IN THE INCOME TAX APPELLATE TRIBUNAL
`C' : NEW DELHI
DELHI BENCH `C
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND
SIDHU, JUDICIAL MEMBER
SHRI H.S. SIDHU,
Nos.2253/Del/2013 & 2259/Del/2013
ITA Nos
2007-08
Assessment Year : 2007-
Assistant Commissioner of Vs. Vardaan Fashion,
M/s Vardaa
Income Tax, E-1/7, 2nd Floor,
Circle
cle-33(1),
Circle- East Patel Nagar,
New Delhi. New Delhi 110 008.
PAN : AACFV0423H.
(Appellant) (Respondent)
ITA Nos.2252/Del/2013,
Nos.2252/Del/2013, 2258/Del/2013, 3084/Del/2013 & 3085/Del/2013
Years : 2007-
Assessment Years 2008-09, 2008-
2007-08, 2008- 2008-09
2008-09 & 2008-
Assistant Commissioner of Vs. Shri Inderpal Singh Wadhawan,
Income Tax, E-1/7, 2nd Floor,
Circle-33(1),
Circle- East Patel Nagar,
New Delhi. New Delhi 110 008.
PAN : AARPS6904L.
(Appellant) (Respondent)
Appellant by : Shri R.I.S. Gill, CIT-DR and
Shri B.R.R. Kumar, Sr.DR.
Respondents by : Shri Ajay Wadhwa, Advocate.
ORDER
PER G.D. AGRAWAL, VP :
:-
ITA No.3085/Del/2013 :-
This appeal by the Revenue is directed against the order of
learned CIT(A)-XXVI, New Delhi dated 13th February, 2013 for the AY
2008-09.
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2. The only ground raised by the Revenue in this appeal reads as
under:-
"The CIT(A) has erred in deleting the penalty of
Rs.5,85,70,875/- levied by the AO u/s 271D for violation
of provisions of section 269SS of the I.T. Act 1961."
3. The facts of the case are that the assessee is an individual and
during the course of assessment proceedings under Section 143(3), the
Assessing Officer noticed that the assessee had accepted loan or
deposit amounting to `5,85,70,875/- otherwise than account payee
cheque or account payee draft. The details of such loan accepted
otherwise than account payee cheque/bank draft are as under:-
Name of the lender Date of entry Amount of loan or deposit taken
or accepted otherwise than by an
account payee cheques or an
account payee bank draft
GMS Real Estate (P) Ltd. 4/2/2008 190000
Godsons Shoes 4/2/2008 970000
Godsons Bros. 4/2/2008 3900000
M.S. Appreal Pvt.Ltd. 1/4/2007 4000000
Vardaan Fashion 14/11/2007 250000
Vardaan Fashion 19/11/2007 612175
Vardaan Fashion 18/3/2008 612175
Vardaan Fashion 18/1/2008 612175
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
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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 referred to as GMS):-
"(i) The assessee is a partner of M/s DNK. M/s DNK
received/paid cheque from/to GMS Real Estate time to
time on behalf of the assessee for the advance for
property. On 4/2/2008 the net amount from G M Real
Estate transferred to Inderpal Singh account. Thus, the
assessee has not received any loan/advance otherwise
than by account payee cheque/account payee bank
order. It would not be out of place to mention that all
the payments were received through account payee
cheques only from GM Real Estate. A partnership firm
can receive payment on the behalf of the partner. M/s
DNK received the advance for property on the behalf of
the assessee, which is not contradictory to the provision
of section 269SS read with section 271D of the Income
Tax Act, 1961. Copy of ledger account of GMS Real
Estate (P) Ltd. and DNK in the books of the assessee
and ledger account of GMS Real Estate & Inderpal Singh
in the books of the M/s DNK are enclosed herewith as
Annexure-"B"."
5. The Assessing Officer did not accept the assessee's contention
with the following finding:-
"The contentions of the assessee have been examined.
The loan has been taken by the assessee which is quite
clear from the ledger account of GMS Real Estate in the
books of the assessee Inderpal Singh wherein GMS Real
Estate account has been credited dated 4.2.2008 by
Rs.1,90,000/-. It is not the case of the assessee that the
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assessee has taken loan from GMS Real Estate by
account payee cheque or account payee bank draft
drawn in the name of the assessee. That makes it clear
that he has taken loan from GMS Real Estate otherwise
than by an account payee cheque or account payee
bank draft drawn in the name of the assessee. Now in
the facts of the case it is clear that the assessee has
taken loan from GMS Real Estate otherwise than by an
account payee cheque or account payee bank draft
drawn in the name of the assessee and is using artifice
to camouflage this transaction. This camouflaging
transaction is merely a colourable device to hide the
original transaction which is quite clear from the ledger
account of GMS Real Estate in the books of the
assessee Inderpal Singh wherein GMS Real Estate's
account has been credited dated 4.2.2008 by
Rs.1,90,000/-. Thus it is quite clear that the assessee's
contention has no force in it."
6. Accordingly, the Assessing Officer levied the penalty 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.
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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 GMS was credited and the account of M/s DNK was debited.
There was no monetary transaction between the assessee and GMS.
