Income Tax Appellate Tribunal - Jaipur
Acit, Kota vs Subhash Pareta, Kota on 1 September, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 183/JP/2017
fu/kZkj.k o"kZ@Assessment Year :2011-2012
The ACIT, cuke Shri Subhash Pareta,
Circle-1, Vs. Prop. M/s Pareta Associates, 3/148,
Kota. Ganesh Talab, Basant Vihar, Kota.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AGGPP4046H
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@CO No. 15/JP/2017
(Arising out of ITA No. 184/JP/2017)
fu/kZkj.k o"kZ@Assessment Year :2011-2012
Shri Subhash Pareta, cuke The ACIT,
Prop. M/s Pareta Vs. Circle-1,
Associates, 3/148, Ganesh Kota.
Talab, Basant Vihar, Kota.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AGGPP4046H
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 184/JP/2017
fu/kZkj.k o"kZ@Assessment Year :2011-2012
The ACIT, cuke Shri Subhash Pareta,
Circle-1, Vs. Prop. M/s Pareta Associates,
Kota. 3/148, Ganesh Talab, Basant Vihar,
Kota.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AGGPP4046H
vihykFkhZ@Appellant izR;FkhZ@Respondent
2 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017
ACIT Vs. Sh. Subhash Pareta, Kota
vk;dj vihy la-@CO No. 14/JP/2017
(Arising out of ITA No. 183/JP/2017)
fu/kZkj.k o"kZ@Assessment Year :2011-2012
Shri Subhash Pareta, cuke The ACIT,
Prop. M/s Pareta Vs. Circle-1,
Associates, 3/148, Genesh Kota.
Talab, Basant Bihar, Kota.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AGGPP4046H
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj l@
s Assessee by : None
jktLo dh vksj ls@ Revenue by : Shri R.A. Verma (Addl.CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 10/08/2017
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 01/09/2017
vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. These are two appeals filed by the Revenue and cross objection by the assessee against the order of Ld. CIT (A), Kota of even date i.e, 19.12.2016 in respect of levy of penalty u/s 271D and 271E for A.Y. 2011-12 respectively. None appeared on behalf of the assessee. The ld DR was heard. Based on material available on record, all these appeals are being disposed off by this consolidated order. The respective grounds of the appeal are as under:-
183/JP/17 (Ground of Revenue's appeal) "On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting penalty of Rs. 60,29,868/- imposed u/s 3 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota 271D of the Act without appreciating and ignoring the findings of the Addl. CIT;"
15/JP/17 (Ground of assessee's appeal) "That the ld. CIT(A) grossly erred in not allowing the legal ground raised by the Assessee that the penalty order passed u/s 271-D is time barred, in view of the limitation applicable u/s 275(i)(c) which is affirmed by Hon. Rajasthan High Court in the case of Hissaria Bros. (The Assessment order passed on 19.10.2014 and penalty was levied on 29.10.2015 i.e. beyond 6 Months hence it is time barred.)"
184/JP/2017 (Ground of Revenue's appeal) "On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting penalty of Rs. 46,31,452/- imposed u/s 271E of the Act without appreciating and ignoring the findings of the Addl. CIT."
14/JP/17 (Ground of assessee's appeal) "That the ld. CIT(A) grossly erred in not allowing the legal ground raised by the Assessee that the penalty order passed u/s 271-E is time barred, in view of the limitation applicable u/s 275(1)(c) which is affirmed by Hon. Rajasthan High Court in the case of Hissaria Bros. (The Assessment order passed on 19.10.2014 and penalty was levied on 29.10.2015 i.e. beyond 6 Months hence it is time barred.)"
2. Firstly, we will take the issue of limitation as to whether the order passed u/s 271D as well as u/s 271E of the Act are barred by limitation as prescribed under section 275 of the Act. In its cross objection, the assessee has stated that the assessment order was passed on 4 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota 19.10.2014 and thereafter penalty was levied on 29.10.2015 which is beyond 6 Months hence it was barred by limitation u/s 275(1)(c) of the Act. It was accordingly contended that the initiation for levy of penalty should be reckoned from the date of passing of the assessment order.
3. The ld DR drawn our reference to circular No. 9/DV/2016 dated 26- 4-2016 issued by CBDT and submitted that the ld CIT(A) view is also in consonance with the departmental view as specified by the Board Circular. The contents of the CBDT Circular read as under:
"Commencement of limitation for penalty proceedings under sections 271D and 271E - It has been brought to the notice of the Central Board of Direct Taxes (hereinafter referred to as the Board) that there are conflicting interpretations of various High Courts on the issue whether the limitation for imposition of penalty under sections 271D and 271E commences at the level of the Assessing Officer (below the rank of Joint Commissioner of Income Tax) or at level of the Range authority i.e. the Joint Commissioner of Income Tax/Addl. Commissioner of Income Tax.
