the case in brief are that the Assessing Officer during the course of assessment proceedings noticed that the assessee had repaid the loans in cash as under : Name of the party Date of loan repaid Mode of payment Amount (Rs.) M/s. Chetan Grass Trading Company 31-03-2006 Cash 2,00,000 M/s ABC Grass Company 31-03-2006 Cash 31,26,960 Total 33,26,960 The Assessing Officer by considering the above payments in violation of section 269T of the Act, initiated the penalty proceedings under section 274 read with section 271E of the Act. 3. The assessee submitted to the Assessing Officer as under : "It is submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. It is submitted that after pursuing the assessee's written submission and the assessee's explanation the learned Assessing Officer was satisfied that the provisions of sections 269SS and 269T are not appli cable to the transaction of the assessee with these partnership-firms. Therefore, the learned Assessing Officer has allowed the cash transaction in the capital account with the above referred partnership- firm." 4. The Assessing Officer did not accept the explanation of the assessee by observing that the cash payment of Rs. 33,26,960 to the firms M/s. Chetan Grass Trading Company and M/s. ABC Grass Company were not reflected in the capital account of the assessee and as per the audit report submitted by the assessee cash paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repay the amounts in cash to firm as and when needed. 4.2. For carrying of these transactions, the assessee has maintained two separate accounts with the firm, one capital account and the other loan/current account. In the loan/current account, the assessee introduced capital in cash and also makes withdrawals in cash. In the capital account, the assessee has shown entries of other than bank/ cash account namely firm, TDS, advance tax and share of profit/loss. 4.3. As a partner, the assessee has repaid the following cash amounts to the firm : M/s. Chetan Grass Trading Co. Rs. 2,00,000 M/s. ABC Grass Company R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm as such has no separate rights of its own in the partnership assets but it is the partners, who own it jointly. The profits of the firm are the profits earned by all the partners in carrying on the business payment by partner to a firm or repayment of capital amount by a firm to partner, temporary advances and withdrawals from joint account do not result in loan/ deposits and are, therefore outside the purview of the afore said provisions The aforesaid penalties are neither automatic nor mandatory, but are directory in nature, i.e., the said penalties would not be leviable if there exists reasonable cause for the default in view of the provisions of section 273B. In view of the above, the payments by partner to firm is a payment to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion being from any unexplained sources and the source of money was not in doubt, therefore, those repayments cannot be considered the attempt on the part of the assessee to evade tax. He further observed that the transaction being recorded in the books of account and for genuine business purposes, should be beyond the purview of penal provisions and that for the accounting purposes these entries of lending money to the firm was shown as unsecured loan irrespective of the nomenclature given to such transactions in the books of account. The learned Commissioner of Income-tax (Appeals) opined that in the present case, the fact remained that these transactions were not the loan transactions in the true sense but business transactions and the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e received a sum of Rs. 2,00,000 and Rs. 31,26,960 respectively. These transactions were treated by the Assessing Officer as repayment of loan in cash. In our opinion there is no independent legal entity of the firm apart from the rights and liability of the partners constituting it and if any amount is given or taken from the firm by the partners that cannot be treated as giving or taking of a loan. In the instant case, the assessee being a partner gave the money to the partnership-firm when it was in need of business exigencies, later on the amount was received it back if the said amount had been routed through the capital account, there could have been no disallowance by the Department because a partner can deposit cash in his capital ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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