The monetary transaction was only between M/s DNK and GMS from
time to time and all those transactions were by account payee
cheques. When there was no monetary transaction between M/s DNK
and GMS, the question of accepting the money by account payee
cheque/bank draft did not arise. He further submitted that this issue
has been considered by various Courts and the Tribunal and they have
taken the unanimous view that provisions of Section 269SS cannot be
said to have been violated in the case of book entry. In support of his
contention, he relied upon the following decisions:-
(i) CIT Vs. Worldwide Township Projects Ltd. [2014] 367
ITR 433 (Delhi).
(ii) CIT Vs. National Clothing Co. ITA No.221/2003 vide
order dated 12th December, 2014, Hon'ble Delhi High
Court.
(iii) CIT Vs. Noida Toll Bridge Co.Ltd. [2003] 262 ITR 260.
(iv) Sunflower Builders (P) Ltd. Vs. DCIT [1997] 61 ITD 227
(ITAT-Pune Bench).
(v) ACIT Vs. Ruchika Chemicals & Investment (P) Ltd.
[2004] 88 TTJ 85 (ITAT-Delhi Bench).
(vi) ACIT Vs. Gujarat Ambuja Proteins Ltd. [2004] 89 TTJ
324 (ITAT-Ahmedabad Bench).
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9. We have carefully considered the submissions of both the sides
and perused relevant material placed before us. Admittedly, in the
case of the assessee, for the year under consideration, in respect of all
the credit entries amounting to `5,85,70,875/-, the credit was by way
of journal entries and not on account of receipt of any cash money by
the assessee from the lenders. So far as credit in the account of GMS
is concerned, M/s DNK, which is a partnership firm in which assessee is
a partner, received/paid cheque from GMS time to time on behalf of
the assessee. In respect of the net amount, a journal entry was passed
by crediting to GMS and debiting to M/s DNK. Similarly, M/s DNK also
received cheque from Godsons Shoes on behalf of the assessee and
then by way of journal entry in the assessee's books of account.
Godsons Shoes was credited with debit to M/s DNK. In the case of
Godsons Bros., there was a transaction by cheque between Vardaan
Fashion, a partnership firm in which assessee is a partner and Godsons
Bros. and in the books of the assessee, there was only a journal entry.
In the case of M.S. Appreal Pvt.Ltd., the journal entry 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 Rs.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
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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. Similar is the position for credit in the name of Vardaan Fashion.
M/s Vardaan Fashion is the partnership firm in which assessee is a
partner. M/s Vardaan Fashion made payment on behalf of the
assessee to others by account payee cheques and in the books of the
assessee, only the journal entry is passed crediting the account of M/s
Vardaan Fashion and debiting the account of the person to whom the
payment is made by M/s Vardaan Fashion. The Revenue has also not
disputed that all the above credit entries are by way of journal entries
but their contention is that as per Section 269SS, assessee is supposed
to accept loan or deposit by account payee cheque or account payee
bank draft. Since there is a credit entry in the assessee's books of
account which is neither by account payee cheque nor by bank draft,
therefore, there was violation of Section 269SS and consequently, the
penalty is leviable under Section 271D. We are unable to accept this
contention of the Revenue. Section 269SS and explanations thereto
read as under:-
"[Mode of taking or accepting certain loans and
deposits.
269SS. No person shall, after the 30th day of June,
1984, take or accept from any other person (hereafter
in this section referred to as the depositor), any loan or
deposit otherwise than by an account payee cheque or
account payee bank draft [or use of electronic clearing
system through a bank account] if, -
(a) the amount of such loan or deposit or the
aggregate amount of such loan and deposit; or
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(b) on the date of taking or accepting such loan or
deposit, any loan or deposit taken or accepted earlier
by such person from the depositor is remaining unpaid
(whether repayment has fallen due or not), the amount
or the aggregate amount remaining unpaid; or
(c) the amount or the aggregate amount referred to in
clause (a) together with the amount or the aggregate
amount referred to in clause (b),
Is [twenty] thousand rupees or more :
Provided that the provisions of this section shall not
apply to any loan or deposit taken or accepted from, or
any loan or deposit taken or accepted by, -
(a) Government;
(b) any banking company, post office savings bank or
co-operative bank;
(c) any corporation established by a Central, State or
Provincial Act;
(d) any Government company as defined in section
617 of the Companies Act, 1956 (1 of 1956);
(e) such other institution, 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;]
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(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 of explanation by which loan or
loan or deposit of money".
deposit means "loan money Thus, for the purpose of
Section 269SS, loan or deposit of money only is to be considered.
Now, in the case of all the credit entries in the accounts of the
assessee which are considered for levy of penalty under Section 271D,
we find that there is no monetary transaction between the assessee
and the creditors. The monetary transaction had taken place between
the creditors and some third party which were all by account payee
cheques. In the books of the assessee, there is only a journal entry by
debiting the account of some other party and crediting to the account
of the creditor. In these circumstances, in our opinion, when there is
no monetary transaction between the assessee and creditor, it cannot
be said that assessee accepted loan or deposit from the creditor in
violation of Section 269SS.