Some High Courts have held that the limitation commences at the level of the authority competent to impose the penalty i.e. Range Head while others have held that even though the Assessing Officer is not competent to impose the penalty, the limitation commences at the level of the Assessing Officer where the Assessing Officer has issued show cause notice or referred to the initiation of proceedings in assessment order.
5 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota
2. On careful examination of the matter, the Board is of the view that for the sake of clarity and uniformity, the conflict needs to be resolved by way of a "Departmental View".
3. The Hon'ble Kerala High Court in the case of Grihalaxmi Vision v. Addl. Commissioner of Income Tax, Range 1, Kozhikode1, vide its order dated 8-7-2015 in ITA Nos. 83 & 86 of 2014, observed that, "Question to be considered is whether proceedings for levy of penalty, are initiated with the passing of the order of assessment by the Assessing Officer or whether such proceedings have commenced with the issuance of the notice issued by the Joint Commissioner. From statutory provision, it is clear that the competent authority to levy penalty being the Joint Commissioner. Therefore, only the Joint Commissioner can initiate proceedings for levy of penalty. Such initiation of proceedings could not have been done by the Assessing Officer. The statement in the assessment order that the proceedings under sections 271D and 271E are initiated is inconsequential. On the other hand, if the assessment order is taken as the initiation of penalty proceedings, such initiation is by an authority who is incompetent and the proceedings thereafter would be proceedings without jurisdiction. If that be so, the initiation of the penalty proceedings is only with the issuance of the notice issued by the Joint Commissioner to the assessee to which he has filed his reply."
4. The above judgment reflects the "Departmental View". Accordingly, the Assessing Officers (below the rank of Joint Commissioner of Income Tax) may be advised to make a reference to the Range Head, regarding 6 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota any violation of the provisions of section 269SS and section 269T of the Act, as the case may be, in the course of the assessment proceedings (or any other proceedings under the Act). The Assessing Officer, (below the rank of Joint Commissioner of Income Tax) shall not issue the notice in this regard. The Range Head will issue the penalty notice and shall dispose/complete the proceedings within the limitation prescribed under section 275(1)(c) of the Act.
5. Where any High Court decides this issue contrary to the "Departmental View", the "Departmental View" thereon shall not be operative in the area falling in the jurisdiction of the relevant High Court. However, the CCIT concerned should immediately bring the judgment to the notice of the Central Technical Committee. The CTC shall examine the said judgment on priority to decide as to whether filing of SLP to the Supreme Court will be adequate response for the time being or some legislative amendment is called for."
4. During the course of appellate proceedings before the ld CIT(A), the assessee has drawn support from two decisions of the Hon'ble Rajasthan High Court in case of Hissaria Bros reported in 291 ITR 244 and subsequent decision in case of Jitendra Singh Rathore reported in 352 ITR 327 which has considered the earlier decision. We refer to the legal proposition which has been laid down by the Hon'ble Rajasthan High Court decision in case of Jitendra Singh Rathore as under:
"7. After having given thoughtful consideration to the submissions made on behalf of the appellant and having examined the record, we are 7 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota clearly of the view that this appeal remains meritless and the formulated question deserves to be answered against the appellant particularly for the view already taken by this Court in the case of CIT v. Hissaria Bros. [2007] 291 ITR 244/[2008] 169 Taxman 262, wherein, this Court has specifically held as under:-
"38. We are, therefore, of the opinion that since penalty proceedings for default in not having transactions through the bank as required under Sections 269SS and 269T are not related to the assessment proceeding but are independent of it, therefore, the completion of appellate proceedings arising out of the assessment proceedings or the other proceedings during which the penalty proceedings under Sections 271D and 271E may have been initiated has no relevance for sustaining or not sustaining the penalty proceedings and, therefore, Clause (a) of Sub-section (1) of Section 275 cannot be attracted to such proceedings. If that were not so Clause (c) of Section 275(1) would be redundant because otherwise as a matter of fact every penalty proceeding is usually initiated when during some proceedings such default is noticed, though the final fact finding in this proceeding may not have any bearing on the issues relating to establishing default e.g. penalty for not deducting tax at source while making payment to employees, or contractor, or for that matter not making payment through cheque or demand draft where it is so required to be made. Either of the contingencies does not affect the computation of taxable income and levy of correct tax on chargeable income; if Clause (a) was to be invoked, no necessity of Clause (c) would arise."
