Income Tax Appellate Tribunal - Mumbai
Acit -14 (2) , Mumbai vs Redwood I.T. Services P.Ltd, Mumbai on 5 July, 2022
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "H" MUMBAI
BEFORE SHRI ABY T VARKEY (JUDICIAL MEMBER) AND
SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER)
ITA No. 1643/MUM/2021
Assessment Year: 2013-14
ACIT, Circle-14(1)(2), M/s Redwood I.T. Services Pvt. Ltd.,
Room No. 455, 4th floor, D-211, Ghatkopar Industrial Estate,
Aayakar Bhavan, M.K. Road, Vs. Behind R-City Mall Off LBS Marg,
Mumbai-400020. Ghatkopar-West,
Mumbai-400086.
PAN No. AADCR 7296 K
Appellant Respondent
Revenue by : Mr. K.C. Kanojiya, CIT-DR
Assessee by : Mr. J.D. Mistri, AR
Date of Hearing : 08/06/2022
Date of pronouncement : 05/07/2022
ORDER
PER OM PRAKASH KANT, AM
This appeal by the Revenue is directed against order dated 13/02/2020 passed by the Ld. Commissioner of Income-tax (Appeals)-22, Mumbai [in short 'the Ld. CIT(A)'] in relation to penalty levied by the Joint Commissioner of Income-Tax-Range M/s Redwood I.T. Services Pvt. Ltd. 2 ITA No. 1643/M/2021
143), Mumbai (in in short 'the JCIT') for repayment/accepting /accepting loan by the assessee otherwise then by accou account nt payee cheque. The grounds raised by the Assessing Officer in the appeal are reproduced as under:
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Penalty imposed u/s 271D fact that the entries were journal entries & 271E merely on the fact leading to reassignment of debt, ignoring the fact that the Assessing Officer had levied the same on the grounds that the loans had been repaid and received by modes other than by account payee or any other mode provided in section 269SS & provided 269T.
2. The Appellant prays that the order of the CIT(Appeals) on the above ground be set aside and that of the AO be restored.
2. At the outset,, we may like to mention that delay of 520 days in filing appeal has been pointed by the Registry. The Ld. DR submitted that in view of the order of the Hon'ble Supreme Court in Miscellaneous Application No. 21 of 2022 in suo motu Writ Petition (C) No. 3 of 2020 & others, the appeal is within the extended period. In view of the order of Hon'ble Supreme Court (supra), the period M/s Redwood I.T. Services Pvt. Ltd. 3 ITA No. 1643/M/2021 from 15.03.2020 till 28.02.2022 stands stand excluded for the purposes of limitation prescribed under any general or special laws in respect of all judicial or quasi judicial proceedings. In the case, order of Ld. L CIT(A) was received by the respective CIT on 18.02.2020. The appeal was due for filing on or before 19.04.2020 whereas appeal has been filed on 20.09.2021. In view of the order of Hon'ble Supreme Court (supra), tthe he appeal being within the extended period, it is admitted for adjudication.
3. Briefly stated facts of the case are that scrutiny assessment under section 143(3) of the Income-tax Act, 1961 (in in short 'the Act') 2013 14 was completed on 15/03/2016. In the for assessment year 2013-14 said assessment order, orde the Ld. Assessing Officer made out a case for initiation and imposition of the penalty in terms of sections 271D and 271E of the Income Income-tax tax Act, 1961 (in short 'the Act') for contravention off the provisions of section 269 269SS and 269T respectively. The Ld. Assessing Officer observed that a loan of ₹ 5 M/s Redwood I.T. Services Pvt. Ltd. 4 ITA No. 1643/M/2021 crore was outstanding from Mr Mr. Chandan Asrani at the beginning of the financial year, out of which ₹3,44,43,885/- was paid by way of general entry dated 31/03/2013 and fresh loan of ₹3,44,43,885/- was accepted from 'Smt Smt. Daya Asrani' by way of general entry dated 31/03/2013. The Ld. Assessing Officer forwarded this information to the JCIT,, who initiated the proceeding by way of issue of penalty show cause notice dated 15/03/2016. The Ld. JCIT JCIT, after considering submission of the assessee found the case fit for le levy of penalty under section 271D and 271E 271 of the Act.