12. We also find that Hon'ble Jurisdictional High Court has considered
this issue in the case of Noida Toll Bridge Co.Ltd. (supra) and held as
under:-
"Where the Tribunal had noticed that (i) the transaction
was by an account payee cheque, (ii) no payment on
account was made in cash either by the assessee or on
its behalf, (iii) no loan was accepted by the assessee in
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cash, and (iv) the payment of Rs.4.85 crores was made
by the assessee through ILFS, which held more than 30
per cent, of the paid-up capital of the assessee, by
journal entry in the books of account of the assessee by
crediting the account of ILFS :
Held, that the provisions of section 269SS of the
Income-tax Act, 1961, were not attracted and penalty
could not be imposed."
13. In the case of Worldwide Township Projects Ltd. (supra), Hon'ble
Jurisdictional High Court held as under:-
"A plain reading of section 269SS of the Income-tax Act,
1961, indicates that the import of the 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 a 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 of the section is to prevent
transactions in currency. This is also clearly explicit
from clause (iii) of the Explanation to section 269SS of
the Act which defines 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
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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 resulting
in debit or credit. Other reasons and grounds have
been elucidated."
15. Thus, Hon'ble Jurisdictional High Court has consistently held that
Section 269SS is not applicable in the case of credit by way of journal
entry or book entry. We, therefore, respectfully following the above
decisions of Hon'ble Jurisdictional High Court, hold that the learned
CIT(A) was fully justified in cancelling the penalty levied under Section
271D of the Act. His order is upheld and Revenue's appeal is
dismissed.
:-
ITA No.2258/Del/2013 :-
16. The only ground raised in this appeal by the Revenue reads as
under:-
"The CIT(A) has erred in deleting the penalty of
Rs.3,26,97,283/- made by the AO u/s 271E for violation
of provisions of section 269T of the I.T. Act 1961."
17. The Assessing Officer had levied the penalty under Section 271E
in respect of following payments made by the assessee :-
Name of lender Date of entry Amount of loan or Remarks
deposit repaid
otherwise than by an
account payee cheque
or an account payee
draft
Bharat Seeds Pvt Ltd. 10.8.2006 25,00,000 Amount paid from Vardaan
Fashion and transfer entry
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made
Manleen Trading Co. 8.9.2006 12,50,000 Journal entry from Majinder
Singh
Satvinder Singh 1.4.2006 3,95,283 Journal entry passed and
credit in DLF property
account
Satvinder Singh 19.12.2006 49,00,000 Non account payee PO
738698 (against Ch.no.
603714)
God Sons Sales 23.3.2007 23,72,000 Journal entry passed and
credit in DNK account
Simran Singh 23.5.2006 5,00,000 Non account payee PO
915109 from PNB
Arun Textiles 15.12.2006 30,00,000 Non account payee PO
738462 from PNB
Arun Textiles 6.3.2007 70,00,000 Non account payee PO
God Sons Brothers 8.3.2007 70,00,000 Non account payee PO
740615 from PNB
Shree Hanuman 16.12.2006 37,80,000 Non account payee PO
Enterprises 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.
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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 Rs.1,91,80,000/- on repayment through
pay orders
(i) That in respect of penalty of Rs.1,91,80,000/-, the
appellant in the written submission dated 25.11.2011
Page 13 has explained that the payments were made
through pay order/bank draft in which the name of the
payers were mentioned and against each name the
word ONLY, were written. It means, the pay order was
not transferable/negotiable and such pay orders issued
to the parties were account payee only.
(ii) That a certificate dated 10.06.2010 issued by the
PNB, Punjabi Bagh, New Delhi was enclosed as
Annexure-3 of the written submission. On going
through the certificate, your goodself will appreciate
that the Bank has confirmed that the impugned pay
orders were neither negotiable nor transferable by
writing the word `ONLY' and the payments were made
in the a/c of the payees only. The banker has also
certified that the payment has gone to the account of
the respective payees.
(iii) That in the remand report, Page 14-15 the ld.AO
has reported "The letter dated 10.06.2010 from
Punjab National Bank does not anywhere say that re-
payment of loan exceeding twenty thousand rupees has
not been made otherwise than by account payee
cheque or account payee draft and accordingly, the
assessee's contention are entirely bereft of force". As
is clear from the above, the ld.AO has made no
comments on the account payee pay orders but has
only stated that they are not account payee cheques or
account payee drafts. His report is baseless without
having any evidence.
(iv) That the account payee pay orders that have been
issued by the appellant serve the same purpose as an
account payee cheque or account payee draft. The
appellant has made the payment to the suppliers
14 ITA-2253/D/2013 &
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through pay orders in which the names of the payees
were mentioned by writing the word ONLY against the
name of the each payee. It means, the pay orders were
not transferable/negotiable and such pay orders issued
to the suppliers were in the nature of account payee
only.
(v) That in respect of ld.AO's above report, it is
brought to your kind notice that since the payments
were made to local parties, the pay orders were
obtained and the bank has mentioned the word "ONLY"
on such pay orders. The issuing bank of the pay orders,
i.e. Punjab National Bank vide certificate dated
10.06.2010 has certified that the payment was
supposed to be made in the bank account of the payee
by writing the word "ONLY". The objective of the
account payee cheque/bank draft is to 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 Rs.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 Rs.27,674 on
27.10.2004 (pay order) otherwise than account payee
cheque/draft to M/s Ram Saran Rakesh Saran. In
response to the query, the assessee submitted that no
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cash payment has been made to party for Rs.27,674.
