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[Cites 17, Cited by 4]

Gujarat High Court

Commissioner Of Income Tax Vi vs Madhav Enterprise Pvt ... on 22 January, 2014

Author: Akil Kureshi

Bench: Akil Kureshi, Sonia Gokani

        O/TAXAP/561/2013                                    ORDER




         IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                       TAX APPEAL NO. 561 of 2013

================================================================
           COMMISSIONER OF INCOME TAX VI....Appellant(s)
                            Versus
            MADHAV ENTERPRISE PVT LTD....Opponent(s)
================================================================
Appearance:
MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1
MR TUSHAR P HEMANI, ADVOCATE for the Opponent(s) No. 1
MS VAIBHAVI K PARIKH, ADVOCATE for the Opponent(s) No. 1
NOTICE SERVED for the Opponent(s) No. 1
================================================================

        CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
               and
               HONOURABLE MS JUSTICE SONIA GOKANI

                            Date : 22/01/2014


                             ORAL ORDER

(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

1. This   appeal   is   presented   by   the   Revenue   challenging   the  judgement   of   the   Income   Tax   Appellate   Tribunal   dated  14.12.2012   raising   the   following   question   for   our  consideration :

"Whether the Appellate Tribunal has substantially erred in  holding   that   advances   against   the   booking   of   shops   and  offices is not deposit within the meaning of section 269SS  and  269T   of  the   Income  Tax  Act,  against  the  decision  of  Allahabad  High  Court  303  ITR  9 in the  case  of  Chaubey  Overseas   Corp.   and   thereby   deleting   the   penalty   of  Rs.15,92,940/­   under   section   271E   of   the   Income   Tax  Act?"
Page 1 of 10
O/TAXAP/561/2013 ORDER
2. Having   heard   the   learned   counsel   for   the   parties   and  having  perused  the  decisions  on record  and in particular  that of the tribunal, we notice that the respondent assessee  is engaged in the business of construction activity. During  the previous year relevant to assessment year 2006­2007,  the   assessee   had   paid   a   sum   of   Rs.13,91,330/­   to   25  different   parties.   Such   amounts   were   in   excess   of  Rs.20,000/­ at a time and were not made through cheques.  Assessing   Officer   therefore,   believed     that   the   payments  were hit by section 269T of the Income Tax Act, 1961 and  resultantly,   the   assessee   was   liable   to   penalty   under  section 271E of the Act.
3. The   case   of   the   assessee   was   that   such   amounts   were  received   from   the   said   25   parties   for   booking   of   the  shop/office/flat   which   they   later   on   cancelled.   Such  amounts   therefore,   had   to   be   returned.   In   short,   the  assessee's case was that such amounts were neither loans  nor deposits and therefore, section 269T of the Act would  not be applicable.
4. The   Assessing   Officer   did   not   accept   the   contention   and  imposed   penalty   which   was   challenged   before   the  CIT(Appeals)   by   the   assessee.   CIT(Appeals)   deleted   the  penalty   observing   inter­alia   that   the   parties   in   question  were refunded the advance money without interest because  of   various   reasons.   Section   269SS   would   be   applicable  where   loan   or   deposit   has   been   accepted   or   repaid  otherwise than by Account payee cheques. The customers  in   the   present   case   had   given   earnest   money   (booking  Page 2 of 10 O/TAXAP/561/2013 ORDER advance)   for   the   purchase   of     shop/office/flat.   Many   of  these   advances   were   received   by   cheques,   some   where  cash. The repayment do not fall under the category of loan  or   deposit   and   the   provisions   of   section   269T   were  therefore, not applicable. 