Act The relevant finding of the Ld. JCIT in impugned order are reproduced as under:
"At off the said amount of At the outset, it is pertinent to note that the gifting o ₹3,40,00,000/-- is not a transaction entered into by the Assessee Assessee-company in its normal course of business. The said transaction of passing of entries in its books of account to enable the promoter to gift the amount of loan due to him by the company has no nexus with the actual business of the Assessee and hence cannot be termed as a business transaction.
1. The Assessee has contended that it had no control in the loan advanced to the Company by the Promoter, Sh. Chandah Asrani. It is gh to state that a company is a juridical' person completely enough "distinct from the promoter and takes Its own decisions. It is unclear M/s Redwood I.T. Services Pvt. Ltd. 5 ITA No. 1643/M/2021 Assessee company had no control over its own decisions as to how the Assessee-company in respect of the loans advanced to it by its promoter? Does it mean that the existence and day-to-day day day functioning of the company are completely subservient to the decisions of the promoter, and that Assessee company take any decision which the being so would the Assessee-company contrary to the provisions of a promoter wants it to even if the same is contrary statute?
Assessee company could have refused to pass journal entries in Its
2. The Assessee-company books of account knowing well that, what It was about to do would tantamount and/or result in violations of the provisions of sections 271D & 271E of the Act.
3. The Assessee-company Assessee well within its statutory powers to refuse was-well to oblige to fulfil the desire of the promoter to give a gift his sister - one Which fell within the personal realm of the promoter and had nothing to do with the company or its business.
b
4. Neither the assessee nor the promoter has brought anything on record to anything on record to suggest as to why the passing of journal entries was the only mode available to it for repaying and payee cheque?
accepting the loans otherwise than by in account payee
5. Also it has not been pointed out with any evidence as to why the company could paid the loan by an account payee cheque to Assessee-company the promoter, when it had in fact done in past, as It clear from the entries dated 27-10-2012 27 and 01-12-2012 videe which an amount of ₹ 90 lakhs and Rs. 70 lakhs was in fact paid to the promoter? Why couldn't the same be done with the remaining amount of Rs. 3.4 cr? At this juncture, It is Important to take note of the fact that the Assessee has a team of accounting professionals at its disposal not only to take decisions to conduct its business but also to maintain its M/s Redwood I.T. Services Pvt. Ltd. 6 ITA No. 1643/M/2021 day business, record business transactions and finalize its day-to-day annual books of accounts as per the rules laid d out in the Company Act, 1951 and as allowable under the Income-tax tax Act, 1961.
1961."
4. Further the Ld. JCIT also examined the plea of reasonabl reasonable cause in terms of section 27 273B 3B for not levying penalty. The Ld. JCIT noted that the decision of the Hon'ble Bombay High Court in the case of Triumph International ernational Finance India Ltd 345 ITR 270, 270 it is held that acceptance or repayment of the loan through general entries has been held liable le for penalty under section 27 271D/271E 1D/271E of the Act.
But the Hon'ble High Court further observed that if reasonable reason cause exists for 269SS and 269T, then penalty or contravention of section 269 may not be levied. The Ld. JCIT further referred to the decision of the Tribunal in the case of VN Parekh securities Private Limited (supra) and concluded that in said case issue was related to expenses being incurred on behalf of the assessee by the sister concern, owing to the fact that all operations of the assessee were halted due to attachment of bank accounts. In such circumstances, circumstances M/s Redwood I.T. Services Pvt. Ltd. 7 ITA No. 1643/M/2021 the Tribunal found it to be a reasonable cause for violation of the provision of section 269 269SS/ 269T. The Ld. JCIT rejected the plea of the assessee of reasonable cause observing as under:
"However, However, in spite of opportunity being so given, the Assessee Assessee-
here was a 'reasonable cause' due company has not established that there to which the provisions of section. 269SS and 269T were violated.