8 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota
8. In the present case, the notice for issuance of the penalty proceedings under Section 271D of the Act for the alleged contravention of provisions of Section 269SS was issued to the assessee, of course by the AO, on 25.03.2003. Even if the matter had otherwise been in appeal before the CIT(A) against the original assessment order and the appeal was decided on 13.02.2004, the same was hardly of relevance so far the penalty proceedings under Section 271D were concerned. As held by this Court in Hissaria Bros. (supra), completion of appellate proceedings arising out of assessment proceedings has no relevance over sustaining such penalty proceedings. As held clearly by this Court, in such a matter, clause (c) of Section 275 (1) would be applicable. Section 275(1)(c) could be noticed as under:-
"275. Bar of limitation for imposing penalties.
(1) No order imposing a penalty under this Chapter shall be passed- .....
(c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later."
9. In the present case, the first show cause notice for initiation of proceedings was issued by the AO on 25.03.2003 and was served on the assessee on 27.03.2003. Obviously, the later period also expired on 30.09.2003 when six months expired from the end of the month in which the action for imposing the penalty was initiated. The order as 9 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota passed by the Joint Commissioner of Income Tax for the penalty under Section 271D on 28.05.2004 was clearly hit by the bar of limitation and has rightly been set aside in the orders impugned.
10. In view of the above, our answer to the formulated question of law is that even when the authority competent to impose penalty under Section 271D was the Joint Commissioner, the period of limitation for the purpose of such penalty proceedings was not to be reckoned form the issue of first show cause by the Joint Commissioner; but the period of limitation was to be reckoned from the date of issue of first show cause for initiation of such penalty proceedings. For the purpose of present case, as observed hereinabove, for the proceedings having been initiated on 25.03.2003, the order passed by the Joint Commissioner under Section 271D on 28.05.2004 was hit by the bar of limitation. The CIT(A) and the Tribunal have, thus, not committed any error in setting aside the order of penalty." (Emphasis supplied)
5. In light of legal proposition laid down by the Hon'ble High Court, we now refer to the order of the ld CIT(A) to examine whether his findings are aligned to the stated legal proposition or not. The relevant findings of the ld CIT(A) are reproduced as under:-
"From the facts involved in the present case it is seen that the assessment was completed u/s 143(3) on 19.10.2014 by Asstt. Commissioner of Income Tax, Circle-1 Kota whereby he had mentioned in the assessment order as under-
10 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota "It may be noted that the loan entries have been considered in Annexures-1, 2 & 5 of audit report are being referred for penal proceedings under section 269 SS and 269T to the Additional/Joint CIT separately."
A perusal of the assessment folder shows a letter dated 03/11/2014 written by ACIT Circle-2, transferring the case to ACIT Circle 1, Kota u/120 whereby he has mentioned that-
"Penalty proceedings initiated u/s 269SS & 269T of the IT Act, 1961 in A.Y. 2011-12, information to be passed to Addl CIT, Range-1 Kota by you for taking further necessary action"
The intimation recorded by the ACIT Circle 1 to the Addl. CIT Range-1 imposition of penalty was on 25-03-2015 as per the penalty imposition order of the Addl CIT and the first notice was issued by the Addl. CIT on 23-04-2015. The order was finally passed on 29/11/2015.
In view of the above it has been argued that the penalty imposed by the Addl CIT Range-1, Kota in this case was beyond the limitation provided in the Act. However, since there is no formal notice issued by the A.O. as seen from the record, it is held that the first notice was issued not by the A.O. but by the Addl CIT only on 23-04-2015 and he has passed the order on 29/10/2015 which is within 6 months period as per section 275(1)(c). On this basis itself, the penalty order cannot be on faulted on legal grounds and is held to be valid."
11 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota
6. In light of above findings of the ld CIT(A) which remain undisputed before us, it is clear that during the course of assessment proceedings, the AO has stated that matter relating to penalty proceedings in respect of violation of section 269SS and 269T are being referred to the Additional/Joint CIT. In other words, the AO didn't initiate the penalty proceedings under section 271D and section 271E during the course of assessment proceedings. There is no mention of such proceedings being initiated by the AO in the assessment order. Further, there is no notice under section 271D and section 271E which has been issued by the AO to the assessee by virtue of which such penalty proceedings can be said to have been initiated. In light of the same, we are unable to accede to the contention of the assessee that the date of passing of the assessment order should be reckoned as the date of initiation of penalty proceedings under section 271D and section 271E of the Act. The said view is in consonance with the decision of the Hon'ble Rajasthan High Court in case of Hissaria Bros (supra) and subsequent decision in case of Jitendra Singh Rathore (supra). We accordingly affirm both the order of the ld CIT(A) on this ground and hold that the penalty orders passed under section 271D and section 271E were not barred by limitation. The cross objections filed by the assessee are accordingly dismissed.