5. Revenue carried the matter in appeal. The tribunal rejected  the Revenue's appeal in the following manner :
"9.We  have  heard  the  rival  submissions   and  perused  the  material on record.  The factual matrix of the case is that  the   assessee   is   engaged   in   the   business   of   building  properties at various sites. The assessee has sold 264 units  in   his   project   and   in   the   case   of   18   parties   the   amount  aggregating to Rs.15,92,940/­ was returned to the parties  in cash. It is a fact that the amount returned represented  the   earnest   money   received   by   it   on   sale   of   units.   The  assessee has reflected the advance received in its balance  sheet and the same has been accepted by the Department  in   the  earlier   years.   The  advances  received   also  included  receipt in cash. The amounts refunded did not inlcude any  interest.
10. In   the   case   of   the   CIT   vs.   Rugmini   Ram   Ragav  Spinners   P.Ltd   (2008)  304  ITR   417   Hon'ble   Madras   High  Court held that the penalty u/s. 271E is not automatic and  is to be levied only in the absence of reasonable cause. The  rationale   behind   the   provisions   of   sections   269SS   and  269T   is   to   prevent   tax   evasion,   i.e.,   the   laundering   of  concealed income by parties in the guise of cash loans or  deposits   in   or   outside   the   accounts.   The   provisions   of  sections 269SS and 269T therefore have application only in  a limited way in respect of deposits or loans. When it is is  neither deposit nor loan. The (provisions of section 269SS  and 269T have no application at all."
Page 3 of 10
O/TAXAP/561/2013 ORDER
11. The term loan or deposit as per explanation to section  269T   means   any   loan   or   deposit   of   money   which   is  repayable   after   notice   or   repayable   after   a   period.   In   the  case   of   the   assessee   the   advance   money/earnest   money  was not accepted with any pre­conditions of repayment on  or after an interval of time. CIT(A) has given a finding that  considering the nature of repayment the amount returned  does   not   fall   under   the   narration   of   loan   or   deposit.  Further he has also given a finding that the advance money  received  from  the  customers  has  not  been  converted  into  loan or deposit. He has further observed that in some cases  the assessee had accepted  the advance  money  in cash in  excess of Rs. 20,000/­ which was in the knowledge of A.O.  but AO had applied the provisions of sec.271D of the Act.  He has further held that there is no ban in the Act against  accepting   cash   for   sale   of   an   immoveable   asset.   In   the  present case, the advance is for purchase of shop/premises  which  is accepted  asset.  CIT(A) has further  observed  that  AO had not commented  on the detailed submissions  filed  before  him  during   the  course  of  penalty  proceedings  and  and   without   appreciating   the   full   facts   AO   has   levied  penalty only for the reason that the refunds were made by  the   cheques.   Nothing   has   been   brought   on   record   by  Revenue   to   controvert   the   findings   of   CIT(A)   further   the  cases law relied by the Reevenue are also distinguishable  on facts.
12. In   the   case   of   Shiv   Enterprises   (ITA  No.291/Ahd/2009 order dated 14­10­2011) the coordinate  Bench  relying  on the CBDT  circular  no.387  dated  06­07­ 1984 held receiving advance and repayment of advances is  a business transaction. Provisions of Sec.269SS is confined  to   loans   and   deposits   only   and   does   not   extend   to  purchase/sale transaction." 

