9911796707
TMI Blog2023 (9) TMI 1018X X X X Extracts X X X X X X X X Extracts X X X X ..... in the earlier years by the erstwhile amalgamating companies, in the garb of penalty u/s. 271E for converting bogus loan into redeemable bonds in this year. If loan taken in earlier years itself is being treated as bogus or non-genuine, which according to CIT (A) was liable to be taxed as non-genuine, then how penalty is leviable u/s. 271E in this year when it is being treated as repaid in the opinion of CIT (A). Again the question is how a loan taken in earlier years by erstwhile companies which have been amalgamated in the assessee after this assessment year, can a conversion of bond / debenture be treated as repayment of loan. This is completely outlandish and inexplicable reason beyond any legal parlance or any binding judicial precedence. All those observations made by CIT (A) on basis of some search or enquiry in the case of Crest Topworth Group where it was alleged that certain lending companies controlled by it has given loans to erstwhile companies, i.e., amalgamating companies is wholly irrelevant while dealing with the issue of levy of penalty u/s. 271E which is very specific to the conditions given in Section 269T which envisages that repayment of loan otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue and therefore, the advance which was there, is in the nature of debt and it was the liability of the company and the bonds are also in the nature of debt which is also in the nature of liability of a company. Thus, there is no question that the liability in the form of debt has been changed by converting advances into bonds which again is liability. However, the ld. AO held that bonds have been issued to the person against whom loans were outstanding and this has the effect that loans were squared up against the bonds. He referred to the provision of Section 269T and held that assessee has repaid loans otherwise by account payee cheque or account payee demand draft in the name of the person who has made loan or by using of Electronic Clearing System with the bank etc., Thus, he levied penalty of Rs. 61,12,35,000/- which was the exact amount of bond issued by the assessee. 4. Before the ld. CIT(A), assessee submitted that assessee has received loans / advances which are in the nature of debt from six corporate entities amounting to Rs. 61,12,35,000/-. Since, due to financial difficulties, it was unable to repay the said loan / advances, then it was mutually agreed that asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the loans were converted into convertible debentures after making book adjustments by way of journal entries but such action was apparently not taken by the Jurisdictional AOs/Addis in the cases M/s. Fiscal Securities India Ltd., M/s. Goldline Tracon P. Ltd., M/s Kartik Credit P. Ltd. and M/s. Navodaya Exim P. Ltd . 6. Ld. CIT (A) also referred to the decision of the Hon ble Jurisdictional High Court in the case of Triumph International Finance (I) Ltd., reported in 345 ITR 270 (Bombay High Court), wherein the Hon ble High Court has held that penalty u/s. 271E is not leviable in a case where the loans are squared up by way of book adjustments or by way of journal entries, provided they are bonafide commercial transactions. Thereafter, the ld. CIT(A) carried out his own enquiry and verification to ascertain as to whether the loans received by the amalgamating companies in earlier years in their books as well as the assessee and their subsequent conversion into debentures can be termed as bonafide and he also sought for report from the Jt. Director of Investigation, Unit 7(1). The report was obtained from ITD/ITBA system which provided the details of some 12 lender entities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancing the penalty in his show cause notice are as under:- 2 In this matter, pursuant to a scheme of amalgamation sanctioned by the Hon'ble High Court of Kolkata vide its order dated 22.03.2016, M/s Denro Holdings P Ltd. Ma Fiscal Securities India Ltd., M/s Gold Line Tracon P Ltd, M/s Kartik Credit P Ltd, Navodaya Exim P Ltd and Ushaditya Trading P Lld have been amalgamated with M/s. Mita Holdings P. Ltd. (the assessee) w.e.f. 01.04.2014 Prior to this amalgamation, the aggregate loans allegedly received of Rs 219,47, 15,00,000/- by the assessee as well as the said 6 amalgamated from (i) Ma Nametech Dealers P Ltd. (Rs 14,16,40,000/-), (ii) M/s Navmi Steel Traders P Ltd. (Rs 55,43,35,000/-), (iii) M/s Netra Mercantiles P Ltd. (Rs 45,24,75,000/-), (iv) M/s New Core Steels P Ltd (Rs 65,45,000/-), (v) M/s Poscho Steels P Ltd (Rs 17.08,00,000), (vi) M/s Bum Steel Trading P Lid (Rs 1,97,75,000/-), (vii) M/s Deep Star Alloys Steel P Ltd (Rs 4,33,90,000/-), (vii) M/s Credence Logistics Ltd. (Rs 30,60,00,000/-), (x) M/s Jaltarang Vanijya P Ltd (Rs 23,50,00,000/-), (x) M/s Novel Merchants P Ltd (Rs 5,27,55,000/-), (x) M/s Mona Digital Equipments (Rs 3,00,00,000/-) and (xii) M/s Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that this lender company was maintaining two sets of accounts, one set of account for Income tax purposes and another set of accounts for the banking authorities, ROC etc . Further, there were two different Auditors for the said two sets of accounts. The differences in the balances reported in the said two sets of accounts for the years ending 31.03.2009 to 31.03.2011, as reported in the common assessment order of this lender, related to the search action is enclosed at Annexure 1 From this Annexure 1, it can be observed that there are major variations in the figures of share application money, secured loan, unsecured loan, investments, stock as well as debtors and creditors. The figures of loans and sharo application money as per the Income Tax returns are much higher than the figures reported in the accounts submitted to the banks, ROC etc. For exemple. In the year ending 31.03.2009, in the Income Tax retum, shero application money has been shown to be of Rs. 3437 crs as against Nil in the accounts reported to the banks. ROC etc. Similarly, the figures of loans reported in the Income Tax Return is of Rs. 29.99 crs as against Rs. 14.92 crs shown to the Banks, ROC etc. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45.24 to the assessee and the said 6 amalgamaed companies . The factual position which emerge from the findings of the search action as well as the non-submission of the returns of income in response to notice u/s 153A for the years ending 31.03 2011 and 31.03.2012 and non-filing of the regular return for the year ending 31.03.2013 raises serious doubts about the bonafide of the alleged loan given by this lender company to the assessee and the said other 6 amalgamated companies ii) Posco Steels P. Ltd . This leader has allegedly given aggregate loans of Rs. 17.08 crs to the assessee and the said 6 amalgamated companies. This lender also belongs to Crest Topworth Group which was subjected to search action by the Investigation Wing on 10.10.2012 The actual position in Posco Steel P Lid is quite similar to that of Netra Mercantile P. Ltd. there also two sets of accounts with huge variations in the figures were found during the search action. Further, as mentioned earlier, in course of the search action, Shri Kundan Sethya key person and Shri Dhananjay Nandumar Narae admitted in their statements recorded that the entries of cats and purchases recorded in the books of the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the returns of income in response to notice u/s 153A for the years ending 31.03.2011 and 31.03.2012 and non-filing of the regular return for the year ending 31.03.2013 raises serious doubts about the bonafide of the alleged loan given by this lender company to the assessee and the other amalgamated companies (iv) Deep Star Alloys Steel P Ltd . This lender company has allegedly given aggregate loans of Rs 4.33 crs to the assessee and the said 6 amalgamated companies. This lender company also belongs to Crest Topworth Group which was subjected to search action by the Investigation Wing on 10.10.2012. Further as mentioned earlier in course of the search action. Shri Kundan Sathya By person and Shri Dhananjay Nandkumar Narse admitted in their statements recorded that the entries of sales and purchases recorded in the books of the various entities of the group are only accommodation entries and do not represent actual sales-purchases . For the years relevant to A Ys 2007-08, 2009-10 and 2010- 11, the said lender offered undisclosed income of Rs. 55.73 lakhs in response to notices issued u/s 1534. Since, there was no compliance in course of the search related assessment procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. 7. Moreover, it is also observed that M/s. Fiscal Securities India Ltd., M/s. Goldline Tracon P. Ltd., M/s. Karthik Credit P. Ltd. and M/s. Navodaya Exim P. Ltd. had also amalgamated with the assessee. However, penalty u/s. 271E has not been levied in respect of the alleged loans received by these 4 amalgamated entities from the aforesaid 8 lenders, which were converted into debentures. Since these 4 entities had also amalgamated with the assessee, penalty u/s. 271E in respect of the said alleged loans received by M/s. Fiscal Securities India Ltd., M/s. Goldline Tracon P. Ltd., M/s. Karthik Credit P. Ltd. and M/s. Navodaya Exim P. Ltd. from the aforesaid 8 lenders, is also required to be levied in the hands of the assessee itself which will result into further appropriate enhancement. 8. Your submissions/reply, if any, to the aforesaid proposed enhancement should positively be submitted by 29.01.2019 9. The ld. CIT (A) then held that all the actions under the Act can be initiated to continue or conclude against the transferee/ amalgamated company and therefore, all the proceedings will be initiated in the hands of the assessee company which got amalgamated wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. and M/s Punsuni Agents P Ltd., it is observed that the said 7 lender companies are part of the assessee group itself. Moreover, the assessee has also furnished their confirmations and other supporting evidences in respect of the said transactions related to conversion of loans to debentures. It is observed that in the case of Lodha Group of cases, the transactions of repayments were among the entities of Lodha Group itself and after considering this important fact, the Hon'ble ITAT had held that the said transactions fall within the ambit of reasonable cause and therefore penalty u/s 271E is not leviable. The decision of the Hon'ble ITAT in Lodha group of cases has been upheld by the Hon'ble Jurisdictional High Court and the further SLP of the Department has also been dismissed. Therefore, it is held that the action of the AO of levying penalty in respect of the transactions entered into with the said 7 lenders M/s Namtech Dealers P Ltd, M/s New Course Steels P Ltd., M/s Burn Steel Trading P Ltd., M/s Credence Logistics Ltd, M/s Jaltarang Vanijya P Ltd, M/s Novel Merchants P Ltd. and M/s Punsini Agents P Ltd falls within the ambit of reasonable cause and therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. However, he observed from the ledgers that some of the said transactions of loans/advances are quite recent related to the years ending 31.03.2011 31.03.2012 and therefore this contention of the assessee is found to be erroneous. 