7. Now, coming to the merits of the case for levy of penalty, we refer to the findings of the Addl. CIT which are contained at para 6 to 11 of the penalty order. The Addl. CIT has referred to the specific transactions highlighted by the special auditor which are in turn based on Annexure A2/22 impounded during the course of survey u/s 133A of the Act, the said transactions were not disputed by the assessee, at the same time it was contended that these advances were given to staff, labour and sub- contractor, in the course of its business for meeting various expenses at various project sites. The Addl. CIT however did not agree to the assessee's contention and held that assessee has accepted loan, deposit in cash in violation of section 269SS of the Act without any reasonable cause.
12 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota
8. We now refer to the relevant findings of the ld CIT(A) which are reproduced as under:
"As regards ground of appeal no. 2, on the merits of the issue and the facts involved, it is seen that the entire order of the Addl CIT is based around Annexure A2/22, impounded during the survey proceeding.
In the assessment related appeal, I have held that- Discrepancies shown in the books of accounts vis-a-vis loose sheets were precisely the reason why the books of accounts were not considered properly maintained and reconcilable, hence rejected and this action of the A.O. had been upheld. Once books had been rejected these could not be relied upon for making such additions/imposing penalty for credit entries. (Meaning does the A.O. accept that those transactions were all recorded so as to fall within provision of sec. 271D?) The question which needs to be addressed here is that if the original documents were reliable, then why the A.O. rejected the books of accounts and estimated N.P. in the course of Assessment proceedings even after the special audit was done by an independent auditor?
Therefore, when the Addl CIT is relying on the assessment proceeding from where the reference of violation of provisions of section 269SS and 269T have been invoked, he has to acknowledge the established legal position that once N.P. in such a case has been estimated, other additions based on the books of accounts cannot survive and in the 13 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota present appeal, the penalty imposed u/s 271D and 271E for violation of provisions of section 269SS and 269T respectively is arising out of entries in those very rough books of accounts.
As per explanation from the submissions made during the assessment as well as appellate proceedings, it has been contended that the persons to whom the payments were made were not only paid employee (site incharges), but suppliers of materials who delivered materials to sites, persons from whom machineries were hired and sub contractors. The amounts written in these rough site records were in the nature of advances and payments linked to staff & subcontractors & given in the course of business and were not loans. In the course of the assessment proceedings, the assessee had given an entry wise detail of the transactions, in cash for all 251 entries identified by the Auditor and the A.O. out of which excluded the entries being loans/deposits liable for action u/s 269SS.
In the present case, while imposing the Penalty u/s 271D/E, the Addl CIT has ignored the following points involved-
(1) That the annexure A2/22 impounded during the course of survey u/s 133A, based on which the working of the alleged loans has been done by him, were never accepted by the assessee as loan entries, rather it was claimed that these were site related expenses.
Further, the A.O. himself in the assessment proceedings, considered the books presented by the assessee to be unreliable and estimated the net 14 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota profit in the business, which addition made was contested in the appeal order and the same was confirmed by the undersigned vide appeal no. 391/14-15 vide order dated 11/03/2016.
The Addl. CIT has also acknowledged that the details submitted by the assessee "do not reflect the true state of affairs", which is precisely the reason why the books had been rejected. The assessee was not considered as being up to the mark in maintaining the proper details of his financial activities but due to the same reason, his books were rejected & profits were estimated.
2. How the Addl. CIT or the A.O. arrived at the conclusion that these payments represented the loans & advances is nowhere brought out in the penalty order. He has mainly relied on the special auditor's theory that there were debit balances in favour of the alleged lenders in such accounts at the start of the year and these were in contradiction to the assessee's submissions that the amounts in the annexure represented site advances etc. However, there is no finding if the debit balances were carried forward from earlier year or not since mostly these pertain to earlier part of the year.
Further, the Addl. CIT has failed to mention any interest payments appearing in the annexure so as to prove that these were actually loans & repayments. No loans and advances in the course of business can possibly be without interest and if these were unaccounted cash loans, 15 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota the interest would also be reflected somewhere as these were in any case rough or "Kachha" books.