Assessee company such as the In fact, the documents furnished by the Assessee-company letter of Sh. Chandan Asrani to the Board of Directors' dated 01-03- 01 2013 as well as the resolution of the Assessee-company company seems to be an exercise to create self serving documents to rationalize the action of self-serving the Assessee-company Assessee d Sh. Chandan Asrani and Ms. Daya and the said scape the riogours of the Asrani with a view to make an alibi to escape ovisions of section 269SS and 269T. Moreover, there is no evidence provisions furnished which wh d letters of Sh. Chandan could establish that the said Asrani and the resolution of the Board of Director actually were writt n and/or passed on the dates on which they purport to Indeed written have been written and/or passed not even a postal stamp or anything else bearing the date and time (from a third party) which could establish the dates of their writing and/or passing.
Assessee company has done, it has not only By doing what the Assessee-company o contravened the provisions of s. 2695S as well as S: 269T of the Act, failed to establish any reasonable cause mandated but also has: failed-
273 which led it to engage or undertake the impugned under section 273B transactions.
transactions."
M/s Redwood I.T. Services Pvt. Ltd. 8 ITA No. 1643/M/2021
5. The Ld. JCIT finally levied levi thee penalty under section 271D 27 and 27 E of the Act of observing as under:
On the basis of the discussion in the preceding paragraphs, I hold that there was no business exigency or business connection for passing of entries in books of account and the same was done to execute a personal transaction of the promoter of the Assessee Assessee-company Sh.
vis vis his sister, Ms. Daya Asrant. Also, the said Chandan Asrani vis-a-vis transactions was done with a malafide mal intention of diverting and/or and/o generating Interest income in the hands of the promoter's sister, instead of his own hands, and claiming the same as deductions from profit and consequently reducing the tax liability of the Asse Assessee-
company. Moreover, I also hold that the act of passing of entries in accepted end/or repaid books of account in respect of the loans accepted cannot be said to be a bona fide transaction of the Assessee-company Assessee where a reasonable cause existed for contravening the provisions of sections 269SS and 269T of the Act.
assessee company has contravened the provisions Thus I hold that the assessee-company of section 269SS and section 269T and has also failed to establish a reasonable cause for its failure to comply with the provisions of the said sections as required under section 273B.
I therefore refore levy penalty u/s 10,00,000/- (being u 271D of the Act of ₹3,10,00,000/ oan repaid to Sh.
100% of the relevant amount) in respect of the loan Chandan Asrani (for an amount of ₹3,40,00,000/-) and penalty u/s 271B of the Act of ₹3,44,885/- being 100% of the relevant amount) am in fresh loans brought into books of account by way of loan from Ms. M/s Redwood I.T. Services Pvt. Ltd. 9 ITA No. 1643/M/2021 Daya Asrani (amounting to ₹3,44,43,885/-.. Thus, the aggregate penalty levied in the Assessee's case is as under :
Penalty u/s 271D of the Income-tax Income Act, 1961 ₹3,40,00,000/- Penalty u/s 271E of the Income Tax Act, 1961 ₹3,44,43,885/- Total Penalty Amount ₹6,84,43,885/-
6. On further appeal, the Ld. CIT(A) deleted the penalty holding that general entries leading to assignment of debt does not at attract penalty under section 271D 271 and 271E of the Act and therefore he deleted the penalty. The relevant finding of the Ld. CIT(A) is reproduced as under:
Plain reading of the definition of the terms "loan or deposit makes it "Plain clear that there must be an exchange of money for these sections to be applicable. In the instant case there has been no exchange of money as on 31.03.2013 and the transactions on which penalty has been imposed by the JCIT are undisputedly journal entries leading to to Mrs Daya Asrani. In reassignment of debt from Mr Chandan Asrani to my considered view, therefore the provisions of Section 269SS & 269T Rs.6,65,51,401/- imposed by the are not applicable and the penalty of Rs.6,65,51,401/- JCIT U/s 271D & 271E of the Income Tax Act is deleted."
deleted.
7. Though the Ld. CIT(A) in Para Parass 3.3.2 to 3.3.4 has discussed the submission of the assessee related to existence of reasonable cause M/s Redwood I.T. Services Pvt. Ltd. 10 ITA No. 1643/M/2021 for not levying penalty, however the Ld. CIT(A) has not given any conclusive finding whether the case of the assessee falls under the reasonable cause so as to come out of the rigors of the penalty provisions.
8. Aggrieved with the finding of the Ld. CIT(A), the Revenue is in appeal before the Tribunal raising the grounds as reproduced above.
