Income Tax Appellate Tribunal - Ahmedabad
Bombay Conductors & Electricals Ltd. vs Deputy Commissioner Of Income Tax. on 30 November, 1995
Equivalent citations: (1996)56TTJ(AHD)580
ORDER
JORDAN KACHCHAP, J. M. :
In this appeal the assessee has called in question the order dt. 15th Feb., 1994, of the CIT(A) - VIII, Ahmedabad, confirming the levy of penalty of Rs. 23,00,000 levied under s. 271D of the IT Act, 1961, for violating the provisions of s. 269SS of the Act.
2. The assessee is a subsidiary of M/s Lallubhai Amichand and Co. Ltd. It purchased goods from the holding company Lallubhai Amichand Ltd., the details of which are :
Date Amount 26-5-1989 Rs. 5,65,858 27-5-1989 Rs. 3,59,050 Rs. 9,24,908 7-6-1989 Rs. 4,65,613 8-6-1989 Rs. 4,62,946 8-6-1989 Rs. 4,79,606 Rs. 14,08,165 Rs. 23,33,073 The assessee-company was not in a position to make the payment of the purchase price immediately and so it agreed with M/s Lallubhai Amichand Ltd. to treat the said purchase price to be a Sarafi due to the extent of round sums and the payment of balance amount was to be paid by a/c payee cheque. In pursuance to that agreed terms, the payment of Rs. 24,908.40 was made by a/c payee cheque on 31st May, 1989, out of total of Rs. 9,24,908.40 and the balance of Rs. 9,00,000 simultaneously transferred to Lallubhai Amichand Ltd. Sarafi account. The liability standing in the goods account was adjusted to Sarafi account by passing journal entry. Similarly, out of Rs. 14,08,165.20, an amount of Rs. 8,165.20 was paid by a/c payee cheque and balance amount of Rs. 14,00,000 was transferred from goods account of sarafi account by passing journal entry on the same day. It is to be mentioned that while completing the assessment order dt. 5th Feb., 1993, the AO observed that it was acceptance of deposit of Rs. 9 lacs on 31st May, 1989, and Rs. 14 lacs on 13th July, 1989, in violation of the provisions of s. 269SS of the IT Act by the assessee so he referred the matter for levy of penalty to the Dy. CIT under s. 271D of the IT Act. The Dy. CIT (Ahd. Range-7) in that view of the matter served notice dt. 24th Feb., 1992, upon the assessee calling upon to show cause why the penalty under s. 271D was not to be imposed. The assessee having filed written submissions dt. 10th March, 1993, and attending the hearing of the matter disputed the initiation and levy of the penalty. The assessee contended that there was no violation of the provisions of the s. 269SS of the Act as the assessee did not accept any loan or deposit. It was emphasised that there was a mere book adjustment. To be more specific it was contended that from the credit which stood in favour of M/s Lallubhai Amichand Ltd. in goods account was transferred to Sarafi account. Having referred sub-cl. (iii) of Explanation to s. 269SS it was urged that there was neither advancement of loan nor deposits in the terms of money. It was further disputed that even otherwise there was no specific allegation as to whether that book adjustment was either loan or deposit. It was explained that there was vast difference between loan and deposit. They were neither synonymous or inter-changeable. Before Dy. Commissioner having referred to the extract of the speech of Finance Minister in Finance Bill, 1984, it was contended that the main object of provisions of s. 269SS was to discourage tax avoidance. It was explained that by dint of adjustment in the books of accounts the assessee never intended any tax avoidance or tax evasion. The assessee also having referred to Circular No. 387, dt. 6th July, 1984 [Published at (1984) 43 CTR (TLT) 3] submitted that there was no occasion that if the assessee had introduced any black money in the shape of deposit or shown in the name of other persons. Reiterating it was contended that the transactions of the purchase of the goods were genuine and for that there was no doubt. Since the assessee was not in a position to pay the price money of the goods purchased, it was agreed that the cost price of the goods was to be transferred in Sarafi Account of M/s Lallubhai Amichand Ltd. It was added that there was no tax planning or tax avoidance which was the prerequisite for initiating the proceedings under s. 269SS. However, those various contentions of the assessee did not find favour with the Dy. CIT. According to him the conversion of the transfer of a/c from goods purchase account to Sarafi a/c was a deposit in violation of the provisions of s. 269SS of the Act. Accordingly, he levied a penalty of Rs. 23 lacs under s. 271D of the Act. While concluding his observations and levying the penalty the Dy. CIT recorded as follows :