The AO, therefore disallowed 20% of the same under
Section 40A(3) of the Income-tax Act, 1961 (in short
`the Act'). On appeal, the ld.CIT(A) confirmed the
addition.
We have heard the rival submissions. Shri Prakash
Narain, Advocate and Shri S.D. Seth, Advocate, ld.
counsels for the assessee submitted that payment
made to M/s Ram Saran Rakesh Kumar, as the AO has
himself stated, was made by pay order. Shri Prakash
Narain, Advocate and Shri S.D. Seth, Advocate,
ld.Counsels for the assessee submitted that the
authorities below have failed to understand the fact
that pay order is a banker cheque and is account payee
only and provisions of Section 40A(3) do not apply to
payment by pay order.
In view of the above submissions of Shri Prakash
Narain, Advocate and Shri S.D. Seth, Advocate, ld.
counsels for the assessee, we allow ground No.2 of the
appeal."
(vii) That the finding of the ld. ITAT, Lucknow in the
aforesaid case is applicable in the appellant's case
being similar facts and circumstances of the case.
Hence, your goodself is requested to kindly delete the
penalty of Rs.1,91,80,000/- which is wrongly levied
under Section 271E of the IT Act, 1961."
21. After considering the arguments of both the sides and the facts
of the case, we do not find any infirmity in the above finding of the
learned CIT(A). The assessee had claimed before the CIT(A) that on all
the pay orders, after the name of the payee, the word `only' has been
used and therefore, the said pay orders were neither negotiable nor
transferable. In support of his contention, the certificate dated 10th
June, 2010 issued by Punjab National Bank was filed. The CIT(A) called
the remand report of the Assessing Officer in which Assessing Officer
reiterated their earlier stand i.e. the payment was not by account
payee cheque or account payee draft. The CIT(A) rejected the
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objection of the Assessing Officer on the ground that the pay order is
nothing but bankers cheque and when in the pay order after the name
of the payee, the word `only' is used, then the pay order becomes
equivalent to account payee cheque which is payable to the person
named in the pay order and not to any other person. The bank in the
said certificate has also confirmed 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
Rs.2,45,59,221/- levied by the AO u/s 271D for violation
of provision of Section 269SS of the I.T. Act 1961.
2. The CIT(A) has erred in holding that partner and
partnership firm are not different from each other and
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the provisions of section 269SS cannot be made
applicable between the transaction of the partner and
the firm.
3. The CIT(A) has erred in admitting additional
evidences under Rule 46A which were not produced
before the AO despite providing two opportunities."
23. The facts of the case are that the assessee is a partnership firm.
The Assessing Officer had levied the penalty of `2,45,59,221/- for
accepting loan or deposit otherwise than through account payee
cheque or account payee bank draft. The details of loan or deposit
taken or accepted otherwise than by account payee cheque or account
payee bank draft are as under:-
Name of lender Date of entry Amount of loan or Remarks
deposit taken or
accepted otherwise
than by an account
payee cheque or an
account payee draft
Shree Hanuman 06/04/2006 5,00,000/- Recd in Inderpal Singh
Enterprises account and journal
entry passed
Rups Craft Inc 04/11/2006 4,50,000/- Recd in Inderpal Singh
account and journal
entry passed
Rups Craft Inc 25/11/2006 24,80,000/- Non account payee PO
738076
Rups Craft Inc 29/11/2006 45,00,000/- Non account payee PO
738234
Kartik agencies 29/09/2006 20,00,000/- Non account payee PO
919194
Kartik agencies 14/10/2006 19,95,000/- Non account payee PO
918964
Inder Pal Singh 04/04/2006 10,00,000/- Journal entry as cheque
received from DNK
18 ITA-2253/D/2013 &
5 others
Creation
Inder Pal Singh 16/05/2006 15,00,000/- Journal entry as cheque
received from
Wadhawan Designs
Inder Pal Singh 06/06/2006 3,00,000/- Cash
Inder Pal Singh 18/09/2006 3,54,221/- 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 material placed before us. After going through the arguments
of both the sides and perusal of the order of authorities below, we find
that the credit entries in the books of account can be divided in three
categories :-
(i) Where there is a credit by way of journal entry (book entry).
(ii) Where there is a credit on account of receipt of pay order.
(iii) Credit by way of cash receipt.
26. So far as the credit by way of journal entry is concerned, this
issue has been discussed by us in detail while considering the penalty
19 ITA-2253/D/2013 &
5 others
in the case of Shri Inderpal Singh Wadhawan. For the detailed
discussion in paragraph Nos.10 to 15 above, we are of the opinion that
on account of credit by journal entry (book entry), there is no violation
of Section 269SS and therefore, penalty under Section 271D is not
leviable.
27. So far as the credit by way of pay orders is concerned, this issue
has also been discussed by us while considering penalty in the case of
Shri Inderpal Singh Wadhawan. At the time of hearing before us, it was
admitted by the parties that the facts in the case of the assessee are
identical to the facts in the case of Shri Inderpal Singh Wadhawan.