9. Before us, the Ld. DR submitted that Hon'ble Bombay High Court urt in the case of Triumph international rnational Finance India Ltd.
(supra) has held that loan/deposit paid by way of debiting account through general entries falls under the contravention of provision of section 269T. According to the ld DR, the finding of the Ld. CIT(A) is contrary to the finding of the Hon'ble High Court and therefore same need to be reversed.
10. On the contrary, the Ld. Sr. Counsel,, who appeared on behalf of the assessee, submitted that no loan has been repaid and it has been M/s Redwood I.T. Services Pvt. Ltd. 11 ITA No. 1643/M/2021 only assigned from one person to another person and therefore it does not meet requirement of section 271E,, which prescribe that penalty is leviable when the person repays any loan or deposit otherwise than in manner provided in section 269T of the Act. He submitted that the Ld. CIT(A) emphasized emphasiz of no loan repaid, thus no penalty under section 271E of the Act attracted. He further submitted that irrespective of the finding of the Hon'ble Bombay High Court in the case of Triumph International Finance India Ltd. (supra) that repayment by way of general entries also falls under the contravention of section 269T, there exist a reasonable cause in not complying the said provision and therefore no penalty should be levied. The Ld. Senior Counsel referred to para 23 and 24 of the decision of the Hon'ble High Court to substantiate that in the case of the assessee, instead of withdrawing money by Mr. Chandan Asrani from the company's account and then giving to Smt. Daya Asrani and Daya Asrani deposit the money with the company, those M/s Redwood I.T. Services Pvt. Ltd. 12 ITA No. 1643/M/2021 transactions have been carried by way of general entries, which is being one of the reasonable cause for not complying complying provision of section 269SS SS and 269T of the Act. The Ld. counsel also relied on the decision of the Tribunal in the case of Macrotech Developers Ltd.
Ltd in ITA No. 3038/Mum/2019 3038/Mu and ITA No. 3046/Mum/2015 and decision of the Hon'ble High Court of Delhi in the case of Worldwide Township Project Ltd 367 ITR 433(Delhi).
433(Delhi)
11. We have heard rival submissions of the parties on the issue in dispute and perused the relevant material on record. As far as facts of the case are concerned, the Ld. senior counsel has submitted before us that for financing purchase of a property in the financial f year 2008-09, 09, the assessee took loans from Kotak Mahindra Bank Ltd. and promoters of the company namely Shri Chandan Asrani and Mr. Rajesh Chhabria. Both the promoters provided a loan of ₹5 crore each ch to the company. Subsequently, Subsequently in financial year yea 2012-13, the assessee company took further loan from bank and on 08/08/2012 M/s Redwood I.T. Services Pvt. Ltd. 13 ITA No. 1643/M/2021 repaid ₹2.5 2.5 crores to Mr Mr. Chhabria and ₹1.6 1.6 crores to Mr Mr. Asrani.
Thus, loan of ₹3.4 crores was outstanding in the name of Mr Mr. Asrani.