"The facts of the case briefly are that during the year under consideration, the company had purchased raw materials from Lallubhai Amichand Ltd., Bombay, in the month of May, 1989, aggregating to Rs. 14,08,165. The said purchase price was debited to materials purchase account and credited to Lallubhai Amichand goods purchase account. It may be stated that the company has also maintained another account styled as Lallubhai Amichand Sarafi Account. Since the company was not in a position to meet the purchase price as the company was not in a position to make the payment of purchase price immediately, it was agreed that Lallubhai Amichand Ltd. to treat the same as Sarafi account in a round sum of Rs. 14 lacs. The balance amount was paid by account payee cheque. Similarly, the purchase price of Rs. 9,24,908 was converted as Sarafi deposit to the extent of Rs. 9 lacs and the balance amount was paid by account payee cheque. These two deposits credited in the Sarafi account were treated by the ITO, as made in violation of the provisions of s. 269SS of the IT Act. The ITO has discussed the provisions of s. 269SS in detail in para 6 of the assessment order and has concluded that since the deposits were credited in the books of accounts, otherwise than by the account payee cheque or account payee bank draft, there was no question whether the deposits were made otherwise than by a mode which cannot be described as payment by account payee cheque or by account payee bank draft. Since the assessee was already maintaining the sarafi account and the remaining purchase amount were credited to the said account, there is no doubt that the same two amounts of Rs. 14 lacs and Rs. 9 lacs were deposited in the books of the assessee. Since the above amounts were deposits in the books of accounts of the assessee and that the said amount were deposited otherwise than by way of account payee cheque or account payee bank draft, the provisions of s. 269SS were clearly violated and therefore the penalty provisions of s. 269SS of the IT Act were also clearly attracted. The assessees arguments in his written submission dt. 10th March, 1993, are carefully considered but held not to be accepted in view of the above findings as the assessee has violated the provisions of s. 269SS of the IT Act and it attracts the penalty provisions of s. 271D of the IT Act. I, therefore, levy a penalty of Rs. 23 lacs and a sum of equal to the amount of the loan or deposit so taken or accepted. The ITO is directed to issue demand notice and challan and serve a copy of this order to the assessee."
3. Being aggrieved by and dissatisfied with the above order the assessee carried the same before the learned CIT(A). The assessee before the learned CIT(A) reiterated the same contention and emphasised that adjusting the books of accounts by transferring a sum of Rs. 23 lacs from one account to another account of the same party could (sic not) be said to be a loan or deposit. However, those various contentions of the assessee did not find favour with the learned CIT(A) also. According to the learned CIT(A) the transfer of the sum of Rs. 23 lacs from the goods purchase account to its Sarafi account of said Lallubhai Amichand Ltd. was an act of acceptance of deposit. According to the learned CIT(A) there was substantial change in the right and liability of the assessee and M/s Lallubhai Amichand Ltd. The learned CIT(A) having referred to the Comments by Kanga and Palkhiwala appearing at p. 211 in Eighth Edition, Volume-I, recorded that such transfer of the sum from one account to another was a constructive receipt. The learned CIT(A) also having referred to provisions of s. 40A(3) of the IT Act and the relevant r. 6DD, sub-cl. (a), drawn the analogy of constructive receipt. He observed that though payment of the expenditure beyond certain limit, that was Rs. 2,500, was to be made either by account payee cheque or account payee bank draft but in certain cases as per r. 6DD the rigour of provisions of s. 40A sub-s. (3) was not attracted as the payment was made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or