Therefore, our finding in this regard in the case of Shri Inderpal Singh
Wadhawan vide paragraph Nos.20 and 21 above would be squarely
applicable and for the detailed discussion therein, we find no infirmity
in the order of learned CIT(A) wherein he cancelled the penalty under
Section 271D levied in respect of credit by way of receipt of pay
orders.
28. So far as the receipt by way of cash is concerned, it was argued
by the learned counsel that the assessee M/s Vardaan Fashion is a
partnership firm and Shri Inderpal Singh Wadhawan is the partner of
the assessee firm. There was a cash transaction of receipt of money
as well as payment between the partnership firm and Shri Inderpal
Singh Wadhawan. Money was credited as well as debited to his capital
account. Thus, the receipt of money from Shri Inderpal Singh
Wadhawan was not by way of loan or advance but it was a capital
contribution. Therefore, it was not in the nature of loan and advance.
He further stated that the firm is not a legal person though for the
purpose of income tax, it has been considered as a separate assessee.
But, the receipt of money from the partners cannot be said to be loan
20 ITA-2253/D/2013 &
5 others
by the partner to the firm. In support of his contention, he 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 page 295 of 106 ITR read as under:-
"Here the first thing that we must grasp is that a firm is
not a legal person even though it has some attributes of
personality. Partnership is a certain relation between
21 ITA-2253/D/2013 &
5 others
persons, the product of agreement to share the profits
of a business. "Firm" is a collective noun, a
compendious expression to designate an entity, not a
person. In income-tax law a firm is a unit of
assessment, by special provisions, but is not a full
person which leads to the next step that since a
contract of employment requires two distinct persons,
viz., the employer and the employee, there cannot be a
contract of service, in strict law, between a firm and one
of its partners."
31. Similar observations were made at page 299 which read as
under:-
"The necessary inference from the premise that a
partnership is only a collective of separate persons and
not a legal person in itself lends to the further
conclusion that the salary stipulated to be paid to a
partner from the firm is in reality a mode of division of
the firm's profits, no person being his own servant in
law since a contract of service postulates two different
persons."
32. Thus, their Lordships of the Apex Court clearly held that the
partnership firm is only a collective name of separate persons and not
a legal person in itself and therefore, a partner cannot be a servant of
the firm because no person can be his own servant in law. The ratio of
the above decision would be squarely applicable in the case under
appeal before us. Similar to the contract for employment where two
distinct persons employee and employer are required, for the purpose
of giving and acceptance of loan or deposit also, two different persons
are required (i) the lender and (ii) the debtor i.e. the borrower. As
per Hon'ble Apex Court, firm and partner are not two different persons,
therefore, credit in the books of firm in the account of partner, it
cannot be said that firm has taken loan or deposit from partner.
Admittedly, in the assessee's books of account, the amount has been
22 ITA-2253/D/2013 &
5 others
credited in the capital account of Shri Inderpal Singh Wadhawan. The
firm and partners have also treated the transaction as of contribution
of capital from the partner to the firm and not as a loan by an
individual to the partnership firm.
33. That Hon'ble Rajasthan High Court in the case of Lokhpat Film
Exchange (Cinema) (supra) has 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 would be
squarely applicable to the case under appeal before us. Respectfully
following the same, we hold that learned CIT(A) was fully justified in
cancelling the penalty levied under Section 271D in respect of capital
23 ITA-2253/D/2013 &
5 others
contribution by the partner to the firm. Accordingly, the Revenue's
appeal is dismissed.
ITA :-
ITA No.2259/Del/2013 :-
36. The grounds raised by the Revenue in this appeal read as under:-
"1. The CIT(A) has erred in deleting the penalty of
Rs.1,70,70,000/- levied by the AO u/s 271E for violation
of provision of Section 269T of the I.T. Act 1961.
2. The CIT(A) has erred in holding that partner and
partnership firm are not different from each other and
the provisions of section 269T cannot be made
applicable between the transaction of the partner and
the firm."
37. The Assessing Officer had levied penalty under Section 271E
amounting to `1,70,70,000/- in respect of the following debit in the
assessee's books of account:-
Name of lender Date of entry Amount of loan or Remarks
deposit repaid
otherwise than by an
account payee cheque
or an account payee
draft
Rups Craft Inc 03/11/2006 15,45,000/- Cash
Inder Pal Singh 07/06/2006 4,00,000/- Cash
Inder Pal Singh 08/06/2006 4,00,000/- Cash
Inder Pal Singh 17/06/2006 4,00,000/- Cash
Inder Pal Singh 02/11/2006 25,00,000/- Journal entry as cheque
received from DNK
creation
Inder Pal Singh 15/12/2006 7,00,000/- Journal entry as cheque
received from DNK
creation
Inder Pal Singh 15/01/2007 50,00,000/- PO 311712
24 ITA-2253/D/2013 &
5 others
Inder Pal Singh 31/01/2007 24,50,000/- Journal entry as cheque
received from DNK
Inder Pal Singh 07/02/2007 3,00,000/- Cash
Inder Pal Singh 21/02/2007 12,75,000/- 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 is considered by us in assessee's own
case for the same assessment year while dealing with the penalty
levied under Section 271D. Our observations and finding in respect of
credit by way of journal entry (book entry), pay order as well as credit
from the partners would be squarely applicable in respect of debit by
way of journal entry, pay order and payment to the partners which is
debited in their capital account. Therefore, for the detailed discussion
in assessee's own case, while considering the penalty levied under
Section 271D, we are of the opinion that the learned CIT(A) was
justified in cancelling the penalty levied under Section 271E for debit
25 ITA-2253/D/2013 &
5 others
by way of journal entry, debit by way of pay order as well as debit on
account of payment to partner debited to capital account.