Thereafter letter dated 01/03/2013, Mr. Mr Asrani ani informed the assessee company to assign the outstanding loan of ₹3.40 crores to his sister Ms.. Daya Asrani Asrani,, out of natural love and affection. The company passed a board resolution on 05/03/2013 recognizing the liability of ₹ 3.4 crores towards Ms Daya Asrani by way of passing general entries in its books of accounts on 31/03/2013 and also assigned interest accrued of ₹4,43,885/-. 11.1 In the above facts and circumstances, the Ld. JCIT held that repayment of loan by Mr. an Asrani and acceptance of loan by Mr Chandan Ms. daya Asrani through general entries have contravened the provision ovision of section 269T and 269 269SS of the Act respectively, and therefore held liable for penalty under section 271E and 271D of the Act respectively,, each amounting am to ₹3.4 3.4 crore, totalling to ₹6.8 crores.. The Ld. CIT(A) however has deleted the penalty on the M/s Redwood I.T. Services Pvt. Ltd. 14 ITA No. 1643/M/2021 reasoning that repayment or acceptance of the loan by way of general entries are not in contravention contravention of section 269T and 269SS 269 of the Act respectively. We find that Hon'ble Bombay High Court in the case of Triumph International Finance India Private Limited (supra) has held that repayment of loan/deposit through general entries is in contravention of section 269T of the Act Act. The relevant finding nding of the Hon'ble High Court is reproduced as under :
"17. Section 269T in Chapter XXB of the Act, as introduced originally in the year 1981 provides that none of the entities specified therein (which includes a Company like the assessee) shall repay any deposit made with it otherwise than by an account payee cheque / bank draft dr drawn in the name of the person who had made the deposit, if the amount of the deposit together with the interest, if any, payable thereon, exceeds the amount specified therein. The obligation to repay the deposit by account payee cheque / bank draft for f the entities specified in Section 269T would have to be construed as mandatory in view of the negative language used in the Section. Section 269T vides that none of the entities specified therein shall repay deposit provides otherwise than by the modes set out therein. In other words, the Section provides that irrespective of the fact that there are several specified in Section 269T modes for repaying the deposit, the entities specified shall repay the deposit only by the modes set out therein. The mandatory requirement of Section 269T is further fortified by Section M/s Redwood I.T. Services Pvt. Ltd. 15 ITA No. 1643/M/2021 276E inserted along with Section 269T on 11th July 1981 which provides that if a person referred to in Section 269T of the Act repays any deposit in contravention of agk 11/19 itxa5746 itxa5746--10-final Section 269T then such person shall be punishable with imprisonment for a liable to fine equal to the amount of period upto two years and also liable deposit. Thus, the negative language used in Section 269T as also the non-compliance of penal consequences provided in Section 276E for non the procedure prescribed under Section 269T leave no manner of doubt that repayment of deposit in the manner prescribed under Section 269T is mandatory.
18. With effect from 1st April 1989, Section 276E dealing with the consequences on failure to comply with Section 269T has been ted and Section 271E has been inserted which provides penalty omitted for failure to comply with Section 269T of the Act. Section 269T has been substituted by Finance Act 2002 with effect from 1st June 2002 wherein the provision relating to repayment of deposit exceeding the prescribed limit by account payee cheque / draft has been extended to cheque repayment of loans as well. Thus, with effect from 1st June 2002, it is mandatory under Section 269T of the Act for the persons specified deposit together with interest, if any, therein to repay any loan / deposit exceeding the limits prescribed therein, by account payee cheque / bank draft and failure to do so is made liable for penalty under Section 271E of the Act.
19. In the present case, it is not in dispute that the assessee has repaid loan / deposit by debiting the account through journal entries. The agk 12/19 itxa5746-10-final itxa5746 final question is, whether such repayment of modes of repayment set out in loan / deposit is in contravention of the modes Section 269T ? The argument advanced by the counsel for the assessee M/s Redwood I.T. Services Pvt. Ltd. 16 ITA No. 1643/M/2021 that the bonafide transaction of repayment of loan / deposit by way of adjustment through book entries carried carried out in the ordinary course of business would not come within the mischief of Section 269T cannot be accepted, because, the section does not make any distinction between the bonafide and non-bonafide non nsactions and requires the transactions entities specified therein not to make repayment of any loan / deposit together with the interest, if any otherwise than by an account payee cheque / bank draft if the amount of loan / deposit with interest if any limits prescribed therein. Similarly, the argument that exceeds the limits only in cases where any loan or deposit is repaid by an outflow of funds, Section 269T provides for repayment by an account payee cheque / draft cannot be accepted because Section 269T neither refers to the repayment of loan / deposit by outflow of funds nor refers any of other permissible modes of repayment of loan / deposit, but merely puts an embargo on repayment of loan / deposit except by the modes specified therein. Therefore, in the present case, where loan / deposit has been repaid by debiting the account through journal entries, it must be held that the assessee has contravened the provisions of Section 269T of the Act."
11.2 Hon'ble High Court in the above case,, however finally held that assessee proved the reasonable cause for such failure, and therefore no penalty could bee levied in terms of section 273B 3B of the Act.
M/s Redwood I.T. Services Pvt. Ltd. 17 ITA No. 1643/M/2021 11.3 In the instant case, we we have already observed that Ld. CIT(A) has not concluded on the issue whether a reasonable cause exist in the case of the assessee.
