Income Tax Appellate Tribunal - Mumbai
Jay Builders vs Assistant Commissioner Of Income Tax on 11 October, 1999
ORDER
R.V. Easwar, J.M.
1. This appeal by the assessee is directed against the levy of penalty of Rs. 1,00,000 under Section 271D of the Act for violation of the provisions of Section 269SS.
2. During the relevant account year, the assessee took three cash loans from M/s Mehta Construction, a sister concern, as under :
Date Amount Rs.
3-12-1990 50,000 19-1-1991 20,000 6-2-1991 30,000 Total 1,00,000 Since taking of cash loans was in violation of the provisions of Section 269SS of the Act, the AO initiated penalty proceedings under Section 271D of the Act. To the show-cause notice issued, the assessee stated that the amount of Rs. 1,00,000 was withdrawn in cash from M/s Mehta Construction and given to the assessee, that by oversight the amount was shown as a loan, that no interest was paid on the said amount and the same was introduced as capital and, therefore, the provisions of Section 269SS were not attracted.
3. The AO rejected the explanation as an afterthought and, therefore, imposed a penalty of Rs. 1,00,000.
4. Before the CIT(A), the assessee furnished a different explanation by letter dt. 15th Sept., 1994. After giving the names of the common partners, it was submitted that the amounts were introduced in the assessee-firm by the family members out of withdrawals made for Mehta Construction. It was pointed out further that Mehta Construction was considering a proposal to borrow from banks, that if the partners drew monies from Mehta Construction it would not show a happy position in the balance sheet and, therefore, the funds were first transferred to the assessee-firm and the partners drew the monies from the assessee-firm, instead of Mehta Construction. The details of the withdrawals were also furnished in the letter. It was thereafter explained that the transfer of funds in the manner indicated above was done under the advice of the accountant and under a bona fide belief that such arrangement would not have any adverse repercussions. It was, therefore, submitted that the assessee's explanation being bona fide, no penalty should be levied.
5. The CIT(A) noted that the explanation furnished before him was different from that furnished before the AO and that, therefore, it did not appear to be genuine. He further noted that in the assessee's books the amounts have been shown as loans whereas before the AO the assessee has sought to explain the same as introduction of capital. The CIT(A) also noted that the explanation given before him was at variance with the explanation furnished before the AO and, therefore, it cannot be accepted. In this view of the matter, he confirmed the penalty and dismissed the appeal.
6. Before us the learned representative for the assessee submitted that a transfer of funds, though in cash, between sister-concerns Was not hit by Section 269SS and that the genuineness of the transactions coupled with the bona fide belief, prompted by the advice of the accountant, that the transactions were not violative of any provisions of law, took the case out of the sweep of the penal provisions. In support of the contention that the transaction was gone through under the advice of the accountant, an affidavit dt. 4th Oct., 1999, sworn to by Harkishandas T. Mehta, partner of the assessee-firm, was filed. It was submitted further that merely because the explanations given at different stage of the proceedings were different, the assessee cannot be penalised and that the correct facts were brought to the notice of the CIT(A), which ought to have been accepted by him. It was, therefore, submitted that the penalty should be cancelled.
7. In support of the above contentions, a series of orders of the Tribunal were relied upon and copies thereof were filed. The account copies, confirmation letters for the loans, assessment order of the assessee, etc. were also filed .
8. On behalf of the Revenue strong reliance was placed on the orders of the Departmental authorities. It was contended that where different explanations. were given in respect of the default, it is open to the IT authorities to infer a contumacious conduct on the part of the assessee in penalty proceedings.
9. We have carefully considered the rival contentions. It is no doubt true that the explanation furnished before the AO was different from the explanation furnished before the GIT(A). Before the AO the assessee had stated that the amounts represented introduction of capital by the partners. Before the CIT(A), however, the facts were properly placed and it was pointed out that the amounts did not represent introduction of capital by the partners but represented loans taken by the assessee-firm from Mehta Construction to enable the partners of Mehta Construction to withdraw those amounts from the books of the assessee-firm which arrangement was gone through under the advice of the accountant in order to project a better picture of the financial position of Mehta Construction for the purpose of taking a loan from the bank for the proposed project at Nasik. The explanation furnished before the CIT(A) would appear to represent the correct facts. There are common partners between the assessee-firm and Mehta Construction. Mehta Construction drew monies from Kapole Co-operative Bank at Bombay for the purpose of advancing the funds to the assessee. Rs. 50,000 was withdrawn on 3rd Dec., 1990 and Rs. 30,000 was withdrawn on 16th Feb., 1991. The amount of Rs. 50,000 was withdrawn from the assessee-firm on account of hospitalisation expenses of Mrs. Heena Mukesh Mehta and another amount of Rs. 30,000 was withdrawn for the repairs of the family house at Bombay in February, 1991. It is the assessee's case that instead of showing these amounts as drawings of partners of Mehta Construction which would have deflated the capital balance in that firm, the amounts were shown as transferred to the assessee, for eventual withdrawals by the partners of the assessee-firm, who are none but the members belonging to the Mehta family who are partners in both Mehta Construction and the assessee-firm. The explanation is acceptable and is also in accordance with the entries made in the books of account of both Mehta Construction and the assessee-firm, the only flaw being that the assessee did not put it properly before the AO but chose to present it before the CIT(A) for the first time. In OT v. Tara Trading Co. (1980) 123 ITR 97 (On), the Orissa High Court held that an explanation furnished by the assessee for the first time before the first appellate authority can be accepted by him though no such explanation had been furnished before the AO in the course of the penalty proceedings. In CIT v. Sanjan Chettiar & Sons (1982) 134 ITR 647 (Mad), the Madras High Court held that even where the explanation was furnished by the assessee for the first time before the Tribunal, the veracity of facts can be tested at any point of time when presented, though there may be some inconvenience caused in the process of ascertaining and evaluating the facts and it would be open to the Tribunal to accept the explanation and the facts instead of remitting the matter to the Departmental authorities. These two decisions establish the position that though an explanation is given for the first time before the appellant authorities, it would be open to them to examine them for the purpose of ascertaining whether the factual background is correct and whether the explanation is plausible. In the present case, admittedly the explanation furnished before the CIT(A) was different from that furnished before the AO but still it was open to the CIT(A) to examine the veracity of the same and, in our opinion, he ought not to have dismissed the appeal merely on the ground that the explanation given was different from that furnished before the AO. On an examination of the details of the accounts, confirmation letters, etc. filed in the paper book furnished to us, we find that the explanation of the assessee before the CIT(A) would appear to be the correct explanation and the explanation furnished before the AO that the amounts are introduction of capital by the partner was not correct. It has further been stated that the transaction was so arranged under the advice of the accountant in order to show a happy financial position in the balance sheet of Mehta Construction to the bank. Apparently the exhibition of the accounts in the balance sheet filed with the bank was an overriding consideration and in the anxiety to do so the provisions of Section 269SS has not been kept in view. This in effect is the explanation of the assessee which seems to us to be acceptable. The fact that the assessee-firm acted on the advice of the accountant is also supported by an affidavit filed by the partner before us. We have no reasons to disbelieve the averments contained in the affidavit. Under the circumstances therefore, we are of the view that the penalty imposed on the assessee under Section 271D is not justified. We cancel the same and allow the appeal.