Gujarat High Court
Commissioner Of Income-Tax vs Bombay Conductors And Electricals Ltd. on 11 February, 2008
Equivalent citations: [2008]301ITR328(GUJ)
Author: Z.K. Saiyed
Bench: Z.K. Saiyed
JUDGMENT D.A. Mehta, J.
1. The Income-tax Appellate Tribunal, Ahmedabad Bench "C" has referred the following question for the opinion of this Court under Section 256(1) of the Income-tax Act, 1961 ("the Act") at the instance of the Commissioner of Income-tax.
Whether the Appellate Tribunal is right in law and on the facts in cancelling the penalty of Rs. 23 lakhs levied under Section 271D of the Act for violation of the provisions of Section 269SS when the assessee transferred the purchase price as sarafi?
2. The assessment year is 1991. The assessee, a limited company, is a subsidiary of another limited company M/s. Lallubhai Amichand and Company Limited (the creditor company). The assessee purchased goods from time to time from the creditor company as per the following details:
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Date Amount (Rs.)
(Rs.)
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26-5-1989 5,65,858 9,24,908
27-5-1989 3,59,050
7-6-1989 4,65,613
8-6-1989 4,62,946
8-6-1989 4,79,606 14,08,165
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23,33,073
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3. As the assessee was not in a position to make payment of the outstanding purchase price immediately the parties arrived at an understanding whereunder the outstanding purchase price was to be treated as a loan on sarafi account after making part payment of the outstanding dues. As per the terms agreed upon, on May 31,1989, a sum of Rs. 24,908 was paid by account payee cheque out of total of Rs. 9,24,908 and the balance of Rs. 9 lakhs was simultaneously transferred to Lallubhai Amichand Sarafi Account. The balance outstanding liability in the goods account was adjusted by way of journal entries. Similarly out of total outstanding dues of Rs. 14,08,165 a sum of Rs. 8,165 was paid by account payee cheque and balance amount of Rs. 14 lakhs was identically treated as a loan outstanding in the sarafi account with requisite journal entries in support thereof.
4. During the course of assessment proceedings the Assessing Officer treated the outstanding amounts of Rs. 9 lakhs and Rs. 14 lakhs respectively as acceptance of deposit in violation of the provisions of Section 269SS of the Act and referred the matter for levy of penalty to the Deputy Commissioner of Income-tax. After issuing show-cause notice and considering the written explanation tendered by the assessee and after hearing the assessee the Deputy Commissioner of Income-tax came to the conclusion that the conversion of the outstanding balance from the goods purchase account to the sarafi account by transfer entries was a deposit in violation of the provisions of Section 269SS of the Act. Accordingly, penalty of Rs. 23 lakhs was levied under Section 271D of the Act by treating the amount as loan or deposit taken or accepted. The assessee carried the matter in appeal before the Commissioner (Appeals) who, vide order dated February 15, 1994, confirmed the levy of penalty. The assessee carried the matter in second appeal before the Tribunal who has allowed the appeal vide the impugned order dated November 30, 1995.
5. Mr. B.B. Naik, learned standing counsel for the applicant-Revenue has assailed the impugned order of the Tribunal on the ground that the reasons assigned by the Tribunal are de hors the provisions of the Act. That for the purpose of imposing penalty the only thing which was material was the provision of Section 269SS of the Act which provides that no person shall after the specified date take or accept from any other person any loan or deposit otherwise than by an account payee cheque or bank draft subject to the stipulated limit. That admittedly a sum of Rs. 23 lakhs which was to be paid as purchase price by the assessee had undergone change in character and was now an outstanding loan so far as the assessee was concerned.
6. Thus, in effect by mere transfer entry, it could be stated that, the out-standing purchase price had- been paid up by the assessee and then received as a loan from the creditor company. According to Mr. Naik, Explanation to Section 269SS of the Act merely stated that loan or deposit means loan or deposit of moneys, and therefore it could not be stated that by such transfer entries no money was involved in the transaction. That money in the form of outstanding purchase price was due from the assessee and now money in the form of loan was accepted by the assessee and due to the creditor company by virtue of journal entries. Hence, penalty was rightly levied. It was therefore urged that the reference be answered in favour of the Revenue.
7. Mr. M. J. Shah, learned advocate appearing on behalf of the respondent-assessee, apart from heavily relying on the impugned order of the Tribunal pointed out that the order of the Tribunal was passed after taking into consideration the object of bringing the provisions of Section 269SS on the statute as well as after considering existence of reasonable cause as provided in Section 273B of the Act. It was further submitted that the Tribunal had found that even if there was any breach the same was only a venial or technical breach which does not warrant penalty as laid down by the apex court. That there was a difference between the terms "loan" and "deposit".
8. The authorities below had treated both the terms as synonymous and therefore also no penalty was leviable in the absence of any firm conclusion as to the nature of transaction. In support of the propositions reliance has been placed on the following decisions:
(1) Asst. Director of Inspection (Investigation) v. Kumari A.B. Shanthi; (2) Hindustan Steel Ltd. v. State of Orissa ;
(3) CIT v. Saini Medical Store ;
(4) CIT v. Bhagwati Prasad Bajoria (HUF) [2003] 263 ITR 487 (Gauhati); and (5) Baidya Nath Plastic Industries P. Ltd. v. K.L. Anand, ITO (Delhi).
9. The object of the introduction of Section 269SS of the Act has been Stated by the apex court in the aforesaid case of Asst. Director of Inspection (Investigation) v. Kumari A.B. Shanthi in the following terms (page 263):
The object of introducing Section 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money, or if he has given some false entries in his accounts, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money is unearthed and the taxpayer would usually give the explanation that he had borrowed or received deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records later to suit the plea of the taxpayer. The main object of Section 269SS was to curb this menace.
10. At the same time while introducing Section 269SS, Section 273B was also incorporated in the statute which provides that no penalty shall be imposable on a person or an assessee, as the case may be, for any failure referred to in the said provision if the assessee proves that there was reasonable cause for such failure. In other words, penalty is not automatic under Section 271D of the Act on mere violation of the provisions of Section 269SS of the Act.
11. The Tribunal has found that there is no evidence on record to show that infraction of the provisions was with the knowledge or in defiance of the provisions. It has further been held that there is nothing on record to indicate that the assessee had indulged in any tax planning or tax evasion. To the contrary, the Tribunal has recorded that by making the book entries the assessee has made the adjustment bona fide without having the knowledge that such book entries may render the assessee liable to penalty under Section 271D of the Act on account of violation of the provisions of Section 269SS of the Act. That there was a reasonable cause and hence no penalty was leviable.
12. In the light of the findings of facts recorded by the Tribunal after appreciating the evidence on record and applying the ratio of the apex court decisions it is not possible to find any legal infirmity in the impugned order of the Tribunal. Not only there is a reasonable cause, as found by the Tribunal, but in the light of the finding of the Tribunal that the breach, if any, is merely a technical or venial breach no penalty is leviable as laid down by the apex court merely because it is lawful to do so without exercising discretion before imposing the penalty.
In the result, the question referred is answered in the affirmative, i.e., in favour of the assessee and against the Revenue.
The reference stands disposed of accordingly with no order as to costs.