11.4 In the case of Macrotech Developers Ltd.
Ltd (supra), the Tribunal has considered the decision of the Hon'ble Bombay High Court in the case of Triumph International Finance India Ltd. (supra) and decision of the Hon'ble Delhi High Court in the case of World township Project Ltd (supra).
(supra) The Tribunal (supra) in para 3.3 of said order has observed reliance placed by the assessee on seriess of decision of 269SS and 269T 269 prior to the decision of the Hon'ble Bombay High Court in the case of the Triumph International Finance India Private Limited (supra) that passing of general entries for received/payment does not amount to contravention of section 269 269SS SS and 269T and therefore same constituted a reasonable cause for passing such general entries. The relevant observation of the Tribunal (supra) is reprodu reproduced as under:
M/s Redwood I.T. Services Pvt. Ltd. 18 ITA No. 1643/M/2021 3.3. The ld. CIT(A) placed reliance on the decision of the Hon‟ble "3.3. Hon Jurisdictional High Court in the case of CIT vs. Triumph International (I) Finance Ltd., reported in 345 ITR 270 wherein it was held that the transactions through journal entries entries are also hit by the provisions of Hon‟ble Bombay High 269SS and 269T of the Act. The decision of the Hon‟ble Court rendered on 12/06/2012 is significant and prior to this judgment, there were series of consistent decisions on Sections 269SS and 269T of the Actt holding that mere passing of journal entries will not amount to receipts / payments otherwise done by account payee cheques or draft and accordingly, the same were not in contravention of provisions of 269SS and 269T of the Act and consequently no penaltyy u/s.271D and 271E of the Act could be levied for the same respectively. The Hon‟ble Hon Jurisdictional High Court held that the reliance placed on these series of consistent decisions of 269SS and 269T of the Act constituted reasonable cause and accordingly, it held that though journal entries fall within the ambit of provisions of 269SS and 269Tof the Act, still in view of series of consistent decisions rendered on the said subject, the Hon‟ble Hon‟ble High Court held that the same would constitute reasonable cause within the meaning of Section 273B of the Act as assessee was made to believe by way of series of decisions rendered on the subject. The ld. CIT(A) also placed reliance on the Mumbai Tribunal decision in the case of Lodha Builders Pvt. Ltd.,(Group company of the assessee on the very same issue) wherein this Tribunal had given seven instances of journal entries which could be considered as a reasonable cause within the meaning of Section 273B of the Act. The same are as under:-
under:
a. Alternate mode of raising funds b. Assignment of receivables M/s Redwood I.T. Services Pvt. Ltd. 19 ITA No. 1643/M/2021 c. Squaring up of transactions d. Operational efficiencies/MIS purpose e. Consolidation of family member debts f. Correction of errors g. Loans taken in cash 11.5 But wee find that in the instant case, case, decision of the Hon'ble Bombay High Court has been pronounced on 12/06/2012 whereas general entries have been passed on 31/03/2013 , which are much after the pronouncement of the decision of the Hon'ble Bombay High Court and therefore assessee cannot take take said plea in the instant case.
11.6 In the case, we find that assessee is neither before us by way of appeal or cross-objection objection or even under Rule 27 of the ITAT Rules to support existence of reasonable cause. The Department has of the Ld. CIT(A) wherein it is held that challenged the finding of receipt/payment of loan by way of general entry is not in contravention of 269SS or 269T provisions. Therefore, we are restricted tricted to decide the ground of the Department only. The finding M/s Redwood I.T. Services Pvt. Ltd. 20 ITA No. 1643/M/2021 of the Ld. CIT(A) is contrary contrary to the decision of the Hon'ble Jurisdictional High Court and therefore liable to set aside. We order accordingly.
12. The ground of appeal of the Revenue is accordingly allowed.
Order pronounced ounced in the Court on 05/07/2022.
Sd/- Sd/-
(ABY
ABY T VARKEY)
VARKEY OM PRAKASH KANT)
(OM KANT
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai;
Dated: 05/07/2022
Rahul Sharma, Sr. P.S.
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A)-
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy//
Sr. Private Secretary)
(Sr. Secretary
ITAT, Mumbai