41. With regard to debit of cash in the account of M/s Rups Craft Inc,
the learned CIT(A) while deleting penalty levied under Section 271D
observed as under :-
"11.3 Regarding the repayment of Rs.15,45,000/-
to M/s Rups Craft Inc. I find that the Assessing Officer is
observation that there was a violation of the provisions
of section 269T is not correct. In fact the appellant was
doing business with the M/s Rups Craft Inc and all the
transactions with this party related to business only and
there was no transaction of loan or deposit. I also find
that in the course of business Sh. Inderpal Singh,
partner of the appellant firm had paid Rs.15,45,000/-
though an account payee cheque no.57308 to M/s Rups
Craft Inc on behalf of the appellant and consequently a
journal entry dated 3.11.2006 was passed by increasing
the capital of Sh. Inderpal Singh and reducing the credit
balance of Rs.7,64,292/- which was already appearing
in his name. In view of these facts since the repayment
was not in respect of any loan or deposit but related to
business transactions there was no violation of the
provisions of section 269T of the Income-tax Act, 1961."
42. At the time of hearing before us, the above factual finding
recorded by the CIT(A) has not been controverted. The CIT(A) has
clearly recorded the finding that there was the business transaction
between the assessee firm and M/s Rups Craft Inc. and all the
transactions with the said party were business transactions only and
there was no transaction of loan or deposit. It was also observed that
in fact there was no cash payment. 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
26 ITA-2253/D/2013 &
5 others
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
Rs.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 the repayment of loan or deposit in
violation of Section 269T of the Act:-
Name of the lender Date of entry Amount of loan or deposit repaid
otherwise than by an account
payee cheques of an account payee
bank draft.
DNK Creation
Deepak Fabric 7/5/2007 1950000
Individual A/c
Dewana Diary 14/11/2007 250000
Dewana Diary 7/12/2007 300000
Dewana Diary 1/2/2008 2100000
27 ITA-2253/D/2013 &
5 others
Dewana Diary 1/2/2008 140000
B.K. Brothers 14/5/2007 1500000
Godsons Bros. 1/2/2008 1000000
Godsons Bros. 13/2/2008 500000
Godsons Bros. 13/2/2008 500000
Molycoddle Fashion
Pvt.Ltd.
45. Learned CIT(A) cancelled the penalty. Hence, this appeal by the
Revenue.
46. We have heard the arguments of both the sides and perused
relevant material placed before us. With regard to repayment of
`19,50,000/- in the name of M/s Deepak Fabrics, the CIT(A) has
recorded the following finding:-
"6.9 Entry dated 7.5.2007 of Rs.19,50,000/- in the name
of M/s Deepak Fabrics : In this case, I find that the
appellant was doing business with M/s Deepak Fabrics
as proprietor of M/s DNK Creation. It was on account of
business transaction that the appellant had paid
Rs.19,50,000/- vide an account payee cheque
no.344561 dated 7.5.2007 to M/s Deepak Fabrics on
behalf of the proprietary concern M/s DNK Creations.
During the course of penalty proceedings, these facts
were duly brought to notice of the Assessing Officer
along with the copy of account of M/s DNK Creations in
the books of the appellant, copy of account of M/s
Deepak Fabrics and copy of account of the appellant in
the books of M/s DNK Creation. The observation of the
Assessing Officer that this payment was made to a
lender and was not a business transaction was merely
based on the report of the special auditor. On the
contrary, the appellant had filed 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
28 ITA-2253/D/2013 &
5 others
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 Deepak Fabrics. The payment was made in
furtherance to such business transactions and moreover, the payment
was made by account payee cheque. Thus, there was neither the cash
payment nor there was repayment of the loan or deposit so as to levy
penalty under Section 271E of the Act.