Thus, the veracity of the books of accounts themselves being in question, the Addl. CIT should not have considered these entries to be the basis for levy of penalty u/s 271D also when he could not conclusively prove that these entries actually reflected figures of loans and repayments of these loans.
3) If these are treated as genuine loans which the Addl. CIT has concluded, he should have asked for the details of the creditors and sought reasons for taking these loans in cash in violation of section 269SS and similarly for repayment also the same condition should have been followed before treating it as violation of section 269T.
The Addl. CIT during the proceeding u/s 269SS or 269T has not cross examined the above version of the assessee by issuing summons u/s 131 or commission u/s 133(6) to any of the persons whose names are mentioned in the annexure. For example, the payment to one Ashfaque who is a Sub-Contractor, with TDS deduction mentioned was verifiable from TDS records, on which the Addl CIT's order is silent though his name is included in the list of lenders as per the 271D order.
Some of the entries contained in the rough books were payments of material & some were cheque payments as well. The Addl. CIT did not follow this basic rule, thereby indicating that he was himself not convinced that these loose annexure related entries were actually loans 16 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota as appearing in the books of accounts but made the addition and imposed the penalty mechanically and just for the sake of it without carrying out cross verifications or independent enquiries to strengthen his findings though he had a period of 6 months at this disposal for passing the order.
Thus, the fact of all these cash payments being only for loan & advances is not established beyond doubt.
On the basis of the above, it is concluded that the Addl. CIT has just reached conclusions. Half-baked additions not based on enquiries cannot be sustained in appellate proceedings. No presumptions based financial liabilities can be levied upon the assessee.
High Court of Delhi in Commissioner of Income-tax (Central)II v. Home Developers (p.) Ltd. 54 taxmann.com 159 (Delhi) has held that-
Section 69C of the Income-tax Act, 1961-unexplained expenditure (interest)- Assessment year 2004-05- in course of assessment proceedings, Assessing Officer noticed that assessee had taken certain loan in cash for purpose of property- He thus made addition in respect of interest paid on said loan in cash under section 69C-Tribunal set aside said addition- It was noted that revenue had not filed any document or material to show that in fact loan was taken and interest payment was made-Moreover, persons to whom interest was paid, their details and particulars were not ascertained verified and examined-
17 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota Whether in aforesaid circumstances, Tribunal was justified in deleting impugned addition- Held, yes [ para9][In favour of assessee] Section 269SS, read with section 269T, of the Income-tax Act, 1961- deposits -Mode of taking/accepting (penalty)- Assessment year 2004- 05- Whether in view of facts stated under heading 'unexplained expenditure', Assessing Officer was not justified in passing penalty order holding that assessee had taken loan in cash in violation of provisions of section 269SS-Held, yes On the facts involved, it was noted that Tribunal has recorded a finding that the allegation that loans/deposits must have been taken in cash was a mere suspicion, which could have been a cause for further verification and investigation, but mere suspicion cannot be a ground to hold that loan/deposits were received in cash. The findings of the Tribunal were not perverse.
Further, the revenue has not filed any document or material to show that in fact loan was taken and interest payment was made. The persons to whom allegedly interest was paid, their details and particulars were not ascertained, verified and examined. (Relevant part) ..If Revenue wanted to take the view that the noting on the loose papers is with regard to loan taken by the assessee, then the burden was upon the Revenue to establish so. However, the Assessing officer did nothing except to make serious of presumptions and then made the addition and levied the penalty on the basis of his presumptions. We 18 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota find that similar situation was dealt with by the ITAT while considering the Revenue's appeal for penalty for AY 2001-02, 2002-03 & 2003-04 and the ITAT has held that the document does not indicate that the assessee has accepted loan or deposit from any other person. The name of the assessee is completely absent from the said document. Identical is the situation in the years under appeal before us. None of the documents indicate that the assessee i.e. M/s Home Developers (P) Ltd. has taken any loan or deposit from any other person. The above finding of the ITAT has been upheld by the Hon'ble jurisdictional High Court held that though there is a doubt but it is not established that the respondent assessee had taken loan/deposit in cash. Their Lordships further observed that there is suspicion but this alone without any further verification and investigation cannot justify the finding that the respondent-assessee had taken loan/deposit in cash. With these observations, their lordships upheld the finding of the ITAT.