6. Learned   counsel   for   the   Revenue   would   place   heavy  reliance on the decision of Allahabad High Court in case of  Page 4 of 10 O/TAXAP/561/2013 ORDER Chaubey   Overseas   Corporation   v.   Commissioner   of  Income­tax  reported  in  (2008)  303  ITR  9 (All).  It was  of­ course   a   case   where   the   assessee   had   received   sum   of  Rs.25,000/­  from various  persons  totalling  to Rs.  1 lakh.  They were advances for procuring silk fabrics. The assessee  failed   to   deliver   the   goods   and   therefore,   returned   the  amount  in  cash.  In  the  context  of provision  contained  in  section  269T  and   271E,   the  assessee  contended  that  the  amounts being in the nature of advances, would not cover  under   the   expression   "loans   or   deposits".   Repayments  thereof  in  cash  therefore,  would  not  entail  penalty  under  section 271E of the Act. The High Court did not accept the  contention and made the following observations :

37.  Viewed as above, the use of word 'any deposit', in our  opinion,  has been  used  to cover  all sorts  of deposits  and  'trade deposit' also. A restricted meaning, as suggested by  the   learned   Senior   Counsel   for   the   assessee,   if   given   to  exclude the trade deposit, if any within the purview of the  words   'any   deposit'   the   very   object   of   the   enactment   of  Section 269T would be frustrated. Not only this, every time  a vexed question as to whether the deposit in question is a  'trade deposit' or is a 'deposit' simpliciter would arise and  will   have   to   be   adjudicated   upon   by   the   authorities  concerned which will lead to uncertainty as well as it will  amount   colossal   wastage   of   time   and   energy   both   of   the  assessee as well as of the taxing authorities. Section 269T  provides   a   definite   mode   of   repayment   which   is   also  otherwise very convenient in day to day transaction as the  payment/repayment   by   a   crossed   cheque   or   Bank   Draft  evidences   the   payment   itself.   It   is   easy   to   establish   if  payment/repayment  is made through  a Bank  Draft or by  crossed account payee cheque.
40.  We   do   not   find   so.   We   have   carefully   perused   the  Page 5 of 10 O/TAXAP/561/2013 ORDER order of the CIT (A) which  was in favour of the assessee. 

The  said  order  of  CIT  (A)  does  not  discuss  ingredients  of  Section 269 T and it proceeds on the assumption that the  additions   made   under   Section   68   of   the   Income   Tax   Act  having been set aside,  no case of penalty has been made  out as it was a trade advance. 

41.  The applicability of Section 269T is not dependent on  facts   as   to   whether   the   transaction   is   genuine   or   of  doubtful   character.   Even   the   genuine   deposits   are   also  covered   under   Section   269T.   The   source   of   deposit,  capacity of the depositors etc. are wholly irrelevant so far  as   the   applicability   of   Section   269T   is   concerned.   No  evidence could be referred or pointed out which has been  omitted  to  be  considered  by the  Tribunal  in holding  that  the said deposit is not a trade advance. The finding of the  Tribunal holding that the deposit in question is not a trade  deposit is basically a finding of fact and was rightly arrived  at by it. We therefore decides the said question against the  assessee and in favour of the Department." 

7. On   the   other   hand   learned   counsel   Ms.   Vaibhavi   Parikh  drew our   attention to an order dated 4.4.2011 passed in  Tax   Appeal   No.2074/2009   in   case   of  Commissioner   of  Income tax v. Top Media Entertainment ltd. in which the  Court had confirmed  the decision  of the tribunal  deleting  the   penalty   under   section   271E   in   somewhat   similar  circumstances.

8. From the record it emerges that it is undisputed that the  respondent had in the course of business of construction,  accepted  from   various  parties  earnest   money   for   booking  shop/office/flat. Some of these advances were also through  cheques.   Some   of   the   parties   cancelled   the   advance  booking  due to various  reasons.  On account  of this,   the  Page 6 of 10 O/TAXAP/561/2013 ORDER assessee   returned   the   advance   without   interest.   If   these  factual   aspects   are   not   in   dispute   as   concluded   by  CIT(Appeals)   and   the   tribunal,   and   with   which   the  department  has not  raised  any  substantial  dispute,  what  emerges is that the respondent had received advance from  the   prospective   purchasers.   Such   advances   were   for  booking  shop/office/flat that would be constructed by the  respondent.   For   variety   of   reasons,   such   a   deal   may   not  work out. Either the prospective buyers  may later on back  out or the assessee himself may not be able to deliver the  constructed property. Depending on the reason and on the  terms   of   agreement   between   the   parties,   question   of  refunding the advance may arise. In the present case, the  entire advances were returned without interest.

9. We cannot see how at the time when such payments were  made, same could be described as either loans or deposits.  Section   269T   contains   an   explanation   which   defines   the  term "loan or deposit" in the following manner :

"loan   or   deposit"   means   any   loan   or   deposit   of   money  which is repayable after notice or repayable after a period  and,   in   the   case   of   a   person   other   than   a   company,  includes loan or deposit of any nature."

10. What   the   respondent   received   from   the   prospective  buyers was advance money simplicitor which was neither a  loan   nor   a   deposit   even   within   the   meaning   of   the   said  term assigned to under section 269T of the Act. When such  amount   is   returned   that   too   without   interest,   we   do   not  find any applicability of section 269T of the Act.

Page 7 of 10

O/TAXAP/561/2013 ORDER   In case of Top Media Entertainment ltd.(supra), this  Court had taken such a view also.