48. With regard to entry relating to M/s Dewana Dairy, the CIT(A) has
recorded the finding in paragraph Nos.6.10 and 6.11 of his order which
read as under:-
"6.10 Entry dated 14.11.2007 of Rs.25,00,000/- in
the name of M/s Dewana Dairy : The facts in this regard
are that M/s Vardaan Fashion, a partnership firm in
which the appellant was a partner, paid Rs.25,00,000/-
vide an account payee cheque no.498989 dated
14.11.2007 to M/s Dewana Dairy on behalf of the
appellant. These transactions were business
transactions and to prove it the appellant had filed copy
of account of M/s Vardaan Fashion and M/s Dewana
29 ITA-2253/D/2013 &
5 others
Dairy in the books of the appellant and the ledger
account of the appellant in the books of M/s Vardaan
Fashion. Under the Indian Partnership Act, the
partnership firm is not a juristic person and it works
through its partners. Any payment made by the firm
amounts to the payment made by the partner. Since,
the partner and his partnership firm is one and the
same person in the eye of law, there is no legality in
making the payment by the firm on behalf of his
partner. Hence, the provisions of section 269T do not
apply to the transaction in question. The AR of the
appellant in support of his case relied on the judgments
of the Hon'ble High Court of Rajasthan in the case of CIT
vs. Lokhpat Film Exchange (Cinema) (2008) 304 ITR 172
and of the ITAT A-Bench Ahmedabad in the case of
Shrepak Enterprises vs. Deputy Commissioner of
Income-tax (1998) 60 TTJ 199. Even otherwise, there
was no contravention of the provisions of section 269T
as the repayment was made only through an account
payee cheque.
6.11 Entries dated 7.12.2007, 1.2.2008 and 1.2.2008 of
Rs.30,00,000/-, Rs.21,00,000/- and Rs.1,40,000/- in the
name of M/s Dewana Dairy : The nature of all these
entries was same as discussed above while dealing with
entry of Rs.25,00,000/- as all these payments have
been made by M/s Vardaan Fashion, a partnership firm
in which the appellant is a partner, on behalf of the
appellant through account payee cheques. Therefore,
as discussed above the provisions of 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
30 ITA-2253/D/2013 &
5 others
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 violated in
respect of book entry.
51. With regard to debit of `10,75,000/- in the name of M/s
Molycoddle Fashion Pvt.Ltd., the CIT(A) has recorded the finding that
the appellant paid an account payee cheque of `10,75,000/- on
1.2.2007 to M/s Molycoddle Fashion Pvt.Ltd. but wrongly debited to
Estate Officer, HUDA. When the mistake was realized, a journal entry
was passed on 25.5.2007 by crediting the account of Estate Officer,
HUDA and debiting to M/s Molycoddle Fashion Pvt.Ltd. Thus, the debit
entry in the case of M/s Molycoddle Fashion Pvt.Ltd. was only by way of
book entry and for such debit entry, the provisions of Section 269T
cannot be said to have been violated.
52. The debit of `4,00,000/- on 15.3.2008 in the name of M/s
Molycoddle Fashion Pvt.Ltd. was as share application money.
Admittedly, when an assessee applies for allotment of shares in some
company, the payment is not loan or advance to that company. 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
31 ITA-2253/D/2013 &
5 others
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.
53. So far as transaction with M/s Vardaan Fashion is concerned, we
have already discussed similar issue in paragraph Nos.30 to 35 above.
The assessee is a partner in M/s Vardaan Fashion and the transaction
between the partner and the firm i.e. when the assessee makes a
capital contribution to the firm or withdraws the money from his capital
account, it cannot be said to be either loan or advance by the partner
to the firm or the repayment of loan or advance by the firm to the
partner. Therefore, for the detailed discussion in paragraph Nos.30 to
35 above, we hold that in respect of payment by the assessee to the
partnership firm M/s Vardaan Fashion, it cannot be said that there is
violation of Section 269T.
54. In view of the above, we are of the opinion that the CIT(A) rightly
cancelled the penalty levied under Section 269T amounting to
`4,04,79,453/-. Accordingly, we uphold the order of learned CIT(A) and
dismiss the appeal filed by the Revenue.
:-
ITA No.2252/Del/2013 :-
55. The grounds raised by the Revenue in this appeal read as under:-
"1. The CIT(A) has erred in deleting the penalty of
Rs.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."
32 ITA-2253/D/2013 &
5 others
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 Remarks
taken or accepted
otherwise than by an
account payee cheque or
an account payee draft
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/- Cash
Nirupama Wadhawan 19/01/2007 5,00,000/- Cash
Nirupama Wadhawan 19/03/2007 4,00,000/- Cash
Nirupama Wadhawan 20/03/2007 6,50,000/- Cash
Satvinder Singh 15/11/2006 24,85,000/- Journal entry as
payment made to
DNK Creation directly
God Sons Sales 05/02/2007 24,90,000/- Journal entry passed
as payment received
by Vardaan Fashion
Total 95,25,000/-
57. Learned CIT(A) cancelled the penalty. Hence, this appeal by the
Revenue.
58. We have heard the arguments of both the sides and perused
relevant material placed before us. So far as credit entry by way of
journal entry (book entry) is concerned, we have considered this issue
in detail in assessee's own case in paragraph Nos.10 to 15 and have
taken the view that there is no violation of provisions of Section 269SS
when there is a credit entry by way of journal entry (book entry).
33 ITA-2253/D/2013 &
5 others
59. So far as the acceptance of cash money from Nirupama
Wadhawan is concerned, the CIT(A) has deleted the penalty with the
following finding:-
"7.8 As regards the cash received from Smt. Nirupama
Wadhawan, wife of the appellant, I find that the
appellant had received this cash aggregating to
Rs.30,50,000/- on six different dates. It has been
explained by the appellant that he along with his wife,
Smt. Nirupama Wadhawan, were intending to jointly
purchase a house property and for this purpose he had
taken the cash totaling to Rs.30,50,000/- from his wife
which was available with her. It was explained that
since the deal could not be materialized, the said
amount was refunded to her through cheques. It was
submitted that the said receipt of Rs.30,50,000/- from
Smt. Nirupama Wadhawan during the period 2.6.2006
to 31.3.2007 was neither the loan nor deposit as
observed by the Addl. CIT whereas on the contrary the
funds were taken from her with the intention to
purchase the property in a joint venture. It was also
submitted that the amount in question taken from wife
was a bona fide act 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 Rs.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.