In our opinion, the above observation of their Lordships of the jurisdictional High Court in assessee's own case for AY. 2000-01 to 2003-04 would be squarely applicable in the years under appeal also. In these years also, at the most, if can be the doubt of the Assessing officer that unaccounted transactions are in the nature of the loan taken. However, the doubt or suspicion of the Assessing Officer is not enough to hold that the assessee had taken loan/deposit in cash. Moreover, in the years under appeal, the Assessing officer made further presumptions that there was repayment of loan in cash though there is no such noting on the loose paper. In our opinion, the finding of the ITAT as well as Hon'ble jurisdictional High Court in AY 2000-01 to 2003- 19 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota 04 would be squarely applicable to the years under appeal. We further hold that when it is not established that the assessee had taken loan or deposit, the question of further presumption that such loan or deposit was repaid during the year under consideration was without any basis or material on record.
4) if the Addl CIT thought these were loans per se, even otherwise he should have applied first the provisions of section 68 to verify these credits as to whether these were genuine or not. The Addition should then have been made u/s 68 as unexplained which was not done, thereby leading to conclusion that these entries were explained.
5) In a balance sheet which is part of the assessment record (dated 29/02/2011), there is a site incharge/cash/WIP of Rs. 40 lakhs shown by the assessee on the asset side, on which the Addl CIT has not commented upon but the special Auditor has accepted in his Audit Report comments though he has further added that it is not verifiable from the seized records. Thus the Assessee's stand on the advances for site to various persons was put forth in the assessment proceeding as well but not considering though not controverted with enquiries by the Addl CIT.
6) The Addl CIT or the A.O. have not made out a case that there were unaccounted receipts. If these were loans in the books, whether these were squared up or not? If not then were there outstanding balances in the Balance Sheet which would confirm the stand taken the department?
20 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota Thus it can be seen that there are inherent contradictions in the findings reached by the Addl CIT while passing the orders u/s 271D & 271E in this case.
It is to be noted that for a transaction to be termed as loan or-deposit within the meaning of Section 269SS of the Act, there should be two entities or persons namely lender and borrower or depositor and recipient in the instant case since the identity of the lenders were not examined by the A.O., these transactions cannot be termed as loans or deposits, hence outside the purview of Section 269SS of the Income-tax Act, 1961. If the transaction does not fall within the meaning of loan or deposit, there is no violation of Section 269SS of the Income-tax Act, 1961. (CIT vs. Idhyam Publications Ltd.) It is pertinent to mention here that the Addl CIT in the order levying penalty has not commented on the identity of the lenders/depositors and their sources.
The Mumbai "B Bench of the Tribunal in the case of Karnataka Ginning & Processing Factory v. n. CIT (2001) 72 TTJ (Mumbai) 307: (2001) 77ITD 478 (Mumbai), at p. 478, held as follows:- "Quite apart from the question of existence of reasonable cause, we are not sure whether the amounts received by the assessee from VE can be termed as "loan" or "deposits".
The words are not defined in the Expln. (iii) below Section 269SS except saying that "loans" or "deposits" means loan or deposit of money. The 21 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota terms "loan" and "deposits" are not mutually exclusive there are a number of common features between the two. It was held by the Madras High Court in Abdul Hamid Sahib U. Rahmat Bi AIR 1965 Mad 427, that a loan is repayable the moment it is incurred while it is not so with the deposit. In a deposit, unlike a loan, there is no immediate obligation to repay. Normally a deposit is for fixed tenure. The amounts taken by the Assessee in the present case from VE are temporary advances and there is no evidence that there was any stipulation as to the period or any stipulation for interest. It is, therefore, a matter of grave doubt as to whether the amount received from VE can be characterized as loans or deposits. In our view, they can be more appropriately referred to as temporary advances. Such temporary advances are outside the purview of Section 269SS. Thus in our considered opinion and in view of the various judicial pronouncements on this matter, we hold that the transaction of this case on hand cannot be considered as "loan" so as to attract Section 269SS and Section 271D of the Act".
The assessee has all along been denying these as loans and deposits and subsequent repayments worked out by the A.O. & Addl CIT. He has been pleading that these are advances for sites, to sub-contractors and for purchases etc. Thus, applying the ratio of the above decision in the appellant's case, these temporary advances and returns mobilized by the assessee for its sites cannot be termed as loan or deposit so as to attract violation committed under Section 269SAS and Section 271D of the Act.
22 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota Under the facts & circumstances as discussed above and the legal precedents available in this regard, it is held that the order of the Addl CIT was based on presumptions, unsustainable on facts and in law. Thus, in the absence of any cogent basis for the findings as well as absence of any material independent verification to establish that the amounts mentioned in the loose papers listed as annexure A-2/22 representing acceptance and repayment of loans/ deposits contravention of the provisions contained in section 269SS/T of the Act, 1961, I am not able to sustain the findings of the Addl CIT in imposing penalty u/s 271D/E in this case for contravention of the provisions of section 269SS/269T respectively."