11. Even independently section 273B of the Act provides  that notwithstanding anything contained in section 271E,  no   penalty   shall   be   imposable   on   the   person   or   the  assessee as the case may be, for any failure referred to in  the said provisions if he proves that there was reasonable  cause for the said failure.   It was in this background that  in somewhat similar circumstances, Madras High Court in  case   of  Commissioner   of   Income­tax   v.   Rugmini   Ram  Ragav   Spinners   P.   Ltd.  reported   in   (2008)   304   ITR  417(Mad)   upheld   the   tribunal's   decision   of   deleting   the  penalty making the following observations :

"7.  Hence, the factual finding by the authorities below is  that the amount received is not a deposit or loan, but it is  only  share  application  money,  and  the  same  is based  on  valid materials and evidence. The relevant provisions of law  are sections 269T, 271D, 271E and 273B of the Act. In the  present   case,   the   Assessing   Officer   levied   penalty   under  section 271E deals with "penalty for failure to comply with  the  provisions  of  section  269T".  Section  271E,  as  on  the  relevant period, reads as follows:
"271E.   (1)   If   a   person   repays   any   deposit   referred   to   in  section   269T   otherwise   than   in   accordance   with   the  provisions of that section, he shall be liable to pay, by way  of  penalty,  a sum  equal  to the  amount  of the  deposit  so  repaid.
(2)  Any  penalty   imposable  under  sub­section  (1)  shall  be  imposed by the Deputy Commissioner."

9.  The   above   section   provides   that   no   branch   of   a  Page 8 of 10 O/TAXAP/561/2013 ORDER banking company, cooperative bank and no other company  or co­operative society or partnership firm or other person,  can   repay   any   deposit   made   with   such   entity   otherwise  than   by   an   account   payee   cheque   or   an   account   payee  draft drawn in the name of the person who has made the  deposit.   The   specific   word   used   in   the   provision   is  "deposit".   In   this   case,   the   finding   is   that   there   is   no  deposit. Section 273B of the Act deals with "penalty not to  be   imposed   in   certain   cases".   Section   273B,   as   on   the  relevant period, reads as under:

"273B.   Notwithstanding   anything   contained   in   the  provisions  of  clause  (b) of  sub­section  (1) of section  271,  section 271A, section 271B, section 271BB, section 271C,  section 271D, section 271E, clause (c) or clause (d) of sub­ section (1) or sub­section (2) of section 272A, sub­section  (1) of section 272AA or sub­section (1) of section 272BB or  clause  (b) of sub­section  (1) or clause  (b) or clause  (c) of  sub­section   (2)   of   section   273,   no   penalty   shall   be  imposable on the person or the assessee, as the case may  be, for any failure referred to in the said provisions  if he  proves   that   there   was   reasonable   cause   for   the   said  failure."

10.  The above section provides that if the assessee proves  that there is a reasonable cause, he is not subject to levy  of  penalty.  The   case  of  the  assessee  is  that,  the  amount  received   by   the   assessee   is   only   for   the   purpose   of  allotment of shares and it is not a deposit or loan. In this  case, the reasonable cause is that the assessee was under 

the bona fide belief that the money received is only for the  purpose of allotment of shares. Also, there is no material  or   evidence   or   any   compelling   reason   produced   by   the  Revenue to prove that the money received is a deposit or  loan. The first appellate authority as well as the Tribunal  have   come   to   a   correct   conclusion   after   accepting   the  explanation offered by the assessee. It is a question of fact  and  the  order  of the Tribunal  is not a perverse  one.  The  concurrent  finding given  by both the authorities  below is  Page 9 of 10 O/TAXAP/561/2013 ORDER based on valid materials and evidence. In the case of CIT  Vs. P. Mohanakala [2007] 291 ITR 278, the Supreme Court  held   that   whenever   there   is   a   concurrent   finding   by   the  authorities below,  no interference  should be called for by  the High Court. Under these circumstances, we do not find  any error or legal infirmity in the order of the Tribunal so  as to warrant interference."
12. In   the   result,   we   find   no   substance   in   the   appeal,  same is therefore, dismissed.

(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) raghu Page 10 of 10