service rendered by such payee. According to the learned CIT(A), acceptance of deposits by adjustment of books of accounts was also one mode of taking or accepting a deposit. The learned CIT(A) further having referred to CBDT Circular No. 479, dt. 16th Jan., 1987 [printed at which was with reference to provisions of s. 269T of the Act, recorded that though provision spoke of reverse situation nature but analogy or reasoning embedded was not equally applicable in the present case. The learned CIT(A) observed that as per provisions of s. 269SS the deposit was not to be repaid other than by account payee cheque or account payee bank draft. It was further recorded by particularly referring to Circular No. 479, dt. 16th Jan., 1987, that however in cases of agriculturists the unremitted sales proceeds assumed the character of a deposit if the amount was retained by Kachcha Arhatiya in pursuance of a direction given by the agriculturist in that regard irrespective of whether the amount was retained in the same account or transfer to different account and irrespective of whether directions were to call deposit or just to retain the same for future payment. The learned CIT(A) in his order emphasised that the purchase price retained was considered to have converted into deposit. The learned CIT(A) further observed that the assessee did not bring any material in appeal record to show that if there was a reasonable cause in view of provisions of s. 273B of the IT Act for not levying the penalty. The learned CIT(A) in that view of the matter confirmed the levy of penalty of Rs. 23 lacs under s. 271D for violating the provisions of s. 269SS of the IT Act. Against the said order of the learned CIT(A) the assessee is in appeal.
4. Shri J. P. Shah, the learned counsel of the assessee, vehemently objected to the order of the learned CIT(A). He said that the learned CIT(A) quibled in appreciating the entire matter in controversy. The learned counsel reiterated that assessee was a subsidiary company of M/s Lallubhai Amichand Ltd. and it purchased goods from its holding company from time to time for a sum of Rs. 23,33,073 on the various dates. It was added that proper accountings were made by debiting the goods purchase account and crediting to M/s Lallubhai Amichand Ltd.s account in the books of accounts. The learned counsel said that there was no dispute about the aforesaid purchases and the corresponding entries made in the books of accounts of the assessee. It was argued by him that since the assessee was not in a position to make the payment of the purchase price immediately it was agreed with M/s Lallubhai Amichand Ltd. that the said amount was to be treated as Sarafi account and as per the arrangements, the amount in round sum for Rs. 9 lacs and Rs. 14 lacs were transferred from goods purchase account to the Sarafi account of M/s Lallubhai Amichand Ltd. The learned counsel said that the assessee was having Sarafi account in the name of M/s Lallubhai Amichand Ltd., also from before. The learned counsel said that the odd sums for Rs. 49,908.40 and Rs. 8,165.20 were paid by account payee cheques out of the two sets of the purchase price of the goods namely, 9,24,908.40 and Rs. 14,08,165.20. The learned counsel said that again there was no dispute about the book adjustment of Rs. 9 lacs and Rs. 14 lacs from goods purchase account to Sarafi account of M/s Lallubhai Amichand Ltd. The learned counsel emphasized that at that juncture the authorities below misconceived the whole aspects. The learned counsel said that there was a mere book adjustment by transfer from one account to another account of the same party in the books of the assessee without involving any transfer of money. The learned counsel said that such book adjustment from one account to other account could not be said a deposit or loan as was contemplated under s. 269SS of the Act. The learned counsel of assessee referring to the provisions of s. 269SS read with Explanation to sub-cl. (iii) submitted that to have the application of the provisions of s. 269SS it necessarily required involvement of money that being transferred from depositor to depository or from lender to loanee and here in the instant case there was no such occasion of transfer of money as specifically contemplated by sub-cl. (iii) of Explanation to s. 269SS. The learned counsel said that the book