9. We have heard the rival contentions and perused the material available on record. Firstly, the ld CIT(A) has held that "where the books of accounts have been rejected and the Addl CIT is relying on the assessment proceeding from where the reference of violation of provisions of section 269SS and 269T have been invoked, he has to acknowledge the established legal position that once N.P. in such a case has been estimated, other additions based on the books of accounts cannot survive and in the present appeal, the penalty imposed u/s 271D and 271E for violation of provisions of section 269SS and 269T respectively is arising out of entries in those very rough books of accounts." In other words, where the books of accounts have been rejected and net profit has been estimated, there cannot be any other addition and consequent penalty consequences in the hands of the assessee. In our view, what has to be examined is the nature of the transactions and the linkage thereof. In the instant case, the books of 23 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota accounts have been rejected and net profit has been estimated in relation to transactions undertaken by the assessee in relation to its business of civil construction. Therefore, the transactions which impact the net profit from the construction activity undertaken by the assessee during the year are under consideration of the AO and the AO not satisfied with such determination of net profit, has replaced net profit based on his understanding and material available on record. But where there are transactions which are not connected to the determination of net profit and are not reflected in the profit/loss account and are basically stand alone balance sheet transactions or transactions which have not been recorded in the books of accounts at all but later on acknowledged, can it be said that even those transactions cannot be examined by the AO. In the instant case, based on report of the special auditor and as reported in Annexure 1, 2 &5 of the audit report and examination during the course of penalty proceedings, the Additional CIT has held that there are specific financial transactions in the nature of loans and deposits which are either not recorded at all or not fully recorded and which attract the provisions of section 269SS/269T. In our view, the said action of the Additional CIT is not vitiated merely on the ground that the books of accounts have been rejected and net profit has been estimated by the AO provided it can be proved that these are independent financial transactions not connected with the transactions in respect of which the net profit has been estimated by the AO. In support, useful reference can be drawn to the legal proposition laid down by the Hon'ble Supreme Court decision in case of Kale Khan Mohammad Hanif vs CIT reported in 50 ITR 1 and which has been followed by the Hon'ble Supreme Court 24 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota in its subsequent decision in case of CIT vs Devi Prasad Vishwanath reported in 72 ITR 194 wherein it was held as under:
" there is nothing in law which prevents the ITO in an appropriate case in taxing both the cash credit, the source and nature of which is not satisfactorily explained and the business income estimated by him under section 13 after rejecting the books of accounts of the assessee as unreliable. Whether in a given case, the ITO may tax the cash credit entered in the books of account of the business and at the same time, estimate the profit must however depend upon the facts of each case."
10. In light of above, we donot agree with the view of the ld CIT(A) that where the veracity of the books of accounts themselves being question, the Add. CIT should not have considered these entries to be the basis for levy of penalty u/s 271D.
11. We now refer to the other findings of the ld CIT(A) which are under challenge before us. The ld CIT(A) has held that the annexure A2/22 impounded during the course of survey u/s 133A, based on which the working of the alleged loans has been done by him, were never accepted by the assessee as loan entries, rather it was claimed that these were site related expenses. Further, ld CIT(A) held that the subject payments reflect the transactions in the nature of loans and advances is nowhere brought out in the penalty order and reliance has only been placed on the special auditor's report.
12. In this regard, on perusal of the assessment and penalty order, we observe that certain transactions in the nature of loans/deposits were 25 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota culled out of total cash transactions found to have been undertaken by the assessee during the year based on documents found during the course of survey and subsequent report of the special auditor. A set of transactions were subject to the provisions of section 40A(3) during the course of assessment proceedings and remaining transactions being in the nature of loans/deposits were referred to the Add. CIT for initiating penal proceedings u/s 269SS and 269T. Based on the same, the Add. CIT has issued a specific show-cause to the assessee detailing date- wise details of cash loans/deposits received from various persons and to show-cause why the provisions of section 269SS and 269T should not be invoked. In response, the assessee acknowledged these transactions but at the same time, submitted that these transactions are not in the nature of loans and advances but advances given to staff, labour and subcontractors in the course of business for making payments at various sites and provisions of section 269SS and 269T should not be invoked. In support of the said contention, a solitary example was given of a transaction with Munna Bhai who was claimed to be one of site-in-charge of a construction project. The Add CIT didn't agree to the said contentions. He stated that firstly there are cash transactions with various persons which have not been recorded in the books of accounts and which have been noticed based on Annexure A-2/22 impounded during the course of survey. Secondly, based on periodicity of cash receipts and cash payments in the individual accounts of each of the identified persons, it cannot be held that these transactions are for payment of site expenses rather these transactions are in the nature of financial transactions of loan/deposits which have been received and 26 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota repaid in cash. In support, the Add CIT referred to transactions with one Shashi ji during the period under consideration.