14. Ld. CIT(A) further held that assessee had entered into transaction of accommodation entries with the aforesaid four lenders of Crest Topworth Group. The relevant observation in this regard reads as under:- 5.11.10 Further, as regards the contention of the assessee that even assuming that the said 4 lenders of Crest Topworth Group are engaged in the business of accommodation entries, then also the assessee cannot be penalized, it is noted that an accommodation transaction involves receipt / payment of cheque and corresponding payment/receipt of cash. Thus, if the assessee has entered into transactions of accommodation entries with the said 4 lenders of Crest Topworth Group, the assessee also is clearly party to the dubious transactions and cannot wash its hands by claiming that it had no role and it cannot be said to have conspired with them. It is also noted that the assessee claims that the advances were received from one of the lenders, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty as well This is not a case of levy of a new penalty on the quantum enhancement made by the CIT(A) which is governed by the provisions of sec. 271(1) This only is a case of enhancement of the penalty already levied by the AO u/s 271E. After the amalgamation, the liability for the penalty u/s 271E in all the cases of violation of provisions of Sec 269T on account of repayment other than by the prescribed modes including in respect of the said 6 transferor/amalgamating companies, was on the appellant itself. The levy of penalty u/s 271(1)(c) of the Act by the CIT(A) is when the CIT(A) himself has made a new addition or disallowance leading to enhancement in the corresponding quantum order This is not the case here. Thus the argument of the appellant that penalty u/s 271E cannot under any circumstances be enhanced by a CIT(A), is grossly fallacious. 5.13.8 As regards the contention of the assessee that more than 6 months have already lapsed from the initiation of the penalty proceedings u/s 271E and therefore the enhancement cannot be made in the present appellate proceedings, it is observed that the Act does not prescribe any limitation of time for disposal of appeals and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tally aggregating to Rs 122,10,00,000/ On this aggregate amount of Rs 122,10,00,000/- penalty u/s 271E is held to be leviable in the hands of the assessee itself being the transferee / amalgamated company Moreover, since in respect of one another lender company, M/s Mona Digital Equipment P Ltd. whose name has been struck off by the ROC and it has not filed its return of income from AY 2008-09 onwards, the transaction of conversion of loan to debentures is also held to be not bonafide and accordingly it is held that penalty u/s 271E is leviable in the hands of the assessee in respect of the loan from this lender and also in respect of the loans received from this lender in the said 6 transferor / amalgamating companies viz M/s Denro Holdings P. Ltd, Ms Ushaditya Trading P. Ltd, M/s Fiscal Securities India Ltd., M/s Goldline Tracon P. Ltd., M/s Kartik Credit P Ltd and M/s Navodaya Exim P. Ltd. for an aggregate amount of Rs 3,00,00,000/- However, the loans received from the other balance 7 lenders which are all related entities of the assessee and for which the necessary confirmations, evidences etc have been submitted by the assessee in the present proceedings, it is held that that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovides for mode of repayment of certain loans or deposits otherwise than by an account payee cheque or account payee demand draft drawn in the name of person who has made the loan or deposit which exceeds to Rs. 20,000/- or more. The entire edifice for levy of penalty u/s. 271E is based on reasoning that earlier loan take by erstwhile amalgamating company who had taken loan from very same lender companies of Crest Topworth Group which was found to be involved in some kind of accommodation entries are bogus or non-genuine. He is doubting the genuineness and bonafide transaction of loans in the earlier years by the erstwhile companies and drew the adverse inference that, since these loans were bogus, therefore, conversion of this loan into convertible debentures in this year should be subjected to levy of penalty u/s. 271E. If the loans were bogus in those years in the hands of those transferee companies, then it is unfathomable as to how in the year in which the loans have been converted into convertible debentures which is also a kind of debt, penalty u/s. 271E can be levied? 19. It is not a case that any violation on account of section 269T has been found in the cases of those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same party in the books. 21. The ld. CIT(A) has relied upon information which he had called for and came to the conclusion that transaction on receipt of loan is itself doubtful and has given his exhaustive finding and observation based doubting the genuineness of the loan taken in the earlier years. The issue before the ld. CIT(A) was whether there is any default in terms of Section 269T justifying the levy of penalty u/s. 271E. Once, the original transaction of loan is not a subject matter of any assessment proceedings nor there is any action u/s. 263 or reopening under Section 148 in respect of loan taken in earlier years in the hands of assessee company or erstwhile amalgamating companies and in fact, there is no whisper about these transactions being genuine or non-genuine. Then how the said loan is doubted so as to justify penalty u/s. 271E stating that non-genuine loan has been repaid by issuance of bond. The only issue which was required to be decided by the ld. CIT (A) was, whether the issue of bonds against existing liability can be construed as default u/s. 269T especially when the ld. AO in the assessment proceedings is not doubted the genuineness of the advan ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