adjustment crediting the Sarafi account and debiting the goods purchase price account was simply transferring the liability from one account to another and so under no stretch of imagination such a transfer could be said to be a deposit or loan accepted by the assessee from M/s Lallubhai Amichand Ltd. Maintaining his submissions, the learned counsel reiterated that even for argument sake, it was assumed that there was deposit or loan by dint of such transfer but even then to bring such loan or deposit within the mischief of s. 269SS could not be conceived of because there was no involvement of transfer of money as stated above. The learned counsel of the assessee particularly referring to cl. (iii) of the Explanation to s. 269SS submitted that in order to have that provisions of s. 269SS was violated, there should be deposit or loan by payment of money. The learned counsel said that here in the instant case the alleged deposit or loan was not created by payment of money. The learned counsel referring to the order of the learned CIT(A) submitted that the analogy drawn by the learned CIT(A) having referred to the provisions of s. 40A, sub-s. (3) r/w r. 6DD and CBDT Circular 479, dt. 16th Jan., 1987 [printed at (1987) 60 CTR (St) 71] having relevance to s. 269T of the IT Act was misconstrued and ill-placed. The learned counsel said that the principles enunciated on those provisions were completely as different context and so they did have no relevance with the present facts and circumstances of the case. The learned counsel of the assessee further said that provisions of s. 269SS was brought into statute with a view to discourage tax avoidance and tax evasion. He said that no material was brought to prove that if assessee resorted to any tax planning or colourable device for avoiding or minimising the tax. It was emphasised by the learned counsel of the assessee that the assessee in bona fide got the adjustment of the books least knowing that if (sic) by such act it was violating the provisions of s. 269SS. Explicating the learned counsel said even in worst situation that when by such book adjustment the assessee violated the provisions of s. 269SS of the IT Act that was done bona fide and the violation was mere technical or venial. There was reasonable cause for such violation and so in view of command of the provisions of s. 273B of the IT Act no penalty was to be levied. According to the learned counsel of the assessee the order of the learned CIT(A) was unjustified and that required to be reversed.
5. On the other hand, Shri M. P. Lohia, the learned Departmental Representative strongly supported the orders of the authorities below particularly, the learned CIT(A). He also vehemently opposed the submissions of the learned counsel of the assessee and submitted that by book adjustment a sum of Rs. 23 lakhs was transferred from goods purchase account to Sarafi account. The receipt in the Sarafi account was a construct Departmental Representative receipt creating a deposit in the books of accounts of assessee. The learned Departmental Representative of Revenue emphasised that the deposit or loan was created in a number of cases by passing book entries or showing constructive receipt. The learned Departmental Representative said that in cases of providing overdraft facilities to customers by bank the loan in the name of the customers in the bank account was created only by making entries in the books of accounts. The learned Departmental Representative also stated that particularly in Gujarat State unpaid sales-tax from the traders was considered to be loan from the Government to such traders in some cases. The learned Departmental Representative therefore, emphasised that by dint of the constructive receipts the deposit and loan could be created. He said that in the present case also the assessee accepted the deposit of Rs. 23 lakhs that being a constructive receipt and since the deposit was otherwise than by account payee cheque or account payee bank draft, the assessee violated the provisions of s. 269SS liable to penalty under s. 271D of the IT Act. On other points also the learned Departmental Representative vehemently opposed the submissions of the learned counsel of assessee. According to the learned Departmental Representative order of the learned CIT(A) was justified and that required to be sustained.