34 ITA-2253/D/2013 &
5 others
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 the facts of the case and the nature of
the transactions and also respectfully following the
above decisions and the decisions cited by the AR of the
appellant I hold that there was a reasonable cause for
not complying with the provisions of section 269SS of
the Income-tax Act, 1961. The Assessing Officer was
therefore not justified in imposing penalty u/s 271D in
respect of cash received by the appellant from his
wife."
60. After considering the facts of the case and the arguments of both
the sides, we do not find any infirmity in the order of learned CIT(A).
Smt. Nirupama Wadhawan is the wife of the assessee who had some
surplus cash which she gave to the assessee because the assessee and
his wife intended to jointly purchase a house property. Smt. Nirupama
Wadhawan had given the surplus cash available with her for the
purpose of purchase of such house property. However, when the deal
for purchase of the house property could not be materialized, the said
amount was refunded to her through cheque. We find that the similar
issue was considered by ITAT, Amritsar Bench in the case of ITO Vs.
Tarlochan Singh [2003] 128 Taxman 20 (Mag.). In the said case, the
husband had taken the cash of `70,000/- from his wife for the purpose
of investment in the acquisition of immovable property. The Assessing
Officer had levied the penalty under Section 271D which was cancelled
by the ITAT holding as under :-
35 ITA-2253/D/2013 &
5 others
"Even keeping in view the contents of the departmental
Circular No.387, it was never the intention of the
Legislature to punish a party involved in a genuine
transaction. Therefore, by taking a liberal view in the
instant case, the assessee had a reasonable cause
within the meaning of section 273D.
Thus, keeping in view the entire facts of the instant
case, and also keeping in view the intention of the
Legislature in enacting the provisions of section 269SS,
it was to be held that the assessee was prevented by
sufficient cause from receiving the money by an
account payee cheque or account payee bank draft.
In the instant case, the assessee was of the opinion that
the amount in question did not require to be received
by an account payee cheque or account payee draft.
Thus, there was a reasonable cause and no penalty
should have been levied.
From the above, it would be clear that the assessee had
taken plea that firstly there was no violation of the
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."
36 ITA-2253/D/2013 &
5 others
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
property which was supposed to be purchased jointly. It is a different
matter that ultimately the deal could not materialize. However, the
claim of the assessee that amount was taken by the assessee from her
wife for purchase of the property has not been disputed by the
Revenue. Therefore, the ratio of the above decision of ITAT, Amritsar
Bench would be squarely applicable to the appeal under consideration
before us.
62. In the case of CIT Vs. Sunil Kumar Goel [2009] 315 ITR 163,
Hon'ble Punjab & Haryana High Court held as under:-
"A family transaction, between two independent
assessees, based on an act of casualness, specially in a
case where the disclosure thereof was contained in the
compilation of accounts, and which had no tax effect,
established "reasonable cause" under section 273B of
the Act. Since the assessee had satisfactorily
established "reasonable cause" under section 273B of
the Act, he must be deemed to have established
sufficient cause for not invoking the penal provisions of
sections 271D and 271E of the Act against him. The
deletion of penalty by the Tribunal was valid."
63. That the ratio of the above decision of Hon'ble Punjab & Haryana
High Court would also be squarely applicable in respect of cash
transaction between the assessee and his wife. No contrary decision of
any High Court or the Tribunal has been brought to our knowledge.
Admittedly, the transaction was between the husband and wife with
the intention to purchase a property jointly. When the deal for
purchase of the property could not materialize, the husband i.e. the
assessee refunded the amount to his wife. Thus, in our opinion, the
37 ITA-2253/D/2013 &
5 others
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 Section 269SS. We,
therefore, find no infirmity in the order of learned CIT(A) wherein he
cancelled the penalty levied under Section 271D for the acceptance of
cash by the assessee from his wife. We, therefore, uphold the order of
learned CIT(A) and dismiss the appeal filed by the Revenue.
64. In the result, all the appeals of the Revenue are dismissed.
Decision pronounced in the open Court on 16th January, 2015.
Sd/- Sd/-
SIDHU)
(H.S. SIDHU) AGRAWAL)
(G.D. AGRAWAL)
JUDICIAL MEMBER VICE PRESIDENT
Dated : 16.01.2015
VK.
Copy forwarded to: -
1. Appellant : Assistant Commissioner of Income Tax,
Circle-33(1), New Delhi.
Circle-
2. Vardaan Fashion and
Respondent : M/s Vardaan
Shri Inderpal Singh Wadhawan,
E-1/7, 2nd Floor, East Patel Nagar,
New Delhi 110 008.
3. CIT
4. CIT(A)
5. DR, ITAT
Assistant Registrar
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