13. In the above factual matrix, what we observe is that these are merely contentions of the assessee not supported by any credible verifable evidence. There are around 13 persons which have been identified by the Add. CIT with whom the assessee company has multiple transactions during the year wherein cash has been received and repaid. The transactions with each of the specified 13 persons need to be supported independently with credible evidence to demonstrate that the provisions of section 269SS and 269T are not attracted. In this regard, once the Add. CIT has given a show-cause to the assessee with specific details of each of the transactions with the specified persons, the initial onus is on the assessee to demonstrate that the provisions of section 269SS and 269T are not attracted and accordingly, no penalty can be levied under section 271D and 271E. The basis of such show-cause is the documents found during the course of survey and subsequent report of the special auditor who has analysed various cash transactions undertaken by the assessee and come to a conclusion that the provisions of section 269SS and 269T are violated. It is for the assessee to rebut the same with appropriate evidence. The transactions are undertaken by the assessee and it is for the assessee to demonstrate the true nature and character of the transaction. The initial onus thus lies on the assessee and not on the Revenue. The assessee has merely contended that these are advances to staff and its contractors for meeting the site expenses and repayment thereof, however it has failed to demonstrate the same with 27 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota verifiable evidence. It has mentioned about a solitary transaction with one Munna Bhai whom we donot even find mention in the list of persons in respect of which the provisions of section 269SS and 269T has been invoked by the Add CIT. There is nothing on record to support the contention of the assessee that 13 persons in respect of whom provisions of section 269SS and 269T have been invoked by the Add CIT are assessee's employees and/contractors and transactions with them are in the regular course of business for meeting site expenses. What is the nature and character of the transactions, the debits and credits and linkage with the business and individual sites/projects etc need to be established. Therefore, in absence of any material on record, we are unable to agree with the finding of the ld CIT(A) that these are temporary advances and returns mobilized by the assessee for its sites which cannot be termed as loan or deposit so as to attract the provisions of section 269SS and 269T of the Act. The ld CIT(A) has merely endorsed the contentions of the assessee without any credible evidence on record to support the said contentions. Unless and until, the assessee discharge the initial onus placed on him, the onus cannot shift to the Revenue.
14. The ld CIT(A) has further held that the Addl. CIT during the proceeding u/s 269SS or 269T has not cross examined the above version of the assessee by issuing summons u/s 131 or commission u/s 133(6) to any of the persons whose names are mentioned in the annexure and the fact that all these cash payments being only for loan and advances is not established beyond doubt and no presumption based financial liabilities can be levied upon the assessee. The ld CIT(A) 28 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota has further highlighted certain contradictions in the findings of the Add CIT. As we have held above, the initial onus is on the assessee and once the assessee discharges its initial onus, the onus thereafter shift on the Revenue. At the same time, in the instant case, it is also a fact that Section 271D and Section 271E being the penal provisions which have been invoked, it is to be seen that the conditions specified in the provisions are strictly fulfilled before the levy of penalty which is equal to the value of the transactions. It has to be established that there are transactions in the nature of loans and advances and their repayment, both in cash, which have clearly violated the provisions of section 269SS and 269T of the Act without any reasonable cause. On perusal of records, we find that there is not enough material on record for us to take a view in the matter. In the interest of justice and fair play, we are setting aside the matter to the file of the ld CIT(A) to examine the same afresh taking into consideration the above discussions.
In the results, the appeals filed by the Revenue are allowed for statistical purposes and the cross-objections filed by the assessee are dismissed.
Order pronounced in the open court on 01/09/17
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(Kul Bharat) (Vikram Singh Yadav)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur
fnukad@Dated:- 01/09/2017.
*Santosh.
29 ITA No. 183& 184/JP/2017& CO No. 15& 14/JP/2017 ACIT Vs. Sh. Subhash Pareta, Kota vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- The ACIT, Circle-1, Kota.
2. izR;FkhZ@ The Respondent- Shri Subhash Pareta, Prop. M/s Pareta Associates, 3/148, Genesh Talab, Basant Bihar, Kota.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File {ITA No. 183 & 184,CO No.14 &15/JP/2017} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar