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TMI Blog2022 (7) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... . - ITA No. 1643/MUM/2021 - - - Dated:- 5-7-2022 - Shri Aby T Varkey (Judicial Member) And Shri Om Prakash Kant (Accountant Member) For the Revenue : Mr. K.C. Kanojiya, CIT-DR For the Assessee : Mr. J.D. Mistri, AR ORDER PER OM PRAKASH KANT, AM This appeal by the Revenue is directed against order dated 13/02/2020 passed by the Ld. Commissioner of Income-tax (Appeals)-22, Mumbai [in short the Ld. CIT(A) ] in relation to penalty levied by the Joint Commissioner of Income-Tax-Range 143), Mumbai (in short the JCIT ) for repayment/accepting loan by the assessee otherwise then by account payee cheque. The grounds raised by the Assessing Officer in the appeal are reproduced as under: 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Penalty imposed u/s 271D 271E merely on the fact that the entries were journal entries leading to reassignment of debt, ignoring the fact that the Assessing Officer had levied the same on the grounds that the loans had been repaid and received by modes other than by account payee or any other mode provided in section 269SS 269T. 2. The Appellant prays that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of passing of entries in its books of account to enable the promoter to gift the amount of loan due to him by the company has no nexus with the actual business of the Assessee and hence cannot be termed as a business transaction. 1. The Assessee has contended that it had no control in the loan advanced to the Company by the Promoter, Sh. Chandah Asrani. It is enough to state that a company is a juridical' person completely distinct from the promoter and takes Its own decisions. It is unclear as to how the Assessee-company had no control over its own decisions in respect of the loans advanced to it by its promoter? Does it mean that the existence and day-to-day functioning of the company are completely subservient to the decisions of the promoter, and that being so would the Assessee-company take any decision which the promoter wants it to even if the same is contrary to the provisions of a statute? 2. The Assessee-company could have refused to pass journal entries in Its books of account knowing well that, what It was about to do would tantamount and/or result in violations of the provisions of sections 271D 271E of the Act. 3. The Assessee-company was-wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonable cause observing as under: However, in spite of opportunity being so given, the Assesseecompany has not established that there was a 'reasonable cause' due to which the provisions of section. 269SS and 269T were violated. In fact, the documents furnished by the Assessee-company such as the letter of Sh. Chandan Asrani to the Board of Directors' dated 01-032013 as well as the resolution of the Assessee-company seems to be an exercise to create self-serving documents to rationalize the action of the Assessee-company and the said Sh. Chandan Asrani and Ms. Daya Asrani with a view to make an alibi to escape the riogours of the provisions of section 269SS and 269T. Moreover, there is no evidence furnished which could establish that the said letters of Sh. Chandan Asrani and the resolution of the Board of Director actually were Indeed written and/or passed on the dates on which they purport to have been written and/or passed not even a postal stamp or anything else bearing the date and time (from a third party) which could establish the dates of their writing and/or passing. By doing what the Assessee-company has done, it has not only contravened the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not attract penalty under section 271D and 271E of the Act and therefore he deleted the penalty. The relevant finding of the Ld. CIT(A) is reproduced as under: Plain reading of the definition of the terms loan or deposit makes it clear that there must be an exchange of money for these sections to be applicable. In the instant case there has been no exchange of money as on 31.03.2013 and the transactions on which penalty has been imposed by the JCIT are undisputedly journal entries leading to reassignment of debt from Mr Chandan Asrani to Mrs Daya Asrani. In my considered view, therefore the provisions of Section 269SS 269T are not applicable and the penalty of Rs.6,65,51,401/- imposed by the JCIT U/s 271D 271E of the Income Tax Act is deleted. 7. Though the Ld. CIT(A) in Paras 3.3.2 to 3.3.4 has discussed the submission of the assessee related to existence of reasonable cause for not levying penalty, however the Ld. CIT(A) has not given any conclusive finding whether the case of the assessee falls under the reasonable cause so as to come out of the rigors of the penalty provisions. 8. Aggrieved with the finding of the Ld. CIT(A), the Revenue is in appeal bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans from Kotak Mahindra Bank Ltd. and promoters of the company namely Shri Chandan Asrani and Mr. Rajesh Chhabria. Both the promoters provided a loan of ₹5 crore each to the company. Subsequently, in financial year 2012-13, the assessee company took further loan from bank and on 08/08/2012 repaid ₹2.5 crores to Mr. Chhabria and ₹1.6 crores to Mr. Asrani. Thus, loan of ₹3.4 crores was outstanding in the name of Mr. Asrani. Thereafter letter dated 01/03/2013, Mr. Asrani informed the assessee company to assign the outstanding loan of ₹3.40 crores to his sister Ms. Daya Asrani, out of natural love and affection. The company passed a board resolution on 05/03/2013 recognizing the liability of ₹ 3.4 crores towards Ms Daya Asrani by way of passing general entries in its books of accounts on 31/03/2013 and also assigned interest accrued of ₹4,43,885/-. 11.1 In the above facts and circumstances, the Ld. JCIT held that repayment of loan by Mr. Chandan Asrani and acceptance of loan by Ms. daya Asrani through general entries have contravened the provision of section 269T and 269SS of the Act respectively, and therefore held liable for penalty unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling with the consequences on failure to comply with Section 269T has been omitted and Section 271E has been inserted which provides penalty for failure to comply with Section 269T of the Act. Section 269T has been substituted by Finance Act 2002 with effect from 1st June 2002 wherein the provision relating to repayment of deposit exceeding the prescribed limit by account payee cheque / draft has been extended to repayment of loans as well. Thus, with effect from 1st June 2002, it is mandatory under Section 269T of the Act for the persons specified therein to repay any loan / deposit together with interest, if any, exceeding the limits prescribed therein, by account payee cheque / bank draft and failure to do so is made liable for penalty under Section 271E of the Act. 19. In the present case, it is not in dispute that the assessee has repaid loan / deposit by debiting the account through journal entries. The agk 12/19 itxa5746-10-final question is, whether such repayment of loan / deposit is in contravention of the modes of repayment set out in Section 269T ? The argument advanced by the counsel for the assessee that the bonafide transaction of repayment of loan / deposit by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The ld. CIT(A) placed reliance on the decision of the Hon ble Jurisdictional High Court in the case of CIT vs. Triumph International (I) Finance Ltd., reported in 345 ITR 270 wherein it was held that the transactions through journal entries are also hit by the provisions of 269SS and 269T of the Act. The decision of the Hon ble Bombay High Court rendered on 12/06/2012 is significant and prior to this judgment, there were series of consistent decisions on Sections 269SS and 269T of the Act holding that mere passing of journal entries will not amount to receipts / payments otherwise done by account payee cheques or draft and accordingly, the same were not in contravention of provisions of 269SS and 269T of the Act and consequently no penalty u/s.271D and 271E of the Act could be levied for the same respectively. The Hon ble Jurisdictional High Court held that the reliance placed on these series of consistent decisions of 269SS and 269T of the Act constituted reasonable cause and accordingly, it held that though journal entries fall within the ambit of provisions of 269SS and 269Tof the Act, still in view of series of consistent decisions rendered on the said subject, the Hon ble Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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