6. We have heard the rival submissions and gone through the appeal record including papers compiled in the paper book. It is an admitted fact of the case that the assessee is a subsidiary company of M/s Lallubhai Amichand Ltd. and it purchased goods from said holding company for Rs. 9,24,908 and Rs. 14,08,165. The proper accounting had also been made. There is no dispute that out of Rs. 9,24,908.40, Rs. 24,908.40 was paid by account payee cheque and similarly out of Rs. 14,08,165.20 an amount of Rs. 8,165.20 was paid by another account payee cheque. The round sum of Rs. 9 lakhs and Rs. 14 lakhs have been transferred to Sarafi account from goods purchase account of said M/s Lallubhai Amichand Ltd. and that has been done in view of the understanding reached by the two companies. Here it is to be pointed out that in appeal record, from Revenue side, no evidence or material has been brought to show that if all the aforesaid transactions right from purchase of goods by assessee from M/s Lallubhai Amichand Ltd. to transfer of Rs. 9 lakhs and Rs. 14 lakhs from goods purchase account to Sarafi account is in pursuance to any tax planning or colourable device adopted by the assessee. It is to be noted that the provisions of s. 269SS has been brought in statute by Finance Act, 1984, in order to discourage the tax avoidance or tax evasion and also to stop introduction of unaccounted cash. What the assessee has done here is that it has made adjustment in its books of accounts by transferring Rs. 9 lakhs and Rs. 14 lakhs from goods purchase account to Sarafi account standing in the name of M/s Lallubhai Amichand Ltd. Can this book adjustment of one party be said deposit or loan as contemplated under s. 269SS of the IT Act ? The goods purchase account and the Sarafi account is of the same person. Rs. 23 lakhs have been transferred from goods purchase account to Sarafi account. It is adjustment of accounts from one to the other of the same creditor. Speaking in other words, shifting a liability from one account to another account. The papers compiled at pp. 1 to 11 can be referred to see in what manner such adjustment has been made. PP 1 and 2 are respectively goods purchase account and Sarafi account. By hawala entries, the transfer has been effected, pp. 5 and 6 are debit/credit vouchers, pp. 9 to 11 are copies of the cash book. There is nothing to show that if actually deposit or loan has been created.
7. No doubt deposit or loan can be created by constructive receipt by book adjustment or account adjustment, but for creation of such deposit or loan by dint of such constructive receipt there must be manifest intention to do so. From the depositor or lender some instructions or direction should proceed for creation of such deposit or loan and that is also to be acceptable by the depository or loanee. Here, in the present case, there is nothing to show that if by dint of any understanding by M/s Lallubhai Amichand Ltd. at one hand and the assessee-company on the other hand that a deposit or loan is being created by such book adjustment. That apart, it is to be noted that constructive deposits or loan cannot come within the mischief of the provisions of s. 269SS. We may point out here that both the learned counsel of assessee as well as the learned Departmental Representative have emphasised that provisions of law of the IT Act is to be read strictly as it has meant -
Sec. 269SS reads as follows :
"No person shall after 30th June, 1984, take or accept from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft, if....
Explanation : For the purpose of this section,
(i)..............
(ii).............
(iii) Loan or deposit means loan or deposit of money."
8. The provisions of s. 269SS says that if the deposit is otherwise than by crossed cheque or account payee bank draft there is a violation of the provisions. But the Explanation appended to the provisions of s. 269SS makes it clear that deposit or loan must be made through money. Here, in the instant case, even we assume that book adjustment as carried out by the assessee is a deposit or loan but there being no transfer of money, it cannot be said that such deposit or loan can be said to be within the mischief of s. 269SS of the Act. For violation of s. 269SS, it necessarily requires involvement of transfer of money which is not in the instant case. In our considered view the claim of the Revenue that since the deposit is not as per mode prescribed under s. 269SS of the Act, there is violation of the said provisions, cannot be accepted. It is also to be pointed out that the Revenue is not clear in its case as to whether that constructive receipt is a deposit or loan because they are two different aspects and not synonymous or interchangeable. Even otherwise also assuming that assessee has violated the provisions of s. 269SS of the Act the penalty as levied cannot be sustained because in appeal record there is nothing to show that if the infraction of the provisions has been done by the assessee knowingly or in stark defiance of the said provisions. There is nothing in the appeal record to show that if assessee has any tax planning or that it has resorted to any colourable device for evasion or minimising of tax. The assessee has made book adjustment bona fide without having least knowledge that such adjustment in the books of accounts is a violation of provisions of s. 269SS rendering to be liable to pay the penalty under s. 271D of the Act. There is reasonable cause rather if it is a violation it is mere venial or technical. In fact, there is no merit in the case of Revenue in levying the penalty under s. 271D of the Act. The order of the learned CIT(A) in our considered view is unjustified and so we reverse the same.
9. In the result, the appeal is allowed.